43 COMMENTS

No More Shitty Baskets

Diversification is good. Amazon’s market share must be kept in check. This is something self-published authors and the Big 5 publishers seem to agree on. Self-published authors stress the importance of placing titles with every available distributor, while publishers and their pundits worry about how much of the book market Amazon currently controls. If these two parties agree, they can’t possibly be wrong, can they?

Not so fast.

There are costs to diversification. The greatest cost is the loss of impetus for change. If we celebrate diversity simply for diversity’s sake, that means we will publish with anyone, no matter what. So our eggs go into and reward shitty baskets.

Discrimination is an ugly word when it comes to people, but it is an absolute necessity when it comes to markets. As self-published authors, we are the customers of retail and distribution platforms. We are the customers. We agree to pay ~30% of our earnings in exchange for the delivery of our goods. We are also paying for a reader review architecture, technical infrastructures, recommendation algorithms, customer service for our readers, and various other services.

We are not paid a royalty. Royalties are doled out by publishers or producers who provide creative inputs. What we offer is a fully-constructed product ready for sale. We are publishers. Every distributor we do business with lures us in with their payment splits, user base, and merchandising opportunities. We pay them for these services. They aren’t paying us for manuscripts.

Grasping this is essential to understanding the problem with indiscrimination. Distributing e-books to every market or retailer, no matter what, is the exact same thing as purchasing all products in a certain retail category. It’s the same thing as giving a dozen candidates one vote each. There is no market improvement without discrimination. There is no signal that some policies are appreciated while others are abhorred.

What the diversity crowd is suggesting is that, presented with a wide field of products with varying prices and build qualities, we should elect to buy all of them. Spread our dollars evenly. That is not competition. Competition is the existence of various markets, not our participation in them. It is our choice to participate in only some of those markets that gives force to competition.

Calls for diversity are really calls for indiscrimination. Again, this is awesome when we’re talking about social diversity, but not when we’re talking about economic diversity. If there’s a basket that pays twice as much in exchange for voluntary exclusivity, I’m going to go with that basket and watch the other weavers shore up their offerings. When conditions improve elsewhere, I’ll move my eggs back. This is the beauty of digital eggs: They are unbreakable, and I can lay an infinite number of them.

Most importantly, with the click of a button, I can move my eggs to any basket anywhere in the world. This is a critical point to grasp—and it is the reason that no retailer can amass such a lead that they can then abuse their customers. Remember: We are the customers.

Right now, most self-published authors put all their marketing weight behind Amazon and their KDP service. Links to books are usually Amazon links. Shared reviews are Amazon reviews. This one company’s lead perpetuates itself. But imagine what happens if Amazon increases the distribution fee we pay down to 80% from the now very reasonable 30% (remember that these aren’t royalties).  The fear seems to be that Amazon might in the future leave us with as little profit as publishers do today. Ignoring the strangeness of this fear, let’s look at how tenuous a market these basket weavers hold:

Amazon’s e-book market share has plummeted from 90% to something around 50% – 60% in just a handful of years. For a parallel, look at how Google’s Android OS overtook Apple’s unbelievable dominance in smartphone operating systems in just a few years. Or what became of MySpace, Internet Explorer, Yahoo, and AOL. No lead is safe. You could start with an absolute monopoly today, crack the door just a little, and someone is going to kick that door in and raid your fridge.

Why? Because if a market leader abuses their position, authors will immediately switch to sharing iBookstore links or Kobo links to their published works. All promotional energies will move to another digital basket. We will upload somewhere else first and point every customer in that direction.

I get emails from readers asking where they should purchase my books so that I earn the most. You don’t think every author and their mother will be blogging about which company to move to if Amazon changes their rate? You don’t think readers will care? Millions of customers will change their buying habits overnight. Again, ask MySpace how quickly eggs can jump from basket to basket. All of these digital basket weavers—the retailers and social media platforms—live in constant terror of the fickleness of consumer choice. And that’s a good thing.

I don’t feel bad for companies that go kaput on the basis of customers exercising their free choice. I’m not a fan of diversification for diversity’s sake. That would mean supporting badly behaving companies because it’s nice to have some variety. This is one of the primary arguments against allowing Amazon to have too much market share: “Sure, they are awesome today, but what if they become less awesome tomorrow? We should support as many less awesome companies as we can right now, just in case.”

I have no problem going all-in if a company is making decisions that I believe in and support. I can move my eggs with the press of a button. These calculations are vastly different when you own the rights to your eggs, and those eggs are digital.

Mark Twain’s Pudd’nhead Wilson said it best: “Put all your eggs in one basket — AND WATCH THAT BASKET!”

I love this sentiment. Especially in a day where my eggs can’t break, where I can print or have a computer spit out an infinite number of them, and where thousands of weavers are sitting around, fingers on keyboards, able to concoct new baskets the moment an industry leader screws up. As for diversity? When we have a number of companies all fighting to pay artists a fair wage and charge customers a fair price, spread the love. Those are the only baskets I’m interested in. Offer me that, and you can have my eggs.

