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Saturday, August 9, 2014

The proper strategy for selling ebooks (publishing in the twilight of the printed word continued)

by John MacBeath Watkins

When Amazon sells an ebook published by Hachette, the proceeds are divided as follows: 30% to Amazon, 52.5% to the publisher, and 17.5% to the author. The two companies are now at odds over the fact that Amazon wishes to discount books more heavily.

They have also proposed the authors should get more -- 35% instead of 17.5%. Only, that wouldn't come out of the Amazon share, it would come out of the publisher's share. So far, the company under attack, Hachette, has had very vocal backing from its authors, who are deprived of part of their income because Amazon is refusing to sell their books. The tactic in suggesting that the publishers give authors a bigger share is an attempt to drive a wedge between authors and their publisher -- let's you and him fight. It's a free lunch for Amazon, which would not dream of giving authors more money out of their share.

And in Germany, Amazon is trying to get a 50% share of the ebook price..

My question is, why should Amazon be getting even 30%? The cost of delivering ebooks is minimal, while many of the marketing costs are borne by the publishers.

Suppose you could plug the title of a book into a search engine and pull up a variety of booksellers offering the book at a lower price than Amazon's. The publishers would have greater influence over a large group of independent booksellers than they do over Amazon. They might find themselves paying as little as 15% or even less to such competing sellers.

The reason this hasn't happened is that publishers worry about losing control over the perception of value of their products. What is needed is the agency model -- they wholesale books to an agent who then sells them.

Ah, you say, but that has been tried. Not, I answer, in the way that I propose. The publishers tried to ally themselves with Apple and set a higher price than Amazon wanted to charge.

I say they should fully commit to ebooks, and under-price Amazon. They were tripped up by the fact that they colluded with Apple to have high prices. Well, don't collude. Set prices that cover the cost of finding, editing, and promoting the book, plus a reasonable markup, and try to sell a lot of copies. Don't negotiate what margin the seller gets, just sell them the book and let them set the retail price. The company that can keep its overhead low while effectively promoting itself and the books can make money with a lower percentage of the price. With competing companies selling the books, the one who can make money on the smallest margin will have the lowest price.

No doubt a company like Google could build such a marketplace quickly that would be highly automated and have minimal costs. Or maybe someone wearing bunny slippers and working in their basement will find the key. The big problem is overcoming Amazon's marketing muscle, so I would expect either a well-funded startup or a fairly large existing company to take this on.

Amazon has a large and increasing overhead connected with delivering physical objects. A company with lower overhead could charge less for ebooks.

It has now become evident that not everyone wants an ebook. They seem to be best for leisure reading. For absorbing information, print books still have an edge. There is still, therefore, a place for bookstores and experts on the physical delivery of books such as Amazon.

This is not too different from the mass-market paperback revolution of the 1940s and '50s. Suddenly, news agents who had never sold books before were selling paperbacks with lurid covers. More people read more books, and publishers found that what had been a carriage trade became a mass market. The process was very well documented in one of my favorite books, Two-bit culture: the Paperbacking of America.

But even during the paperback revolution, the business was one of distributing books through centralized organizations.  Most publishers did not own printing plants, let alone warehouses and trucks to take the books to the many independent bookstores that peppered the land, which meant more middle men were needed. With ebooks, that lack doesn't matter, and in fact, becomes an advantage, because it means lower overhead.

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