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Amazon is a global superstore, like Walmart. It’s also a hardware manufacturer, like Apple, and a utility, like Con Edison, and a video distributor, like Netflix, and a book publisher, like Random House, and a production studio, like Paramount, and a literary magazine, like The Paris Review, and a grocery deliverer, like FreshDirect, and someday it might be a package service, like U.P.S. Its founder and chief executive, Jeff Bezos, also owns a major newspaper, the Washington Post. All these streams and tributaries make Amazon something radically new in the history of American business. Sam Walton wanted merely to be the world’s biggest retailer. After Apple launched the iPod, Steve Jobs didn’t sign up pop stars for recording contracts. A.T. & T. doesn’t build transmission towers and rent them to smaller phone companies, the way Amazon Web Services provides server infrastructure for startups (not to mention the C.I.A.). Amazon’s identity and goals are never clear and always fluid, which makes the company destabilizing and intimidating.
Bezos originally thought of calling his company Relentless.com—that U.R.L. still takes you to Amazon’s site—before adopting the name of the world’s largest river by volume. (If Bezos were a reader of classic American fiction, he might have hit upon Octopus.com.) Amazon’s shape-shifting, engulfing quality, its tentacles extending in all directions, makes it unusual even in the tech industry, where rapid growth, not profitability, is the measure of success. Amazon is not just the “Everything Store,” to quote the title of Brad Stone’s rich chronicle of Bezos and his company; it’s more like the Everything. What remains constant is ambition, and the search for new things to be ambitious about.
It seems preposterous now, but Amazon began as a bookstore. In 1994, at the age of thirty, Bezos, a Princeton graduate, quit his job at a Manhattan hedge fund and moved to Seattle to found a company that could ride the exponential growth of the early commercial Internet. (Bezos calculated that, in 1993, usage climbed by two hundred and thirty thousand per cent.) His wife, MacKenzie, is a novelist who studied under Toni Morrison at Princeton; according to Stone, Bezos’s favorite novel is Kazuo Ishiguro’s “The Remains of the Day,” which is on the suggested reading list for Amazon executives. All the other titles, including “Sam Walton, Made in America: My Story,” are business books, and even Ishiguro’s novel—about a self-erasing English butler who realizes that he has missed his chance at happiness in love—offers what Bezos calls a “regret-minimization framework”: how not to end up like the butler. Bezos is, above all things, pragmatic. (He declined to be interviewed for this article.)
It wasn’t a love of books that led him to start an online bookstore. “It was totally based on the property of books as a product,” Shel Kaphan, Bezos’s former deputy, says. Books are easy to ship and hard to break, and there was a major distribution warehouse in Oregon. Crucially, there are far too many books, in and out of print, to sell even a fraction of them at a physical store. The vast selection made possible by the Internet gave Amazon its initial advantage, and a wedge into selling everything else. For Bezos to have seen a bookstore as a means to world domination at the beginning of the Internet age, when there was already a crisis of confidence in the publishing world, in a country not known for its book-crazy public, was a stroke of business genius.
In 1995, in Chicago, Bezos manned an Amazon booth at the annual conclave of the publishing industry, which is now called BookExpo America. Roger Doeren, from a Kansas City store called Rainy Day Books, was stopped short by Amazon’s sign: “Earth’s Biggest Bookstore.” Approaching Bezos, he asked, “Where is Earth’s biggest bookstore?”
“Cyberspace,” Bezos replied.
“We started a Web site last year. Who are your suppliers?”
“Ingram, and Baker & Taylor.”
“Ours, too. What’s your database?”
“ ‘Books in Print.’ ”
“Ours, too. So what makes you Earth’s biggest?”
“We have the most affiliate links”—a form of online advertising.
Doeren considered this, then asked, “What’s your business model?”
Bezos said that Amazon intended to sell books as a way of gathering data on affluent, educated shoppers. The books would be priced close to cost, in order to increase sales volume. After collecting data on millions of customers, Amazon could figure out how to sell everything else dirt cheap on the Internet. (Amazon says that its original business plan “contemplated only books.”)
