Kindle, eBooks, Nook give Publishers $2.753 billion revenues in 2012

Posted on May 15, 2013 by switch11

After all the hand-wringing about the dangers of ebooks and Kindle and Nook, it’s funny to see the actual figures. New York Times points out that Publishers made a whopping $2.753 billion in revenues in 2012 from eBooks.

  1. Fiction eBook sales rose 42% and brought in $1.8 billion.
  2. NonFiction eBook sales rose 22% and brought in $484.2 million.
  3. YA & Children eBook sales rose an impressive 117% and brought in $469 million.
  4. Sales of Harcover and Trade Paperback books were relatively flat. Hardcovers contributed $5 billion in 2012 (they had contributed $4.9 billion in 2011).
  5. Mass market paperbacks decreased in sales.
  6. Downloadable audiobooks increased 22%. 2012 revenues were $240.7 million.
  7. eBooks now account for 20% of Publishers’ revenues. In 2011 they were just 15%. In 2007, when Kindle was launched, they were just 2.85%.
  8. Publishers’ net revenues in 2012 were $15 billion. Up from $14 billion in 2011.

These figures are from the BookStats Survey.

NY Times points out, quite correctly, that consumers’ preferences are shifting -

  1. Print formats were flat or decreased.
  2. eBooks and downloadable audiobooks boomed.

Very interesting to see the shift from brick and mortar to online -

  1. Revenue from Bookstores dropped 7% to $7.5 billion.
  2. Revenue from online bookstores increased 21% to $6.9 billion.
  3. 2012 was the first year that factored in the bankruptcy and liquidation of the Borders chain in 2011.

Laura Hazard Owen at Paidcontent has made some charts that nicely illustrate the shift.

Where do Indie Authors fit in?

Well, here are my questions -

  1. 20% of revenues translates into what percentage of unit sales? Is it safe to assume ebooks were sold for less than physical books? If so, then ebook sales might be 30% or more of total book sales.
  2. Where do indie authors fit in? What market share did they have? I’d hazard a guess of 10% to 20%.
  3. Were eBook sales for indie authors 90% or more of total Indie Author sales? Meaning did indie authors sell a lot of ebooks and hardly any hardcovers and paperbacks. That certainly seems possible.
  4. At what point are we going to start counting indie author sales? Surely, we can’t keep ignoring them.
  5. Are we going to be stuck in the current situation – Where all indie author sales are ebook sales because it’s too expensive for indie authors to print and distribute paid books? Would that mean that the shift from physical to ebook is accelerated even more?

My suspicion would be that Indie Author sales are at least 5% to 10% of what Publisher sales are (in revenue).  Perhaps $750 million to $1 billion a year. That this will increase over time because indie authors are providing a lot more value for money and are gradually understanding marketing and branding and customer relationship-building.

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Was Apple the Sole Architect of the Agency Model?

Posted on May 14, 2013 by switch11

The Justice Department is painting Apple as the ringleader of the Agency Model. So says The New York Times.

Quick Reminder of the Agency Model.

  1. 5 of the Big 6 Publishers and Apple got together to introduce something called ‘The Agency Model’.
  2. It was seen by some as an attempt to exploit ereader owners and make them pay a ridiculous price for ebooks ($12.99 to $14.99).
  3. It was seen by others as an attempt to slow down the rise of eBooks and eReaders. Perhaps it was both.
  4. Update: From the articles today it seems it might have been Apple’s attempt to stall Amazon’s rise in eBooks.
  5. It led to a long stretch where we had really ridiculous prices for newly released ebooks.
  6. It led to a lot of pain for readers as they either didn’t buy the over-priced ebooks or waited until they were below $9.99. Those that did pay also suffered as they had to pay really high prices.
  7. It has also led to the current situation – Where lots of Publishers think it’s OK to introduce new releases at $12.99 and $13.99 and $16.99.

The Agency Model, in short, was the biggest threat to the rise of eBooks and eReaders. It’s only due to the fact that eBooks had already gathered too much momentum that it failed. Also helping it fail was the strong resistance by readers. Measures by readers such as the $9.99 boycott – which boycotted any books over $9.99 – played an important part.

Now, based on the picture The Justice Department is painting, it seems the architect of all of this malarchy may have been Steve Jobs and Apple.

Here’s an email from Steve Jobs to James Murdoch of News Corporation -

“Throw in with Apple and see if we can all make a go of this to create a real mainstream e-books market at $12.99 and $14.99.”

It’s pretty clear that, at least in this case, it’s Apple that’s trying to convince a Publishing Company into the Agency Model.

The Justice Department certainly thinks so -

According to the Justice Department, that e-mail is part of the evidence that Apple was the “ringmaster” in a price-fixing conspiracy in the market for e-books

It’s also quite clear that Apple wanted to block Amazon’s rise -

the government said that Apple and the publishers conspired to fix e-book prices as part of a scheme to force Amazon to raise its e-book price from a uniform $9.99 to the higher level noted by Mr. Jobs in the e-mail, which publishers wanted. That, the department said, resulted in higher prices to consumers and ill-gotten profits for Apple and its partners.

The Justice Department is really going after Apple. It’s settled with The Evil 5 Publishers and now Apple is the sole defendant -

Apple is the only defendant left in the lawsuit after five publishing companies — Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster — agreed last year and earlier this year to settle the charges.

This is really interesting. Wonder why Apple didn’t settle.

Power Corrupts? Apple strong-arming Publishers?

The Justice Department paints a really crazy picture – One where Apple is not only sweet-talking Publishers into joining the Agency Model Mafia, it’s also threatening and coercing them.

Here’s a gem -

In July 2010, Mr. Jobs, Apple’s former chief executive, told the chief executive of Random House, Markus Dohle, that the publisher would suffer a loss of support from Apple if it held out much longer, according to an account of the conversation provided by Mr. Dohle in the filing. Two months later, Apple threatened to block an e-book application by Random House from appearing in Apple’s App Store because it had not agreed to a deal with Apple, the filing said.