43 responses to “No More Shitty Baskets”

  1. M.R. Lambert Avatar
    M.R. Lambert

    I don’t know if self publishers are customers (I would have loved to use the term ‘we,’ but I remain currently unpublished), so much as they are brand suppliers.

    Self publishers (hence SP’s) have the ability to choose what retail market carries their stock, and for what price agreement. The retailers, such as amazon, kobo, smashwords, etc. are agreeing to carry our product on their shelves for a set amount/percentage. Should SP’s not like the terms of the agreement, they can simply remove their product from the retailer’s shelves.

    The readers are the true customers, and once they are hooked on a product, they will follow that brand to whatever store carries it. I know this boils down to symantics, but I believe this is an important distinguishment to make.

    This also points to why some SP’s choose to place their product with as many retailers they can find. In order to get their product in front of the actual customers (readers), wherever they may be.

    Reply
    1. enabity Avatar
      enabity

      M.R. Lambert,

      Your definition of customer is unnecessarily narrow. In economic theory, which is the study of markets, a customer is the consumer of a product or service. In short, everyone and every entity is a customer. From the person buying (or receiving from a shelter) food to a company like Apple which has a multitude of suppliers that provide inputs into your iPhone, we are all customers. Amazon, as a middle man, serves customers on both sides. They have publishers, whose books they distribute for a fee, and consumers that buy books. They have to keep their publishing customers happy to have product to sell and they have to keep readers happy to sell books.

      The difference between Amazon’s relationship with a publisher and Apple’s relationship with a supplier like Samsung, who manufactures chips for them, is that Apple doesn’t sell Samsung manufactured chips. They produce iPhones and sell them. Amazon doesn’t create a different book from the original. They put buyer and seller together. They are producing a product for both entities. They provide a distribution service to the publisher and put the book in the greedy mitts of the buyer.
      Your definition of customer is unnecessarily narrow

      Reply
      1. enabity Avatar
        enabity

        I didn’t intend to repeat my first sentence at the end for emphasis. It was a copy/paste error.

        Reply
      2. M.R. Lambert Avatar
        M.R. Lambert

        The direction of flow is what determines a customer.

        In your analogy Apple is Samsung’s customer because they have a product that can be supplied to Apple for the agreed upon cost. Who then in turn takes that product and after assembly with other products from other suppliers resells the assembled product.

        Self publishers are a supplier. Apple (or Amazon, or any other downstream services used to get the product to the end user) are distribution/retail middle-men, and the readers are the customer.

        Reply
        1. Black Avatar
          Black

          No, the direction of flow determines the final consumer of some product/service in a value chain. That does not mean there are other consumers and producers who are part of the value chain. As Hugh and enabity have pointed out quite clearly, Self-published authors are customers as well as suppliers. SP’s buy the “Services of Retailers/Distributors” like Amazon or Apple to be able to sell their books to readers. SP’s are also “suppliers of books” bought by readers. In other words, the Books and the Distribution Services are two different products/services and have their own markets. And yes, they are also vertically linked markets.

          Reply
      3. Marion Gropen Avatar
        Marion Gropen

        There’s a difference between a customer and a vendor. Publishers are vendors to retailers and to readers. The reader is the ultimate customer.

        It’s a distinction that does matter.

        Mr. Howey is in an enviable position, with a devoted fan base (including me, btw — I loved Wool!) but even those who have such interested audiences will find that many of their sales disappear if they don’t make their books available where their readers prefer to shop.

        If, in a few months or a year, Amazon turns to the small press and self-publishing community after doing a “margin-ectomy” on larger houses, it really won’t matter what all of us out here do. We’ll either give Amazon what it wants, or we’ll lose sales by moving our focus to another, less popular platform.

        Until and unless some other retailer gains critical mass, or some other group of retailers do so in the aggregate, we’re in a very tough position. All of us — big presses, small presses and self-publishers alike.

        Reply
    2. LS Avatar
      LS

      In a way, Amazon is selling its online retail space to us for a price (a piece of the action), so in that sense we are Amazon’s customers. That said, we’re also Amazon’s vendors, because we provide the widgets that Amazon sells, and it’s this latter view that I tend to hold. “Customer” is a vague word.

      Reply
      1. Morgen Rich Avatar
        Morgen Rich

        I agree with you, LS.

        In my gypsy head, I think of Amazon as the owner/operator of a bazaar. They have lots of little and big booths that vendors/retailers (publishers) can rent on a consignment basis. They want to fill every space with vendors/retailers and make as much from consignment as they can. To do that best, they have to please both the vendor/retailer (publishers) and the vendor/retailer’s customer (the shopper/reader).

        To fill every available space (and isn’t it just perfect that the size of this bazaar is infinite!), they’re willing to give rent reductions (from a consignment cost of 65% of gross sales–the 35% option–to rent costing 30% of gross sales–the 70% option) and put up signs pointing customers to your booth (promos, data-driven recommendations). To keep the bazaar filled with shoppers (which keeps their retailers paying consignments), they offer price-matching, reasonable prices, variety, and customer service they can control (and therefore, assure). If the bazaar owner doesn’t keep shoppers satisfied, they’ll go elsewhere, and then retailers won’t have an incentive to remain at that bazaar. After all, the bazaar space is an infinite one, remember? Anybody can buy land and rent it.