Afterward, Doeren told his partner at Rainy Day Books, Vivien Jennings, “I just met the world’s biggest snake-oil salesman. It’s going to be really bad for books.”
Before Google, and long before Facebook, Bezos had realized that the greatest value of an online company lay in the consumer data it collected. Two decades later, Amazon sells a bewildering array of products: lawnmowers, iPods, art work, toys, diapers, dildos, shoes, bike racks, gun safes, 3-D printers. Amazon’s code of corporate secrecy is extreme—it won’t confirm how many Seattle employees it has, or how many Kindle e-readers have been sold—so it’s impossible to know for sure, but, according to one publisher’s estimate, book sales in the U.S. now make up no more than seven per cent of the company’s roughly seventy-five billion dollars in annual revenue.
Origins, though, leave lasting marks, and Amazon remains intimately tangled up in books. Few notice if Amazon prices an electronics store out of business (except its staff); but, in the influential, self-conscious world of people who care about reading, Amazon’s unparalleled power generates endless discussion, along with paranoia, resentment, confusion, and yearning. For its part, Amazon continues to expend considerable effort both to dominate this small, fragile market and to win the hearts and minds of readers. To many book professionals, Amazon is a ruthless predator. The company claims to want a more literate world—and it came along when the book world was in distress, offering a vital new source of sales. But then it started asking a lot of personal questions, and it created dependency and harshly exploited its leverage; eventually, the book world realized that Amazon had its house keys and its bank-account number, and wondered if that had been the intention all along.
Recently, Amazon even started creating its own “content”—publishing books. The results have been decidedly mixed. A monopoly is dangerous because it concentrates so much economic power, but in the book business the prospect of a single owner of both the means of production and the modes of distribution is especially worrisome: it would give Amazon more control over the exchange of ideas than any company in U.S. history. Even in the iPhone age, books remain central to American intellectual life, and perhaps to democracy. And so the big question is not just whether Amazon is bad for the book industry; it’s whether Amazon is bad for books.
In the nineteen-nineties, a different leviathan held publishers and independent bookstores in its grasp: chain stores, led by Barnes & Noble. When Amazon emerged, publishers in New York suddenly had a new buyer that paid quickly, sold their backlist as well as new titles, and, unlike traditional bookstores, made very few returns. Publishers must buy back unsold inventory from retailers, an archaic and costly practice that one ex-Amazon employee called “an absurdly inefficient model, worse than my uncle sending his laundry home from college.”
John Sargent, who is the chief executive of Macmillan, first met Bezos in the mid-nineties, at a hotel in Washington, D.C. “He was this incredibly energetic guy,” Sargent said. “I thought it was a really good idea.” Jane Friedman, who was then an associate publisher at Knopf, and subsequently ran HarperCollins, said of Bezos, “I was completely taken with him. He was a skinny kid, he was young, he was excitable, and he was completely serious about what he was doing. I drank the Kool-Aid.”
Amazon’s revenue multiplied every year. In the late nineties, an Amazon vice-president named Mary Morouse e-mailed her colleagues after a trip to visit publishers in New York. “We are certainly popular with them,” she wrote. “They rave about Amazon.com—both as a store/service and a great way to market books. There were several examples cited where Amazon.com ‘made’ titles. And they love our sales numbers.”
Publishers weren’t troubled that Amazon sold their books at dramatic discounts. They all wanted to collaborate with the Seattle upstart, and they used Amazon as an information resource; it was a vast improvement over the old green-bound copies of “Books in Print.” A New York marketing executive told me, “When Amazon came into the picture, metadata”—code numbers, Library of Congress categories, search keywords—“became an integral part of books.” A few farsighted publishers wondered if Amazon would eventually control so much of the market that it would stop selling books at cost and raise prices to become more profitable.
