Tuesday, May 27, 2014

Is Amazon an Author’s Friend?

The quick and easy answer to the title’s question is NO. Amazon is Amazon’s friend. All others should beware the bruin's close hug.

From time to time Amazon’s interests may be allied with authors’ interests. Amazon may help drive more income to authors than they would have otherwise obtained, but Amazon is NOT an author’s friend. I can hear a number of my author friends saying about now, “But without Amazon, I wouldn’t be—” I am going to interrupt the praise. It is not relevant whether Amazon has helped authors in the past. The important question for authors today is whether Amazon’s long-term goals will help or hurt them in the future.

Let’s step back and think about what a book sale represents. In a “pure” transaction between an author and a reader, the author writes a book, and the interested reader pays the author a mutually acceptable amount for the privilege of reading it. Self-published authors who sell person-to-person or through their website are examples of (almost) pure transactions. The author writes the book, picks a price and readers either pay the price or not. They may use an intermediary to get money from the reader to the author if it isn’t “cash on the barrelhead.”

Authors and readers relying solely on these ur-transactions leaves unresolved problems. How can readers find out the author wrote something? Before making the purchase, how can each reader determine the piece might be something she’d like to read? How can author and reader agree upon a fair price? How can the author deliver the piece to the reader? How can the reader pay the author?

Intermediaries “solve” these problems for both authors and readers by helping one or both of the parties to the transaction. Some of the possible intermediaries between the author and the reader include a publisher, a distributor, an agent, a bookstore (physical or online), reviewers, and a payment mechanism (credit card, PayPal, etc.).

It should be obvious, but is sometimes forgotten, that intermediaries are in the business to make money. If others profit, fine, but each person/corporation in the transaction stream between and including author and reader is looking to maximize profit (or minimize cost). If a transaction is a zero-sum game, then when one entity wins a bigger share of the pie, someone must lose an equivalent amount.

With the rise of eBooks one could argue that the size of the book-selling pie increased. People have bought more books, publishers are making record profits, and some authors are raking in millions. That expansion has either already ended or will end soon. Therefore, it is useful to view the author to reader transaction as a zero sum game. If Amazon increases its earnings from a single book, someone else must lose, but is it the author?

Depending on the transaction, Amazon can wear many hats, but primarily they are a distribution system. A reader orders a book on Amazon and some short time later it appears on the reader’s (either physical or electronic) doorstep. Their purported deal with the reader was clear: we make it convenient for you to find what you want (we’ll even suggest it to you), it will be relatively inexpensive to buy from us, and we will deliver it to you without fail.

As a distributor of books, Amazon makes its money through the discount it receives from the publisher for placing the publisher’s books in Amazon’s “store.” This is the reason for their current battle with Hachette. Amazon wants a bigger discount than it currently receives on eBooks. They are using physical books as the lever. Why eBooks?

Because right now publishers make much higher profit margins on eBooks than they do on print books, and Amazon wants a larger slice of that profit. Authors think a larger proportion of that profit should go to them. Publishers don’t want the profits to go to either party. Recall that large publishers only reluctantly changed their “standard” contracts to provide 25% royalties to authors on eBooks.

Anything that Amazon wins in this battle with publishers diminishes the prospects that authors will increase their royalties on eBooks. In choosing to use print books as leverage against Hachette, Amazon is directly cutting into sales Hachette authors would have otherwise earned.

Amazon has set itself up as THE marketplace of choice (and done a great job of it) and consequently many people will not realize Amazon has restricted their book choices. Not only are selected books unavailable, but even if they are available, Amazon can stop “recommending” them through their “other readers liked” or “you may also like” suggestions.

This is a battle between two parts of the transaction puzzle and consumers need to decide which has more value, Amazon’s distribution system or Hachette’s books. Publishers ceded online power to Amazon, and it will be interesting to see if they can grab some back. Unless Hachette can educate the public about how the tactics used by the normally "benign" Amazon hurt consumers, then Amazon is giving up little by restricting the books and Hachette and their authors are giving up a lot.

Amazon is not the only bookstore to restrict what books a reader can buy. Independent bookstores often refuse to carry books by Amazon Publishing (including their imprints such as Thomas & Mercer for mysteries, thrillers & suspense or 47 North for science fiction, fantasy and horror) because Amazon (unfairly they’d say) competes with them.

Amazon is not some monster as many blogging authors have proclaimed. They are a for-profit enterprise attempting to increase their profits. If publishers are to win this battle, they need to fight back by cutting into Amazon’s distribution power. Why not allow authors to sell eBooks on the author’s website, allowing fans to buy directly in whatever format they prefer? It surely would be easy to produce snippets of hypertext to allow direct transfer of the transaction to the publisher where a sale could link into their accounting systems. How many of JK Rowlings (even writing as Robert Galbraith) fans would buy directly from her—especially if the price were lower than they could get elsewhere as there would be no necessity of paying Amazon its cut? But I digress from the question of Amazon being friendly to authors.

If self-published authors are thinking this does not apply to them—it’s just a tussle between corporate behemoths and another reason to avoid traditional publishing—they should look no further than to what Amazon recently did to authors utilizing its Audible services for producing audio books. Amazon lowered its royalties paid for exclusive deals from a 50% to 90% scale to a flat 40%. For nonexclusive deals the royalties decline from a 20% to 70% scale to a flat 25%. Those changes clearly removed money from the author’s pocket and tucked it safely and securely into Amazon’s.

Amazon’s business model has been to initially gain market share even if that means incurring financial losses. While they dominate the market they (1) gather massive consumer data, which they can use (or sell) and (2) once they become dominant they can start raising prices to recoup earlier losses. The new royalty terms for Audible are still better than large publishers pay, but for authors, they aren’t moving in the right direction. How long before self-published Kindle books produced through KDP Direct suffer a similar fate? We shall see, but my guess is that Amazon will reduce those royalties as well.

Consumers ultimately will decide the outcome of the battle between publishers and Amazon. Even self-published authors should root for the publishers. If the publishers win, it may be possible to increase royalties on eBooks. The more Amazon grabs of the current profits, the less is available for authors.

Repeat after me: Amazon is not my friend, but I do have to learn to live with it.

~ Jim


  1. No corporation is in business to be anyone's friend. Self interest rules all corporations, even publishers. I have heard agents call publishers pirates for trying to "steal" the authors rights to a book with convoluted contracts. I just read a fascinating post by Ben Thompson on this topic. http://stratechery.com/2014/publishers-deal-devil/

    But as for how Amazon acts toward self-published authors, I think the companies we should root for are Smashwords and Barnes and Noble and Apple, because they are the reason Amazon is willing to give us a good deal.

  2. Carmen - your point about competition for authors is a good one. Amazon does not yet control the market, but if publishers and consumers don't change what they have been doing, more and more commerce will head in Amazon's direction. ~ Jim