        To keep the bazaar filled with retailers, the bazaar owner offers loyalty incentives (KDP Select benefits), customer service (to the shopper AND the retailer), and other special deals. When they stop offering the best incentives, retailers will find another bazaar space. Once again, ain’t it wonderful that bazaar space is infinite and that anybody can buy land and rent it? They just have to make it the most attractive bazaar if they want to attract retailers and shoppers and keep their loyalty.

        Publishers are the middlemen at the bazaar (retailers), whether they are individuals or corporations. They acquire a product from a manufacturer (author), may or may not repackage it, and then find places where they can sell it (bazaars) to shoppers. Sometimes, the middleman is also the manufacturer (self-publishers).

        Publishers/retailers/manufacturing middlemen are retailers within another retailer (the bazaar itself sells space). They are the bazaar’s first customer, and they supply something (books) to another customer (the people who come to the bazaar). The bazaar owner and the middleman/retailer/publisher share a customer (the shopper).

        Bazaar space is infinite (technological and social media evolutions are ongoing). Infinite possibility, therefore, is a disincentive for a bazaar owner to be less than the most appealing both to retailers and shoppers. It’s also the motivation for growth and innovation that benefits retailers/publishers/manufacturing middlemen and shoppers. That’s the ONLY way the bazaar owner makes money.

        Reply
  2. Ben Mathew Avatar
    Ben Mathew

    Myspace is the best example of the tenuousness of online monopolies. If there ever could have been an online monopoly, it should have been Myspace. The network effect (my friends are on myspace, so I should be on myspace) gives it far greater power than an online retailer can ever dream of. Yet, Facebook popped up and ate its lunch. And now Facebook is losing sleep over the Snapits and Whatnots that (I’m told) are the new new place to hang out. If Myspace and Facebook can’t do it, no one can. It’s impossible to carve out an impregnable monopolistic fortress in internet-land.

    Reply
  3. Laura Kirwan Avatar
    Laura Kirwan

    Thanks for pointing out that what Amazon pays is not a royalty. It drives me nuts to hear indie authors talk about their 70% “royalty” from Amazon. Amazon does not pay you a 70% royalty; you pay them a 30% retailer fee. Yeah, ultimately the math is the same, but psychologically it’s a totally different relationship.

    Reply
    1. Hugh C. Howey Avatar
      Hugh C. Howey

      Exactly. WE PAY THEM. Which makes us customers. :)

      Reply
      1. Marion Gropen Avatar
        Marion Gropen

        They buy your books from you for 70% of list price, just as bookstores have always bought books from publishers.

        That number (whether 60% for brick and mortar retailers, 45% for wholesalers, 30 to 35% for distributors, or 70% in the ebook world) is a purchase price, not a royalty.

        The discount is not a payment to the retailer, any more than the terms of trade are a payment to a retailer when you’re selling soap, clothes or cars.

        We’re part of a supply chain to them. They’re part of our distribution chain. The economics are different from the customer relationship, as is the power structure.

        Reply
  4. Alicia Butcher Ehrhardt Avatar
    Alicia Butcher Ehrhardt

    Dear Hugh,

    I hope to be self-publishing by Fall. This post is the piece of information I’ve been looking for that completes my plan.

    The one thing no one talks about much is the enormous human effort is requires to diversify. Even when they keep saying that Amazon gives them the bulk of their readers (the ones who say this), they also say to keep their product out everywhere – for those few readers who buy at Kobo or whatever.

    This is a bad strategy FOR ME (YMMV). My physical energy is so limited that making progress in writing is a daily effort that takes literally all I have. Just the thought of having to worry about all those other outlets makes me wish I’d never started.

    So thanks for the permission, from one who knows, NOT to do everything.

    It will make my life much simpler not to even worry about it. For now. For me. If I sell well enough, I can look into hiring the appropriate people to do all the rest of the stuff you’re ‘supposed’ to do. If not, I can finish the next two books.

    But I’m going to stop wasting energy worrying about it.

    Alicia

    Reply
  5. Jennifer Daydreamer Avatar
    Jennifer Daydreamer

    I appreciate your articles. Your thoughts on self publishing are are as interesting as your books. Because you blog on other topics, I hope you will consider putting together a book on your self publishing ideas and experiences. It would be a great platform to get all your ideas in one place, and that would be useful to people.

    Reply
    1. James Altucher Avatar
      James Altucher

      That’s an excellent idea, Jennifer. Hugh should definitely do that. That would be a huge bestseller.

      Reply
  6. Paris Marx Avatar
    Paris Marx

    There’s a lot in this post I agree with. Use the distributors you like, and fuck the rest. I’m really onside with you most of the way through, until you seem to advocate exclusivity under the right conditions near the end. As far as I’m concerned, exclusivity breeds monopolies, and I think be both know I don’t want to see too much power in the hands of too few.

    I do want to challenge you on one particular point though.

    “You don’t think readers will care? Millions of customers will change their buying habits overnight.”