By 1997, when the company went public, Amazon’s book inventory could have filled six football fields. But someone who read Bezos’s year-end letter to shareholders might well have thought that Amazon’s eight-hundred-and-thirty-eight-per-cent sales growth had been in shoes, since he barely mentioned books. In the letter, Bezos noted tersely, “We are planning to add music to our product offering.” (Unlike Jobs, Bezos wasn’t a passionate listener: he once agreed to be interviewed for a program about the Beatles, and when employees, prepping the boss, asked him to name a favorite Beatles tune, Bezos chose “America,” by Simon & Garfunkel.) Soon after music came DVDs and consumer electronics. A New York literary agent told me that books were Amazon’s version of “a gateway drug.”
Sargent said that Bezos’s ambition was apparent to him from the beginning—“My God, he drives hard.” But he couldn’t see Bezos’s master plan “for shit.” “He was already going to be the Everything Store,” Sargent said when we met in his trapezoidal office, in the narrow wedge of the Flatiron Building. “I thought he was just a bookstore, stupid me. Books were going to be the way to get the names and the data. Books were his customer-acquisition strategy.” As long as Amazon kept growing like mad, investors would pour in money and Wall Street wouldn’t pay much attention to profits. (The company didn’t have a profitable quarter until 2001, and still struggles to stay in the black.)
In the mid- to late nineties, Bezos hired two dozen writers and editors to produce copy for the Web site. One of them—Amazon employee No. 55—was a cultural critic from New York named James Marcus, who, in turn, brought in his friend Kerry Fried, who edited his pieces at the Village Voice. (She had also worked at several New York publishers and at The New York Review of Books.) For these refugees from New York, where jobs in publishing and journalism were already beginning to thin out, Amazon offered the thrill of working at a rising power, with stock options and an enormous audience.
Marcus edited the home page, which was visited by at least thirty million people a day. Under the rubric “Books Favorites,” he and his staff often promoted novels that needed a push to claim an audience, such as Myla Goldberg’s “Bee Season.” Marcus wrote hundreds of short book reviews and thousands of descriptive blurbs; Fried, who edited the Literature and Fiction section with Marcus, posted interviews with authors, including Penelope Fitzgerald and Stanley Kunitz. In 2004, Marcus, now the executive editor of Harper’s, published a wry, bittersweet memoir of his experience, “Amazonia.” He told me, “It was useful to Amazon, as a business strategy, to convey the feeling of your beloved indie bookstore, full of hip, book-loving people.”
Readers, especially isolated ones, adored Amazon. “We heard from people all the time,” Marcus said. “ ‘I live in some Podunk town, the nearest bookstore is a hundred miles from my house, and now I can get the most obscure book.’ ” Marcus asked Toni Morrison to do an interview. “I’m happy to talk,” she told him. “I hear you’re selling more books than anyone in the history of the world.”
In “Amazonia,” Marcus describes Bezos’s “anticharismatic charisma, which would have mortified a Great Man of a century ago but seemed just right for our nerd-driven meritocracy.” In those years, Bezos joined his staff for the round-the-clock work of “picking” and shipping books at warehouses during the holiday season. One day in 1997, Fried went into the company kitchen and found him absorbed in assembling an ant farm. “He had a lot of curiosity,” she said. “I keep hearing about Jeff’s temper, but I have to say I never witnessed it. He was really pleasant and fun.” His ambition sometimes had an idealistic cast: he wanted Amazon to warehouse two copies of every book ever printed, an unrealized dream grandly called the Alexandria Project.
At Amazon, original writing wasn’t even called “content.” It was known as “verbiage,” simplified to “verbage.” Amazon’s writers and editors formed a counterculture that never fit easily in a company ruled by computer engineers and M.B.A.s, who valued data most and believed only in measurable truths. “The key to understanding Amazon is the hiring process,” one former employee said. “You’re not hired to do a particular job—you’re hired to be an Amazonian. Lots of managers had to take the Myers-Briggs personality tests. Eighty per cent of them came in two or three similar categories, and Bezos is the same: introverted, detail-oriented, engineer-type personality. Not musicians, designers, salesmen. The vast majority fall within the same personality type—people who graduate at the top of their class at M.I.T. and have no idea what to say to a woman in a bar.”
