June 20th, 2014

A Few More Remarks About Monopsony

Recently, Nate Hoffelder over at the excellent The Digital Reader posted about a piece in Salon by Laura Miller. It's another example of a Hachette author coming out for the Hachette team, and it's on Salon, so it's click-baity and I won't link to it. But I will link to Nate's piece.

http://the-digital-reader.com/2014/06/19/laura-millers-salon-piece-indie-authors-amazon-hachette-shows-much-whats-gone-wrong-trad-pub-indie-pub-debate/

Nate's analysis is straightforward:

"Miller’s piece is not constructive; it is an example of how not to convince your subject to agree with you. ... Far from winning self-pub authors over to her side, this piece works to widen the divide between the subject of her piece and the people who agree with her."

And he's right.

Alone the way, he quotes part of Laura Miller's piece, and PG quotes the piece as well, here:

http://www.thepassivevoice.com/06/2014/amazon-is-not-your-best-friend-why-self-published-authors-should-side-with-hachette/

PG adds this observation, after dryly observing Miller's relationship to Hachette:

"The bigger story that PG hasn’t seen discussed anywhere is that if the Amazon negotiations result in lower net revenues on ebooks flowing to publishers, bigpub authors, who receive 25% of net on ebook sales, will receive lower royalties (and lower advances). This will inevitably accelerate the brain-drain of talented authors forsaking legacy publishing for indieworld."

So that's interesting, and may go a long way to explain why certain big name Hachette authors have conspicuously come out swinging in this dispute. It also supports Nate's suspicion that these Hachette author support pieces are in no way about changing the minds of anyone -- they are designed to keep Hachette and other TradPub authors from jumping ship. They are designed to _stop_ people from changing their mind.

While discussion has inevitably turned to the newly announced, long-awaited, and sure to annoy Amazon smartphone and its FireFly feature, I wanted to add my nickel to the discussion.

I think it is helpful to think in terms of Who Is the Buyer and Who Is the Seller, and to remember that for the most part, the reader-customer is not a participant in the transactions that matter to TradPub. Laura Miller is correct in concluding that most readers aren't going to slog through the Universal Slush Pile that is the result of digital self publishing, distributed through Amazon (and other sites). She is incorrect in concluding that very many readers need to slog through the Universal Slush Pile in order to make a difference. TradPub _had_ a (near) monopsony on authorial output: if you wanted access to US distribution, you more or less had to go through a traditional publisher and they set roughly comparable terms for purchasing your work (and authors as a class tended not to like those terms, so that right there tells you something, altho not unambiguously). We've been disintermediating them for a while, with print on demand, self pub on paper and now digital self pub. Traditional publishers are now complaining that Amazon is the Most Important Buyer of their product, putting them in the uncomfortable and often unprofitable position of selling to a powerful buyer or small group of buyers (suffering from a monopsony). Full disintermediation, as many in the self-pub camp are fond of pointing out, would involve the authors selling directly to the readers, without any of these pesky capitalists in the way (they don't use these words, typically).

Words like "monopoly" are entirely useless in this conversation, because monopolies are when there is only one place to buy something that many people want. The current debate is within a disintermediating supply chain, and the power lies with the few _buyers_. Amazon keeps pointing out (in that really annoying way that is so Uniquely Jeff) that you can buy this shit in lots of places. There is no monopoly here. There may or may not be (probably is) a monopsony, which is why commenters who say, hey, just delist your books from Amazon, are basically twisting the knife, pouring salt in the wound, kicking the publisher while down, add insult to injury metaphor here. In a monopsony situation, there isn't, really, an alternative buyer of the product you are trying to move. But here's the thing: first of all, screaming "Monopsony!" does not get people on your team, and, second of all, it's kind of not against the law. Sure, there are some edge cases, but this isn't one of them. The anti-Amazon arguments that do not amount to, hey, give me my cushy job back! all involve assuming that at some unknown future date, Amazon will behave as a monopolist to its end customers -- and get away with it. No one really believes those arguments and they are transparently self-serving ("Hey! Don't hang out with that nice person. That nice person might turn out to be abusive! Like me! You should hang out with me instead! Come back!").

