Photograph by Hugh Kretschmer
With his aggressive push into e-books, Bezos has traditional publishers running scared. Apple may be a different story. | Photograph by Joe Pugliese/Corbis Outline
But in a plot twist worthy of the latest Dan Brown novel, there's one man who could save them. And that man is Steve Jobs.
In some ways, book publishing operates like one of Joseph Stalin's five-year plans. In the former Soviet Union, the government estimated how many combs, bars of soap, and cars people needed. Produce too many and you had a glut; too few meant chronic shortages. Speculating on future demand may be a fool's errand, but that's precisely what publishers do -- often missing badly, resulting in return rates of 40%, 50%, even 60% in some cases. Books are one of the few retail businesses in which store merchandise is fully returnable to the manufacturer for credit, a seemingly irrational practice that grew out of publishers' need to induce booksellers to carry backlist titles. Stocking thousands of low-margin books takes up shelf space, after all, and booksellers have rent to pay. To ensure books would be in stores for readers to peruse and purchase required easing the risk in holding unsold inventory.
Over the past 20 years, attempts to reform this highly inefficient distribution system have gone nowhere. There were simply too many entrenched interests, most notably Barnes & Noble, which resisted updating a model from which it clearly benefited. Then came the emergence of the Web as a distribution pipeline, and a new superpower entered the fray. While the vast majority of books are still sold in mammoth chains like Barnes & Noble, Borders (which is teetering on the edge of bankruptcy), Wal-Mart, and Costco, Amazon rules online, making up perhaps 10% or 15% of total book sales but maintaining an 80% market share online. The house that Bezos built instills enviable customer loyalty with the soft face it offers the public, reflected in its competitive prices, user-friendly Web experience, and excellent after-sales service.
For book publishers, gone are the days of Maxwell Perkins-like editors tipping back Champagne cocktails and treating authors to lunches at the Algonquin. Today, "books are about distribution and publicity," says Marion Maneker, former publisher of HarperBusiness. "In essence, you need to get the books into the stores and then the buyers into the stores to buy them." But the Kindle, Maneker believes, could help Amazon bypass traditional publishers; the company could strike deals with big-name authors in lieu of advances, thereby minimizing up-front risk and solving the returns issue once and for all. In fact, Amazon has already done this, beginning with the e-book release of Stephen King's UR, a novella (list price $2.95) featuring a plot involving the Kindle. (Unlike most King works, this one even has a happy ending.)
The book industry is especially vulnerable because it is a "hits" business, with a small number of breakaway titles (Harry Potter, The Tipping Point, Twilight) subsidizing all the rest. Take away publishers' best-sellers and you're left with stacks of money-losing operations. But authors such as Dan Brown, Malcolm Gladwell, Stephen King, Stephenie Meyer, and J.K. Rowling would all thrive in a system that let them skip advances in exchange for higher royalty rates. Instead of a star author getting the standard 15% on a hardcover, for example, Amazon could simply skim a 20% distribution fee, and the author gets the rest. In this model, "the whole thing is structured so that you, as the provider of intellectual property, get the lion's share of the revenue after costs, not the publishers," Maneker says. If e-books take off, Amazon could cherry-pick the biggest-selling authors, and publishers would suddenly find themselves cut off from their most bankable sources of revenue.
What's more, this threat doesn't persist solely with e-books. Here's a doomsday scenario put forth by Richard Curtis, a literary agent and founder of E-Reads, an independent e-book publisher: Suppose you are publishing the new Dan Brown title, The Lost Symbol, with a first printing on the order of 5 million copies, and Amazon logs 500,000 preorders on its site. Instead of Random House (which is publishing the book under its Doubleday imprint) transporting a half-million books to Amazon to box up in its warehouses and then ship to consumers, "wouldn't it make even more sense for Amazon to turn to Random House and say, 'Look, don't ship those books to us. It's a waste of freight and fuel. Why don't you simply give us the file of the new Dan Brown and we'll print those 500,000 copies on demand on our BookSurge Press and drop-ship them to our customers?' Random House would save on printing costs, freight, fuel, everything. It's such an efficient way of doing things as to seem irresistible."