The humanists at Amazon brought a strain of intellectual irony that set them apart from the company’s cult of relentlessness. Bezos closed annual reports to shareholders with an exhortation to experiment and to fight complacency: “This is still Day 1.” Marcus and Fried joked about writing a novel that would begin, “It was Day 1. Again.” (Amazon recently began publishing a literary magazine for its Kindle device: Day One.)
One important way that Bezos’s writers and editors differed from the tech and business people was in their gentler attitude toward book publishers. Even when Amazon’s entire business was in books, and its relations with publishers were fairly good, it nurtured a certain impatience with New York houses that supplied the products it sold. Mary Morouse’s account of her trip east in 1999 reported, “I had one S.V.P. of sales tell me, ‘We like any account who is growing faster than we are, but we don’t really forecast that way.’ When I asked him how much they are growing, he said ‘I don’t know. I think we were flat last year.’ That gives you some idea of the level of business focus.” According to Marcus, Amazon executives considered publishing people “antediluvian losers with rotary phones and inventory systems designed in 1968 and warehouses full of crap.” Publishers kept no data on customers, making their bets on books a matter of instinct rather than metrics. They were full of inefficiences, starting with overpriced Manhattan offices. There was “a general feeling that the New York publishing business was just this cloistered, Gilded Age antique just barely getting by in a sort of Colonial Williamsburg of commerce, but when Amazon waded into this they would show publishing how it was done.”
During the 1999 holiday season, Amazon tried publishing books, leasing the rights to a defunct imprint called Weathervane and putting out a few titles. “These were not incipient best-sellers,” Marcus writes. “They were creatures from the black lagoon of the remainder table”—Christmas recipes and the like, selected with no apparent thought. Employees with publishing experience, like Fried, were not consulted. Weathervane fell into an oblivion so complete that there’s no trace of it on the Internet. (Representatives at the company today claim never to have heard of it.) Nobody at Amazon seemed to absorb any lessons from the failure. A decade later, the company would try again.
Amazon was a megastore, not an indie bookshop, let alone a literary review, and its writers were under pressure to prove that their work produced sales. If a customer clicked on a review or an interview, then left the page without making a purchase, it was logged as a Repel. Marcus was informed that his repulsion rate was too high. “Nobody ever felt safe,” Fried said of her editorial colleagues. “I took home my Rolodex every day.”
Book retailers, such as Barnes & Noble, negotiate “co-op,” or coöperative promotional fees, from publishers in exchange for prominent product placement. It’s a way for a retailer to get a larger discount without violating the 1936 Robinson-Patman Act, which prohibits producers from offering price advantages to favored retailers. Although co-op fees weren’t “dreamed up by Amazon,” Marcus told me, “Amazon proved to be particularly good at squeezing this money out of publishers.” Publishers paid ten thousand dollars for a book to be prominently featured on the home page. They never knew exactly how much these payments helped sales, and negotiations over them became tense. (In a statement, Amazon said, “As a general practice, we don’t discuss our business negotiations with publishers.”)
Each category within Amazon’s Books division had to collect co-op fees, and revenue targets rose steeply. In 1999, the company received $3,621,250 in co-op fees; the goal for 2000 was set at $9.25 million. When Marcus asked if publishers should be given sales targets in exchange for their payments, Lyn Blake, the executive who had created the co-op program, said no, adding, “Look, it’s the cost of doing business.” The editorial staff was reminded that the money, unlike the receipts on sold books, went straight to Amazon’s bottom line. Judgments about which books should be featured on the site were increasingly driven by promotional fees.
