

What Amazon's ebook strategy really means - cstross
http://www.antipope.org/charlie/blog-static/2012/04/understanding-amazons-strategy.html

======
Turing_Machine
I'd have more sympathy for this point of view if the Big 6 publishers hadn't
been running a de facto cartel since, well... forever, and basing their
relationship with authors on a business model that could be compared,
unfavorably, with a payday loan operation.

The DeBeers artificial scarcity model of publishing doesn't work any more. I
won't miss it.

Note that there will still be plenty of work for editors, cover artists, and
other creative professionals. There's just no longer a need for a "publisher"
that essentially does nothing but sit in the middle and siphon off 80% of the
revenue. Art, printing, even copyediting are already largely outsourced by the
publishers, and have been for years.

The difference between the old-school publishers and Amazon is that Bezos
_knows_ the ebook business can be disintermediated if he starts screwing
authors and consumers. It could happen in a matter of months. Maybe weeks. All
it would take would be for one Stephen King to hire some guys to set up a
server farm and start providing ebook distribution for his fellow authors
under better terms than Amazon ("Stephen King" used as a placeholder here for
"author with excellent name recognition and some spare capital hanging around"
-- I doubt King himself would be interested).

"I had to run my own self-publishing op I'd lose half my writing time to what
is essentially a peripheral activity"

Nonsense. He could put his books up for sale with little more effort than it
took to put up that blog post.

If he's talking about covers, copyediting, and so forth, you can hire that
done. There are even people now who will take care of the whole book package
for you for an up-front fee (rather than raking 80% off the top in perpetuity)
-- quite possibly involving some of the same people that the publisher is
already using.

I really can't think of anyone who's been as consistently wrong about ebooks
as Stross (I do like his fiction, though :-)).

Note this post from 2007, where he basically pooh-poohs the whole _idea_ of
ebooks becoming a significant player:

[http://www.antipope.org/charlie/blog-static/2007/03/why-
the-...](http://www.antipope.org/charlie/blog-static/2007/03/why-the-
commercial-ebook-marke.html)

As Clay Shirky put it recently, publishing is no longer a _job_ , it's a
_button_.

Classic publishing is already dead. It just hasn't stopped twitching yet.

~~~
cstross
Ahem: apropos that 2007 post of mine, I will stand right behind it. Back in
March 2007, it was right on the nail.

In case you've forgotten:

\- In March 2007, most book titles from the big six were not available as
ebooks at all.

\- Kindle did not exist. (Launched November 2007)

\- Those ebooks that were available were usually priced at the same, _or
higher than_ the equivalent paper edition "in order to avoid cannibalizing
sales".

\- We had a systematic problem with proliferating, rival ebook file formats:
ePub wasn't a standard yet (not until September 2007 - that blog entry was
from March '07), Mobipocket was still out there and competing with weird shit
like Aportis Doc and iSilo for the PalmOS market, Microsoft was still
performing CPR on .LIT format, and so on.

\- Sales of ebooks amounted to less than 0.5% of the total sales of books. The
big six were ignoring them, basically.

\- The iPhone as an app platform did not exist. (The original iPhone was
announced on January 9th, 2007, but was to only run web apps. The app store
lay in the future.) Android didn't launch for another year, and the multitouch
big-screen smartphone (capable of running an ebook reader app) simply did not
exist.

\- Cheap ebook reader devices ... are still a minority pursuit today, even
though the price has pushed down to just under $99; the real breakthrough has
been the [free] ebook _apps_ for Android and iOS which turn every smartphone
into a potential ebook reader. Back in March 2007, a typical e-ink ebook
reader cost around $399 (something like the Sony PRS-505 or the Irex Iliad)
and the nearest thing to a smartphone you could buy had _buttons and a
stylus_. Not to mention an eye-stabbingly bad screen (anyone else remember
having a Treo 650 with a 320x320 pixel display and being so happy because it
was an _improvement_ over what they had before?).

I will plead guilty to not having predicted the disruptive effect of iPhone
apps in March 2007, sold from an app store that Steve Jobs had pretty much
ruled out. How about you?