    A lot of your argument is based on the idea that if Amazon turns against self-published authors, readers will follow us to another distributor. There are two potential issues I see with this way of thinking.

    The first is that it’s much easier to change social networks than distributors when I have a device that’s made to work with just one. My computer isn’t made to only work with MySpace or Facebook, but Kindles are made only to work with Amazon. Sure, you can add other books, but it’s not nearly as easy as buying from Amazon. If readers are using the Kindle app, that’s a much easier transition, but if they’re using an actual Kindle device, switching is much harder, especially in the short term.

    My second issue is `one seen in many industries controlled by few players: that they’ll follow one another in a profit-maximizing anti-consumer move. If Amazon lowers the percentage we get from our book sales, who’s to say Apple, Kobo, and whoever else won’t do the same? I believe Apple is the reason we have the 30/70 split. You would think that if one changed their split, the others would stay the same and absorb their customers, but that’s not what we see in mobile phones, where companies often raise rates in tandem, as well as in many other industries. Why don’t we see any of these distributors switch to a 25/75 or 20/70 split to attract new authors? There’s nothing stopping them, but they’ve set a standard, and when the standard changes in oligopolies, the big players change together. Sure, there are always small companies trying to break in, but very rarely do they make headway.

    There’s one final thing I’d like to ask. Is direct sales one of the baskets you think authors should consider, or do you believe the costs of not having those sales count toward rankings and having your books show up in the marketplaces where most readers browse outweigh the increased percentage of return on the sale? I know you do direct sales, but as far as I can tell it seems to be rare among self-published authors.

    Reply
    1. J.M. Ney-Grimm Avatar
      J.M. Ney-Grimm

      …and when the standard changes in oligopolies, the big players change together.

      So true, alas. For the advantages of a competitive market to persist, one needs hundreds of players of roughly the same size. Half a dozen behemoths create cartels, whether consciously coordinated (illegal) or achieved by simply shifting in step.

      Reply
  7. Terrence OBrien Avatar
    Terrence OBrien

    “We agree to pay ~30% of our earnings in exchange for the delivery of our goods. We are also paying for a reader review architecture, technical infrastructures, recommendation algorithms, customer service for our readers, and various other services.

    We don’t pay anyone 30% of our earnings because we don’t earn 100%. Anyone report income of 100% on their taxes? Then report 30% in expenses? No. That is because the 100% is not our earnings. Our earnings are payment of Amazon liabilities.

    Suppose an author sells a book on Amazon for $2.99. He doesn’t earn $2.99. That idea ignores Amazon’s huge contribution in retailing displaying, promoting, and distribution. Amazon sells the book to the consumer. The author does not sell the book to the consumer. The revenue is Amazon’s revenue. Each time Amazon makes a sale it incurs a 70% liability.

    I’d say we agree that Amazon will pay us 70% of the list price we set for each sale Amazon makes. Amazon then sells the book for whatever it chooses. That sales revenue is not our earninbgs.

    Authors are not the most imprtant factor in the digital market we see. They certainly are necessary, but they are hardly sufficient.

    When we buy a loaf of bread in a supermarket for $3, does the baker earn $3?

    Reply
  8. Lisa Avatar
    Lisa

    I disagree.

    You are mixing up principles and blurring lines for the sake of your argument.

    “Each time Amazon makes a sale it incurs a 70% liability.” = No. Honestly, there is so much wrong in this statement. I can’t do a long(er) post.

    “Our earnings are payment of Amazon liabilities.” Author earnings are from books sales, not Amazon’s liabilities.

    And if you really want semantics, here goes:

    Authors are suppliers of goods to Amazon, thus Amazon are customers. Then there is the final customer, the reader.
    Amazon supplies Authors with services, thus Authors are customers.
    Authors are also manufacturers because they create the goods.

    These are called contra deals. Offset the cost of the service with the sale of the goods. In this case 30/70.

    Trad publishers only go in one direction. Manufacturer of raw goods (authors)-> Supplier of finished goods (trads)->Amazon -> Final customer (reader)
    Then there is Amazon. Supplier of service -> Trad Pub

    Hint: To make money Amazon needs goods. To make money authors need services. To make money trads need both goods and services (hence their … uh… precarious position). But to have an industry or to even satisfy any level of demand, you need the manufacturer. And guess who’s always the manufacturer?

    “Authors are not the most imprtant [sic] factor in the digital market we see.” Don’t devalue yourself. Only authors write books.

    No authors. No books. No digital market or traditional for that matter.

    One of the biggest injustices committed by trad publishing was making authors feel they weren’t worthy enough.

    Also – Buying a loaf of bread from the supermarket is like buying a trad pub book from B&N. Totally different dynamics.

    Reply
    1. Lisa Avatar
      Lisa

      Apparently, the post I replied to has vanished.

      No, I’m not a crazy ranting lady… not all the time.

      Reply
      1. Terrence OBrien Avatar
        Terrence OBrien

        You are neither crazy nor ranting. You replied to my vanished post. I responded to your reply below.