If publishers had ever cared about developing their brand to the end reader vs. the bookstore/book distributor/book chain buyer, they would not be in this pickle. But they took great care _NOT_ to relate to their end reader, for fear of annoying the intermediaries who were their _actual_ buyers/customers. And then Amazon had to spoil the party by showing up and asking to move all that margin down to the end customer in the form of lower prices. Bad Amazon, disintermediating like mad, pushing down margins and ending the decades of Manhattan offices! Pouty face! I am particularly confused by commentary that suggests the Jeffism, "Your margin is my opportunity", is somehow evil.

There are no "friends" here, anywhere, as, again, many people have pointed out. There may be people you go to collect gossip from, or drink with, or meet at parties, but that is not the same as a "friend". There are buyers and sellers, and it pays to keep track of which one you are, from one transaction to the next.

I'm still waiting for antidisintermediationist to become a Term. Because there sure are a fuck ton of them in this discussion. And wouldn't _that_ be a cool thing to inflict on future school children? If you are wondering what I am talking about, I'm joking about antidisestablishmentarianism, people who wanted the CofE to remain the state church vs. disestablishmentarians. The outcome was divided (har de har har) with the CofE losing most of what it meant to be an established church (i.e. you could be nonconformist with essentially no life impact, beyond the usual and inevitable family/social disagreements) but hanging on in England, but disestablished nearly everywhere else over time. The analogy I am making implies that Amazon and its enthusiastic self-pub suppliers and some fraction of its customers are doing the publishing/retailing version of separating church and state. Obvs, in the US anyway, the book business is not "established" in the sense of state licensure/support (this isn't the case everywhere, and it'll be very interesting to see how things go in Germany and France over time). The analogy would be more along the lines of "cultural elites/general opinion" supporting traditional publishing vs. "vanity" presses (commonly and increasingly inappropriately associated with self publishing). As self publishing quits being a bunch of wackadoodles that we prevent from holding office, getting married, etc., er, having access to the book buying public as a whole ...

Look, no point in belaboring it. It's a little weak. But I still want the term antidisintermediationist out there. Because, fun!

Framing Matters: What the Hell is Going on at PBS?

http://www.pbs.org/newshour/making-sense/one-use-brokerage-accounts/

I concluded a while back that Kotlikoff was nuts and not worth paying attention to, and I wondered why he was getting so much space over at the PBS website. But this is so bad I feel compelled to point out what's wrong here and why PBS should not be covering it this way.

A few years ago, an epic scam was exposed. You probably heard about it, involving the name Madoff. The way these things work is a bunch of people invest money with someone "trustworthy" (read: charismatic in a suit, but not in a Damon Albarn sort of way, in a I'm An Accountant So You Must Trust Boring Ole Me sort of way). In the story that Kotlikoff tells, the amount is $40,000. Over the course of years, the Marks ("investors") receive "statements" that their money has "grown". They may even withdraw some, or in the case of the story, all of the money referred to in these "statements". But the statements are fiction. If they withdraw money, it is their original investment and potentially the original investments of other Marks.

Eventually, the whole thing implodes, usually due to too many Marks withdrawing all at once. Then regulators come in and attempt to make it so everyone gets made "whole", which is to say, the "investors" get back their original investment, minus a more or less even percentage loss due to the Charismatic Guy in the Suit living a high life, renting an office, buying pens and business cards and a place in the Hamptons. Also fur coats, jewels, etc. for the wife and kids who had No Idea Any of This Was Going On.

Kotlikoff, however, presents the Marks as actual investors, and the "statements" as real return on investment. No such thing! This is sort of horrible that Kotlikoff is representing these people as somehow being innocent victims, as opposed to a party to a scam. They are _both_. The money that Kotlikoff wishes they could keep has been conned out of several other pairs of "Frank and Sally" "investors". There is not enough money for all of the "Frank and Sally" "investors" in Madoff's scheme (or other schemes of a similar nature) to keep all of what their "statements" say they "earned". Someone is going to lose. The Trustee is there to make it even, to discourage people from knowingly participating, getting out early, and then feigning ignorance. See, family above.