~~~
Turing_Machine
"Cheap ebook reader devices ... are still a minority pursuit today"

Amazon sold over 4 million Kindles in December alone, and now sells more
ebooks than paperback and hardcover _combined_.

With one or two exceptions, every serious reader I know has a Kindle, an iPad,
or both.

~~~
cstross
I think you've forgotten just what things were like even as little as five
years ago.

The rate of change in publishing today is like the web circa 1992-97.

~~~
radicalbyte
Have you ever read ebooks on a palm? It was pretty obvious to me that that was
the future. It needed someone to take the idea seriously for it to become mass
market. Amazon did.

As, I should add, have O'Reilly.

~~~
cstross
Yes, I have read ebooks on a palm. And on a Psion 5 before that. (I started
reading ebooks around 1996-97 and have been banging on about them ever since.)

Yes, O'Reilly. Yes also Baen (via Webscription.net). But there wouldn't be a
mass ebook market at this point if the big publishing conglomerates -- who
produce 80% of the books sold -- weren't on board with ebook publishing.

------
sgentle
Har. Nice article and a well-made argument. However I suspect that the big 6
are going to accept a world without DRM the same way as the MPAA and RIAA
before them: kicking, screaming and fighting until the last breath to prevent
anyone from staunching the massive gaping wounds they've inflicted on
themselves.

In an ideal world, a world where media companies do what's best for themselves
and their customers, I think publishers would act as you've predicted, for the
reasons you've said. But instead I'd wager they'll standardise on some other
format, or maybe a few (incompatible, of course) formats, announce some token
partnerships with uninspiring hardware manufacturers, and generally mill about
without any kind of strategy.

Meanwhile Amazon starts quietly disintermediating its way through the
publishers themselves with its self-publishing programme. It starts to look
pretty compelling, especially with mushrooming ebook sales. A few medium-big
authors make the jump and start crowing about their awesome royalty rates.
Publishers freak the hell out. The standard ebook price drops to $5. Repeat
until everyone else is out of business.

Frankly, I think the only hope is an indie renaissance a la Bandcamp and the
recent wave of DRM-free comedy. A compelling online publishing startup that
knows how to appropriately wield its "we're not Amazon" cred could get some
serious traction. Most authors I know are pretty savvy, and extremely wary of
an Amazon monopsony. Unfortunately, they have to go where the money is, and
the available options seem to be dwindling.

~~~
asr
So, in your doomsday scenario, I get books for $5 and authors make more money?
I'll take it.

The crux of Stross's argument for why we should fear Amazon's low prices is
that it's "predatory pricing"--that Amazon was selling e-books below cost so
they could jack up the prices later after they had their monopoly (or,
equivalently, lower payments to authors after they were a monopsonist).

But apparently Stross didn't read the DOJ complaint, because it turns out
Amazon's e-bookstore was consistently profitable! 9.99 bestsellers were just
the equivalent of cheap milk at grocery stores--loss leaders.

The DRM prediction in the article is pretty good, but both you and Stross
misunderstand why Amazon is winning. It's not because they're cheating--it's
because they're more efficient and so can make money at lower price points.

~~~
sgentle
Oh, I don't think Amazon is cheating. The whole point of disintermediation is
to be more efficient and drive down prices. I'm certain prices will be lower
under King Bezos, and perhaps payments to authors will stay high (though
that's far less certain).

It's important to consider that Amazon has always behaved quite consistently.
Even when it had 90% of the ebook market, it was the one pushing to keep
prices down. In its other markets (cloud services, physical books, other
goods), evidence suggests that it tries to cut prices as much as possible. I'd
go so far as to say it's part of Amazon's culture. I don't think they know how
to have a big fat margin on something. It'd make them itchy, like their very
own fat middleman waiting to be crushed.

So my issue isn't that Amazon is waiting patiently to pump up their prices
once they have enough market share. It's more that having no competition is
dangerous in itself. Google and Valve, for example, are two companies that I
like immensely, and I think they do a great job in their respective markets.
Yet Google can arbitrarily cut off access to my email, and Valve can do the
same with my games. Both have been known to use these powers when it makes
sense to them. I'd change providers, but everyone else, frankly, sucks.

I want there to be robust competition in e-readers, but the Kindle is too
good. I want there to be robust competition for e-bookstores but Amazon always
has the best prices. There's a kind of bittersweet ambivalence in knowing that
the industry leader is there because they're a clever company doing it right,
but still wishing that someone else was there to challenge them. Nobody's
right always, or forever.

