Amazon, Profits, DNA

Spring Birth

Gorak was the name its mother gave it.

It was like its father – an Apex Predator. Born almost self-sufficient. Within a few weeks it had left its mother’s side. It hunted alongside its father.

It was Spring and there was prey everywhere. It killed when it was hungry, and ate its fill. It never stored anything. What was the need. It had not known anything except Spring.

It met others of its kind and they always talked about how plentiful the prey was. No one ever talked about the future. No one talked about seasons.

Summer Floods

Things got even better in Summer. Migrating herds came in from the North. Summer made spring seem sparse.

Gorak ate its fill. It considered killing for sport but deep inside it was an instinct that respected the lives of its prey. It watched as others of its kind killed for the thrill.

The herds became thinner as summer passed. Gorak wondered what would be next. It had only known the generosity of Spring and the limitlessness of Summer. What wondrous seasons were next.

At the very end of Summer, the floods came. The herds disappeared. Many of the Spring animals disappeared too. Gorak had a hard time. Its father made sure Gorak didn’t starve. Prey was hard to find and there were far too many of its kind to compete with.

Fall Despair

Fall was cold and wet. Prey was so rare that it saw others of its kind become cannibals. It took to sleeping in trees at night.

Gorak was smart. Prey was extremely scarce but Gorak found a way to survive. Its father left for the South.

It watched countless of its kind perish. Often at each other’s hands.

The despair of Fall and the loneliness of its father’s departure left a deep mark on Gorak.

Winter Revival

Gorak was one of a handful of its kind that survived the Fall.

Winter was bitterly cold. Winter was harsh. Winter saved Gorak. Animals reappeared. They were different. They were still meat.

Gorak and the remaining of its kind flourished. They walked about proudly once more – the Apex Predators.

Winter passed slowly. Gorak was worried. Unsure what would come next.

Second Spring

Spring and its bounty arrived with a flourish.

The others of its kind went back to their ways. Killing freely. Not thinking about tomorrow.

Gorak still thought of the Fall. The Fall when its kind had fallen on each other. The Fall when hunger had been its best friend.

Gorak set about preparing for Fall. Elaborate measures that its own kind mocked.

It trained itself to be disciplined. It set up hunting spots and hideaways. It scouted others of its kind and learnt their weaknesses and strengths. They were not prepared like Gorak was. Some were not prepared at all.

Summer of a Different Shade

The herds arrived in summer. Things were wonderful and others of its kind forgot all their worries.

Gorak waited for the inevitable thinning of the herds. It never happened.

It was a different summer. The herds didn’t thin out. There was more prey than Gorak and its kind could dream of.

In the midst of plenty, Gorak still remembered the lessons of the last Fall and Summer. It remembered and waited.

What will Fall bring?

Gorak sits and waits. Prepared for the Fall season that nearly killed it.

Its preparation has set it free. Its fear has kept it prisoner.

Others of its kind mock it and wonder.

Gorak often wonders too. But it wonders different things.

Are Kindle Lending Library and Indie Author Exclusives killing Kindle Book Prices?

Kindle Owners’ Lending Library

Amazon has something called the Kindle Owners’ Lending Library.

Basically, Kindle owners who are also members of Amazon Prime can ‘borrow’ one book a month.

There are some interesting nuances –

  1. There are 300,000 books that are part of the Kindle Owners’ Lending Library.
  2. All 7 Harry Potter Titles are available.
  3. Over 100 current and former New York Times bestsellers are available.

If you notice the figures, it’s 100+7 versus 300,000. The first question that comes up is – How many of those 300,000 books are books you’ll actually want to read?

I don’t know the answer to that question. But it’s definitely a lot less than 300,000. Some of the ones that you might want to borrow include –

  1. The Harry Potter titles.
  2. The Hunger Games titles.
  3. Most/Some of the books published by Amazon’s various Publishing imprints.
  4. Some of the books Amazon got Kindle exclusives for (including some titles from John Lutz and Philip Roth).
  5. A few big name authors like Michael Lewis and Stephen Covey.

Overall, the number of books you find interesting might run in the few hundred to few thousand range. Of course, you’re limited to one book a month, so those books would last for quite a while if you only read a book a month.

