In the bricks-and-mortar world, competition and pricing are relatively straightforward relationships. If you spend the money to open a supermarket sized bookstore next to a competing supermarket sized bookstore, casual customers are as likely to enter your store as the long established competitor and to shop on price. More frequent buyers may be enrolled in various customer loyalty programs that offer them discounts or other perks for remaining loyal, but even they are fairly likely to stick their heads in the door just to see what you have to offer. There’s very little tying the customer to the retailer because the product, a book, is a self contained platform for delivering content. The only physical tie between books and retailers comes if a retailer has exclusive rights to a printing, and the customer wants to purchase a series of books that will create a particular aesthetic on the shelf.
Unified publishing theory has always been based on the notion of customer loyalty. Many of the assumptions that go into publishing business models assume customer loyalty to the author, to the brand, even to the press in special cases. A publisher’s backlist played the role of gravity, bending space around the publisher’s frontlist and making it easier to introduce new titles and authors, therefore drawing in the authors who attract readers. The forces that held the publishing universe together worked with large numbers, averages, digesting and smoothing out trends and shooting stars. Then along came Amazon, and the picture began to change radically. The Amazon model of cookie based one-click buying, free shipping with a premium option for serious shoppers, a robust platform for reviews and aggressively matching competitors prices without being asked, has altered the publishing universe. Amazon has successfully tied billions of strings between itself and its customers, giving it tremendous leverage with publishers and putting incredible pressure on competing book retailers. While unified publishing theory described the static publishing model of the 20th century. Amazon string theory describes the publishing business of the Internet Age.
With Amazon, we have a terrific example of a company that looked to the future and decided that the way to protect their own near-monopoly was to be first out with their own displacement technology. In one sense, the endgame for Kindle is to be an Amazon 1.0 killer, to disrupt and eventually push aside the core Amazon model of selling paper books by mail. The Amazon 1.0 model was so effective that it changed the economics of publishing for all of the major players: authors, publishers, printers and retailers. The Amazon 2.0 model, Kindle, didn't have much potential to financially impact the publishing landscape in its first two years of life because whatever you thought about the technology, its market penetration was relatively low. While publishers, early adopters and some heavy readers flocked to the device, there was never any reason to assume it would become popular with the general public who account for the majority of book sales by purchasing a few books a year. The economics of a dedicated hardware reader just don't make sense for the infrequent book buyer.
But the release of the Kindle reader for PC and Mac changes the economics of Amazon's eBook effort in a fundamental way. Today, customers shopping for books will have to consider price and convenience in every purchasing decision when a Kindle version is available. Since Amazon customers are all computer owners, or at least have access to a computer, they are now only a brief, free software installation away from being able to choose a Kindle version. That installation will tie a whole new generation of strings between Amazon and its customers, but it’s a problem for publishers. The only real competition Amazon has in the unified publishing space is Barnes&Noble, whose new eReader, brand, and existing platforms give them a chance to convince publishers and customers that they at least remain an option. Barnes&Noble also surpasses Amazon in at least one direction, that of publishing their own original books for sale in their stores, and that doesn’t earn them any brownie points with competing publishers.
I began running a Kindle experiment a few months ago, “giving away” the Kindle version of my publishing book for $1.95, and it tripled the sales over the last three months (my apologies to the correspondent I told it had little impact, I hadn’t been paying attention). But that tripling of sales led to a 40% decline in Kindle revenue for that eBook, and worse, it seemed to have had a negative impact on paper sales. Now that Amazon is making that “give away” available to everybody, I’ve submitted a price increase back up to the paper book price, though a few days have gone by without the change taking effect. Publishers of newspapers and magazines who adopted the Kindle platform and priced their publications in accordance the assumption that Kindles aren't common enough to eviscerate their print economics are so far excluded from the new PC and Mac reader programs.
As I wrote back in 2005 when I first noted that Amazon was on the way to competing directly with publishers on public domain books in print-on-demand, "Now that they own the cow, the milking machine and the distribution, the economics would be interesting." With Kindle, Amazon has taken it a step further to own a space in your home, be it the Kindle reader or the Kindle application on your computer, for the exclusive use of Amazon products. I tend to believe that gravity is working in Amazon’s favor, I just hope they don't turn into the black hole of publishing. In the meantime, keep your eyes peeled for publishing supernovas, companies throwing every last dollar into one brief burst of unsustainable activity before collapsing in on themselves and their industry creditors to become white dwarfs of bankruptcy.