~~~
tomkarlo
_Google and Valve, for example, are two companies that I like immensely, and I
think they do a great job in their respective markets. Yet Google can
arbitrarily cut off access to my email, and Valve can do the same with my
games._

Especially in terms of cloud email, isn't that going to be true of _any_
service provider you choose? That has nothing to do with monopolies, it's just
the nature of the beast. People you buy services from can stop providing those
services.

~~~
sgentle
Absolutely. Anyone you do business with can do anything not forbidden by the
law. But competition is a great reason to avoid doing things that make your
customers unhappy.

If there was another cloud email provider that was as good as Gmail, but
additionally had a reputation for never disabling accounts, I would switch to
them. Gmail would lose my business, and I wouldn't have to worry about my
account disappearing if some bayesnet decides I'm a bad guy.

~~~
tomkarlo
Okay, but email is a highly competitive business. Competition doesn't mean you
don't make customers unhappy, it just means you're judicious about how/when
you do it. Any time you have to balance customer needs with abuse mitigation
and legal compliance, you're going to have to do some things that make some
customers unhappy in the name of being able to provide the wider service.

------
malay
The history lesson on Amazon's business model is important, but the OP has it
a bit wrong. The business model innovation was about inverting the cash flow
and holding cash instead of inventory. Amazon actually pays suppliers much
faster than traditional book retailers, making it better for the suppliers.

Traditional book retailers pay suppliers 90 days after the book enters
inventory whereas Amazon averaged about 58 days. The problem for traditional
retailers is they held books in inventory (i.e. the book went unsold) for an
average of 167 days versus Amazon's 16 days. This resulted in retailers
carrying the cost of the book for ~78 days while Amazon was able to hold the
float for ~41 days.

The end result of that type of inversion is that Amazon can accept a much
lower margin, earn the float on the cash and live off much faster inventory
turns than a traditional retailer. This was much more brilliant than
"disintermediation" - as another poster has correctly noted, Amazon was an
aggregator/replacement, not a true disintermediator.

------
noelwelsh
I largely agree with the analysis in this essay, but I believe the book market
can be more significantly disrupted than is currently being suggested. Here
are the significant changes I see:

\- Screen technology will improve so that the distinction between e-paper and
conventional displays becomes irrelevant. I really think the retina display on
the iPad is good enough for most people in most situations, and that the iPad
will be a significant rival to the Kindle in the ebook market.

\- Currently ebook readers are very limited in what they can display, due to
their display technology and limited processing power. This limitation will
disappear (see above -- the iPad)

\- When the above occur there is no need for a special ebook format. An ebook
is just a website. We have a huge investment already in creating websites
which makes the cost of doing so virtually zero. Creating a book will require
far fewer people (maybe an editor, some marketing assistance, and a few days
of a graphic designer's time).

\- Once we realise that an ebook is just a website, we can get away from the
idea that a book is a single homogenous entity. Why not sell a chapter at a
time, and use the feedback to improve subsequent chapters, in the same way we
use A/B testing (or hopefully, bandit algorithms [<http://mynaweb.com> \-- my
startup]) to improve sites? Why not sell multimedia packages of text,
screencasts, etc for technical books? (This already happens.) This gets away
from the stupid model of paying advances that publishers currently use.

\- People will need a discovery mechanism, but we already many of these for
the Internet in general. Maybe new ones specialised to books will emerge. In
this more open world it will be harder for anyone to get a monopoly.

So, what have I missed?

~~~
marquis
I'm looking forward to a world where some books return to their 1800s
newspaper-style formats: short chapters published weekly, like we get some
graphic novels on the web now. I WANT to pay the author, and look forward to
this happening. It's definitely a great space to look into. It may exist
already and I don't know about it? (again, leaving it open for some startup to
make waves..)