After Random House finally agreed to a contract on Jan. 18, 2011, Eddy Cue, the Apple executive in charge of its e-books deals, sent an e-mail to Mr. Jobs attributing the publisher’s capitulation, in part, to “the fact that I prevented an app from Random House from going live in the app store,” the filing reads.

Who would have thought that Steve Jobs set up the Agency Model. All this time we might have been accusing Publishers of being greedy – they might just have been Apple’s Puppets. If all this is true, and that’s an IF at this stage, then it pretty much means the Publishers got conned/threatened/cajoled/blackmailed into joining the Agency Model. That they were just Apple’s puppets to use against Amazon.

Also, remember when Publishers and Amazon were engaging in feuds and books were going missing. Well, Apple had its hands in that too.

the documents quote Mr. Dohle as saying that an Apple executive counseled him that the publishing company could threaten to withhold e-books from Amazon to force Amazon to accept the higher prices.

This is very different from what I had thought the situation was.

Are we to Believe that Publishers were merely Sheep? Being used as Pawns by Apple to fight Amazon’s lead in eBooks?

That’s certainly the picture that The Justice Department is painting.

If this happens to be true, then my (non-legal) thought would be -

Couldn’t every single person who

  1. Had to pay more than $9.99 for a book.
  2. Had to wait for months for a book’s price to drop to $9.99.
  3. Had to skip a book because it was $9.99.

Couldn’t every single person in these three categories sue Apple for money lost and anguish caused?

Surely, if we waited 1 entire year to read a book by our favorite author because we weren’t willing to pay $13.99. Then we wouldn’t be very happy with Apple if Apple were the ringleader. Apple who hatched this entire plan? Apple who convinced Publishers and even threatened them into joining? Apple was the cause of our wait and discomfort?

Apple, inadvertently, tried to destroy the entire rise of eBooks and eReaders.

This bit from Reuters clearly shows Steve Jobs and Apple didn’t care about readers -

 the Justice Department said that Steve Jobs, Apple’s CEO at the time, “conceded the price-fixing conspiracy” when he told his biographer that Apple had “told the publishers, ‘We’ll go to the agency model, where you set the price, and we get our 30 percent, and yes, the customer pays a little more, but that’s what you want anyway.’”

‘Yes, the customer pays a little more’. Who cares about the readers?

Who cares if readers have to shell out more money. Who cares if some person has to wait an entire year to read a book they really, really would have loved to read when it was released.

Amazon might come out smelling of roses. Consider this part from The Washington Journal -

Apple said Amazon also considered the agency model and spoke in detail to publishers who at one point offered an exclusive arrangement that would cut out Apple.

Wonder what happened there. Did Amazon not take the exclusive arrangement because it wanted to do the right thing? Because it thought the Agency Model would kill eBooks?

Summary of What we Might or Might Not know about the Agency Model

So, it’s all a bit convoluted -

  1. Apple may or may not have started the idea of the Agency Model.
  2. Apple seems to have played go-between and facilitator between Publishers.
  3. Apple threatened at least one Publisher and perhaps that played a part in that Publisher joining the Agency Model.
  4. Steve Jobs’ solution involved ‘the customer paying more’. If true, it shows a striking lack of empathy for readers. Which would make sense given Steve Jobs though ‘people don’t read any more’.
  5. Amazon was offered something akin to the Agency Model and an ‘exclusive’ and either declined (for what reason?) or something else happened.

If the accusations made by The Justice Department are correct, then it paints a really bad picture of Apple as ‘Instigator of the Agency Model’, ‘Bully that threatened Publishers with dire consequences, including not approving Apps, if Publishers didn’t join’, ‘A company that doesn’t care about readers and customers, which suggested price increases for customers that went beyond reasonable prices for ebooks’.

It’s not a pretty picture. If The Agency Model really does turn out to be Apple’s brainchild, that would mean a lot of trouble for Apple. Beyond the obvious PR damage, it might open up Apple to a lot of lawsuits from a lot of people very upset about having to pay extra for ebooks. From people angry they had to skip/delay reading books they really wanted to read. It’s also not the right thing to do. Perhaps Apple’s moral antenna was not receiving the right signal. You’re just holding it wrong, Apple. It’s supposed to point to Heaven, not Hell.

Filed under: publishing | Tagged: , , , | 5 Comments »

On Discoverability

Posted on May 11, 2013 by switch11

Discoverability of Books is one of the last great remaining problems in Books and Publishing.

  1. We had the problem of book production speeds and costs. Which Gutenberg solved, perhaps too well.
  2. We have the problem of Gatekeepers not letting authors publish and keeping them separated from readers. Which eReaders and eBooks are in the process of solving.
  3. We have the problem of book replication costs and storage and shipping and handling costs. Which, again, eReaders and eBooks and the Internet are in the process of solving. Perhaps this problem, too, is being solved too well.

What does that leave?

  1. Monetization. To be precise – How do we prevent the current monetization model from falling apart, as we shift more and more to ebooks and reading devices?
  2. Discoverability. To be precise – How do readers find ‘the best next book for them to read’? How do authors get discovered?
  3. Platform. Who’s going to provide a platform/ecosystem for everything to happen on/in? There are contenders and Amazon is obviously the strongest one. However, Amazon is pushing for an Ecosystem and not a Platform. An Ecosystem might not be the best solution for authors. It might not be the best solution for readers either.
  4. Quality. First Aspect: Ensuring Quality Books are available. Second Aspect: Discovering Quality Books out of All Books. The Second Aspect is actually Discoverability. However, these two are intertwined. Publishers are the natural candidate to solve the problem of Discoverability. However, because they also ‘publish/sell’ books, they have a conflict of interest.
  5. Sustainability. How do we create a model that’s sustainable? Will a closed ecosystem controlled by one entity actually sustain books? Will a totally open ecosystem sustain authors and readers and quality?