Around this time, a group called the “personalization team,” or P13N, started to replace editorial suggestions for readers with algorithms that used customers’ history to make recommendations for future purchases. At Amazon, “personalization” meant data analytics and statistical probability. Author interviews became less frequent, and in-house essays were subsumed by customer reviews, which cost the company nothing. Tim Appelo, the entertainment editor at the time, said, “You could be the Platonic ideal of the reviewer, and you would not beat even those rather crude early algorithms.” Amazon’s departments competed with one another almost as fiercely as they did with other companies. According to Brad Stone, a trash-talking sign was hung on a wall in the P13N office: “people forget that john henry died in the end.” Machines defeated human beings.
In December, 1999, at the height of the dot-com mania, Time named Bezos its Person of the Year. “Amazon isn’t about technology or even commerce,” the breathless cover article announced. “Amazon is, like every other site on the Web, a content play.” Yet this was the moment, Marcus said, when “content” people were “on the way out.” Although the writers and the editors made the site more interesting, and easier to navigate, they didn’t bring more customers. One day, Fried discovered a memo, written by a programmer and accidentally left on a printer, which suggested eliminating the editorial department. Anne Hurley, the editor-in-chief of the DVD and Video section, was viewed dismissively by her boss, Jason Kilar, who went on to run the video-streaming company Hulu. He told her, “I’m sorry, Anne, I just don’t see what value you add.” (Kilar denies saying this.)
In July, 2000, Bezos sent out a company-wide e-mail with the subject line “Smile, remember it’s Day 1, and let’s kick some butt.” Several months earlier, the bubble had burst, and Amazon’s overcapitalized share price was plunging. For the first time, Wall Street lost faith in the company, and Bezos announced that the next eighteen months would be devoted to making “serious profits.” Marcus and Fried quit before they could be laid off. Tim Appelo took Marcus’s place. “I was the last human editor of the home page,” he told me. “By the time I got there, it was only partly human.” By 2002, the home page was fully automated. (Today, eight editors select titles to be featured on the Books page, and if you scour the site you can find a books blog, Omnivoracious, but its offerings seem marginal to the retail enterprise.) Editorial content had served its purpose, just as selling books had served its purpose, and Amazon’s conquistadores galloped onward.
The fact that Amazon once devoted significant space on its site to editorial judgments—to thinking and writing—would be an obscure footnote if not for certain turns in the company’s more recent history. According to one insider, around 2008—when the company was selling far more than books, and was making twenty billion dollars a year in revenue, more than the combined sales of all other American bookstores—Amazon began thinking of content as central to its business. Authors started to be considered among the company’s most important customers. By then, Amazon had lost much of the market in selling music and videos to Apple and Netflix, and its relations with publishers were deteriorating. These difficulties offended Bezos’s ideal of “seamless” commerce. “The company despises friction in the marketplace,” the Amazon insider said. “It’s easier for us to sell books and make books happen if we do it our way and not deal with others. It’s a tech-industry thing: ‘We think we can do it better.’ ” If you could control the content, you controlled everything.
Many publishers had come to regard Amazon as a heavy in khakis and oxford shirts. In its drive for profitability, Amazon did not raise retail prices; it simply squeezed its suppliers harder, much as Walmart had done with manufacturers. Amazon demanded ever-larger co-op fees and better shipping terms; publishers knew that they would stop being favored by the site’s recommendation algorithms if they didn’t comply. Eventually, they all did. (Few customers realize that the results generated by Amazon’s search engine are partly determined by promotional fees.) Sales meetings in Seattle were now all about payments, not new books, and the size of orders was predicated on algorithms, rather than on the enthusiasm of the publishers’ sales staff and Amazon’s own buyers, who were rebranded as “inventory managers.” Brad Stone describes one campaign to pressure the most vulnerable publishers for better terms: internally, it was known as the Gazelle Project, after Bezos suggested “that Amazon should approach these small publishers the way a cheetah would pursue a sickly gazelle.” (Company lawyers later changed the name to the Small Publisher Negotiation Program.)