~~~
alanfalcon
This is happening to some degree in audiobook form with Podiobooks.com - many
authors release episodes weekly, as they write and record them. This is likely
happening in text form too, but I find that I listen to rather than read books
these days. Also, Amazon bought the dominant digital audiobook distribution
platform in Audible.com for what that's worth.

------
revelation
Some clarifications, I guess? I don't think Amazon is loss-leading the ebook
market to secure a monopoly; you do that in an already established market.
Instead, what I think they are doing is trying to bootstrap the ebook market.
And successfully, at growth rates far exceeding 100% every quarter.

Also, Amazon is not replacing warehouses with on-demand just yet. They are
rapidly expanding with many new warehouses opened every year. What they are
doing is much more ingenious: they setup marketplace to allow other companies
to sell products lacking in Amazons portfolio through their website. Then they
offer the vendors to do shipping and storage through Amazon warehouses. Then
they ultimately add products generating lots of revenue (and profit) to their
own portfolio, cutting out the vendor completely.

As with "amazon basic" products, sometimes their scheme extends as far as to
completely replace the producer.

------
nextparadigms
I'm with Amazon in this battle, and this battle alone, because I want e-books
to become cheaper, but in the same time we need to see what we can do about
Amazon later on to make them adopt an open e-pub format. I say open e-pub
format because others use e-pub, too, and it's still closed (like Apple with
iBooks).

We need to get to a point where people can easily leave the Amazon bookstore
if they wanted, and they wouldn't feel "locked in" within the Amazon
ecosystem.

------
bambax
But how is Amazon "disintermediating" anything? It's simply taking the place
of a previous intermediary (bookshops).

The next step will be that authors will sell to readers directly; that will
disintermediate both publishers and Amazon, and there's no reason it should
not happen.

~~~
cstross
Au contraire: the reason it won't happen is that most folks are not tech-savvy
geeks. Most writers want to write, not deal with the minutiae of self-
publishing (which is not the same thing at all), and most readers who buy
ebooks aren't savvy enough about downloading files and shoving them onto a
peripheral device. Oh, and reading books is already a marginal activity:
anything that reduces the size of the market by even the 10% who are least
tech-savvy is going to hit the producers in the wallet.

(It's easy to lose sight of, but the entire world does not consist of people
similar to HN readers gearing up to launch a new startup. Not even close.)

~~~
bambax
My nephew is 14 and has already published not one, but four books on the
Kindle platform (one he wrote himself, the other three his grandfather wrote).

The new generations of authors will be very tech-savvy, to a point that may
sound incredible now but is very real.

And even if some, or the majority, of authors don't want to do this
themselves, why can't they hire a bunch of folks to do it for them? Why would
they hand over 70 to 85% of potential returns to a publisher or to Amazon when
they can pay someone a fixed price for editing, proofing and page layout, and
keep 100% of the returns after that?

Publishers are clearly doomed since they don't provide enough values for the
fees they demand; but I doubt Amazon's position is a lot more secure.

~~~
brazzy
_My nephew is 14 and has already published not one, but four books on the
Kindle platform_

So your example for something that could replace Amazon... is Amazon?

Amazon is doing at least two things really well that is going to be completely
impractical for individual self-publishing authors to do on their own:
Providing a go-to place for customers looking for books, and payment
processing.

~~~
bambax
> _So your example for something that could replace Amazon... is Amazon?_

Yes! ;-) The example was used to refute the fact that authors are technically
incompetent. In the next generation most people will be able to put together
an ebook.

I think the threat to Amazon will come first from best-selling authors, who
already have a faithful following of their own. For everybody else, Amazon is
great, for now.

But imagine a future where a search engine can help you find great ebooks, and
where a simple payment system can let you buy them directly from authors
(charging 2-3% to authors) -- why would you need Amazon then?

~~~
brazzy
"a search engine can help you find great ebooks, and where a simple payment
system can let you buy them"

You just described Amazon. On top of that, they have the recommendation
engine, public wishlist, affiliate program, and allow you to buy all kinds of
other products via the same UI.

It's going to be very, very hard for any competitor to become attractive
enough for customers to matter. I don't think even best-selling authors can
just ignore that factor.