There are a lot of aspects to consider. Today, let’s focus on Discoverability.

Why Discoverability is Important

  1. Discoverability has always been crucially important. Authors who got promoted by Publishers, got more visibility. This, in turn, meant they sold more and factors like sales rankings and word of mouth kicked in. It’s why Publishers controlled Books for so long and why they still do (though their grip is slipping). Readers can’t buy your books if readers don’t know they exist.
  2. We’re moving towards a world where people are, unfortunately, more and more conditioned to ‘Press the Easy Button’ and go with what’s offered. In the past, readers might have browsed the shelves of the nearest bookstores or browsed through a website for hours. These days, more and more frequently, a large percentage of readers won’t go beyond the Top 100 and ‘Recommendations’.
  3. The New Gatekeepers are making it tougher, perhaps on purpose, to ‘discover’ new books. Ever wonder why all these large companies can’t devote a few hundred thousand dollars out of their billion-dollar R&D budgets to Discoverability? Why they can make Cloud Computing and Smartphones but can’t make finding books and apps and movies easier? The only company that seems to be making a genuine effort is Netflix. Interestingly enough, Netflix doesn’t have a conflict of interest. No matter what movie you watch it’s the same to Netflix.
  4. If you have a Great Book, you need Discoverability for people to find out it’s a great book and spread the word.
  5. If you have a Terrible Book, you need Discoverability so that readers (the ones who pay for your books) can tell you it’s terrible and can give you feedback. You can’t even fail without Discoverability – you’re just stuck in a void of ‘not knowing if your book is great or terrible’.

It’s a dangerous combination. Readers only choose from amongst the books they are exposed to. Readers are getting more and more used to ‘Easy’ options. The New Gatekeepers are breaking Discoverability and replacing it with ‘Buy What We Tell You to Buy’.

For Authors, and even for Publishers, solving Discoverability becomes the #1 Problem to Solve.

  1. Authors – If you leave yourselves at the mercy of a store, then the store will marginalize you. They’ll cut you down until you’re happy to give out free copies and hope to get 100-200 ‘borrows’ and ‘sales’ a month on the side. That strategy just sets you up for permanent obscurity. Remember – Free is a good marketing strategy until there are 100,000 other Authors exploiting it.
  2. Forget the days when Publishers controlled Discoverability. Now, if Publishers don’t solve the Discoverability problem, they’ll go extinct. The Stores and Platforms will make Publishers’ books invisible.

We have all these readers who are looking to find a good book to read. The missing part is the ‘Discovery Engine’ that gets them a book that’s worth their time and money.

Unfortunately, it suits neither Publishers nor Stores nor Platforms to make an Excellent Discovery Engine. If they do, they weaken themselves as Gatekeepers. What they are making are Pretend-Discovery Engines that route users to the books that create the most profit and control for Publishers/Stores/Platforms.

Why Discoverability is Solvable

We still have a lot of the older methods of discoverability – bookstores, book critics, word of mouth, online reviews.

We have added brand new methods of discoverability – blogs, forums, platforms, social networks, crowdsourcing, book networks.

What’s missing is something that unifies everything. Something that shifts from ‘What to Buy’ and ‘What We Think You Should Buy’ to

  • ‘What to Read’ and ‘What’s Best for YOU as a READER’ and ‘What’s Worth YOUR Time & Money’.

A truly efficient Discovery Engine would treat each available discovery source as a data stream. It would combine these data streams to create a composite. Then it would use a neural network (or an evolutionary algorithm) to process your past purchases and the past purchases of customers like you.

The end result would be a very efficient list – Books that you will love to read, and will finish. Books that are guaranteed to be a good use of your time and money.

The Stores don’t want this. They actually want – Books you will buy and not necessarily read. Books that will get you to move on to buying other books.

Seriously – What percentage of books bought in the Daily Deals do you think are actually read? Why aren’t the Daily Deals personalized?

The Publishers and New Gatekeepers don’t want optimization and efficiency in readers’ reading and spending. They actually want to sell users books out of the books they control and/or make a lot of money from. They want to keep selling users books, whether or not the readers actually read them.

It’s all about conflicts of interest. The Store and the Gatekeeper can’t run an efficient Discovery Engine – because then they’d have to be anti-profit companies. An efficient Discovery Engine would reduce profits.

Who can Solve Discoverability?

Anyone who actually tries hard and then sticks with it until it’s solved.

The problem is that people who set out to solve Discoverability get distracted along the way -

  1. Discoverability is a really tough problem to solve. Much easier to point readers to ‘Deal of the Day’ and to ’New Free Books’.
  2. Discoverability means discovering and collating all the books yourself. This is a tougher problem than you might imagine. There’s no easy way to get a list of every book available. If you start considering that there are multiple stores to explore and build from, then it becomes downright horrifying.
  3. Lots of other problems. If you set off to solve Discoverability, you find a lot of side streets that are far more welcoming. Some of them also happen to be very lucrative in the short term. The net result is that the tougher problem of Discoverability gets forgotten and/or ignored.

Perhaps the real reason Discoverability isn’t being solved is that no one realizes just how powerful solving Discoverability will be.

Part 1: If you solve Discoverability, then ALL readers will come to you. It’ll be like Google with Search.

People might point to the ‘ease of use’ of the stores. However, the stores are ‘easy to use’ to ‘not solve the problem’. They aren’t solving the problem, so you can’t compare them to an Actual Discoverability Engine. If a site comes along and says -

Instead of spending $100 and 20 hours to find 2-4 great books, we’ll ensure you spend just $25 and 5 hours.

Please Note: If you only read $1 to $3 books, just replace ‘$100 and $25′ with ‘$20 and $5′.