Amazon Kindle Indie Author Exclusives

Amazon has a program called KDP Select. Authors who enroll in this get some benefits and have to give up some things in return –

  1. Indie Authors who join KDP Select must let their books become part of the Kindle Owners’ Lending Library. There is a KDP Select Global Fund and authors get approximately $2.29 per book borrow.
  2. Indie Authors get to offer their books for free to Kindle owners for 5 days out of every 90 days. This ‘free marketing’ thing is the big carrot for indie authors desperate to get some awareness among readers.
  3. Indie Authors have to give Amazon a period of exclusivity. They cannot sell their book via any other ebook store while they are enrolled in KDP Select. No other ebook store includes the authors’ websites and blogs.

The big draw for authors is that they get to give away their books for free for 5 days in every 90 day stretch. This is free marketing. In return they must enroll their books in the Kindle Owners’ Lending Library program. They get $2 or so per borrow, so it’s not all bad.

The really tricky part is the Kindle Store exclusivity.

Are Kindle Owners’ Lending Library and Indie Author Exclusives a good thing for Kindle and Amazon?

At first glance they do seem to be an advantage –

  1. Amazon gets exclusives for hundreds of thousands of books from Indie Authors and some smaller Publishers and some published Authors.
  2. Amazon can claim, quite correctly, that it has more books for sale than any other ebook store.
  3. Amazon can beef up its Kindle Owners’ Lending Library. It certainly sounds impressive to hear ‘Borrow free books from 300,000 titles’. It is only afterwards that readers realize it’s 1 book per month and that only about 0.1% to 1% of those 300,000 books are of any interest to them.
  4. Amazon can sell more Amazon Prime memberships by dangling the carrot of the Kindle Owners’ Lending Library in front of Kindle owners.
  5. Amazon has more ‘free books’ thanks to Indie Authors and Smaller Publishers and some Published Authors offering their books for free. This attracts a lot more readers to the Kindle Store.
  6. Indie Authors generally price their books cheaper. This leads to Kindle Store having lower average prices than other stores. Again, this attracts more readers to the Kindle Store.
  7. Notice the beauty of this (from Amazon’s perspective) – Amazon is getting authors to give it exclusivity and readers to buy Prime Memberships for something that in a free market would happen naturally.

How could hundreds of thousands of extra titles not be an advantage? How could hundreds of free kindle books every day not be an advantage? How could hundreds of thousands of $1 and $3 and $5 books from indie authors not be an advantage?

Well, perhaps first we should look at what’s happening in the Kindle Store.

Please also see our post on The Relentless Fall of eBook Prices for more details on what the next section covers.

Kindle Store – Kindle Book Prices keep falling

Kindle Store is seeing a massive fall in the prices of the Top 100 Bestselling books.

  1. Kindle Store Top 20 – 11 books below $5 and 4 books below $2 in the Top 20. That’s 55% below $5 and 20% below $2.

  2. Kindle Store Top 40 – 24 books below $5 and 11 books below $2 in the Top 40. That’s 48% below $5 and 27.5% below $2.

  3. Kindle Store Top 100 – 55 books below $5 and 24 books below $2 in the Top 100. That’s 55% below $5 and 24% below $2.

  4. Kindle Store Summary – 1 out of every 2 books in the Top 100 is $5 or less. 1 out of every 4 books in the top 100 is $2 or less.

This is really quite stunning.

55% of the Top 100 books are now $5 or less. 24% are $2 or less. There’s not very much money you can make on books below $5. With books below $2 there’s hardly any money.

Keep in mind that Amazon uses weighted algorithms to try and keep down cheaper books. Cheap books are taking over the Top 100 List despite Amazon’s best efforts.