        Reply
        1. Hugh C. Howey Avatar
          Hugh C. Howey

          Sorry about that. Moved to a new WP hoster, and my spam plug-ins are both allowing some spam and zapping some non-spam. :(

          Reply
          1. Terrence OBrien Avatar
            Terrence OBrien

            And sorry for the crappy formatting on that one. I missed the final HTML tag to end italics after the first para. It makes it look like you are saying all that stuff I said, and I wouldn’t wish that fate on anyone.

    2. Terrence OBrien Avatar
      Terrence OBrien

      “Each time Amazon makes a sale it incurs a 70% liability.” = No. Honestly, there is so much wrong in this statement. I can’t do a long(er) post.

      It’s pretty simple. Amazon pays suppliers a fixed price for each unit. That price is defined as 70% of what suppliers enter as List Price. If we do the math, we get a single price that Amazon pays the supplier for each unit. Let’s call that P1. Amazon’s liability for P1 actually comes due appx sixty days from the end of the month in which there was a sale.

      “Our earnings are payment of Amazon liabilities.” Author earnings are from books sales, not Amazon’s liabilities.

      Amazon sells the book for whatever price it chooses. It can sell it for a nickel if it chooses. But if it sells it for a nickel, it still incurs a liability of P1(from above). . Given the fungibility of Amazon dollar revenue, we can’t define how Amazon gets the money it sends suppliers.

      Authors are suppliers of goods to Amazon, thus Amazon are customers. Then there is the final customer, the reader.

      OK. I agree Amazon is my customer. I agree consumers are Amazon’s customers.

      “Authors are not the most imprtant [sic] factor in the digital market we see.” Don’t devalue yourself. Only authors write books.

      Recognizing the significant contribution of others is not devaluing myself. Ignoring them is overvaluing myself.

      No authors. No books. No digital market or traditional for that matter.

      No online retailers, no digital market. No investment and zillions of hours in building that system, no digital market. The development of such sytems is every bit as creative as any novel.

      Also – Buying a loaf of bread from the supermarket is like buying a trad pub book from B&N. Totally different dynamics.

      If the author earns $2.99 when his eBook sells on Amazon for $2.99, how come the baker doesn’t earn $2.99 when his bread sells in the supermarket for $2.99?

      How about hardbacks? If an author earne $2.99 when his eBook sells on Amazon for $2.99, does Hachette earn $15 if it’s hardback sells on Amazon for $15?

      Reply
      1. Lisa Avatar
        Lisa

        Coming from both a econ + maths background, I still disagree. We can go on until we have to bunker down in Silo. But I’ll have to leave it there except for a few things.

        Books aren’t fungible. Cash and currency are. So as long as authors get paid in cash, I don’t see the need to introduce fungibility. And currently, Amazon still makes a profit , whatever the margin.

        The baker doesn’t earn 2.99 because she/he is an employee of the bread company. She/he works for a salary.

        The baker, if selling direct, agrees to a price for the goods. Baker earns what he sold the bread for. Transaction complete.

        What we have to understand, is that Amazon innovated this entire process. You can sell direct and choose your retail prices. Yes, it is within a range with other conditions but you are fully aware of them before you sign on. And yes there is a cost for this service.

        You do realize that this was never done before. So it’s a unique situation and should be treated s such.

        A digital market only exists if authors write. No goods. No market. No single company controls the digital market because no single person controls the internet.

        There is SAAS, so if you want you can set up your own digital bookstore. Or you can code it from scratch. More than likely, you won’t sell as much as with an established retailer. But the point is no single company controls the digital market.

        Amazon and the rest are big players because they make the process simple enough (Google is still a massive headache) and the market outreach is much bigger than you can do on your own. And if they were all gone today, guess what? You can still sell your books online.

        It’s business. You appreciate the services because it makes life so easier and it turns a profit. But it’s business. They’re not doing you a favor, neither are you doing them a favor. Both parties get paid. And right now, it’s good business.

        Reply
  9. Jennifer Daydreamer Avatar
    Jennifer Daydreamer

    I just saw the tweet on the ‘play’ on self publishing. There is so much energy here, I really think a book on giving guidance on self publishing would be useful. Your blog readers are mostly are sold on the idea.

    Reply
  10. Terrence OBrien Avatar
    Terrence OBrien

    “Coming from both a econ + maths background, I still disagree. We can go on until we have to bunker down in Silo. But I’ll have to leave it there except for a few things.”

    As an ignorant dolt, I’m happy to deal with math and econ folks.

    Books aren’t fungible. Cash and currency are. So as long as authors get paid in cash, I don’t see the need to introduce fungibility. And currently, Amazon still makes a profit , whatever the margin.

    I said Amazon dollars are fungible. They really are, but I like to name some of my favorites. So we really don’t know where our payments from Amazon come from. I said nothing about books being fungible.

    I agree Amazon makes a marginal unit profit on any item if the revenue it receives is in excess of its acquisition and direct selling costs. Good for them. Hope they keep it up.

    The baker doesn’t earn 2.99 because she/he is an employee of the bread company. She/he works for a salary.