Then a LOT of Readers will go to that site first. Again, it’s just like Google with Search. You help people find what they are searching for and you are set.

Part 2: Once all the readers start coming to you, you control EVERYTHING.

Keep in mind that ebooks don’t need middlemen. You can send readers straight to Authors’ websites, or straight to Publishers, or you can sell books to them yourself. If you get control of the Starting Point then it’s game over.

Do Publishers have the wrong incentives when it comes to Discoverability?

Totally.

Publishers push for Discoverability for their own books. Among their own books they push for Discoverability for books that are already doing well and books that they think should do well.

This is the single biggest problem with depending on Publishers. Publishers, by their very nature, discriminate against books not published by them. Add to that a second type of discrimination – against books that aren’t ‘commercial successes’ and against books that aren’t ‘what Publishers think readers should read’.

Let’s assume that the ideal reading list for Reader A is -

  1. Book A from Publisher 1, Book B from Indie Author, Book C from Small Publisher, Book D from Publisher 1, Book E from Publisher 2.
  2. What will Publisher 1 show Reader A? Book A, Book D, Some Books that are wrong for the reader. Just 40% of the best choices.
  3. What will a Store show Reader A? Book A & D from Publisher 1 and Book E from Publisher 2. Because these generate the most profit. Perhaps, eventually, after showing 50 more profit-generating books from Publishers, the Store will show readers Book B from the Indie Author and Book C from the Small Publisher.

This example illustrates the fundamental problem with Platforms and Gatekeepers controlling Discoverability. Platforms optimize for their own profits. Gatekeepers optimize to sell their own books. They show users a mix of ‘What’s Best for Users’ and ‘What’s Best for Platforms & Gatekeepers’. This is completely OK. It’s capitalism.

However, it means that we haven’t solved the Discoverability Problem via Gatekeepers and Platforms, and we won’t. Not as long as Platforms and Gatekeepers are the ones assigned the responsibility.

Do Amazon & B&N have the wrong incentives when it comes to Discoverability?

Yes, even more so than Publishers.

Amazon and B&N in the eBook World handle -

  1. Services to Indie Authors and Publishers, including selling marketing spots. Note: This is the long-term end goal. Understand this and it will explain a lot of their moves.
  2. Store Aspect.
  3. Platform/Ecosystem Aspect.
  4. Social Network Aspect. Amazon has taken this to an extreme by buying Shelfari and GoodReads, and by owning a share of LibraryThing via its purchase of AbeBooks.
  5. Publishing. Again, Amazon is a lot more aggressive here.
  6. Selling eReaders.
  7. Selling Reading Tablets.

There are so many Conflicts of Interest, the Conflicts of Interest are conflicting with each other.

Q1 Does anyone really believe that an AmazonCrossing title, or a Montlake Romance title, won’t be given ‘Special’ Discoverability?

If you do, you should keep an eye out for the sort of promotions that were done for The Hangman’s Daughter. Amazon does a lot for its published titles (always including them in Deal Lists and such).

Q2 Does anyone really believe that if a reader’s best fit is - $1 indie book, $5 small publisher, $10 Publisher, $2 indie book. That Amazon or B&N will show the reader those exact books first?

If you do, then you’ve missed the whole ‘secret handicapping’ of $1 and lower priced books.

There’s a ridiculous amount of power in the Platforms. By combining the functions of Store, Distributor, Curator, Publisher, and Service Provider we get two monsters that can pick and choose which books they turn into successes.

There are three critical conflicts of interest (these aren’t the only ones), that pretty much guarantee Pure Discoverability will be sacrificed -

  1. Amazon can’t let its own published titles suffer. That would destroy its delusional goal of replacing Publishers completely by 2057. Note: Along with Hollywood and the TV Networks and Federal Reserve (Of course, no one can lose money as fast as the Fed, so Amazon has zero chance there).
  2. Amazon and B&N can’t let $1 and $3 titles take over. That would destroy the profits and make a mockery of the billions of dollars of investments each has made in ebooks.
  3. Amazon and B&N can’t allow indie authors to take over. That would highlight what the long-term future for both companies is, if they don’t control Discoverability – Dumb Devices selling cheap zero-profit ebooks to readers.

The long-term goal is to build up a gold mine that’s one of only 2 or 3 gold mines in the entire world. Then, to slowly sell gold to readers. Look – Shiny! Shiny! Hand over Island of Manhattan.

Indie Authors are standing with their pans with tiny gold nuggets shouting. Hey! Hey! It’s cheaper here. What can Amazon & B&N do? Make it seem that their mines are the ONLY source for real gold. Make the other sources of gold ‘disappear’ by hiding them OR make them seem low quality.

Who does that Leave? Is anyone going to solve the Book Discoverability problem?

Well, we’re in a bit of a bind.

  1. The reward for solving Discoverability in Books is a long-term reward. It’s so far in the future that only large players might be able to go for it.
  2. The Large Players are better off if they don’t solve Discoverability. By solving Discoverability they turn the tin, which is what Indie Authors’ collective work seems like, into gold. Thereby devaluing the gold they control and sell.
  3. There are Large Players that aren’t already invested in the system, and thus become good candidates to innovate and disrupt. Well, they either think people don’t read any more (Apple, Google), or they think Books isn’t a big enough market (Microsoft, though that might be changing).

We have a massive, massive reward – To become the ‘Search Engine for Books’ and effectively control all of books.

Yet we have huge risks – the incumbents, the value of the market might get destroyed by a truly effective ‘Discovery Engine’, large time and money costs, long wait for the payoff, the possibility that the Platforms match/undercut you.

We have a dearth of companies that are trying to solve the REAL problem. Yes, there are lots of people offering Authors and Publishers marketing services and other band-aids. However, the real problem isn’t 1-day boosts and temporary jumps.

We need someone to solve the real, underlying issue – connecting readers with authors efficiently.

