There is no war between Amazon and Traditional Publishing

There will never be peace in the war between Amazon and traditional publishing because there is no war.

One of the defining qualities of the current dispute between Amazon and Hachette is just how softly softly it is. These kind of disputes between a mega-retailer and a major supplier happen every day in other industries and are notably brutal. The retailers promote the supplier's competitors heavily and with eye-bleeding discounts; they remove the supplier's goods from sale completely; they pressure other companies to stop dealing with the misbehaving supplier. Most large retailers have clout and wield it. Amazon just lost ten times more on the Fire phone alone than they were ever likely to lose from properly blacklisting Hachette. In turn, Hachette isn't playing hardball either. They aren't making sweetheart deals with Amazon's competitors. They aren't organising eye-watering sales or promotions with B&N. They don’t have a competent direct sales platform they can use to leverage the publicity the dispute has generated. Both parties are just continuing with business as usual, just with a little bit less effort. The predominant characteristic of the argument is its sheer lack of inspiration. It’s pedestrian and mundane.

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The self-publisher’s perspective of the ebook market

The writer Rosen Trevithick said this here thing:

For goodness sake Kobo, I took a risk publishing some of my titles with a relatively small eBook vendor. It took days to jump through your formatting hoops and I lost my bonuses for being exclusive to Amazon. I did this because I wanted to support an alternative to the market leader. You reward me by stabbing small publishing companies in the back. I’ll think twice about publishing with you in the future because you clearly aren’t ready to earn a larger share of the market.

Everything she says is true. But… I’d like to use this current crisis and her point about Kobo shafting small publishers as an excuse to look at what the ebook market looks like for a self- or small publisher.

  • Kobo’s search has always sucked (discoverability is non-existent) and they clearly have some sort of infrastructure problem (otherwise they’d have done the ‘purge’ the same way Amazon did, by flipping all suspect titles to Draft and forcing people to submit via a tighter process). They’re also clearly willing to completely shaft everybody using their self-serve publishing platform Writing Life whenever it suits them, PR-wise.
  • WH Smith. Non-existent as far as most self-publishers are concerned. No sales. No love. And now their site is shuttered.
  • Waterstones. Again, non-existent as far as most self-publishers are concerned. No sales. No love.
  • Foyles. Ditto.
  • Insert random bookstore’s Adobe DRM-based ebook platform. Ditto.
  • Feedbooks. Love the people behind Feedbooks but most self-publishers won’t even have heard about them, and you can only offer your stuff for free.
  • B&N Nook. Volatile as hell. Seems to be in terminal decline. Also unavailable to non-US self-publishers.
  • iBooks. A major hassle to use and submit. And, for most people I’ve spoken to, near non-existent sales.
  • Smashwords. Only really useful as a way to get into the above stores. Otherwise, meh.
  • Kindle. Stagnant platform. Almost all of the new features (series, Kindle Shorts, etc.) belong to Amazon Publishing and aren’t self-serve (and after the WH Smith porno brouhaha, two guesses as to why that is). But, it is where all of the sales are. And exclusivity offers several features that are likely to increase reach, visibility, and sales.

For those of us interested in a more open and varied ebook market, there is a singular harsh truth we must accept:

Amazon is playing the game better than the rest. That’s why they have the biggest share of the market.

I’d bet that even if Amazon abandoned discounts across the board, they’d still have their current marketshare simply because they seem to be doing a better job. Even their Kindle for iOS app has improved into borderline tolerability after the latest update.

So, if the EPUB crowd wants to compete, they need to up their game.

But, no. Instead they are either in a tailspin (B&N, WH Smith’s ecommerce side) or seem to be perpetually operating with all weapons set to ‘bland’ (Kobo, iBooks).

And, which is the fun bit, whenever something goes wrong, they don’t seem to hesitate to shaft the self-publisher.

So, I find it hard to blame any self-publisher who decides to go exclusive with Amazon. Nor do I blame any consumer who decides to buy a Kindle device or sticks to Kindle ebooks only. You don’t win customers by appealing to their charity. You have to give suppliers a reason to work with you, and buyers a reason to buy from you.

