Is Amazon Taking Over the Book Business?

This story has been updated since publication in TIME magazine.

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Cayla Kluver was 14 when she wrote her first novel. It's a fantasy novel called Legacy, and it's about a certain Princess Alera of Hytanica who's being forced to marry the handsome but obnoxious Lord Steldor when she's really interested in the handsome but mysterious Narian, who hails from Hytanica's bitter enemy, Cokyri.

When she was 15, Kluver and her mom, who live in Wisconsin, formed their own publishing company to publish Legacy. Sales were modest, but the book attracted some rave reader reviews on Amazon.com At 16, when most authors are years away from getting their first big break, Kluver is getting her second: this August, Amazon is going to relaunch Legacy on a grand scale.

The whole story is practically a fantasy: Amazon plucked Kluver out of obscurity to be the first author in its Amazon Encore program, which takes worthy but overlooked books and republishes them for a wider audience. But there's something odd about it too. If Amazon is a bookstore, it's supposed to be buying from publishers, not competing with them. Right? (See the 50 best websites of 2008.)

Except it isn't just a bookstore. As numerous publishing journalists and bloggers have pointed out, Amazon has diversified itself so comprehensively over the past five years that it's hard to say exactly what it is anymore. Amazon has a presence in almost every niche of the book industry. It runs a print-on-demand service (BookSurge) and a self-publishing service (CreateSpace). It sells e-books and an e-device to read them on (the Kindle, a new version of which, the DX, went on sale June 10). In 2008 alone, Amazon acquired Audible.com a leading audiobooks company; AbeBooks, a major online used-book retailer; and Shelfari, a Facebook-like social network for readers. In April of this year, it snapped up Lexcycle, which makes an e-reading app for the iPhone called Stanza. And now there's Amazon Encore, which makes Amazon a print publisher too.

No question, Amazon is the most forward-thinking company in the book business. If there's a Steve Jobs of books, it's Amazon's founder, Jeff Bezos. His vision is defining the way books will be bought and sold and written and read in the digital world — which is to say, the world. The question is whether there will be room in it for anyone besides Amazon.

The Perils of Verticality
If you're a reader, you probably consider Amazon your friend. And it is. It recommends books to you and gets them to your door for cheap. But try shifting your point of view to that of a publisher and Amazon starts looking a bit scarier.

The Amazonians are really good at selling books online, and publishers love them for it. But because Amazon is so much better than anybody else at selling books online — last year, it owned 43% of that market, according to the bibliographic-information company R.R. Bowker — it has a lot of power at the negotiating table. All retailers get discounts from their wholesalers, but some publishers think the discounts Amazon asks for are getting too deep. "They're fast approaching the point where we just can't afford to do business with them," says a well-known New York book editor, who asked not to be identified. "It'll be interesting to see what happens then."

Publishing is a genteel business, and publishers aren't used to playing hardball. Amazon is, and it does. "I think it's fair to say there's some tension," says Jim Milliot, business and news director at Publishers Weekly. "They're the dominant online retailer. Publishers really aren't in the position to argue. Or to fight back." Last year, in a widely publicized scuffle, Amazon disabled its "Buy now with 1-click" button for some books published by Hachette's U.K. division after the companies disagreed about sales terms.

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