Kindle Review – Kindle Fire Review, Kindle 4 Review

Smashwords launched their version of an associate program today and highlighted a weakness in Amazon’s generally impenetratable armor i.e. selling Kindle edition books at the low $9.99 price, often at a loss, leaves no room for amazon associate commissions.

Amazon faces an interesting dilemma -

1. Do they bring back associate commissions at 10% for kindle edition books and add to the losses they are already incurring on these. Courtesy NYTimes -
   

   For the moment, say some publishers, Amazon is effectively subsidizing the $9.99 price tag for new book titles in digital form by paying publishers the same $13 it pays them for a new hardcover title with a list price of $26. It’s a classic “loss leader” situation. Although Amazon won’t comment on the arrangement

2. Alternately, Amazon can continue to not pay associate commissions on kindle ebooks and keep losing the benefits associates provide (see the 2nd section below).

By phasing out associate commissions on kindle ebooks Amazon have left the door open a tiny little bit and Smashwords are trying to sneak in.

Smashwords’ Rival to the Amazon Associates Program

There are a few interesting details -

1. 11% commission for all books.  Authors can opt-out for their books.
2. Authors and Publishers can set commissions up to 80.5%.
3. They wrongly claim that their royalty rate is twice that of Amazon.
4. Authors can become affiliates themselves.

The biggest impact though is something no one is mentioning – it sets a precedent. Bigger ebook companies like Barnes and Noble (Fictionwise) might start using similar programs to compete with Amazon.

How do Associates help Amazon?

Here are 5 of the benefits -

1. Links which lead to search engine ranking and more.  
2. Trust – its an implicit vote for Amazon.  
3. People who travel to Amazon via the associate links buy books and often other products.
4. New customers get exposed to Amazon.
5. Reduces Amazon’s dependence on Search Engines (aka Google).

As a simple example of the impact of Associate links consider that if you search for ‘the alchemist review’, Amazon.com pages are #3 and #4, and sites ranked #2, #6, #7, #8, #9, #10 all link to Amazon (am counting google books result as #5).

It allows Amazon to effectively own 8 of the top 11 sites in the organic search results. Its also why Amazon is in the top 3 rankings for so many book related searches.

Associates face a dilemma too

Kindle creates a captive audience, buying for kindle is very convenient, Amazon doesn’t have any profits to share with associates for kindle ebooks, ebooks are becoming very popular - lots of reasons Associates will be earning less and less from book review sites and sites like GoodReads.

Its easy to think that a book review site adds little value. However, it adds a ton of value by solving the discoverability problem and adding the human touch.  Not having a share earmarked for associates leaves assocaites with a difficult decision -

1. Continue to link to Amazon and make nothing on  ebook sales.
2. Link to another site which probably has people buy far less than they would on Amazon (not to mention people buy things besides books at Amazon).

Book review sites might have to start exploring other options. As the percentage of kindle edition book sales rises, their troubles will escalate.

Closing Thoughts

This is a very interesting issue. This is the first time since Amazon ended commissions on kindle ebooks that a competitor has leveraged it as a competitive strategy – it really is a brilliant move by SmashWords.

Losing associates for kindle ebooks might not be a big threat – However, losing these associates to a competitor would be another story.

If more of its competitors start targeting amazon associates, Amazon will be left with two parallel challenges -

1. Keeping ebooks at $9.99. 
2. Winning back associates.

Smashwords, in my opinion, has opened Pandora’s box.

Filed under: thoughts Tagged: | kindle ebook commissions, smashwords