~~~
bambax
Of course customers don't mind one way or the other. Authors do; they'd rather
keep 100% than 70% or 30%.

~~~
dagw
Authors realize the importance of distribution channels. They'd rather keep
70% of 100k sales than 100% of 10k sales.

------
Atropos
What would the world be like, if you could instantly buy every book as an
ebook anywhere in the world, if ereaders were clearly more convenient to use
than paperbooks and if they were so cheap, that everybody who now owns 1 book
would own 1 ereader?

I might be wrong, but in my imagination this would be awesome, offering nearly
limitless possibilities for disruption. For example the adoption of open-
source textbooks in schools would be much easier, academic research in some
countries would really benefit from easier access to materials.

I think there is no question that this will be technologically feasible at
some point in the future. The question is, if it happens and when. I hope it
happens as fast as possible and judging by the development of the ebook world
from 1990-2007 and 2007-Now, Amazon is by far more beneficial than the
traditional publishers in this regard.

Certainly a monopoly is never optimal, but let's worry about that once the
future has arrived. There is always antitrust law. Until then, I hope Amazon
(or Google or Apple or ...) achieves as much marketshare as possible and
pushes the development onward.

------
russell
I'm curious about the economics of self-publishing.

What does it cost for an editor to edit a 300-400 page novel written by a
decent author?

How about cover art?

Marketing is an entirely different animal. I dont think you do book tours for
ebooks.

~~~
jseliger
It depends. Most seem to hover in the neighborhood of around $.01 – .02 per
word; take someone like this guy, who I've thought about hiring:
<http://www.mikesirota.com/fees.htm> . A typical novel will run about 85,000
words, so he'll probably charge about $1500. I think these guys:
<http://www.bookdocs.com/> charge similar prices. If you want to publish a
250,000-word epic fantasy novel, that's obviously going to cost more.

 _How about cover art?_

About $500: <http://www.extendedimagery.com/info.html> . You can probably find
people charging more money or less.

This is a topic of great interest to me because I'm probably going to take the
plunge in the next six months, if not sooner.

------
kkwok
I agree largely with this--especially about removing DRM. What complicates it
for me is that it's very hard for me to have any sympathy for the publishers
as they brought this upon themselves. They can't play victim as long as they
keep DRM.

~~~
dhimes
And what's to keep Amazon from keeping the DRM even if the publishers don't
require it?

~~~
0bit
Just like they did with Audible. And according to this[1] article on
BoingBoing, they promised to do away with DRM, but have still not done it in
FOUR years! Link[1]: <http://boingboing.net/2008/01/31/amazon-buys-
audible.html>

edit: they = Amazon

------
guard-of-terra
"Amazon has the potential to be like that predatory big box retailer on a
global scale." Amazon is not so good at global (compared to other big internet
businesses anyway) It only really works in a selected few countries/languages
(US + Canada China France Germany Italy Japan Spain United Kingdom, as the
site tells us)

Another interesting question arising from that is: What are
countries/languages which has no Amazon are going to do? They don't have
monopoly, but they perhaps also lag behind in e-book sales, suffering from the
lack of synergy and convenience provided by amazon website + readers +
applications + 3rd party support.

------
mark_l_watson
Charlie, while I basically agree with your article, from my perspective Amazon
has been good for you: I bought one of your books for the Kindle platform
after reading a comment you wrote on HN, liked it, and have bought several
more. If the whole process was not so quick and easy, I might not have done
the impulse buy and bought the first book. Sounds like a nice town to live in.

------
danmaz74
This was a interesting read and the OP makes a good point. But couldn't the
publishers just make a deal with e-book reader makers (which are struggling
against Amazon too) and create a DRM "open" standard?

By the way, I'm almost only buying ebooks from Amazon lately and, despite the
convenience, this does make me pretty uneasy.

~~~
cstross
I suspect if they tried such a gambit, AMZN could -- justifiably -- call for a
DoJ investigation into unfair restraint of trade. (Or just ignore it
altogether, insofar as AMZN has still got over 60% of the US ebook market.)

Besides, the whole point of DRM is to impede portability. What's got the
publishers into this mess is being more concerned about piracy (and therefore
opposing portability) than about empowering a hostile monopsony. The quickest
way out of the quagmire is to open up.

We saw this before, with music in the iTunes Store: 2003, everything is DRM'd
up the wazoo. 2010: suddenly Warner Music are happy for Apple to sell you un-
encrypted downloads. Luckily for the music cos, Apple are primarily interested
in selling hardware. Amazon's priorities are different, and much more
dangerous ...