    Sorry. My ignorance sometimes leads to a lack of clarity. When I used the term baker, I was referring to the company that sells the bread, not the guy who kneads the dough for dough at 4am.

    So, If the author earns $2.99 when his eBook sells on Amazon for $2.99, how come the firm that makes the bread doesn’t earn $2.99 when his bread sells in the supermarket for $2.99?

    The baker, if selling direct, agrees to a price for the goods. Baker earns what he sold the bread for. Transaction complete.

    The author agrees to a price of 70% of what he enters as List Price. Jolly Numnbers tells me that can be reduced to a fixed price I will call P1 (see post above.) So the author agrees to a price of P1 for his goods. Transaction complete.

    I agree the firm that makes the bread does not earn $2.99 when it is sold at the supermarket checkout line. Nor does the author earn $2.99 when someone hits the Amazon buy button. The author earns P1.

    Amazon can increase and decrease the price it sells the eBook for each day of the week.. But that has no effect on the author’s earnings. He still earns P1.

    The supermarket can increase and decrease the price it sells bread for. But that has no effect on what the firm that makes the bread earns. That firm makes the price it agrees to supply for.

    “What we have to understand, is that Amazon innovated this entire process. You can sell direct and choose your retail prices. Yes, it is within a range with other conditions but you are fully aware of them before you sign on. And yes there is a cost for this service.

    Does the firm that makes the bread pay the supermarket for shelf space, end caps, storage, and checkout services?

    You do realize that this was never done before. So it’s a unique situation and should be treated s such.

    Even my clouded mind realizes there are aspects of this that have never been done before. But it also realizes there are many aspects that are just like a zillion other markets in the economy.

    A digital market only exists if authors write. No goods. No market. No single company controls the digital market because no single person controls the internet.”

    Agree. And a digital market only exists if someone creates the computer and financial systems that support it. Otherwise there are just a bunch of books sitting on authors computers.

    “There is SAAS, so if you want you can set up your own digital bookstore. Or you can code it from scratch. More than likely, you won’t sell as much as with an established retailer. But the point is no single company controls the digital market.”

    Agree. I noted, ““Authors are not the most imprtant [sic] factor in the digital market we see.” And the market we see is one to which Amazon devoted lots of time, money, imagination, and innovation. As you noted, “Amazon innovated this entire process.” Authors are necessary for the market we see. Amazon is necessary for the market we see. Neither is sufficient for that market we see. I applaud both for their significant contributions, and devalue neither by recognizing the other, (I am forever grateful I finished school before they introduced the valuing, validity, and self-esteem stuff.)

    Amazon and the rest are big players because they make the process simple enough (Google is still a massive headache) and the market outreach is much bigger than you can do on your own. And if they were all gone today, guess what? You can still sell your books online.

    Sure. That would be avery different market. I am confining my consideration in this discussion to the maktet we see, not the one we might have. And the big players are necessary for the market we see.

    It’s business. You appreciate the services because it makes life so easier and it turns a profit. But it’s business. They’re not doing you a favor, neither are you doing them a favor. Both parties get paid. And right now, it’s good business.

    I agree it is a busineee. But it is an odd business. There is no other business I have encountered where people are so concerned with the fact that nobody is doing the other guy a favor. Most other business people know that.

    And I really tried to get the HTML italics tags right on htis one. But it’s a crap shoot. Here goes…

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  11. JM Avatar
    JM

    One thing I’ve noticed: people who sell books and are making a decent living (on Amazon and elsewhere) don’t spend all their free time badmouthing Amazon. I’ve been a lurker on Kboards’ Writers Cafe for months now, and the same 3-4 people who regularly comment about the evils of Amazon on EVERY SINGLE Amazon-related thread have sales rankings for their books in the high six-digits. They are lucky if they sell a copy a week at Amazon. Coincidence? I dunno. You tell me.

    Reply
    1. Hugh C. Howey Avatar
      Hugh C. Howey

      Hard to tell correlation from causation. Maybe they hate Amazon because their sales are poor? Or it could be that a negative attitude pervades everything they do — and I can’t see people having success in this industry if they approach all interactions with negativity.

      To each their own, I suppose.

      Reply
      1. John Avatar
        John

        I notice the same thing on Kboards WC.
        Unfortunately, having looked inside a number of the books by these people, you do feel the negativity infiltrates the writing. Nothing specific you can put my finger on – like a subtle bitter after-taste.

        Reply
  12. Jim Musgrave Avatar
    Jim Musgrave

    Hugh,

    As a hero of mine, I must say, you have made the basket on this one. My little company team prides itself on developing brand recognition for indie authors and professionals. This would not happen if there were not a healthy amount of discrimination going on out there in virtual world. I have talked to many authors who are “nailed down” the by lawyers and legalities of the big publishers so that they are fearful of diversifying and socializing with their readers–especially other writers who are also their readers! You are my hero because you have none of that nonsense, and you pulled off the biggest marketing coup when you refused to give away your electronic rights that you so rightly earned from that market! You go, guy! Power to the people right on.

