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A Wide-Angle View of Amazon’s Impact on Publishers

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The industry got the news that Amazon was probably reassessing its own publishing program when it was announced that Laurence Kirshbaum was stepping down as the head of Amazon Publishing and being replaced by a 14-year veteran of the Seattle company, Daphne Durham. Whatever Durham’s strengths and connections are, they don’t include the familiarity with the New York publishing scene and agents that Kirshbaum brought.

While this certainly does not suggest an overall reduction in Amazon’s publishing activity, it does signal a change in tactics. It would appear that the unorganized but united stand by Barnes & Noble and independent bookstores to boycott Amazon-published titles and refuse to give them shelf space made it virtually impossible for Amazon’s publishing enterprise to compete with the big houses for brand-name authors.

The few that they tried—Penny Marshall and Timothy Ferriss wrote the high-profile titles that were watched—had disappointing results. Whether that was largely because the stores wouldn’t play along or for other reasons (not all books by famous authors or celebrities are equally edited or equally appealing), the overall environment did not leave agents or the authors everybody wants panting for an Amazon publishing deal.

Retreats—apparent or real—by Amazon are rare. (The last one I can recall is when they pulled the Buy buttons from Macmillan titles in 2010 to protest agency pricing, and very quickly rescinded the action.) But it would be a mistake to think either that Amazon is less interested in publishing than they were before, or that the threat they pose to publishers’ relationships with authors is no longer something publishers need to concern themselves with.

In fact, all the recent evidence suggests that Amazon’s market share is still rising. The Bowker numbers reported at the end of July 2012, trying to measure who got the Borders sales (which were 10 percent of the total when the retailer went out of business), put Amazon’s total share of the book market at 29 percent, up from 23 percent a year earlier. According to that same report, B&N had gained a point of share, up from 19 percent to 20 percent. So Amazon out-benefited B&N from Borders’ collapse by six to one.

Earlier, it was reported in Britain that Amazon had a whopping 79 percent of the country’s burgeoning e-book market. That’s more than they have in the United States. It is also apparently the case that Amazon has the lion’s share of the online book sales market in the United Kingdom (and, along with their subsidiary company The Book Depository, in most of Europe and the rest of the English-speaking world).

The share of total sales that goes through Amazon’s registers is only one measure of its disruptive growth. Amazon is also signing up more and more books directly to its imprints (the genre publishing growth continues unabated and was never heavily dependent on Kirshbaum) and getting more and more books through authors self-publishing.

And as they disintermediate publishers by bringing in books directly by either means, they also threaten their competitive retailers in all venues. Although you can be self-published through Amazon and continue to distribute to other channels, Amazon offers financial incentives to discourage that.

Hugh Howey, the enormously successful self-publisher of Wool, told me a year ago that the decision to broaden his distribution base from Kindle-only to include Nook and other platforms cost him money. He did it because he thought it was the fan-friendly thing to do, but he’d have made more money on his e-book sales if he’d sold fewer units and given up the other formats. (KDP Select is the program that demands exclusivity. By enrolling, authors get their works in the Kindle Owners’ Lending Library, increased royalties on sales outside the United States, and access to additional promotional tools. You can still have your book on sale in physical format, “or in any format other than digital.”)

Growth Patterns

Amazon appears to be growing into a large and slightly separate book industry of its own. They don’t use the book business’s standard e-book format, EPUB; they use their own format, MOBI. (The Amazon “flavor” is AZW, and they also have the newer KF8.) They don’t care much whether a book has an industry standard ID, the ISBN. Amazon assigns its own number, unless the publisher has a 10-digit ISBN they can use, which they call an ASIN.

They own a must-optimize author page (Amazon’s author page affects an author’s discoverability on Google; the converse is not true) and a must-use book readers’ social network (GoodReads). They have their own print-on-demand operation, making it simple for an author to set up both e-books and print at the same time.

The “advantage” publishers have in pursuing authors is that they can offer a much broader distribution base as well as their honed skills at marketing and publicity. But there’s a price for that; self-publishing with Amazon brings an author four times the revenue for e-books and somewhat more for every print copy sold as well.

Whether Amazon is a quarter, a third, a half, or more of a book’s sale depends on the book, but authors will be increasingly facing the choice Hugh Howey faced: publish exclusively with Amazon and sell a bit less but make a bit more, or publish to a broader audience through a publisher (or on your own) and make less money. Apparently, many authors are doing 90-day runs of KDP Select to get a boost at Amazon, then switching back to broader distribution.

Fortunately for the rest of the publishing business, the shift to e-books and to online purchasing may have stalled. In the United States, Amazon appears to have about 60 to 70 percent of the e-book business, and e-books constitute about 30 percent of the total business. But the e-book share is much higher for immersive reading, higher still for fiction. More than half the sales of many fiction titles can be digital. And the print sales are anywhere from 25 percent to 35 percent online. So for fiction, Amazon may already be making nearly half the total sales for many titles.