Discoverability in Books is one of the biggest problems holding back a Golden Age for Readers and Authors. Solving it would also mean gaining control over the Future of Books and Publishing. The only thing missing is someone willing to focus on Book Discoverability and solve it.

Filed under: publishing | Tagged: , , , | 5 Comments »

Amazon is usurping Publishers, and setting itself up to be Played

Posted on May 6, 2013 by switch11

Thanks to Roger Knights for these two interesting links -

  1. Seeking Alpha discussion about a startup combination trying to compete with Amazon.
  2. Article at Paid Content that covers this same Startup Partnership.

To fully understand what is going on here, we need to step back and look at (really look at) what it is that Amazon is trying to do with the Kindle.

What the Kindle seemed to be

When the Kindle first came out, it seemed to be a Gutenberg level transformation in Books and Publishing -

  1. Anyone could publish.
  2. Readers could get any book in the world, instantly.
  3. All your books on one device.
  4. A direct connection between authors and readers.
  5. Costs of printing and storage and shipping and stores gone.
  6. Instant and Quick Editing and Updating of Books.
  7. No more problems with supply and demand – As many ebooks can be made as needed.
  8. The chance for a more open market. More independent authors. More Publishers. More bookstores.

Of course, that’s not really how things are turning out. It’s becoming clearer that this was an illusion that readers and authors envisioned and dreamt up. Perhaps it’s time for reality.

What Amazon’s moves seemed to suggest

Amazon said all the right things -

  1. A device made for reading, with no compromises.
  2. The Fight against the Agency Model.
  3. Allowing Indie Authors to publish.
  4. Not getting in the way.
  5. Any book within 60 seconds.
  6. Convenience.
  7. Wireless Delivery.
  8. Readers want a device made for reading books.

Amazon, quite smartly, never really said much about how AMAZON would benefit from the shift in Books and Publishing. It suggested, implicitly, that becoming the de-facto bookstore was the goal. It just talked about how things would be better for readers.

That should have been a clue. As should have been Amazon’s attempts to give authors just 35% of book sales (changed to 70% once Apple entered the market).

What the Kindle really is

This is really hard to say. However, here are a few things the Kindle really is.

  1. The gateway device to Amazon.
  2. A device made for readers, and then ignored as Amazon shifted its focus to Tablets and Phones. A device for readers, with no compromises – Oh, wait a minute, we see a bigger market.
  3. The practice device and the device manufacturing and selling ‘experience’ which helps Lab 126 build Kindle Tablets and Kindle Phones.
  4. A lock-in device to keep readers in the Kindle ecosystem.
  5. A mini-Amazon store.
  6. The beginning of the attempt to take over for Publishers.
  7. Control for Amazon.

It’s becoming very clear that Amazon doesn’t see the Kindle as a great liberator, but as a usurper. It’s a coup, not a revolution.

What Amazon’s real intent seems to be

While everyone assumed Amazon wanted to usher in a revolution in books and a transformation in publishing, it merely wants to redirect the profits and control to itself. Instead of a system controlled by ‘The Big 6 Publishers, The Big Distributors, The Big Bookstores’, Amazon wants to create a system controlled by Amazon.

Amazon sees things very clearly -

  1. Authors pay Amazon for services like CreateSpace.
  2. Authors sell via Amazon.
  3. Amazon has its own Publishing imprints. It picks the best indie authors and the best backlist titles.
  4. Eventually Amazon starts signing up the best authors.
  5. Amazon gets lots of exclusives. It drives more people to the Kindle ecosystem.
  6. Amazon creates more and more lock-in.
  7. Amazon owns and controls the store and the listings and the reviews and the review sites and the social networks (witness the acquisition of both Shelfari and GoodReads).
  8. Amazon controls everything.
  9. Someone really has control issues.

Amazon wants to REPLACE the Gatekeepers (Publishers, Distributors, Retailers) and not Destroy Them. It wants to replace the Gates and Barriers with its own Gates and Barriers.

Amazon wants to create a system where it gets 10 to 50 cents out of every dollar made from book sales. 10 to 50 cents out of every dollar made by selling services to authors. 10 to 50 cents out of every dollar made from device sales.

It wants to be the Government of Books and Publishing and tax every little step.

Amazon is Usurping Publishers (and Bookstores and Distributors)

The aim was never a revolution. It was just REPLACEMENT.

Amazon actually likes the way things are set up in Publishing. It just wants to replace all the Gatekeepers.

The most important part is to destroy Publishers and replace them. Amazon is doing this in a very smart way -

  1. Firstly, it’s trying to create more and more power in the Bestseller lists and the Recommendations from the Kindle Store. So people get trained to trust Amazon completely when deciding what to buy next.
  2. Secondly, it’s building up an exclusive library of indie authors. So that the next generation of Good Authors are locked-in to Amazon’s Kindle Store.
  3. Thirdly, it’s signing up the best of the indie authors. The Amazon imprints aren’t experiments – they are the beginning of the replacement of Publishers. Publishers perhaps don’t fully see this yet. If Amazon starts getting the 10-100 best indie authors each year, then there’ll be NOTHING left for Publishers.
  4. Fourthly, it’s signing up back list books of famous authors and acquiring rights for international authors with potential in the US market. These are exclusives.
  5. Fifthly, it’s expanding the number of Kindles and Kindle Fires and thus increasing the percentage of ebook sales it gets. This part will become less important once it’s gained control of the authors (the content supply).

The aim is simple – Make more and more of the books sold in the Kindle Store, books that are controlled by Amazon. Make the transition smooth so Publishers don’t realize what’s happening (No, Dear Frog, the water isn’t hot). Keep the prices of books sold high, so the end reward will be worth it for Amazon.

Publishers don’t really get this. They’re playing checkers while Amazon is playing chess.

Amazon is setting itself up to be Played

The most delicious part of all of this is that Amazon, in the process of making Publishers replaceable, is weakening its own time at the top.

