I've written before on The Future Of Books and how the publishing industry is in peril. The latest move from Amazon is apparently terrorizing the publishers and with good reason. According to articles in the New York Times and TechFlash, Amazon is recruiting authors—including established authors—directly and cutting out the traditional publishing houses. In some cases even agents are getting cut out of the loop. Talk about disintermediation.
Amazon appears to be serious about this. They've hired former agent and publisher Laurence J. Kirshbaum to head their publishing division. The Times reports that they paid Penny Marshall $800,000 for a memoir, which they will publish both as an ebook and a traditional dead tree book. If you Google amazon imprints you'll see that Amazon is regularly adding imprints.
It's often been said that the only necessary players in the publishing game are the writers and the readers. With this move, Amazon has reduced the chain to only 3 links. Cory Doctorow has already demonstrated that it's possible to reduce that chain to just the two necessary links but most authors won't have the skills or desire to do everything themselves and even Doctorow uses Amazon's print-on-demand service to help with distribution. If Amazon offers authors more than the typical 15% of sale price, they could cut into the publisher's business in a serious way.
What can the traditional publishers do? I don't know but they are certainly going to have to change their business models and their relationships with their authors. They could—finally—learn from the music industry and get rid of DRM on ebooks. They could stop pretending that printing and shipping is essentially free and sell ebooks directly to consumers at a decent price. They could cut deals with Apple and other Amazon competitors to offer their entire catalogs in ebook format. Most of all, they must come to grips with the reality that printing press is rapidly becoming a thing of the past. The threat to their traditional business model is no longer theoretical; Amazon is storming the ramparts in a very real way.