Amazon is, in effect, causing this Fall in eBook Prices to Happen


  1. Devaluing books by offering ‘Free Book a Month’ in the Kindle Owners’ Lending Library. If readers can get 300,000 books for free via Amazon Prime, then why pay $10 for a book?
  2. Devaluing books by letting authors offer their books free 5 days out of every 90. This means that there are hundreds of free kindle books from indie authors and smaller publishers EVERY SINGLE DAY. Why pay?
  3. Massively handicapping Publishers. Indie Authors get their free promotion days and get more publicity. Indie authors get their Kindle Lending Library exposure and get more awareness. They suddenly are on an almost equal footing with Publishers.
  4. Until recently, Amazon used to carry over free book downloads into the Paid Charts. You’d see a book that was #1 in the Free List show up as #50 in the Paid List. So, even without any actual sales, free books would seem to have sold well. Amazon also does this with books that are the Kindle Daily Deals. This is unfair to books that are actually selling for full price.
  5. Amazon is pushing its own books hard. That blurs the line because the difference in polish and quality between indie books and Amazon published books is less than the difference between indie books and the NY Times Bestsellers. Please Note: I mean the ‘average indie book’, not the very good ones.
  6. Amazon is massively promoting ‘free kindle books’ and ‘cheap prices’. Thus it’s bringing Kindle owners into the store and ecosystem with the ‘free and cheap’ mentality.
  7. Amazon is massively promoting ‘free’ and ‘cheap’ without considering the consequences. Amazon just wanted to beat Nook and Sony and never realized that it would kill the golden goose of book profits if it created a rush for free kindle books. It wanted to steal the cake and keep it for itself. It’s about to realize – Giving away free slices to every reader means the cake is already gone.

Amazon wanted both benefits –

  1. To use free kindle books to beat Nook and Sony. To use ‘free loans of books’ to sign people up to Amazon Prime.
  2. To sell $10 books to Kindle owners and make money.

Now it’s finding out the hard way that it isn’t possible. You can’t destroy a market to conquer it – then expect it to revive itself the instant you’ve consolidated your victory. In life, there are long-term consequences to our actions.

All those people who got lured to Amazon and Kindle by the promise of free and cheap? They want free and cheap forever. And they are going to get it.

Because all those indie authors Amazon invited in to fill up its eShelves and create the largest ebook store – they like free and cheap even more than readers.

Amazon will have to lie in the bed it has unmade

Amazon is fighting the Book Wars on two fronts –

  1. It is trying to kill and replace Publishers. Witness all the Publishing imprints it is creating. Witness how it keeps promoting smaller Publishers and Indie Authors to try and destroy the ‘awareness and perception’ gap between Big Publishers and everyone else.
  2. It is trying to kill its competitor devices and stores – iBooks, Nook, Nook Store, Kobo, Sony.

It decided, for some strange reason, that the best way to accomplish this is via cheap ebook prices. The strategy worked. Perhaps better than Amazon hoped.

The only problem is –

  • If you destroy the value perception of books to win the Books Market, the prize ends up being not worth winning.

Amazon is winning the Book Wars by effectively driving the value perception of books to $1 and $0.

If it does end up winning and controlling all of Books – It is stuck with $1 and $0.

It can’t just go in and un-train readers and indie authors. Both parties are now wedded to $1 and Free. Neither is going to switch to $9.99.

The $25 Billion a Year Books Market will be $3 Billion a Year with Zero Profits if Amazon Wins

Books in the US are supposed to be a $25 billion a year market. In 2012 eBooks are supposed to have earned $5 billion.

However, that’s what Publishers have created.

Amazon is creating a market where everything is $1 or $0.

The market that Amazon is driving us towards won’t be $25 billion a year. It’ll be $3 to $5 billion a year. Furthermore, there will be zero profits in the market. This might suit Amazon because it hopes to sell those people bananas and faucets and computer cables. Books, for Amazon are just loss leaders.

However, what about authors and editors and Publishers and everyone else who makes a living from books? Well, their entire careers are being burnt down by the spark Amazon has ignited with its free and cheap strategy in ebooks.

Kindle Lending Library and Indie Author Exclusives aren’t an advantage for Amazon. They are just means to accelerate the destruction of the Books Market. Even as Amazon wins the eBook Wars, it is doing everything it can to ensure that the prize is completely worthless.

Amazon, Kindle, Baby Boomers – Is Amazon aligning itself to serve Baby Boomers?

This comment from John McSweeney, regarding Amazon’s Grocery service AmazonFresh, set off a spark –

It’s a GREAT idea.  Our growing elderly population no longer has the strength to shop at the supermarket. All would welcome a home delivery service that is not currently available at a reasonable cost. Easily buy $300 a month (sometimes in a week).

Thanks John!

The question we were focused on in our Amazon Grocery post was – What does Amazon see that no one else sees?