Not just irresistible. Virtually irreversible too. Why, Curtis asks, would "anybody need a traditional book publisher when you can essentially make Amazon your buyer and your seller in one stroke?" Then Amazon doesn't merely control the distribution of books -- it controls the content, too, and the paradigm shift is complete.
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Recent Comments | 14 Total
June 24, 2009 at 6:15pm by Mark Sigal
A quickie side-note is that the list of companies that warrant serious consideration in the discussion pretty much are three at this point (Amazon, Apple, Google).
Your article focused on those three as well, but it says something about the state of the market that folks like Sony, HP, Microsoft, Disney don't jump out as the obvious game-changers in the discussion, something that I blogged about in:
Built-to-Thrive - The Standard Bearers: Apple, Google, Amazon
http://bit.ly/info/3BhUq
Check it out if interested.
Mark
June 25, 2009 at 4:58pm by Mark Coker
Excellent article, Adam. Amazon has done a brilliant job of vertically integrating its business and stands ready to disintermediate multiple participants in the book industry supply chain.
Interesting data point: AMZN's market cap is 27 times larger than the combined market caps of Borders and Barnes & Noble.
In ebooks, while AMZN is likely to remain a dominant distribution channel for quite some time to come, publishers do have the opportunity today to receive that magical 80% Mr. Curtis alluded to. At Smashwords, we pay publishers and authors 85% of the net, and we make our books available in multiple ebook formats, readable on virtually any ebook reading device.
--
Mark Coker
Founder
Smashwords
www.smashwords.com
"Ebook publishing and distribution"
June 26, 2009 at 12:33am by Mark Sigal
Btw, if interested, here is an article that I wrote for O'Reilly ruminating on Apple's (rumored) assault on the tablet market, and its impact on Amazon Kindle and Google Android:
Apple, the Boomer Tablet and the Matrix
http://bit.ly/46CtH
Check it out.
Mark
June 27, 2009 at 2:56pm by Lisa Wellman
I'm an ex-Apple exec. I just got my Kindle. It's a good news/bad news story ...for Amazon. Good design. Obvious marketing/sales opportunity. Really falls short in out of the box experience. There's no joy. No WOW factor. And very little jump in and have fun. I get a dictionary and documentation? Why not start me off with the book of my choice?
There's a real opportunity for Apple to jump in and become the "hot" book choice if that's their play. Bezos has left the door open.
June 28, 2009 at 11:13pm by Andrys Basten
Fascinating article. One thing - the biggest draw of the Kindle seems to be the 'always on' Sprint EV-DO wireless which allows not only immediate book downloads from the store but also adventures (with lots of obstacles) getting around the rest of the Net, at no further cost. I bought my DX using my K2 to navigate the way (because my cablemodem network was down), including a stop to get some gmail info I needed to fill in to get discounts for the purchase. One thing about Jobs and Apple (judging from the $70/mo. AT&T iPhone Basic Unlimited plan (that has no text messages included) with the $200 iPhone 3GS), that 24/7 wireless will not come free of monthly cost.
And it could be the Amazon crowd does like to read and isn't disappointed to see, upon opening the Kindle box, no whiz-bang features to hold the attention and does not want monthly wireless charges.
--
- Andrys
http://kindleworld.blogspot.com
June 30, 2009 at 12:17am by Leo Kuba
Great article. Just waiting to see the next chapters of the e-book/content revolution. Amazon, Apple and Google are surely the players to watch for.
July 1, 2009 at 2:56pm by Amy Alkon
Like many bloggers, I have Amazon Associates on my site, meaning I send Amazon customers through links to their products I recommend and they give me a kickback -- 6.5 or 7 percent. Last month, I sold almost $3,000 worth of Amazon products through my links, but amazingly, there's one area where Amazon has chosen to screw over bloggers like me, and that's on Kindle books. Yes, they're supposed to be the future of books -- and with zero shipping costs and no paper or cardboard to sell -- but Amazon gives bloggers ZERO commission when they sell a Kindle book. I talked to the Kindle team at LA Times Festival of Books and they apparently can do nothing about this. And I even wrote a snail mail letter to Bezos. A PR lady called me and gave me no explanation. Two possibilities that occur to me: Greed. Stupidity.
