What impact might bookstores and sites selling ebooks have?

As the Kindle faces up to the challenge of rival ebook stores it’s worth taking a look at two new players -

  1. Independent Bookstores that can sell ebooks.
  2. Sites that can now sell ebooks.

What impact will each of these have and how much of a threat is it to Amazon and B&N?

Independent Bookstores and Death by a Thousand cuts

Let’s say an independent bookstore sells 10,000 books a month with a cut of 35% of the sales price of every book and makes around $35,000 a month (we’re assuming each book sells for an average of $10).

Please Note: These are just random guesses – the analysis should still be dependable.

Here’s what happens with selling ebooks -

  1. The cut on ebooks is less – It’s supposedly 23% with 7% going to the eBook provider and 70% to the ebook publishers. That 23% is a lot less than the 35% or 50% independent bookstores currently get. 
  2. eBooks will undoubtedly sell for less than physical books do. That’s the second cut.
  3. Number of customers coming in to buy ebooks will be less than those coming in to buy physical books. That’s the third cut.
  4. Percentage of their ebook purchases that customers will make at independent bookstores will be much less than the percentage of physical book sales they used to make. That’s the fourth cut.
  5. Lots of sales like sales of books in a series and impulse sales will go to the ebook provider’s website and not to the independent bookstores that sold the first ebook. That’s the fifth cut.

If you’re absolutely desperate, and that’s really what most indie bookstores are, those 5 cuts are invisible. You just rationalize it away by pretending that ebook sales will add-on to physical book sales and that there are savings in selling ebooks.

Yet, those are very real cuts – Even if indie bookstores fantasize that customers will visit just as often – they can’t neglect the fact that they get a smaller cut and that ebooks will cost less. Their revenue is definitely going to go down significantly.

There aren’t enough savings to match the lost revenue

You still have the store rent. You still have to pay for electricity. You still have to have physical books to draw in customers and to sell. You still need employees.

The costs aren’t going down very much at all. Yet, there are 5 cuts being applied which reduce how many books and ebooks customers buy from you and which reduce how much you make per book/ebook.

What will really happen – Rough numbers

Those 10,000 sales will go down to 8,000 with 5,000 as physical books and 3,000 as ebooks. You’ll still make good money from the physical books ($17,500). However the other $17,500 will be replaced by a paltry $5,000 or so.

Bookstores will be losing 21.4% of their revenue. Perhaps more.

The independent bookstores are under the illusion that they are going to simply convert their physical book sales into ebook sales. That’s not true - They are going to lose most of those sales.

It’s death by a thousand cuts – common sense would tell independent bookstores that they can’t compete with eReaders and PCs once the latter two become bookstores. Yet, they persist in their fantasies.

Online Websites and the Perils of selling eBooks

Amazon has an associates program that gets a lot of websites (including this one) to send people to the Kindle Store and to the Books section of Amazon.com. All its rival has done is set up its equivalent.

In theory ‘sell ebooks from your own website’ seems very compelling. However, there are a few problems -

  1. There’s not very much money in selling ebooks. You make 4% to 8.5% at Amazon. You sell 100 books for $5 each and you make around $35. Note: It isn’t easy selling 100 books.
  2. If instead a site uses text advertisements or sends users to another site (such as Amazon or BestBuy) where they buy a TV they make more from 1 TV purchase than they do from 100 books sold from their site.
  3. Point 2. is why site owners prefer to send their users to Amazon – Perhaps the user will buy something that makes a lot more money than ebook purchases. If a blogger writes about a $1 book deal and 100 people out of 1,000 visitors buy that book he makes a grand total of $7. If he sends a few hundred of those 1,000 people to Amazon they are quite likely to earn him more than $7.
  4. Users aren’t used to buying from a random website or blog. Can they trust the site with credit card information? What about the features they are used to? What about the site that’s their favorite shopping site?
  5. To be more precise – If you go to a site to read the latest news you are unlikely to stop and do all your book buying from there.
  6. Adding an ebook store to your site is complicated. If a site owner is good at running a forum there’s a pretty high chance he’s terrible at selling books. His ‘ebook store’ is going to have all the qualities a great forum should have and very few of the qualities an ebook store should have.
  7. What are you going to specialize in – Your core competency or selling ebooks to your visitors?

While sending users to a store (any store) where they might buy other things is a good option, selling them ebooks at your own website is quite likely to be a losing proposition. 

Here’s an example -

Most banks offer a bounty of $50 to get a customer. Guess how many $7 books you have to sell to earn the same amount – around 100. If it’s a $1 book then you need to sell around 625.

If you assume 1% conversion you’ll need to get 10,000 people to make $50 from that $7 book. Even if you assume an unbelievable 10% conversion it’s 1,000 people.

For the $1 book you’ll need to get 62,500 people to make $50 from the book. In the best case a mere 6,250 will do.

There’s just not very much money in eBooks. All the efficiencies and price reductions result in there being very little left for site owners.

Indie Bookstores and Websites will still play a huge role

It’s a super interesting realization. They can’t really make much money but they can decide the winner. Whichever ebook store seems the better option to indie bookstores and websites will get adopted and that will mean -

  1. A lot more awareness for that particular ebook store.
  2. More customers (including easier and quicker customer acquisition) for the store that gets adopted by indie bookstores and sites.
  3. Customers stolen from the rival.
  4. Very cheap customer acquisition. Spend $100 per customer acquired OR give $1 per book sold. The end result, a new customer, is the same – There’s just a huge difference in what acquiring that customer costs.
  5. Continuous free advertising and branding. All those indie bookstores and sites are implicitly saying – You can trust this ebook store. We do. This is the best ebook store. We think so.

Indie bookstores are bound to lose and websites choosing to run their own ebook stores are likely to lose. Yet, they are the kingmakers.

They are giving the ebook store they choose everything – cheap customers, lots of customers, trust, branding, awareness.

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