ETA: At the moment, the most sensible strategy for consumers is to buy from Amazon (and make DeDRMed backups if they are computer literate enough to Google and then use a drag and drop app). KF8 files convert nicely to EPUBs is you plan on moving to an EPUB-based platform in the future. At the same time the most sensible strategy for a small publisher is ‘it depends’.

Amazon’s biggest ally is Apple

I’ve never understood why people position Apple and Amazon as rivals in the ebook game. While it’s true that the two have clashed that conflict is a result of incompatible platform goals, not rivalry.

Conflict is not rivalry and two organisations that conflict occasionally may well be allies in the bigger picture where rivals may not.

Let me elucidate…

The Apple/Amazon conflict has presented itself in a variety of ways:

  • Direct competition. Apple entered the ebook retail game and broke the law when it enabled big publishers’ price collusion.
  • App restrictions. Apple prevents vendors from integrating ebook sales into their ebook reading apps.
  • Apple entered the proprietary format game by forking EPUB with iBooks Author books.

—How can you say those two aren’t rivals? I mean look at that!

Easy. These conflicts are not a result of an Apple/Amazon rivalry but of Apple’s ambitions for its platform.

Apple wants three things for iOS:

  • Lock in. It very much doesn’t want people to be able to switch easily to Android. (This is abundantly clear from the emails published as a part of the DOJ’s investigation into agency pricing.) An iBooks ebook platform that only works on Apple devices serves that end goal nicely.
  • It wants its platform vig. Apple would rather a digital transaction not take place at all than for it to take place on iOS and it not getting its cut.
  • It wants large-scale education contracts for iPads in schools. For that it needs textbooks and, since it wants its vig, it can’t just work with one of the existing vendors.

None of these things are specifically directed at Amazon except insofar as they are the biggest ebook vendor. Apple can’t claim it is doing these things out of concern for the consumer or in an attempt to make its platform more secure against fraud. If that were the case hey would have done what Google did with its Play Developer Program Policies: on Google Play services and cross-platform digital goods such as ebooks are specifically exempt from the requirement that apps use Google Play’s in-app billing service.

—Okay, okay. So, maybe Apple isn’t specifically targeting Amazon but there’s still conflict. I don’t see how you can claim that Apple is Amazon’s biggest ally.

Because Amazon is the default choice for ebooks. It is what your average consumer first thinks of when somebody mentions ebooks. They have a mindshare that is even bigger than their marketshare (which is big enough to begin with).

Amazon isn’t hurt at all by Apple’s demands. A reader who can’t buy an ebook in the Kindle app will just go to the website. It only hurts the Kindle app for iOS development team.

Apple’s demands hurt Amazon’s true rivals—other ebook vendors—much more that they hurt Amazon. These vendors would benefit enormously from being able to directly integrate ebookstores into their apps. They even have a standard that would let any vendor offer their ebook catalogue for sale within any ebook reading app: OPDS.

The EPUB faction of the ebook world is hurt more by Apple forking the standard and by its general platform behaviour than Amazon is. Apple’s tactics have weakened the standard and made it less competitive.

If Apple added an exemption for ebooks to their developer policies, something similar to Google’s exemption, we’d get a more competitive landscape for ebooks on iOS. If Apple went all in on EPUB, extending it instead of forking it when necessary, the modularised EPUB ecosystem would be stronger for it. If Apple made ebook development tools that targeted EPUB and not a proprietary format, the non-Amazon side of ebook retail would have more diversity of titles and would be more competitive. If Apple turned iBooks into an iBooksView, a general purpose widget for rendering ebooks, every single ebook app on the platform would improve as a result.

Doing all of these things would strengthen iOS by improving the apps available for the platform. That, in and of itself, should be enough reason for Apple to do so.

But, no. Apple wants lock-in and a vig.

If the Kindle fails so will ebooks

I don’t get why anti-Amazon people get up in arms whenever they find an author who links to the Amazon pages for their books. Or whenever a publisher out there seems to favour the Seattle Behemoth over the ‘honourable’ opposition.

