Amazon and the Engagement Economy (repost)

I posted this last May on our old site. While looking at it again, I thought it was worth bringing it over to the new CCSP website, since it talks to an issue that keeps coming up in the popular media: that Amazon has it in for the book industry. Saying so, I think, misses the larger point.

Earlier this month (May 2012), Farhad Manjoo blogged over at Pandodaily that “Nobody Seems to Understand What Jeff Bezos is Doing. Does He?” I think it’s fair to say that Jeff Bezos, along with rest of the decision makers at Amazon, have a very good idea what they’re doing. The fact that it is not clear to many others—particularly in the publishing industry—is also apparent. The amount of ink spilled in recent months about Amazon’s seemingly predatory practices, their disregard for traditional industry practices and values, and even their penchant for “evil,” speaks to an environment where some very divergent things are afoot.

Rather than Amazon actually being in league with the devil, it makes more sense to see these discourses as evidence that there’s a big, big shift underway. Thomas Kuhn explained that paradigmatic shifts tend to leave people on one side or another of a shift in perspective: an “incommensurable” difference, or one that is irreducible to any kind of common terms. I think that’s where Amazon has gone, at least with respect to the traditional publishing buisness. They’ve levelled up.

O’Reilly’s Joe Wikert wrote, “Make no mistake about the fact that Amazon would love to see ebook pricing approach zero,” and then proceeded to speculate about a near future of in-book advertising. Now, a quick way to enrage traditionalist book lovers is to suggest that we’ll soon see ads in books (despite the fact that there’s really nothing new about this idea at all). The spectre that haunts us is that somehow a loud and garish Tide detergent commercial will suddenly jump out of the novel we’re reading, but really, it probably won’t look anything like that.

I daresay “advertisements in books” is actually the wrong way to frame it. What Amazon really wants to do is not “ads in books,” it’s cross-marketing all the other goods and services they offer—which is what really smart, effective product promotion has always been about. But I think that given this much larger business model, it does indeed make sense for Amazon to be interested in lower and lower book prices, even to the point of giving it away for free.

That said, it misses the point to frame this in terms of “giving the book away for free so that they can sell ads.” Or even the (tiresome) “give away the razor and sell the blades” analogy. Both of these models are from the 20th century, from a world of mass markets, mass industrial manfacturing, and relatively scarce media and information. We don’t live in that world anymore.

What Amazon wants from books is your relationship to them. They’re touchpoints. If Amazon is in a position to provide reading experiences to people (along with listening experiences, viewing experiences, shopping experiences, etc.), then they are able to sustain and nurture an ongoing relationship with you. It’s about engagement, not about product, because that’s the currency of the world we live in now.

The engagement economy

On Brian O’Leary’s nod (in The Opportunity in Abundance) I recently read Jane McGonigal’s book, Reality is Broken, which talks about what we can learn from the success of games and the gaming world. Jane McGonigal talks about the “engagement economy,” an extraordinarily fertile concept that O’Leary picked up on, and that I think bears much more contemplation.

The idea of an “engagement economy” goes an important step farther than Herbert A Simon’s classic notion of an “attention” economy. In Simon’s original formulation,

…in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it. (Simon 1971, pp. 40–41).

But where “attention” is a blunt instrument—non-hierarchical, one-dimensional, a currency which we either pay or we don’t pay—“engagement” has depth, dimensionality, and is a matter of degree. We “engage” to a greater or lesser extent with all the things we pay attention to, and it is the degree and nature of engagement which is precisely the key factor.

In McGonigal’s 2008 article for the Institute for the Future, “Engagement Economy: The Future of Massively Scaled Collaboration and Participation”, she explains that

…in the economy of engagement, it is less and less important to compete for attention, and more and more important to compete for things like brain cycles and interactive bandwidth – (p2)

McGonigal admonishes: “mass collab developers will have to learn how to optimize participation bandwidth” (p6), which she calls the “commodity of engagement economies.” McGonigal goes on to enumerate the key factors of managing engagement: the emotional incentives media and experiences offer participants, the diversity of rewards and motivations across a community, arranged in what she calls a “pyramid of participation,” and the value of flow, fun, and personal meaningful activity. This is a picture significantly more rich and evocative than one of a zillion information sources all clamoring for eyeballs.

What matters in the 21st-century economy

If the new scarcity in the age of the Internet is engagement, then it makes sense that the companies who are desperately trying to gather information about you, hook you in, and make you dependent and/or loyal (you know who they are) are the ones who are acting most sanely in the new environment.

In other words, Amazon has figured this out already, and are succeeding because of it (or at least making very large bets on it). Amazon, I believe, does not care about the price of a book. They do not care, beyond finding the price that maximizes your engagement with them—it may be zero, or it may be that a recognizable pricepoint does a better job in certain circumstances. Brian O’Leary suggested that Amazon’s been doing nothing but price-testing all along. But we need to understand that this isn’t price testing in pursuit of the revenue-maximizing potential of book sales. Rather it is about the engagement-maximizing potential of a wide variety of touchpoints. Book sales were the vanguard, but think about the range of things Amazon offers: not just books and other media (for sale and to lend), but electronics, clothing, used and consignment items, self-publishing and marketing services, server and computing capacity, and a even a decent social network arranged around reviews.

It’s not about the books. It’s not about the price of books. It’s not about the book trade in any recognizable sense. Publishers need to understand this, and stop trying to make sense of Amazon as a traditional supply-chain partner; attempts to do so lead to bizarre Satanic conspiracy theories.

What it is about, which is to say the business Amazon is really in—and has always been in, if you look at the history of innovation coming out of the company since the late 90s—is a whole new model of what we used to call “customer relations management.” But Amazon has taken this to a whole new level. They want you for life. They want to be your conduit to a whole universe of things that matter to you.

Because the real commodity for Amazon is your long-term engagement with them, they’re willing to play all sorts of games with pricing and access that make no sense in a traditional business model. So it’s really not about pricing ebooks in order to sell Kindles, nor is it pricing Kindles to develop the market for ebooks. It’s neither of those things. Both books and Kindles are touchpoints on a much wider and longer-term spectrum of engagement. The price or volume of an individual title is irrelevant to Amazon; they’re making marketing decisions across a much larger whole, across massive patterns of behaviour.

Douglas Rushkoff, in his excellent little book, Program or Be Programmed,writes:

On the net, everything is occurring on the same abstracted and universal level. Survival in a purely digital realm–particularly in business–means being able to scale, and winning means being able to move up one level of abstraction beyond everyone else. (p68)

…“scaling up” means cutting through the entire cloud in one direction or another: becoming all things to some people, or some things to all people. (p69)

Amazon has levelled up. They’re not playing the same game as the publishing industry. The traditional rules don’t make sense at this higher level of abstraction. The sooner we begin to appreciate this, the sooner we can stop tearing our hair out about it.

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* Wikipedia tells me the source is Simon, H. A. (1971), “Designing Organizations for an Information-Rich World”, in Martin Greenberger, Computers, Communication, and the Public Interest, Baltimore, MD: The Johns Hopkins Press.

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