According to Melville House the investment luster is wearing off of the never-make-a-profit elephant in the room of publishing, Amazon.

The thing with Amazon is that it made a decision early on to forego profits in exchange for continuous, rapid growth.

You know what else grows and grows without deriving any benefit for its hosts? Cancer.

Ok, I know, that was an easy shot, but with the recent closure of the World’s Biggest Bookstore I’m in a grouchy mood. World’s Biggest was just about the original big-box bookstore. And it’s not the only large bookstore closing its doors in Toronto. If even big boxes can’t survive in a post-Amazon world that bodes poorly for anybody who ever wanted to walk into a bookstore, browse for an hour and come out blinking in the sun with an unfamiliar book.

This quarter Amazon reported a profit of $108 million; but off a revenue of $20 billion that’s well below where any other company of its size would be expected to be. And Amazon is poised to lose as much as $455 million next quarter. But they’ll continue growing!

Investors have been willing to allow this mass expansion for a long while. Now they’re finally departing, and investor reluctance over Amazon has splattered over onto other major online ventures like Netflix and the big-three of social networking.

Frankly, a lot of these companies may be over-valued. The behaviour of Facebook and LinkedIn post-IPO surely points to that. But here’s the thing, Wall Street has long gambled that Amazon will eventually have All-The-Market and will thus be able to return them All-The-Money (or at least all the money in he lucrative selling physical objects or their electronic reproductions to people market).

This reckless backing has done massive damage to the book market. It was the death of Borders and Barnes and Nobles. In Canada it led Chapters Indigo to downsize its operations and to aggressively pursue integration with Kobo.

Other writers are concentrating on the risk that Amazon’s change in fortunes might pose for the tech sector – warning signs indicate it might perforate the wall of the new tech bubble. As much as I don’t want to see Netflix go the way of Pets.com, this isn’t my core concern.

What worries me is not what damage might be done by slowing Amazon’s growth, by investors forcing a change in practice where the giant is required to make a profit (you know, by doing something shocking like raising the price of books to something near what they’re worth).

What worries me instead is the damage done.

Heady investors gambled on the idea that they could promote a monopoly with Amazon. They’ve very nearly got what they wished for. And it gutted an entire industry. Melville House points out that Amazon is very likely in the “too big to fail” category of business now (and how I wish that was a concept that we could expunge from our collective consciousness). But while I can’t count on Amazon to be allowed to collapse under the weight of its own hubris, I can hope for a receding Amazon – an Amazon that doesn’t undercut the very publishers whose books it sells.

And I can hope that this will be yet another cautionary tale about the toxic nature of an economy built on the backs of naked gambling, devoid of care for the end products, the users or the content creators.