What’s the fundamental pipeline? It’s a pipeline connecting Readers with Authors.

Earlier we had a whole army of intermediaries – Publishers, Distributors, Book Retailers. They had HUGE, unavoidable Gates and Barriers. Printing physical books, financial investments, shipping, storage, renting stores, hiring people to man the stores.

As Amazon breaks down the various intermediaries, and places itself as the Sole Intermediary, it’s creating a system where we have:

Readers -> AMAZON -> Publishers -> Authors

Which Amazon will eventually modify to be:

Readers -> AMAZON -> Authors

However, there’s one big problem here.

Where are the Gates? Are there ANY real Barriers?

What Gates does Amazon have?

None. No real gates.

DRM is a very strong virtual gate. However, Tor is already showing that DRM can be forsaken. Sooner or later Publishers will realize that it’s better to drop DRM than to let Amazon whittle away their control and ownership of the most desired books and the most read authors.

All the other Gates are virtual.

Furthermore, by destroying the old model of physical books, Amazon has opened itself up to Battles on four fronts -

  1. Hardware. Amazon isn’t best in hardware. Apple and Microsoft and even Samsung and B&N are ahead. Lots of companies can beat Amazon in hardware.
  2. Software. Amazon is far from the best in software. There is an almost infinite army of developers willing to innovate and refine and polish and create something very beautiful. Amazon simply can’t compete. The one mitigating factor might be that the intersection of people who love books and those who love coding is relatively small. Furthermore, books are hardly a ‘glamorous’ business like music or movies.
  3. Infrastructure. Amazon is very strong here. Perhaps unbeatable by anyone other than Microsoft (and even that isn’t a given).
  4. The Default (Path of Least Resistance). Amazon is very strong here. However, there are a lot of iPads and iPhones and Samsung Galaxy Phones out in the wild. Windows is another monster. So, while Amazon has gathered up a very significant number of hard-core readers with eInk Kindles and Kindle Tablets, it is still very vulnerable.

Notice how these are all areas that Amazon doesn’t really control. They aren’t defensible. That’s the whole problem with going digital – There’s hardly anything left that’s defensible.

Amazon doesn’t have a Defensible Position

Contrast Amazon’s defence (default website, DRM, Kindles) with what Publishers have – Contracts with Authors, Agreements and Business Relationships with Book Retailers and Distributors, Book Publishing Expertise, Infrastructure.

Publishers control the ACTUAL product. Amazon just controls parts of the pipeline.

Publishers control ACTUAL PHYSICAL Barriers and Gates. All of Amazon’s Gates are imaginary.

Amazon is building up all the ‘content ownership’ advantages Publishers have. Its long-term aim is to control the actual books that people buy. However, the Kindle and Nook and Kobo and ebooks have destroyed the actual physical Barriers and Gates.

So we have three very interesting things -

  1. Amazon is in pole position to usurp Publishers. It is building up as much defensibility as it can.
  2. Without the real Gates and Barriers, Amazon’s position isn’t very defensible. It can be taken down. There are also lots of vectors of attack – Hardware, Software, and Path of Least Resistance are three particularly dangerous ones.
  3. Books have moved to a place where anyone can compete. As there is more competition the margins go down. This is true on both fronts – Anyone can publish and sell books. Anyone can set up a store and retail books. So not only will we have infinite authors, we’ll have hundreds of ebook retailers.

Infinite Competition almost always kills profits.

If there is no actual scarcity of product, how do you make a profit? How do you even sell the product?

Amazon is really, really setting itself up to be Played

There’s a 75% chance we’ll look back and laugh at all these companies that are investing heavily in devices to read books. Companies that are setting up magnificent forts and castles and trying to become the Titans of the eBook World.

If what you’re selling isn’t defensible, then all your investment is for nothing.

This isn’t oil or gold or diamonds. There are no oil wells or pipelines. There are no mines or armored carriers. It is digital content. It’s in the ether.

You aren’t the creators, the authors are.

You aren’t the buyers, the readers are.

These elaborate castles with their alligator infested moats – these aren’t deterrents at all. These, in reality, are sand castles on the beach. Sooner or later the tide is going to wash them away. Then the architects will realize it was just fantasy.

The 25% chance. Well, perhaps people will forever remain stuck in the old mindsets. In that case Amazon and B&N will be laughing all the way to the bank.

Their position will still remain very tenuous. How do you defend digital books? How do you defend them in a world where the Internet connects everyone to anyone and everyone? How do you get readers to pay $10 for books when authors’ desire to be read (supply of books) is greater than readers’ desire to read books (demand)?

Things change so fast. 10 years ago we didn’t have Smartphones or iPhone or Facebook or Twitter or Instagram or iPad or Tablets. In 10 years who knows what new devices and technologies are going to arrive. What do Amazon and B&N have to defend themselves?

We have a completely made-up situation. Everyone’s trying to pretend there’s some great scarcity in books. It was easy to pull it off when there were REAL limitations on who could get published and who could get visibility. When it cost money to print books and ship them and stock them in shelves. Now, there are no restrictions.

Yes, there are lots of ARTIFICIAL barriers and lots of IMAGINARY roadblocks. However, those are for the weak of spirit and for the naïve. If you see things as they really are, then as an author you can see that all your readers are freely available. The Internet, Google Search, Facebook, Twitter, Blogs, Review Sites, Email Lists, Pinterest, Instagram, Message Boards. The number of channels is ever increasing.

Authors willing to strike out and reach readers will prosper and gain independence (both financial and creative). More and more authors will realize this over time. That they don’t need the blessings of a Publisher for their book to get bought and read. That they certainly don’t need Amazon’s blessings.