    Reply
  13. William Ockham Avatar
    William Ockham

    There is another reason to be wary of diversification in your retail strategy. If you sell stories (rather than knowledge), your success is dependent on “word of mouth”. The mathy way to say that is your customer base is a directed network graph. For example, someone recommended “Wool” to me. I wasn’t reading a lot of sci-fi at the time, so I didn’t buy it. Then another person told me how great it was. I looked at the reviews on Amazon, bought it, read it, and loved it. I recommended it to my son. He bought it. I think he recommended it to his friends. Everybody knows that that is how it works.

    What you may not realize is that the effectiveness of word of mouth is dependent on the strength of the connections between the nodes (fans) and the size of the networks. Amazon’s success is built on the techniques they use to strengthen the connections between their customers. That came before the size of the network. The connections between different retailers is very weak, compared to the connections within any retailers network. The potential return on your investment being in multiple stores when you are starting your career is very low. You should concentrate on one, unless there is essentially zero effort getting to others. After you start to build a fan base, the equation can change.

    The simple advice is start with Amazon, get some fans, branch out when you sense there is demand other places. Some people will succeed without following that advice. But I believe that I can prove mathematically that it is the best strategy if your goal is to make money writing.

    Reply
  14. Hollis Shiloh Avatar
    Hollis Shiloh

    Thank you for this post. You’ve given me some things to think about! :-)

    Reply
  15. John Hindmarsh Avatar
    John Hindmarsh

    Terrence / Lisa,

    The business process is surely as follows –
    Writer effectively agrees with Amazon that Amazon can sell [as retailer] writer’s ebook.
    Writer sets retail price at $nn – let’s use $3.
    Amazon holds a copy of the ebook so it can action a download to a customer when a copy is sold.
    Amazon sells book to reader at $3. As it processes the sale transaction, it also processes a purchase transaction [i.e., purchase from writer] – as a result, it acknowledges a liability to pay writer $2.10 [I’m ignoring minor details – different regions, download costs, etc]
    Writer receives Excel spreadsheet showing sale [assume writer goes to KDP and downloads sales results] – if writer is accounting on an accruals basis, writer can recognize receivables [asset] of $2.10… [If using a cash basis, income is recognized when the check from Zon is cleared into the writer’s bank account].

    If Amazon discounts ebook, it is still incurring a liability to pay writer $2.10. It can sell for more than the price agreed with the writer – in which case, the writer still receives $2.10. [e.g., go to Bangkok and see what the cost to the reader is from .com – typically 50% more, but the writer does not see that].

    Amazon has a liability to pay the writer, once the purchase transaction occurs. The actual payment will be made from Amazon’s bank account and the offsetting entry balances out the liability [i.e., debit liability [creditors], credit bank account].

    The fungible issue is irrelevant.

    QED

    Reply
  16. Matt Avatar
    Matt

    Hugh,

    You are sadly mistaken if you think readers will care about which platform treats authors the best.

    Do consumers make purchasing decisions based on how well companies treat their workers, for example? For the most part, no. All consumers care about is price and convenience.

    So if Amazon starts treating authors poorly, don’t expect readers to change their buying habits…

    Reply
  17. ML Banner Avatar
    ML Banner

    Hugh – As always a wonderfully fresh perspective on how to look at the overall picture of publishing and distribution. Although I share your view on the term “royalty”, Amazon still chooses to call our net revenues from sales of our books on their platform, “royalties”. Further buttressing your argument that what we earn is net of their distribution costs, our KDP report shows the per item price, our contractually agreed percentage, less delivery cost. Doesn’t exactly fit the term royalty. Perhaps Amazon should just call it Author’s Net, further separating themselves from the other shitty baskets.
    Michael

    Reply
  18. Charla Arabie Avatar
    Charla Arabie

    I can so see you stepping in with your own solution and your network of people if or when said company changes its model. You are a mover and a shaker, Hugh Howey.

    Reply
  19. Vituperative Me and Petition Supporting Readers and Amazon – Christina E. Pilz – Christina E. Pilz

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  21. LS Avatar
    LS

    One trend I do see is towards the leveling of the playing field when it comes to ecommerce. Amazon wins by great UX. It’s just so damn easy to shop there, add things to your cart, save things for later, go away, come back and resume without losing your shopping cart, etc. that people return.

    Amazon does not win on price. Look at the various products out there. What Amazon is selling, especially under Prime, is definitely not the cheapest. One example: Tom’s shoes, selling for $100+ on Amazon Prime. Buy them from the Tom’s website for $45. Quite a mark-up. Can that hold? I doubt it, not as payment systems get easier and microtransactions become possible.

    Amazon’s diminishing dominance over ebooks is also interesting. If you look at reading stats, there’s another trend: more people are reading ebooks via apps on their tablets and phones now, and fewer people are using dedicated ereaders. There’s less lock-in.

    Things can change quickly. But the real question, when it comes to books, is who has the richest product line? Right now, Amazon does, because all indies and all trad publishers sell through Amazon. B&N has fewer indies online, and almost none in stores. Indie bookstores seem to generally oppose indie authors because indie authors do business with Amazon. It’s all a bit crazy.