I had a whole Kindle store planned on my site, and I scrapped the whole thing. And when my book on the collapse of manners comes out in the fall, I'm sure not going to tell people to read it on Kindle. Why sell something that cuts down my income on my site - which I sorely need, as I'm a newspaper columnist, and my blog commenters have been keeping me afloat by buying stuff on Amazon so I get the commission, which helps me weather the downturn in newspapers.
July 1, 2009 at 9:46pm by Steven Seegmiller
Henry Ford felt it important that his Model T should be affordable to the masses. I think Jeff Bezos missed the lesson here. Plus, by pricing the Kindle at $359.00 he opened the financial door to competition. But that isn't all....
Consider your book buying patterns and compute how many books you would have to buy to break even at Kindle costs. Remember to include the tax benefit of giving once read books to a charity.
The article discussed the problems publisher have with returned books. The book store I visit often has these books for less then $10. At that rate it would take a lifetime to recover my Kindle cost.
I would love to have one, but would someone help me understand how I can justify it from a financial perspective.
Advice to Bezos: Congrats on such a wonderful and well reviewed product. Be careful the boomerang (Kindle overcharge) doesn't hit you in the face when it comes back to visit you when the lights go out and your customers dummy up.
July 3, 2009 at 6:22pm by Craig Miller
Great article and nice analogy of amazon evolution process. I guess amazon is not far to see an increase of Kindle e-books from its analog buddy the analog/physical book. Something's gonna change and future will be here sooner than we expected and book industry and economy will see a new dawn. Kudos.
Craig--->forex blog
July 6, 2009 at 12:57pm by Darren Wacker
I think the future and potential of Kindle and similar products is impressive. However, I am curious what-if anything-Amazon is doing to relative to the issues of accessibility. There is a big blow up right now relative to a pilot program at Arizona State (http://chronicle.com/wiredcampus/article/3864/advocates-for-the-blind-su...)
I would hate to see something like this derail a promising technology for college students if this fails to be addresed.
July 8, 2009 at 7:26am by Hans Brons
Great assessment of how Amazon is creating a sticky price in consumers’ minds. This price point would not make life for the publishers much easier, but having competition arriving in the market in general is a good thing. It will certainly contribute to squeezing out the inefficiencies in the current value chains, while also stimulating innovation across these value chains. It will also increase awareness at the publishers’ end, forcing them to rethink their current business models and move toward a business model where price is not dictated to them. At IREX we do not support forcing a certain price, and we do not want to interfere with the relationship between the publisher and consumer.
--
Hans Brons
CEO
IREX Technologies
www.irextechnologies.com
July 20, 2009 at 11:56am by Aric Friesen
You say:
Nothing, however, has piqued the public imagination quite like the Kindle
Hmmm, while I think the Kindle has merit, I know only two people who own one and a few others who are considering buying one. However, almost everyone I know owns one or more HDTVs, iPods, iPhones, XBOX 360s, Wiis, and PS3s. I would say all of those items have captured the public's imagination more then the Kindle.
July 25, 2009 at 11:40am by Victor Grund
Great article. I'm excited to see what Apple might do here.
August 1, 2009 at 9:13pm by Joanna Penn
Thanks, I really enjoyed this article. I wait for Fast Company to arrive in Australia every month, and it does arrive (eventually!)
Unlike the Kindle or the Sony E-Reader or most other ebook reading devices actually. Perhaps you could do an article on the stupidity of ebook copyright issues at some point?
I can order a print book from Amazon.com and have it shipped to Australia (cheaper than buying the same book here), but I cannot have the ebook version because of territorial rights. I also cannot publish my ebook on Amazon Kindle if I am not a US citizen, nor can I even buy an ebook from Scribd.com , let alone publish there.
I don't get this because ebooks are by nature without borders. They should be available globally and bought from wherever and read wherever. This MUST be part of the ebook and publishing future. Global rights, not territorial and the right to publish, sell and read ebooks globally.
I would have bought a Kindle if it was available here in Oz.
Now I am holding out for the Apple tablet!
http://www.thecreativepenn.com/2009/07/28/im-an-ebook-consumer-and-i-wan...
Thanks, Joanna