This is why indie authors who find success almost always share their secrets and their figures. It’s not in their best interests. They get ridiculed by the unbelievers. Yet they still share. Why? Because this is bigger than any author or any reader. This is a bigger revolution than Gutenberg’s. Not only are we getting cheaper books and more people being able to read them, we are also getting anyone in the world being able to publish. This revolution in books is at least TWICE as impactful as Gutenberg’s revolution.

PROVIDED readers and authors snap out of their collective misconception that we’re still stuck in the Old World of Physical Books and Old World Publishing.

It’s going to be just authors and readers now. There’s room for enablers and platforms, but none for dictators and gatekeepers.

Where will that leave Amazon? With a very fancy infrastructure and a very controlled pipeline which, oddly enough, will be just one out of millions of pipelines that connect readers with authors. Even convenience or largest selection won’t save Amazon, unless it’s willing to cut margins to 5% or less. Perhaps not even then. You can’t compete against the Internet.

Amazon has served its purpose. Now the question is – Who is going to carry forward the Biggest Revolution in Books the world has ever seen?

Filed under: publishing | Tagged: , | 16 Comments »

If eBook DRM dies, would it help or hurt Amazon?

Posted on May 5, 2013 by switch11

Julie Crisp of Tor Books UK has written a very interesting article regarding Tor’s decision to sell all their ebooks without DRM. It’s now 1 year since it made that decision. Tor says it hasn’t affected sales and it will continue selling DRM free ebooks.

Ars Technica has an interesting article discussing Tor’s move to remove DRM from its ebooks.

the publisher has seen “no discernible increase in piracy on any of our titles, despite them being DRM-free for nearly a year.”

We have to keep in mind that this is one publisher in one genre. It might not convince everyone to drop DRM.

Science Fiction fans might be a special case. Success that one Publisher sees in Science Fiction will probably not be enough to convince other Publishers to give up DRM. Nevertheless, this is a big deal. A positive data point is much better than a negative one. Tor’s decision to continue selling ebooks without DRM is a hugely positive sign for everyone who hopes we’ll get rid of DRM in the near future.

It’s About More than DRM

The most interesting thing about Tor’s decision isn’t DRM or no DRM or piracy.

The truly interesting thing is lock-in. DRM isn’t really killing piracy. What it’s doing is that it’s giving ebook retailers a way to create lock-in.

One of the most common points that come up when eReader or Tablet owners want to change devices or stores is – What happens to my content? What happens to the books and apps and games and music I’ve bought?

Well, the answer is simple -

  1. If the content has DRM, and it’s proprietary DRM that no other device has access to, then your content is locked to the store and/or device you got it from.
  2. If the content doesn’t have DRM, or if the DRM is also shared/available on other devices, then your content can move with you.

Therein you see what DRM is actually accomplishing - Lock-in for the store and for the ecosystem.

It’s why Apple and Amazon and B&N (until 2 days ago) wanted their own App Stores. It’s why each of them has their own DRM (B&N’s DRM has a special password provision – so not unique, but almost so). It’s why each of them have their own Movie Stores.

It’s lock-in. With each purchase, the DRM means you are more and more locked-in.

In the New World of Publishing there are No Gates

All the power that Publishers and Book Sellers and Distributors had, in the Old World of Publishing, had to do with scarcity and gates -

  1. Printing a book and shipping it to stores and displaying it in stores.
  2. Getting a book approved so it would be published and then distributed.
  3. Money upfront to cover all the expenses of printing and editing and proofreading.
  4. Advances for authors.
  5. Visibility for books – so readers even knew they existed.

These were very, very REAL. Independent authors simply couldn’t compete. Where do they get the money from to print books? Where do they get economies of scale to make printed books affordable for readers? How do they get shelf space?

There were REAL Gates and Powerful Gatekeepers.

In the new world of publishing there are NO GATES.

  1. You can take an ebook you’ve written and publish it via an ebook store for next to no money. You can even list it on your website or send it via email. You can charge for it via Paypal.
  2. It costs nothing to sell and distribute books. Literally nothing. The same Indie author who struggled due to only having $20 paper books can sell ebooks for $0 and $1 and $3 and $5 and turn the tables on Publishers.
  3. There are no costs related to hiring people to typeset books, format them, and print them. You can do it all on your PC. Of course, lots of indie authors aren’t aware of things such as formatting. However, that’s a topic for an entirely separate post.

What we get are barriers that are unique to the New World of Publishing – Various Sources of Friction, DRM, Social Proof, Perceptions, and the problem of Discoverability.

Earlier we had – Gates. Real Physical Barriers that prevented authors from reaching readers directly.

Now we have ‘virtual’ gates -

  1. Friction – How do we make it easy and convenient for users to buy the books we want them to buy? How do we make it hard and inconvenient for them to buy books we don’t want them to buy?
  2. Discoverability – How do we make readers realize that this book exists? How do we hide certain books from readers?
  3. DRM – What can readers do with books? Where can readers get books from?
  4. Social Proof – Are other people reading this book? What are they saying about it?
  5. Perceptions – Is this author a bestselling author? What is the cover like? What is the quality? Is this book worth my time? Please Note: I say perceptions because it’s not until you’ve read the book that you really know quality and your personal satisfaction. So it’s a battle of perceptions.

The new Gatekeepers of the New World of Publishing have just these new levers – Friction and Discoverability and DRM and Social Proof and Perceptions. These levers aren’t half as strong and powerful as the Real Impenetrable Gates the Old Gatekeepers had. Fortunately, for the New Gatekeepers, there is one very powerful lever amongst these. One that, if used correctly, becomes a real barrier.

DRM.

DRM is, for most readers (who are not technically savvy), a REAL barrier to freedom of movement.

DRM means that readers can’t leave for another store. DRM means that authors can’t reach readers without following the rules of the New Gatekeepers.

DRM is the Strongest Virtual Gate/Barrier

DRM means permanent lock-in. Once you get permanent lock-in, readers don’t switch. They don’t switch because the cost of switching is losing all existing books bought from the vendor.

