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Amazon Strings And Unified Publishing Theory

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.

7 comments:

Anonymous said...

Sorry for not being more educated on the Kindle stuff, but what are the economics? If I sell a Kindle book on Amazon, what % of the retail price do I get as the publisher?

Bryan

Morris Rosenthal said...

Bryan,

Rather than telling you (the percentage is public and appears n every fiction author's blog post about their Kindle expeiments), I'm going to tell you to sign up. It's free, and it would do you good to read the agreement since there's some chance that Kindle will play a role in your future publishing endeavors, whether you want it to or not:-)

Amazon Kindle Sign-up

Morris

Anonymous said...

Thanks Morris. Looks like it is 33% "royalty." I think its funny how they call it a royalty, like they are secretly trying to pull the wool over publishers eyes that now Amazon has become the publisher with the rights and ability to pay the royalty, while the publisher is just some slimey creature that crawled out of the yester-year dungeon of publishing to beg for King Amazon to accept his content. I digress.

At 33% royalties, publishers have a few choices, I suppose: Pretend the kindle doesn't exist and keep selling as they do, sell on the kindle and take a huge hit to profit, or sell on the kindle and jack prices way up (how far up depends on whether one uses Advantage or LSI short discounts) to the point where profits don't get hit. I tend to believe I'll go for option 1 or 3 that I just listed.

I just read an interesting blog post by Orson Scott Card, a great author of a book series I treasured as a kid. He basically said he doesn't begrudge amazon for taking a part of the profit, instead he resentes the unfair and greedy portion they take with the kindle.

I'm not convinced that e-books are going to be anywhere near mainstream for a long time, and the issue is need. Consumer's don't need or demand them, and never will until all the current generation die off and the techno kids take over, or until paper becomes so expensive that books prices have to rise. I'm even happier now than ever about having my own printed catalog and my own website, which makes me less dependent on Amazon. Of course, the LSI short discount back door could close too which would be a problem for my existing amazon sales.

Interestingly I began conducting my first wide-scale ebook experiment about a week ago. I am one of the mainstray distributors of this $99.95 book:

http://www.lymebook.com/rifehandbook

With shipping it will run you between $110 and $125 depending on what part of the world you live in. I just started selling the ebook on the website as you can see above, for $75 with no shipping. Yet the last 4 sales I've had in the last week have all been for the paper version despite the increased expense and the (if you listen to Seth Godin) "numerous disadvantages of paper books like weight, not searchable, etc". This will be an interesting experiment but so far I've only sold 1 ebook so that tells me there is a 4 to 1 ratio of people who still prefer heavy bulky hardcover books to e-books.

I don't care if amazon PAYS people to download their kindle software, I'm just not convinced it is a mainstream thing yet and won't be for years.

Consider this as well - it also probably depends on the genre you are publishing. If you are publishing programming books for teenagers, you've probably got yourself an ebook-demanding audience. If you are publishing books on show horses, I doubt your average 45 year old cowgirl living in Montana gets on her computer much and would even know where to look for the kindle software.

Which reminds me - the Amazon geniuses have to find some way to spread the word about kindle, I haven't found out much about it except through this blog and I'm a publisher for crying out loud! There is no groundswell so far, no people shouting from the roof tops that I've seen, no movement. Short of Amazon taking out major prime time TV ads (I better keep quiet lest I give them any ideas!) I just don't see how the push to go mainstream will get them over the hump from being an obscrue nerd or fanatic reader driven niche that appeals to gadget heads.

...continued...blogger won't let me post a longer comment...

Bryan

Anonymous said...

...continued...

Plus their blatant disrespect for publishers and authors needing to put food on the table will not necessarily kill the kindle, but it will delay its rise to power, I think.

And the whole idea of Amazon killing Amazon 1.0 and introducing 2.0 would be great if people cared about the 2.0, but I don't think they do. The reason Amazon works so well is they hit upon the magic formula of providing major value to their users, value users had never seen and couldn't find anywhere else. Amazon can't just hypnotize those users and convince them that now the value they are looking for should come from somewhere else (reading ebooks). It just doesn't work that way. The customer drives the relationship, not the retailer. Especially in search driven retail outlets where the purpose of your site is for customers who come knowing what they want.

Bryan

Morris Rosenthal said...

Bryan,

First prize for longest comment!

Morris

John said...

"I tend to believe gravity is working in Amazon's favor ... keep your eyes peeled for publishing supernovas..."

One the other hand, there is one firm with an impressive record of bending gravity, a power enhanced by $25 billion in cash holdings, no debt, and a multi-function iTablet apparently in the works.

Morris Rosenthal said...

John,

I'm not a drinker of Apple flavored Kool Aid. They've had hits and they had misses, and they've had very limited exposure to the book businesss through iTunes. I see Google with their Books, Android and Chrome OS's and Barnes and Noble with their stores and backlist as more likely rivals to Amazon.

Morris