I get why people don’t like Amazon. They are a big, competitive, ruthless, anti-union tax avoider that treats low level staff (like, say, warehouse employees) like slave labour. There’s a lot not to like.

What I don’t understand is what do people expect us to do?

Even if every publisher, every author, and every editor out there studiously avoided sending traffic to Amazon in any way, that wouldn’t even cause a measurable dent in Amazon’s book or ebook revenue.

People go to Amazon, they aren’t sent there.

Pointing people anywhere else will only result in lower affiliate fees for the author or publisher as people follow the link, close the tab, and then go to Amazon directly to buy it there anyway.

The only thing the publishing industry can do to harm Amazon is not to sell their titles there, and even then, unless they are colluding illegally to withdraw their products from Amazon all at the same time, that action is more likely to harm the publisher than Amazon.

Hoping for Amazon to collapse or fail is equally self-destructive. There are few things more dangerous to a publisher than having a big retailer or distributor go bust on them. It locks up inventory and money for a long time and usually result in the market shrinking in the short term.

Moreover, I’m pretty sure the fate of ebooks is intertwined with the fate of the Kindle.

The only ways Amazon can be beaten by a ebook competitor is if a competitor:

  • Focuses on a genre and on being the best store for that genre. Take the niche not the market.
  • Consistently outperforms Amazon and slowly takes market share over, say, a decade. This will take years and the ebook market will probably be disrupted by something else by the time they’re done, anyway.
  • Be the first. This is Kobo’s tactic and it isn’t wrong. Amazon hasn’t rolled out in all territories yet so there is potential for being there first in a lot of countries and be the incumbent once Amazon arrives. The only downside is that Amazon is in all of the lucrative territories already.
  • Collude and manipulate the market illegally. That’s what publishers have basically been doing so far, managing to push Amazon down a bit but they haven’t made much of a headway lately.
  • Finally, you can hope that Amazon makes some sort of misstep that leads to a collapse or deterioration in performance leaving space for others to step in.

This last possibility, at first glance, seems like it would be the ideal scenario for Amazon’s competitors.

The problem is that ebooks are the Kindle and Amazon as far as most buyers are concerned. Most of those buyers have non-book alternatives competing for their entertainment dollars as well. If Amazon had a major misstep, that would be more likely to result in the ebook market contracting than in somebody else taking over.

Here’s a thought exercise. Let’s imagine that we could magically retcon the ebook market so that it was now evenly split between all five major aspirants (Amazon, Kobo, B&N, Apple, Google).

You might haggle about who the runners up should be but most would go with those five.

What do you think would happen tomorrow? What would happen the day after the retcon when our magical reality-bending powers faded and the personalities and capabilities of those employed at each retailer took over again?

Over the next couple of years Amazon would retake its marketshare until it owned at least 60% of the ebook market again. Why? Because it would build on its ecommerce expertise in general (they don’t just do ebooks), because it has better customer service than the others, and because it would have lower prices. Amazon will always have lower prices because it is willing to aggressively give up revenue to do so and its executives passionately believe that it’s the right tactic for them. Other companies don’t have the guts to match it completely.

No two ways about it. Amazon has earned its marketshare.

That doesn’t mean that, taken as a whole, Amazon isn’t manipulative and utterly ruthless. They are. And they have a frightening amount of resources. That’s why they’d retake the market in record time.

So, how do you beat Amazon? You don’t. You can’t beat a tiger at being a tiger. If you are afraid of a tiger, the only sensible strategy is to avoid it.

Stop selling books through Amazon. Raise your prices and sell direct, making sure to provide a world class service. But you’d have to make damn sure that your books are interesting because otherwise none of your readers will bother.

This ebook is a lemon

It’s no secret that I’m a huge fan of both Akerlof and Romer, not just the paper they co-wrote on looting in the financial system but also their work individually. Turns out one of Akerlof’s most famous papers is directly relevant to the ebook market.