    Maybe things will disperse, like movies and television have. I now follow shows on USA, History, HBO, Netflix, PBS….all bringing me original content. Some of it I get via Apple TV, some via Netflix on Apple TV, some via cable, some via online streaming. And while there’s more diverse programming available, I end up seeing less independent stuff. Yes, it’s out there on YouTube and Vimeo, but the discoverability question becomes an issue, and as music video producers are discovering re YouTube (have ads or pay a fee), TANSTAAFL.

    Will something similar happen for books? I don’t know. My point is that how content gets to the actual entertainment consumers is always changing, and it’s quite unlikely that we’ve somehow arrived at the end of time and change has now become something of the past.

    Reply
  22. Bree Avatar
    Bree

    “When we have a number of companies all fighting to pay artists a fair wage and charge customers a fair price, spread the love. Those are the only baskets I’m interested in. Offer me that, and you can have my eggs.”

    I don’t know about other self-published authors, but this is the very definition of diversification for me. It’s not about using ALL baskets. It’s about having MANY baskets to CHOOSE from. We are not so dimwitted that we don’t know how to tell a good deal from a bad one ;) For a lot of us self-publishing was a choice, not a necessity.

    I also don’t agree that readers will follow authors to different platforms. Amazon is as huge as it is for a reason: Convenience. It’s just so darn easy to one-click buy those new books as soon as they appear, and have them automatically show up on your device. It’d be foolish and egotistical for an author to presume their following will go wherever, whenever. WE cater to our readers, not the other way around. And as polarized as the sentiment over the Amazon fight is among authors/publishers, it’s the same among readers. I’ve seen vicious, venomous posts by readers that essentially declared war on anti-Amazon writers. It’s sad when someone chooses to boycott a writer because of something like this, but it does happen, and those readers are very vocal about it.

    Reply
  23. David Nicol Avatar
    David Nicol

    I couldn’t agree more with eggs and baskets. Here in the UK up until recently we were limited to publishing to Amazon, but for the other players (B&N, Nook, Apple) we were stuck because we’re not US citizens. Thankfully Smashwords took care of that part of the distribution network and more. Mark Coker has provided a fantastic service for me, and others.

    But back to eggs. Then at the beginning of the year there was a big hooey about “inappropriate” titles being available through third party websites and so WHSmith (a large book retailer in the UK which sells the Kobo platform) pulled ALL non-traditional published titles – regardless of content.

    I was incensed. I, and other authors were being punished because these companies did not have any quality checks in place.

    As such, even though WHSmith and Kobo may (or may not, I haven’t checked) have allowed non-trad titles back on their platform, mine will remain absent. Their rotten nest can stay empty of my titles.

    Reply
  24. Ben Reeder Avatar
    Ben Reeder

    Hugh,

    While a lot of debate has happened regarding the term customer vs vendor, I think that tends to miss the overall point vs the semantics.

    As a self-published author, I found myself looking at the same issue back in March when I first self-published. Initially, I went with Amazon and Smashwords, with the idea that I wanted my book out there in as many places as possible to maximize my options for sales.

    At the end of that first month, after watching the sales on both sides of that fence, I saw that my sales on Amazon outpaced my Smashwords sales by a factor of almost 100 to 1. And this was before I started to really get my marketing in place, before I had much in the way of a marketing strategy (my main push was when Shawn Chesser mentioned my book one day).

    Needless to say, as a customer of Smashwords, I found that my needs weren’t being met in the same way that Amazon was meeting them. By listing my books with Smashwords, I was missing out on the options available through KDP Select, and at that point Amazon was meeting my needs as an author for sales much better. So, I pulled my books from Smashwords, went with KDP Select and I have not regretted that decision one bit.

    If Amazon were to change its customer-centric approach for some unfathomable reason (hey, it’s working really great! Let’s change it!), yes, I would be going back to Smashwords in a heartbeat, and my marketing would reflect that change. But one thing I would NOT be doing is regretting my decision to go with Amazon exclusively while it was the best option. Why? Because at the time, it WAS the best decision. But things change.

    Several folks have expressed a belief that readers won’t change their buying habits based on the way Amazon treats its authors. I would point out something to them: people don’t buy solely based on price. They buy based on VALUE. If what they want is not on Amazon, they will not shop there. Amazon is already facing a drop in its market share on e-books. People are already starting to buy elsewhere. It may come to the point that authors themselves are forced to start listing in other places, such as Smashwords, in order to find that market share for themselves. Either way, yes, it is currently in Amazon’s best interest to treat its vendors (authors) well. And Amazon is going to find that if someone treats their customers, both internal and external, better, then those customers are going to go where the VALUE is.

    Look at the readers who buy overpriced books simply because it is their favorite author. Or overpriced products like shoes and clothes based on the brand. If Wal-Mart stopped carrying Nike, Nike enthusiasts would start looking for the places that sold THEIR favorite shoes. They wouldn’t all switch brands. Likewise, if the big box stores stopped selling rock and roll, people wouldn’t start listening to other genres, they’d go find their music elsewhere. So, yes, if authors start leaving Amazon in droves, readers will start looking in the places where their favorite writers and genres are being sold. That’s what branding is all about.

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