Well, the answer is obvious if you look at all of Amazon’s recent moves.

What’s common to Amazon’s most recent products and initiatives?

Let’s consider the big moves Amazon has been making –

  1. Kindle that allows instant access to books, large font sizes, Read to Me. Kindle that is much lighter and easier to hold than paperbacks and hardcovers.
  2. Kindle Fire HD that allows easy and instant access to email, Internet, movies, TV Shows, music. Kindle Fire HD that is much cheaper than a PC and easier to use. It’s cheaper than iPad too (although not as easy to use).
  3. Expansion of AmazonFresh Grocery delivery service.
  4. Expansion into selling clothes and shoes. Allows Amazon customers to avoid going to the stores more and more.
  5. Talk of a Kindle Phone and a Kindle TV. Which would also focus on ease of delivery and on bypassing trips to stores.

There are two themes that stand out –

  1. These are products focused on making things convenient and easy.
  2. These are products focused on replacing ‘trips to stores’ and ‘waiting forever for shipped items’ with ‘instant access’.

Yes, this does help everyone. However, what group does this benefit immensely?

Baby Boomers.

In fact, if we dig in deeper, there are lots and lots of moves that seem targeted specifically at Baby Boomers –

  1. Large Font Sizes in Kindle eBooks make large print books redundant. Not to mention large font sizes turn ANY book into a Large Print Book.
  2. Read to Me.
  3. Light weight of the Kindle is great for those with weak hands and/or arthritic hands.
  4. AmazonFresh Grocery delivery service – No hassle of driving to the store, carrying groceries around, and all the other headaches of a grocery trip. Why would Amazon include delivery from local merchants? John McSweeney is right – Amazon is building up a very cheap delivery service that suits Baby Boomers perfectly.
  5. Kindle Fire for Movies and TV Shows – No having to go to Blockbuster. No need to buy movie DVDs online and then wait 3-4 days. No having to go to the Theater and all the problems that entails.

Perhaps the Kindle was the first step. Perhaps the success of and market demand for Kindle among Baby Boomers set off a spark.

Whatever it was, it now seems that Amazon is 100% focused on Baby Boomers.

Baby Boomers are the Perfect Customers

Firstly, you can read my Baby Boomer, Kindle eReader post from 2009 to see why Baby Boomers are perfect customers for Kindle. It includes interesting details such as –

  1. Baby Boomers and ‘Matures’ born prior to 1965 constitute 54% of the population. They account for 67% of ALL book purchases.
  2. Kindle is the ONLY eReader that actually caters to this group. It can still be improved in many ways. However, other eReader makers are completely ignoring Baby Boomers. Well, it’s not like they buy 67% of all books.

It’s not just books and reading where Baby Boomers are great customers.

We can look at some Baby Boomer Statistics to see just how important they are as customers. Taken from another 2009 post on Baby Boomers & Kindle.

  1.  US News says the 50-plus demographic holds 75% of total financial assets.

    U.S. News talks about how only 10% advertising is targeted at the 50 plus demographic (Despite them having 75% of the financial assets) –

    As a group, they are the most affluent Americans, with three quarters of the nation’s financial assets and an estimated $1 trillion in disposable income annually. Yet while boomers are hurtling toward their retirement years–the oldest boomers will begin turning 60 next year–Madison Avenue continues to prize youth. Only about 10 percent of advertising is directed specifically at the 50-plus market. “The demographic sweet spot has always been 18 to 49,” says Brent Green, author of Marketing to Leading-Edge Baby Boomers . “Once you turn 50, you fall off the planet.”

  2. Marketing Sherpa says Baby Boomers hold 70% of US resources although they are just 25% of the population.

    78.2 million baby boomers; 50.2% are women (courtesy US census).

    They’re 25% of the American population. Marketing Sherpa says they hold 70% of US resources.

Baby Boomers aren’t just an important market segment. They are THE market segment. If a market segment holds 70% to 75% of the assets, then there’s no point going after the coolness factor of teenagers with no money to spend.

People are always talking about how Facebook has all the college kids and how Tumblr has the ‘coolness’ factor.

  1. Guess how much those ‘cool’ kids earn Facebook? $5 per year.
  2. Guess how much all the ‘coolness’ earned Tumbler? Less than $12 million last year.
  3. Guess how much the average Amazon customer earns Amazon? $200 per year. Note: It’s even higher for Apple.