For starters, a few basic premises. If you disagree with any one of these you can feel free to ignore the entire argument. I can easily pick apart any one of these statements myself, so I’d understand it very well if you disagreed with them. However, if you find them somewhat likely then the overall picture of the ebook market is a bit dark.

  • Ebook buyers buy more than they read. Book abandonment is high and out of proportion with the return rate.
  • Sampling the first few chapters is a lousy predictor of how much the reader will enjoy the book. You can only assess basic stylistic issues from a sample, not storytelling quality. Ergo the reader has to buy the ebook to assess the quality of the story.
  • Reviews are an extremely unreliable indicator of quality. The average quality of most reviews themselves is very low. Many reviewers are paid shills or just extremely overworked.
  • Luck is one of the biggest determinants of bestseller status.
  • Striking, marketable, differentiation is difficult in ebooks without having the reader actually read the book.
  • The marketing differentiation that is possible without having the reader actually read the ebook (sex, scandal, celebrity) is at best orthogonal to the book’s actual quality and at worst inversely correlated to quality.
  • Quality in this piece being defined as whatever the reader values, no matter how rubbish it looks to an over-educated twit like me. I’m not making any assumptions about writing, genre, or style.
  • The majority of ereader vendors implement style and design overrides to preserve a baseline of readability and usability, not to commodify their product’s complements. (I.e. they are well-meaning, rational actors.)
  • Distribution is becoming mostly self-serve with a very porous filter. (Like, for example, the self-publishing services run by Amazon, Kobo, B&N, and Apple.) Almost anybody with a computer has access to the publishing industry’s full ebook distribution chain.
  • Ebook development is underpaid and so will not attract experienced talent from the web industry.
  • It’s easier to make a bad book than a good one and so the vast majority of ebook supply will be bad.

The argument I’m about to make is that this situation gives publishers (both self- and non-self) an incentive to market poor quality books (remember the definition of quality I outlined above), that the average available quality of books will fall, and that the overall publishing market will shrink in terms of overall revenue (even though the the number of units sold increases).

First, the basics…

A market of lemons

It has been seen that the good cars may be driven out of the market by the lemons. But in a more continuous case with different grades of goods, even worse pathologies can exist. For it is quite possible to have the bad driving out the not-so-bad driving out the medium driving out the not-so-good driving out the good in such a sequence of events that no market exists at all. (Akerlof, 1970)

In 1970 Akerlof published a paper describing exactly why a new car loses a lot of its value as soon as you drive it newly bought out of the showroom.

With new cars you can assume that most cars of the same make will be of a similar quality and that if something goes wrong you are probably covered by a warranty.

Anybody who is in the market for a car doesn’t have access to the information that would let them tell the difference between a good car and a bad car (otherwise known as a ‘lemon’, hence the title of the paper).

If a new car is a lemon, i.e. has some sort of manufacturing flaw, neither the buyer or the seller are aware of the flaw and the manufacturer usually covers the repairs if the flaw is discovered within the warranty period.

However, because used cars have a history, the seller of a used car is likely to know which are lemons and which aren’t. This asymmetry of information in the used car market is, according to Akerlof, the primary reason why there is a pricing disparity between a new car and even the most recent of a used car.

Both bad and good used cars are likely to sell for the same price because the buyer can’t tell the difference between those that are lemons and those that are not. And because the buyer knows this there will be s strict upper limit to what they will pay for a used car—the seller of a good used car will not get its full value.

The sellers of good cars have an incentive not to sell while the less well-meaning sellers of lemons have an incentive to sell. The information asymmetry means that less scrupulous will, at least while the market is still maturing, get more than their ‘lemon’ car is worth.