Do we feel bad that "Frank and Sally" were chumps? Yes. Should "Frank and Sally" who were lucky enough to get out before the whole charade collapsed get to keep "Frank and Sally" who were later to the game's money? Fuck no! Should taxpayers bail out "Frank and Sally"? Different question. Not sure. I think better enforcement to catch Madoff and his scammy colleagues is probably our best bet. I don't like the idea of taxing people working for low wages to compensate "Frank and Sally", who are probably way better off than they will ever be. OTOH, if you want to tax _every_ financial transaction to fund compensating Marks, I might be in favor of it, because that might create a better self-policing incentive, so the fund can be kept small and the per transaction tax low.

In the meantime, keeping the money in a different account would not have solved the problem. The problem was that they got it from Madoff, and Madoff stole it from people like them.

Twp. of Pohatcong

On our drive down to Hershey, we stopped for gas near Phillipsburg, NJ. And while there, I realized we were in Pohatcong! Home (when the town and county had different names) of one of my Revolutionary War ancestors and a brick wall.

I was so excited! Way more excited than is justified by looking at a White Castle and a Walmart. Pohatcong!

the Christensen Effect and the iPhone

For what it is worth, I agree with the headline on this piece:

http://valleywag.gawker.com/the-guy-who-coined-disruption-is-a-total-jackass-1593900425

Christensen is old, he's male, he's Mormon and he's used to people bowing down to him. Obvs, when Jill Lepore put this out, spittle was gonna happen:

http://www.newyorker.com/reporting/2014/06/23/140623fa_fact_lepore?currentPage=all

However, because I'm autistic, I'm going to completely miss everyone's point here and focus on that iPhone prediction mentioned by Lepore:

"In 2007, Christensen told Business Week that “the prediction of the theory would be that Apple won’t succeed with the iPhone,” adding, “History speaks pretty loudly on that.” In its first five years, the iPhone generated a hundred and fifty billion dollars of revenue."

Here is the Businessweek article:

http://www.businessweek.com/stories/2007-06-15/clayton-christensens-innovation-brainbusinessweek-business-news-stock-market-and-financial-advice

It's a 10-years-after-your-book-came-out piece that mentions, among other things, that he was working with Rita Gunter McGrath, whose _The End of Competitive Advantage_ I enjoyed, but have noted limitations of. It also includes this paragraph about the iPhone. Note the date on the article: this is _before_ anyone had laid hands on an iPhone.

Long quote begins:

"But just watch the [competitors'] advertisements that you hear for the ability to download music onto your mobile phone. Music on the mobile phone has to be downloaded in an open architecture way from Yahoo! Music or someplace else [other than iTunes]. Which means it's clunkier, not as good. Mobile phones don't have as much storage capacity, nor are their interfaces as intuitive [as iPods]. But for some folks, they're good enough, and the trajectories [of people using their phone as a medium for listening to music] just keep getting better and better.

So music on the mobile phone is going to disrupt the iPod? But Apple's just about to launch the iPhone.

The iPhone is a sustaining technology relative to Nokia. In other words, Apple is leaping ahead on the sustaining curve [by building a better phone]. But the prediction of the theory would be that Apple won't succeed with the iPhone. They've launched an innovation that the existing players in the industry are heavily motivated to beat: It's not [truly] disruptive. History speaks pretty loudly on that, that the probability of success is going to be limited."

End of Long Quote.

The argument here has several components. The iPhone has not yet come out; Christensen has no idea how disruptive it really is (the Android platform is also in the future at this point, and is radically redesigned and delayed in response to what Apple shipped, because Google realized what they had been working on was hopelessly behind what Apple had produced). Instead, he is focused on existing mobile phones disrupting Apples existing iPod business. AND HE WAS RIGHT. The iPod is gone. It was disrupted in part by other phones, but it was comprehensively replaced, over time, by the iPhone.