Readers are locked-in – once again at the mercy of Gatekeepers. Authors too are at the mercy of the new Gatekeepers. If people don’t leave the two biggest stores because of DRM related lock-in, then we’ve just replaced The Big Six with The Terrible Two.

Authors have no means to get to readers without ‘pleasing’ these two big ebook stores.

This is why Amazon never puts in that extra effort to make its hardware superb. It doesn’t have to. This is why B&N never goes out of its way to match Amazon prices – it doesn’t have to.

This is why eReaders are evolving at a snail’s pace. Amazon and B&N know that they could add ZERO new features in the next 5 years and their readers would still be reluctant to switch because they have $500 to $2,000 to $5,000 worth of books locked into the ecosystem.

If DRM were to go away, the lock-in disappears

If every Publisher were to turn off DRM, then Amazon and B&N would be royally stuck.

Their users could buy from any store. Their users could move to any device. Their most powerful lever/barrier/virtual-gate would be gone.

Then we’re left with weaker levers like convenience and reading experience and discoverability.

Those levers are almost weaknesses. Let me illustrate what happens if DRM is removed.

  1. Cost to buy Adobe DRM license and become an ebook seller – Tens of thousands of dollars to set things up; then a small fee per book. While this is much, much lower than the costs involved in becoming an old-school Publishing House, it’s still prohibitively expensive.
  2. Cost to sell ebooks if there is no DRM involved – Nothing. Literally nothing. You get a file. You sell it for X price. If people buy it you send money on to the Author and/or Publisher and pocket your cut.
  3. Since almost anyone could sell ebooks when DRM is removed, and since readers could buy from anywhere, we would see REAL COMPETITION. There would be companies willing to give Authors 50% instead of 35% and 80% instead of 70%.
  4. Amazon would be convenient for everyone. However, for individual groups of people, different websites would be the most convenient.
  5. All these websites that send users to Amazon – They could just sell ebooks straight to Kindle owners. Why would they need Amazon?
  6. Seriously, think about it. If a book reviewer writes a beautiful review of a book and then says – Buy it at Amazon for $9 or buy it via my store for $7. Which would be more appealing to you? In the first case the book reviewer would earn 50-80 cents. In the second case perhaps $2 to $3.
  7. What about when its Google Search offering you the same proposition? What about when its the author’s website?

The levers that remain once DRM is removed are weak -

  1. Convenience – even a simple website can beat Amazon on convenience. It’s not guaranteed, but it’s possible.
  2. Reading Experience. That comes down to who can write the best software. Stanza was much better than Kindle and Nook reading apps. And Stanza was a small team (which Amazon bought).
  3. Discoverability. There are lots of avenues here. Sites, Search Engines, Blogs, Small Stores, Reviewers – they can all beat Amazon.
  4. Scale – This is where Amazon and B&N have a huge advantage.
  5. User Reviews – Again, Amazon and B&N have an advantage here.
  6. Social Proof – Readers are too smart to fall for this. I might be wrong – just my assumption that readers are harder to con than other demographics.
  7. Perceptions – Perceptions can be used against Gatekeepers. They are easy targets.

The point I’m trying to get at is that DRM is the strongest remaining Gate. Once it’s gone the New Gatekeepers are in a real bind.

Real Gates have been replaced by Virtual Gates, and DRM is the strongest of those

We no longer have any REAL gates between readers and authors. Since both parties are still stuck in the mindset of the Old Publishing World, they don’t realize this fully.

We only have Virtual Gates now. The strongest of these is DRM. Tor’s experiment, and its success, might lead to this Virtual Gate being torn away.

At that point B&N and Amazon are in REAL Trouble.

Firstly, Publishers can sell directly to readers. Why use bookstores?

Secondly, the devices become dumb terminals. If there’s no DRM, there’s no lock-in – neither to the store (you can switch stores), nor to the device itself (meaning you can switch devices and still have access to the books).

Thirdly, all the people in the middle suddenly realize that Amazon and B&N have ZERO actual power left. They can just offer a better deal to Publishers and cut out Amazon and B&N.

You might think the people in the middle don’t matter. Let me give a few examples – Google, Facebook, Twitter. Why would these companies send people to Amazon if they can sell ebooks straight to users?

Would Twitter really say – No, we don’t want to make an extra $500 million a year by selling ebooks to our existing users that are ALREADY using our site to share ebooks and recommend ebooks.

Amazon better hope and pray that Publishers don’t throw away DRM

It’s all a House of Cards. The New Gatekeepers lording over Authors and Readers and Publishers. Pretending they are indispensable. Using everyone’s fears to exploit them and gain power.

What’s going to happen if DRM is eliminated and Authors, Readers and Publishers (especially Publishers) realize that Amazon and B&N are 100% redundant and replaceable by hot air.

Seriously, it’s time to think about it deeply. Think about it from the building blocks perspective. What core, irreplaceable function do the Bookstores provide?

Why on Earth do Publishers need to sell via Amazon? If DRM is gone and there’s no lock-in, then Publishers can just sell to readers themselves. They don’t need a store because they produce 55% of the sold books and 80% of the most desired books.

We know readers care about Authors, and want Authors to make money from their hard work. Do they care about anyone else? Should they? What indispensable function are the other parties in the equation providing?

If you strip away all the antiquated beliefs from the Old World of Publishing, you get a simple, elegant model. We have Authors producing great books, Readers paying for them and reading them, and a bunch of helpers in the middle. No longer are these ‘enablers in the middle’ the Powerful Gatekeepers of Old. No longer are there any Gates.

DRM is the last powerful Gate that is keeping the New Gatekeepers in control. Tor’s continued experiment might very well spell the end of DRM. That, in turn, would spell the end of the New Gatekeepers.

Filed under: publishing | Tagged: , , | 6 Comments »

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