The Lemons model can be used to make some comments on the costs of dishonesty. Consider a market in which goods are sold honestly or dishonestly; quality may be represented, or it may be misrepresented. The purchaser’s problem, of course, is to identify quality. The presence of people in the market who are willing to offer inferior goods tends to drive the market out of existence- as in the case of our automobile “lemons.” It is this possibility that represents the major costs of dishonesty – for dishonest dealings tend to drive honest dealings out of the market. There may be potential buyers of good quality products and there may be potential sellers of such products in the appropriate price range; however, the presence of people who wish to pawn bad wares as good wares tends to drive out the legitimate business. The cost of dishonesty, therefore, lies not only in the amount by which the purchaser is cheated; the cost also must include the loss incurred from driving legitimate business out of existence. (Akerlof, 1970)

What worries me…

Reliable information about ebook quality is increasingly hard to find in the market. Reviews have almost completely been gamed; a casual reader has few reliable indicators that tell them whether a review is an honest one or not. Rubbish books, ones that most buyers don’t even read to the end before giving up, shoot up the bestseller lists due to viral marketing. Bestseller lists themselves are increasingly either gamed by publishers or by ebook retailers themselves who are trying to shift their sales in one direction or another.

Even some big publishers are getting into the game by dumping cheap OCR converted ebooks full of errors onto the market. Again, a casual reader has no way to know whether this particular big publisher is one that does a quality ebook version or one who pumps out ebook ‘lemons’ by the virtual truckload.

The same applies to self-publishing. The casual reader doesn’t have access to the information to help them tell the difference between the self-publisher who has invested substantially in the quality of their book and one who is dumping something onto the market looking for a quick profit that requires next to no cash outlay. That is without mentioning the publishers and authors who have been paying for reviews, engaging in sock-puppetry, and astroturfing left, right, and centre.

My worry is that the ebook market has all of the hallmarks of an early stage ‘market of lemons’. The information asymmetry—exacerbated by the information hoarding done by the big ebook retail players—the growth in dishonest actors, and the increasing disincentive for honest actors to even participate at all, make ebooks an ideal candidate for the lemon dynamic.

What this would mean, if true, is that publishers and self-publishers will begin to experience massive pressure to lower prices if they are to move their product at all.

I think this is already happening with self-publishers.

Alternatively, revenue might become a function of your reputation and your maximum addressable market. That is, once you’ve surpassed whatever necessary lower reputation bound that is required by your addressable market, the price becomes elastic within the bounds set by the market (e.g. there are only so many steampunk fans in the universe).

Below that reputation bound you will have problems even giving away your product.

If the former model is correct (i.e. the ‘we’re all screwed’ model) then the ebook market can only be saved by the ebook retailers. They’d have to begin to practice complete information transparency and put in place aggressive returns policies (yes, even more aggressive than the one Amazon currently practices). Sales information, return rate, who exactly is that reviewer and where did they come from—anything and everything about the book would have to be shared in a digestible manner. A culture of secrecy at this stage would risk killing the market off entirely.

If the latter model is correct (i.e. you can only charge when you’ve built up a reputation) then we enter a world where the publishing industry needs to learn how to engage directly with readers to build their audience. This means that they would have to give a lot more stuff away for free.

A note on free

Free creates the most value when it is specifically being used to build a community and decrease information asymmetry—transferring the burden of risk from the reader to the publisher. Short term free offers are of little use. You need to go long term and do it with work that is representative of what you do.

Free at the moment is used by exactly the crowd that churns out the most rubbish (Smashwords) and Amazon makes offering titles for free needlessly difficult.

A free offering is always preferable to a cheap offering for the seller because it suspends the buyer’s value judgement temporarily but in exchange buyers can assess the quality of the good at their own leisure. A mixture of free and higher or variable priced goods is likelier to result in a fairer exchange of value between the reader and author than an oversupply of cheap (the free offerings build reputation).

What to do?

If Akerlof’s theory is right and is applicable to the ebook market then it predicts that prices in the market will be driven down below what can sustain the good actors and investment in research and development will cease.

I.e. the books will all be rubbish, look like shit, and the big tech companies will cease to invest in their ebook platforms.

This isn’t a problem that can be solved through code or UI design. It requires a fundamental change in business tactics. You can’t solve structural business problems with code.

The biggest measure retailers could take to ease this asymmetry is an extended, no questions asked, refund policy. If a reader asks for a refund they should get it even if they bought it ages ago. A year should be enough. A market that is developing ‘lemon’ dynamics requires a generous refund policy.