~~~
ralfd
In one important aspect music differed from movies and books: Music was never
in a copy protected format. The point of digital songs with DRM was absurd,
because you could just rip & burn an original CD. But movies were copy
protected even on VHS cassettes. DVD and BluRay are easy to rip/burn, but pro
forma they have a DRM. And ORC scanning of books is inconvenient. It makes
sense to at least try to establish a DRM for digital books.

But it is true: "All this has happened before. All this will happen again."
(So say we all)

iTunes DRM helped not the big labels, but turned out to be a (small?)
competitive advantage of Apple. Steve Jobs just didn't care, because Apple is
in the business to sell the razor (iPod). This is a compelling analogy what
happens now in the eBook disruption. With the difference that Amazon is in the
business to subsidize the Kindle plattform to sell more blades (books).

------
aresant
We recently purchased patio furniture and elected to buy Amazon's brand.

It's cleverly branded "Strathwood" because it was (a) Rated well (b) About 60%
as expensive as other, lower rated choices.

The benefit to ME, the consumer, in this case is substantial - better quality,
cheaper and - oh yah - shipped in 2 days to my home for free (Prime).

That convenience and quality factor is going to be damned hard to defend
yourself against in retail, and clearly this is where the future of consumer
retail is going.

The author seems to be arguing against letting this play out in the free
market.

Yet in the past decade we've watched AAPL serve consumers with innovation and
quality, and vertically integrate themselves into the world's largest company.

We are living through an unbelievable change in consumer purchasing and
commerce.

The full impact of this change is hard to overstate, and trying to regulate it
properly would be like a sandcastle against the sea at this point.

edit - Calacanis has an interesting article on this as well, further
suggesting retail stores, etc -> [http://www.launch.co/blog/amazon-has-a-ton-
of-white-label-pr...](http://www.launch.co/blog/amazon-has-a-ton-of-white-
label-products-and-is-hiding-them.html)

------
andrewflnr
So does this mean that the major publishers have to re-disrupt Amazon's
disruptive business model? That seems ironic.

~~~
cstross
They're still reacting. But they've finally woken up and smelled the smoke
from their burning walled gardens, and they're trying to form a bucket chain.

The trouble seems to be that 19th/early 20th century anti-trust law, from the
era of the coal and steel and oil monopolies, is a _really_ bad fit for modern
service industries. Not to mention moving too slowly. And taking aim in the
wrong direction. (Such as the DoJ ignoring the $48Bn goliath with 85% market
share and taking aim on the half-dozen $1-4Bn corporations trying not to get
squashed by AMZN by sucking up to AAPL.)

------
jcurbo
So with all this I wonder if Apple will eventually go non-DRM on iBooks much
like they eventually did with music on the iTMS.

------
fleitz
Faced with the prospect of removing DRM or watching their business die most
businesses would rather watch it die.

------
iRobot
Not everyone lives in cities surrounded by mega bookshop/cafes, prior to
Amazon, if I wanted a book I had to order it from the library, pay $2 and pick
it up after a 50 minute drive to town. ditto if I wanted to buy a book it was
$15-$30 and a 50 minute drive and a really small choice unless I ordered and
waited another 2 weeks. (Prices converted from NZ$ to US$) - Amazon delivered
actual real books from the US to NZ for less than that and the kindle moves me
now to a level playing field with the rest of the world and no trees cut down
or gas guzzled in the process.

Seriously I've been stuffed ridged on price for the past 30 years by book
sellers and publishers, and as much as I hate corporate evil, I dont consider
amazon has done anything evil (yet), and if anything they have delivered
payback in the form of a large kick in the nuts to the big publishing houses.
If these people envy Amazons business model then make a better one and stop
fucking whinging!

------
kbronson
Don't miss the comments in the article, as they are as worth as the article
itself.