Would you rather have the cool and penniless kids OR the ‘not considered cool/impressionable/influencable by marketers’ rich, older customers?

Money Talks – Baby Boomers will dictate the Market

How could a $399 Kindle be a success when all the experts gave it no chance? When it had zero cool factor?

Simple answer – It got the job done for the REAL Customer Base. People who read books and people who were struggling with small fonts and availability issues and awkward book weights and sizes.

We might very well see the same thing play out with Kindle Phone and AmazonFresh and other Amazon initiatives that, for all practical purposes, are optimized for Baby Boomers –

  1. Experts don’t ‘get’ them.
  2. Teenagers don’t think they are cool like sparkly vampires and hybrid WerePandas with big baby eyes.
  3. The products and devices and services themselves are suited for Baby Boomers. Well, they aren’t perfect – just much better than what other companies are offering.
  4. Baby Boomers, the demographic that owns 70% to 75% of financial assets, pick Amazon products and devices and services because they are ideally suited for Baby Boomers.
  5. The devices and services succeed. Surprise! The group with 75% of the Financial Assets chooses them – So coolness doesn’t matter.

It doesn’t matter what the cool kids or the know-it-all tech bloggers think. The battle will be won by the company that best serves customers who have money. That just happens to be Baby Boomers.

Is Amazon aligning itself to serve Baby Boomers?

Firstly, let’s look at this:

Right Now – 78.2 million Baby Boomers.

2030 – In 2030, there are expected to be 57.8 million baby boomers (according to projections); 54.9 percent would be female

Baby Boomers aren’t just the most important customer segment right now. They are probably going to remain the most important customer segment for the next 18-25 years.

Secondly, let’s consider what Amazon is building, in effect:

  1. A delivery service that will allow it to deliver both groceries and other goods same-day in all the major cities.
  2. Devices that let it deliver digital content straight to users.
  3. Subscription services and services like Amazon Prime that gets users to buy everything from Amazon.
  4. Devices that are optimized for Baby Boomers in multiple ways.
  5. A network of warehouses around the country that will allow it to step in. Step in if lots of people can’t afford driving to stores. Step in if lots of people don’t want to drive to stores.
  6. A very high volume business that has low profit margins and is thus hard to compete with. What company wants to compete with Amazon’s $60 billion a year of revenues with a 1.1% profit margin. There are far more interesting targets like Apple’s 37% profit margins and Microsoft’s 70% profit margins.
  7. A level of scale that allows for numerous efficiencies. Which can then be passed on partially to customers – thus creating even more of a defence against competitors.

Amazon is building the perfect business for a world where large parts of the population give up on stores. This might happen. In fact, it’s likely to happen for a few reasons –

  1. Convenience of getting things delivered to your home. Same day delivery, if Amazon can pull that off, would totally cement this convenience.
  2. Baby Boomers not wanting to drive and/or not being able to drive. The amount of effort just isn’t worth it. Why spend 2 to 3 hours every few days just to pick up the exact same groceries?
  3. Rising price of oil and driving. Note: Oil from fracking is more expensive. So there isn’t really any ‘miracle source of cheap oil’ left.
  4. A shift away from a driving based economy to a local based economy.
  5. The gradual death of stores as they fail to compete with online businesses. What’s happening in books and movies might soon spread to other areas.
  6. People beginning to value their time more and factor in the opportunity cost of driving everywhere to shop. You can already see this happen with book buyers who talk about the 35 minutes trip to a bookstore being too time-consuming.
  7. Even a few stores closing accelerates the shift to online. If a mall sees a shoe shop and a bookstore close, then all the people who visited primarily for those two stores stop coming. That leads to lost sales for other stores too.

It seems that one or both of the following are true –

  1. Amazon is aligning itself to serve Baby Boomers.
  2. Amazon is aligning itself to serve a world where people want things delivered to their homes. Where people don’t want to drive to stores.

In either case, Amazon is building up a line of products and services that serve Baby Boomers very well. Baby Boomers are, based on financial measures, the most important market segment. Amazon is well on its way to locking up a large part of the Baby Boomer segment. Baby Boomers might very well be what drive Amazon to solid profitability.