“The Gazelle Project—that was me,” Dennis Johnson, a co-owner of Melville House, a small publisher with offices on the Brooklyn waterfront, said. Melville House puts out quality fiction and nonfiction, including “Debt: The First 5,000 Years,” by the anarchist anthropologist David Graeber; “The Flight of the Intellectuals,” by Paul Berman; and translations of the German novelist Hans Fallada. In 2004, when Melville House was just getting started, Johnson’s distributor called him and described his negotiations with Amazon as being “like dinner with the Godfather.” Amazon wanted a payment without having to reveal how many Melville House books were sold on the site. (Amazon rarely makes its sales figures public, using bar graphs without numbers in presentations.) “ ‘Fuck you’ was my attitude,” Johnson said. “ ‘They’re bluffing—I’m going to call their bluff.’ I’m a working-class kid. I come at this from ‘This is my company, you don’t come in here.’ ” Johnson, who remains one of the few people in publishing willing to criticize Amazon on the record, contacted reporters, and Publishers Weekly ran a story. By the next day, the buy buttons had disappeared from Melville House’s titles on Amazon.com. Not long afterward, the Book Expo was held at the Javits Center, in Manhattan. Two young men in suits approached Melville House’s booth and pointed fingers at Johnson. “When are you going to get with the program?” they asked. The men were wearing Amazon nametags.
Before the impasse, Amazon had represented eight per cent of Melville House’s sales, more than Johnson could afford to lose. So he capitulated. “I paid that bribe”—he wouldn’t disclose the amount—“and the books reappeared.”
The process of paying co-op fees to promote individual titles grew increasingly complex, especially after Amazon began selling different levels of promotion. Without dropping co-op fees entirely, Amazon simplified its system: publishers were asked to hand over a percentage of their previous year’s sales on the site, as “marketing development funds.” Publishers dread the annual negotiation of this payoff; one of them described it as “squeezing our nuts.” The figure keeps rising, though less for the giant pachyderms than for the sickly gazelles. According to the marketing executive, the larger houses, which used to pay two or three per cent of their net sales through Amazon, now relinquish five to seven per cent of gross sales, pushing Amazon’s percentage discount on books into the mid-fifties. Random House currently gives Amazon an effective discount of around fifty-three per cent.
For a smaller house, Amazon’s total discount can go as high as sixty per cent, which cuts deeply into already slim profit margins. Because Amazon manages its inventory so well, it often buys books from small publishers with the understanding that it can’t return them, for an even deeper discount. Publishers sometimes pass on this cost to authors, by redefining royalties as a percentage of the publisher’s receipts, not of the book’s list price. Recently, publishers say, Amazon began demanding an additional payment, amounting to approximately one per cent of net sales. Once the fee was paid, publishing executives could discuss marketing strategies with Amazon staff; otherwise, they’d have to rely on the company’s algorithms. “There really are rules in play,” a former Amazon executive says. If a publisher resists when Amazon asks for a “bump” in payments, its books “can’t be promoted.”
In 2003, Amazon introduced Search Inside the Book, which allowed customers to hunt for a phrase in a book without having to buy it. Publishers warily allowed Amazon to scan some of their titles and convert the images into searchable text. They didn’t realize that they were giving Amazon a huge head start over potential competitors when it decided to go into the digital-books business.
In the mid-aughts, Bezos, having watched Apple take over the music-selling business with iTunes and the iPod, became determined not to let the same thing happen with books. In 2004, he set up a lab in Silicon Valley that would build Amazon’s first piece of consumer hardware: a device for reading digital books. According to Stone’s book, Bezos told the executive running the project, “Proceed as if your goal is to put everyone selling physical books out of a job.” Meanwhile, Amazon began pushing publishers to digitize and sign retail agreements on as many titles as possible. “Our charter was to launch with a hundred thousand books and ninety per cent of the best-seller list,” Jeff Steele, who worked on the project, said. (Steele left the company because he objected to Amazon’s heavy-handed tactics with publishers.) In late 2007, at a press conference in New York, Bezos unveiled the Kindle, a simple, lightweight device that—in a crucial improvement over previous e-readers—could store as many as two hundred books, downloaded from Amazon’s 3G network. Bezos announced that the price of best-sellers and new titles would be nine-ninety-nine, regardless of length or quality—a figure that Bezos, inspired by Apple’s sale of songs on iTunes for ninety-nine cents, basically pulled out of thin air. Amazon had carefully concealed the number from publishers. “We didn’t want to let that cat out of the bag,” Steele said.
