Amazon Isn't Evil (But…)

Unlike with Amazon, it's easy to understand what Kleo wants...
Unlike with Amazon, it's easy to understand what Kleo wants...

Amazon isn’t evil. Amazon isn’t good. Amazon is a company, and morality isn’t something that a company can partake of. The individuals who work for the company, yes. The company itself, no.

This article is aimed at Small Press publishers, and Self Published writers, but the general terms will fit any industry where there is one dominant company.

The newest fuss about Amazon concerns a contract squabble they are having with the Independent Publishers Group. IPG represent independent, i.e. small press publishers to the trade.

For print books in the pre-computer era, this was a very powerful marketing niche. IPG provided a service for a fee, giving small publishers extra leverage. The reader got access to books that they otherwise would never have seen. A true win-win situation.

Currently IPG is acting as in intermediary between these small publishers and Amazon, collecting a fee. In the reporting that I’ve read on the situation to date, which is here, here, and here, no one sees anything wrong with this. Am I the only one who sees a company that has outgrown it’s usefulness, and is trying to hang onto a market that no longer needs it?

As to Amazon, it is acting as a lot of people have predicted. Amazon is working on thin margins. It’s profits in the last fiscal year were anemic, putting pressure on the company to seek out either enhanced efficiencies, or better deals with its suppliers.

Amazon is recognized as having one of the most efficient supply chains on the planet, next to Apple. There are not likely any efficiencies to be found, or at least not enough.

That leaves suppliers. Hello IPG, here’s your new contract, sign on the dotted line please…

I’ve warned independent writers that Amazon could decide to cut the current 70% royalty rate. I’ve heard variations of:

  1. Disbelief – Amazon would never do that
  2. Resignation – There’s nothing we could do anyway, 99% of my sales are from Amazon
  3. Lack of Thought – But Amazon is a GOOD company!

Taking them one at a time

Disbelief

Hey, they just did it to Independent Publishers Group. I may think that IPG is no longer needed, that the publishers using IPG could handle the interaction with Amazon directly, but IPG currently has 58,845 books in their catalog. That’s a lot of books, representing a lot of writers, many of them names that I recognize. I’ve read Jennie Wurts books. I have their Robert E. Howard Conan reprint (I’m a big fan of Robert E. Howard’s original Conan stories, not the trash that came after).

Let’s look at it another way. How many readers did Amazon just hurt? Here’s a subject list for the books you can’t get on the Kindle anymore.

  • Antiques & Collectibles (119)
  • Architecture (496)
  • Art (1,206)
  • Bibles (17)
  • Biography & Autobiography (6,345)
  • Body, Mind & Spirit (1,501)
  • Business & Economics (1,809)
  • Comics & Graphic Novels (413)
  • Computers (742)
  • Cooking (1,295)
  • Crafts & Hobbies (1,094)
  • Design (182)
  • Drama (89)
  • Education (955)
  • Family & Relationships (1,574)
  • Fiction (8,670)
  • Foreign Language Study (200)
  • Games (517)
  • Gardening (374)
  • Health & Fitness (1,643)
  • History (6,689)
  • House & Home (207)
  • Humor (1,194)
  • Juvenile Fiction (4,683)
  • Juvenile Nonfiction (2,836)
  • Language Arts & Disciplines (539)
  • Law (306)
  • Literary Collections (487)
  • Literary Criticism (688)
  • Mathematics (49)
  • Medical (838)
  • Music (1,448)
  • Nature (1,061)
  • Non-classifiable (11)
  • Performing Arts (1,135)
  • Pets (817)
  • Philosophy (373)
  • Photography (1,837)
  • Poetry (1,822)
  • Political Science (1,622)
  • Psychology (487)
  • Reference (1,401)
  • Religion (1,867)
  • Science (674)
  • Self-help (1,210)
  • Social Science (2,889)
  • Sports & Recreation (4,645)
  • Study Aids (157)
  • Technology & Engineering (526)
  • Transportation (865)
  • Travel (3,413)
  • True Crime (703)

The numbers in brackets are the number of titles in that subject. You’ll notice that the total is 76,720, not 58,845. Don’t forget that some books fit under more than one subject.

There are now a huge number of books that Kindle readers are now cut off from. Unless they buy a Nook, or an iPad. These days, who can afford a second eReader?

The point being that Amazon was willing to go to the wall over a change in contract terms with IPG. We don’t know the exact details of the changes, only that IPG says it would have reduced their margins.

If Amazon is willing to do it to IPG, there’s nothing to stop them from doing it to you.

Resignation

99.99% of my sales are from Amazon…

I hear this one all the time. Contrary to popular opinion, Amazon was not the first online eBook supplier, and it might not be the biggest. Project Gutenberg (1971) predates Amazon and Archive.org (1996) was formed a year later. Both are non-commercial, both are damned big. The great Bibliobytes was the first commercial eBook site, is sadly missed.

Change is natural. Amazon may currently be the best sales source you have. Tomorrow? You don’t know. We live in a time of massive Disruptive Technological Change, and the change cycles seem to be coming faster and faster.

No doubt Amazon will be disrupted some day. You should be considering an exit strategy. There isn’t any rush. It won’t happen tomorrow. But you need to think ahead. What can you do if Amazon fails, or changes the rules so that you are making less money. You could announce to your readers that your next book is going to be a Nook exclusive, and why. They would understand.

Lack of Thought

People just don’t think things through. A company can’t be good or evil, it isn’t alive, it doesn’t have a conscience. A company can seem to act in a moral and ethical manner, because it has people running it, who act that way. Replace the people, and the company acts differently.

It’s the same way with countries. Place a strong leader with no morals in charge of a country, and you have a recipe for trouble, even if there is a system of checks and balances.

Amazon isn’t good or evil. It is a company. It exists to make money for the shareholders, not to pamper its suppliers.

If Amazon isn’t making enough money for the shareholders, the suppliers are going to get hurt. It is easier to do that, than to raise prices.

So I Shouldn’t Use Amazon?

No, you should use Amazon. You just have to be aware that Amazon is like a sword. You don’t want to pick it up by the blade.

So far none of the Independents have been hurt by Amazon changing the rules. It hasn’t been in Amazon’s interest to change the rules for the small players, because we are currently such a small portion of their business. This is changing as more writers decide to cut the ties with Traditional Publishing, and as eBooks gain market share.

At what point will Independents become a large enough share of Amazon’s sales for a royalty change to have a significant impact on profitability? We don’t know.

I’ve read Amazon’s SEC report for the fiscal year ending December 31, 2011. The numbers for Independents are not broken out, which is to be expected. Amazon is required by the SEC to disclose information to shareholders, not to competitors and suppliers. Unfortunately that also makes it impossible to determine how much of an impact independents are having on Amazon.

The problem for Independents as suppliers is that there are so many of them that they have little individual leverage. If Amazon decided to change the royalties paid independents, they would have to organize. At that thought the term “herding cats” comes to mind.

In other words, use Amazon. Don’t let them use you.

Regards

Wayne Borean

Thursday February 23, 2012

 

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