(This is in addition to the radical information transparency I mentioned above.)

This would obviously shift most of the economic power back to the reader but it would also have several consequences. Low quality books would be hammered in the market. Publishers would no longer have incentive to market bad books. Prices would rise to account for the returns and the portion of readers who dishonestly return ebooks but readers would likely accept the rise because of the generous refund policy. The market would contract sharply at first as the bad actors get shaken out but would begin to grow aggressively as the good actors, who are rewarded with both a higher price and a lower return rate, reinvest their profits in product development.

That’s the theory, anyway.

I hope we are in for a world where reputation becomes the key to survival, where publishers and authors with a good reputation in a market segment can make a decent profit, because the alternative is horrifying. I don’t think it is likely that ebook retailers will take the measures necessary to correct the dynamic once it becomes more apparent that the ebook market is a market of lemons.


One thing worth mentioning:

If you assume that the above applies to the iOS app store as well then that would mean that the best pricing strategy for a new app is freemium. That is, the app itself should be free to use/play with variably priced add-ons and features you can buy once you know you like the app.

ETA 2:

I’ve posted a followup to this post addressing some of people’s criticisms and misconceptions.


Caught between madmen and mercenaries

This is not a comment on the recent court ruling on Apple, agency contracts, and price fixing.

But a cursory glance at the history of ebook retail makes one conclusion crystal clear:

Ebook retail is a horrible horrible business to be in.

On one side you have self-destructive madmen like the big publishers who have done the following lovely things to their ebook retail partners:

  • Abruptly changing all ebook distribution contracts to agency. Which would be fine if delays on their part hadn’t meant that smaller ebook retailers in many cases spent months without any inventory from the big publishers.
  • Complete refusal to even consider tactics that would level the playing field for the retailer, such as going DRM-free or adopting a wholesaling strategy that would let ebook retailers implement in-app purchases on iOS devices.
  • Near nonexistent quality control of ebook formatting, shipping titles with errors ranging from extensive spelling errors not in any other format, to garish formatting errors, even to the point of text being missing from the ebook edition.
  • Next to zero participation in developing ebook format and ebook-related standards, mostly letting tech-oriented companies run rampant with no consideration to production or distribution costs.

This is without even considering the things publishers could be doing to specifically help ebook sales such as creating ebook-optimised covers.

On the other side you have the cutthroat mercenaries. Amazon seems willing to run its entire Kindle business at break-even, which would be fine if it didn’t also make massive development investments in hardware and software. Investments that it seems content with never recouping. Apple seems willing to butcher lucrative product categories because of its inability to let any buck pass by an iOS device without demanding a thirty cent cut.

Anybody planning to start a new ebook retail store would be stabbed in the back by publishers or cut to ribbons by ruthless competitors before the first year is out.

Your suppliers have no concern for the viability of your business and are quite willing to ruin it for little to no personal gain. Your competitors have corporate parents who are willing to run the ebook retail unit either at a loss or break-even (and that’s without taking their substantial R&D investments into account, most of which are focused on developing or protecting vertically integrated silos, not innovations that actually benefit the customer).

In short, it’s a sector that desperately needs new, competent, and innovative entrants but is too irrational to sustain any sane business development or investment.

A question only you can answer

Knights and Necromancers three and four are finally out on Amazon, Kobo, and iTunes, Below is a full list of links to where you can find them. But first…

I have a question only you can answer. Which isn’t saying much, since every question I can’t answer is one only you can answer, ‘you’ being the quintessential ‘not me’.

The question is this:

What reviewers do you think might be interested in reviewing the Knights and Necromancers series?

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Knights and Necromancers: new books and megapacks!

Knights and Necromancers three and four are ready to be released but you can get them a bit earlier than the rest.

The third and fourth book in the series have both been submitted to Kobo, Apple, and Amazon for their pre-publication vetting process (which, frankly, can take days).

But you can get them sooner, if you really really want. 🙂

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