The price was below wholesale in some cases, and so low that it represented a serious threat to the market in twenty-six-dollar hardcovers. Bookstores that depended on hardcover sales—from Barnes & Noble and Borders (which liquidated its business in 2011) to Rainy Day Books in Kansas City—glimpsed their possible doom. If reading went entirely digital, what purpose would they serve? The next year, 2008, which brought the financial crisis, was disastrous for bookstores and publishers alike, with widespread layoffs.
By 2010, Amazon controlled ninety per cent of the market in digital books—a dominance that almost no company, in any industry, could claim. Its prohibitively low prices warded off competition. The literary agent Andrew Wylie (whose firm represents me) says, “What Bezos wants is to drag the retail price down as low as he can get it—a dollar-ninety-nine, even ninety-nine cents. That’s the Apple play—‘What we want is traffic through our device, and we’ll do anything to get there.’ ” If customers grew used to paying just a few dollars for an e-book, how long before publishers would have to slash the cover price of all their titles?
Publishers looked around for a competitor to Amazon, and they found one in Apple, which was getting ready to introduce the iPad, and the iBooks Store. Apple wanted a deal with each of the Big Six houses (Hachette, HarperCollins, Macmillan, Penguin, Random House, and Simon & Schuster) that would allow the publishers to set the retail price of titles on iBooks, with Apple taking a thirty-per-cent commission on each sale. This was known as the “agency model,” and, in some ways, it offered the publishers a worse deal than selling wholesale to Amazon. But it gave publishers control over pricing and a way to challenge Amazon’s grip on the market. Apple’s terms included the provision that it could match the price of any rival, which induced the publishers to impose the agency model on all digital retailers, including Amazon.
Five of the Big Six went along with Apple. (Random House was the holdout.) Most of the executives let Amazon know of the change by phone or e-mail, but John Sargent flew out to Seattle to meet with four Amazon executives, including Russ Grandinetti, the vice-president of Kindle content. In an e-mail to a friend, Sargent wrote, “Am on my way out to Seattle to get my ass kicked by Amazon.”
Sargent’s gesture didn’t seem to matter much to the Amazon executives, who were used to imposing their own terms. Seated at a table in a small conference room, Sargent said that Macmillan wanted to switch to the agency model for e-books, and that if Amazon refused Macmillan would withhold digital editions until seven months after print publication. The discussion was angry and brief. After twenty minutes, Grandinetti escorted Sargent out of the building. The next day, Amazon removed the buy buttons from Macmillan’s print and digital titles on its site, only to restore them a week later, under heavy criticism. Amazon unwillingly accepted the agency model, and within a couple of months e-books were selling for as much as fourteen dollars and ninety-nine cents.
Amazon filed a complaint with the Federal Trade Commission. In April, 2012, the Justice Department sued Apple and the five publishers for conspiring to raise prices and restrain competition. Eventually, all the publishers settled with the government. (Macmillan was the last, after Sargent learned that potential damages could far exceed the equity value of the company.) Macmillan was obliged to pay twenty million dollars, and Penguin seventy-five million—enormous sums in a business that has always struggled to maintain respectable profit margins.
Apple fought the charges, and the case went to trial last June. Grandinetti, Sargent, and others testified in the federal courthouse in lower Manhattan. As proof of collusion, the government presented evidence of e-mails, phone calls, and dinners among the Big Six publishers during their negotiations with Apple. Sargent and other executives acknowledged that they wanted higher prices for e-books, but they argued that the evidence showed them only to be competitors in an incestuous business, not conspirators. On July 10th, Judge Denise Cote ruled in the governmen