Second, he argues that you cannot download music from iTunes -- then a PC thing only -- to a mobile phone. You have to get music from somewhere else. He does not envision Apple changing that, and it took them a while. They lost a lot of customers to Android and other platforms BECAUSE iTunes was very difficult to transition, and using it in the meantime was so infuriating that people gave up on the entire platform. So he was right there, too.

Let's keep things clear here: I still fucking loathe Christensen. But credit where credit is due. Music _was_ a viable point to attack the Apple universe. In order to deal with that attack, Apple had to transition iTunes to the mobile device (which they did). And along the way, they lost customers, because it was so awkward dealing with the legacy that they were incrementaling along. If they hadn't done a lot of hard things very, very well, in the face of relentless criticism and punishment of AAPL, they would not have succeeded. History did indeed predict the iPhone's failure. But Apple management turned out to be absolutely stellar.

Christensen's message has always been that good managers can be blindsided by technological developments that are cheaper and attractive to a new audience, but do not meet the current market's need at the time they first appear. Worse Is Better. The new audience luuuurrrvvves the new product and it gets incrementaled to a point where the old market decides it is good enough and if the existing industry isn't paying attention, they go under (c.f. Kodak). You can often purchase your way out of this problem (acquire the successful startup/disruptor) or roll-your-own-copy. You don't have to just roll over and die, and Christensen never suggested you should roll over and die. While Lepore is correct to argue that Christensen's history is weak, from a business perspective, his advice -- hey, pay attention to that crap that is selling like mad, it'll take your core business away if you aren't really careful -- has always been sound. The fact that he's sort of terrible at picking stocks speaks more to his inability to recognize the difference between ploddingly competent management and unbelievably excellent management than any failure of his thesis.

I feel mildly bad about picking on Christensen, because his current terrible behavior is probably in part driven by some health issues (diabetes, heart attack, stroke AND cancer!!!) that had an impact on his brain.

http://www.businessweek.com/articles/2012-05-03/clay-christensens-life-lessons

"The stroke killed as much as a quarter of his brain and robbed him of nearly all of his verbal ability."

OTOH, you go saying crap in public, you get what you get. I know I do.

Sweatshops and coolness

http://jezebel.com/why-dont-college-students-give-a-shit-about-sweatshops-1589003079

Lindy West reminisces about boycotting clothing stores in her college years that she couldn't shop at anyway. Why isn't it cool to boycott stuff made in sweatshops anymore? And how come we aren't stopping with the cheap shopping? Weirdly, the answer is in part supplied in the 2013 article on Jezebel by Jenna Sauers linked to at the bottom of this one: labor activists in places like Bangladesh don't _want_ you to stop buying. They want you to apply pressure to their government(s) to improve building codes and enforcement. So hey, West: go read Sauers. Not hard. Boycotts are now counterproductive, and it's not just because organized labor is weak in the USA.

I would also point out several other things that have happened since West's college days.

Mike Daisey conned This American Life -- and then they absolutely shredded him. That, right there, was probably the very, very end of using sweatshop accusations to make people feel bad/change their behavior.

Dov Charney, more recently, lost his job (finally). American Apparel was the Go To source (expensive and with a very limited size range and basically pretty skeezy) for non-sweatshop college fashion. And it turns out that the guy pushing those values might actually have been worse even than he seemed.

Finally, in the years since West was in college, the rest of the countries stable enough to have industries that ship shit to us have finished going through the demographic transition. You'll note that the child deaths associated with the sweatshop in the 2013 article were kids in the day care facility on site for employee use, not children working in the factory. And the adults working in those factories like their jobs better than not having a job, especially if that means going back to rural poverty -- they just don't want to die, so they'd like clean water, building codes, etc. so they Don't Die, which means better governance, not fewer factories.

http://jezebel.com/whats-the-solution-to-the-worlds-sweatshop-problem-511688272

West's nostalgia for the activism of her youth is not entirely novel. But it was jarring. It's always jarring when people who I am pretty sure are substantially younger than me get all nostalgic for something.