I don’t expect the slowdown of the shift in sales to last. New offerings of ever-cheaper and more-flexible devices, more and more cheap e-books in the market (discounting the backlist e-books seems to be publishing’s latest common marketing trick), and the natural growth in digital interaction as older people exit and younger people with new credit cards replace them, pretty much assure that the online sale will continue to grow in relation to the store sale. As that happens, as the 2012 measurements after the demise of Borders showed, Amazon experiences organic growth.

Sketching the Future by Segment

So, when does Amazon’s share growth stop? And who is left standing when it does? Here we have to enter a realm of pure speculation; there are no data points that can help us figure this out.

Attempting to answer requires looking at the book business in segments.

For narrative text, books that one reads from the first page to the last, we’d expect continuing growth of digital. For genre fiction (including YA), which has the additional characteristic of having audiences that consume many titles a year, we’d expect a lion’s share digital market—80 percent or more—to be common within a couple of years.

For those kinds of books, Amazon will continue to just eat away at the publishers’ position. More and more of the genre readers will migrate to Amazon because it will have an increasing number of titles on an exclusive basis, more (and more aggressive) price promotion, and probably a variety of subscription opportunities. That should lead inexorably to more and more of the genre authors being willing to publish with Amazon exclusively because they’ll be able to reach an increasingly large percentage of the reader base through digital and Amazon alone.

If I were looking for the first candidates not to be “left standing,” I’d expect to find them in genre publishing. In time, the big publishers will increasingly focus on “big” genre titles, rather than lengthy genre lists.

I also expect the big publishers to offer more DRM-free titles, particularly in genre fiction, so that they can sell books in MOBI format to existing Kindle customers. For while genres are where Amazon has the greatest potential strength, it is also true that genres are where publishers have the best chance at building brands and direct customer relationships that matter.

More general fiction and nonfiction will be read mostly in digital form in a short time too, although the hardcovers for those books will continue to exist.

But for the big players in general trade, there’s another problem besides Amazon to deal with. That’s the new publishing behemoth: Penguin Random House. I guess (all we can do) that by three or four years from now, the first choice for most major authors will be either PRH or Amazon. PRH will provide the biggest reach; Amazon will often provide the biggest potential revenue. The other big general trade houses will fight each other for the major authors who don’t want to be part of either behemoth.

For illustrated books and children’s books, the environment will be different. Stores will remain important, but there will be fewer of them (and therefore fewer books of this kind published). As I imagine it, the bookstore of several years from now will have far more illustrated and gift books as a percentage of the total title mix than it does today.

The Plus Side of Looking Less Appealing

But I think something will save publishers from disappearing, and, oddly enough, it will be a loss of interest at Amazon in taking more market share. This conclusion comes from something I learned from people at Google about Google and something that is clear from Brad Stone’s book The Everything Store.

Last spring, I visited a Google installation that was not about the book business, but about an online game. The game is a big online experiment in engagement. Googlers showing us around were thinking about the revenue potential of the game, which was not supposed to be their primary concern. They had come to the conclusion that $100 million in annual revenue would be achievable, but they didn’t think they’d be able to go after it. Why? Because nobody in a responsible position at Google would take ownership of something as small as $100 million in revenue.

Brad Stone’s book paints a picture of Amazon as, above all, a highly rational company. Jeff Bezos can be impetuous, but he’s not nuts. He is zealous about the things he cares about because he believes they matter, customer happiness being number one on the list.

As the book business becomes a smaller and smaller part of the total Amazon picture and the challenges that matter to its business revolve around delivering your fresh produce in 30 minutes, not 90, it is likely that Amazon will have less and less interest in squeezing just a little bit more margin out of the book business. There will be easier places and easier ways to make money.

In other words, Amazon might lose interest in total hegemony over the book business before they achieve it.

Amazon attained the position it has in the book ecosystem through a combination of brilliance, execution, natural forces, and some good luck, but, above all, focus. It had to take some big chances with pricing and margin to get where it has gotten, but that’s not really necessary anymore. Doing some very logical and natural things, like launching the Matchbook program and rolling out more subscription and pricing offerings (including the new “Countdown Clock” discounts for new Kindle titles) will keep Amazon’s share growing and its competitors scrambling.

Amazon will almost certainly be coming after publishers for more margin (as will their equally dominant counterparts on the store side, Barnes & Noble), but it seems unlikely that they’ll see the need to extend themselves to sign up authors or build out their ability to distribute print to other people’s stores.

Also, Amazon will certainly continue to make it difficult for publishers to use price offers as a way of teasing away some of the direct e-book business. Publishers are finding that increasingly tempting as more and more vendors emerge who can solve the tech challenges for them. But even with publishers taking some e-book share directly, and more of them will, chances are that the e-book business will grow faster than the publishers’ shares and that Amazon’s growth, partly at the expense of other ecosystems, will not stop.

So the good news for publishers is that the business they now have will look less and less appealing compared to other worlds Amazon might conquer. That should save them from having a bull’s-eye on their backs. But they will remain in a very challenging environment where their biggest customer is the most powerful force in the marketplace and growth outside that customer is harder and harder to achieve.

The publishing activities of Amazon will continue to get bigger; the industry of other publishers will continue to get smaller. But we are probably in for a period of slow and steady shifts rather than cataclysms.

As long as Barnes & Noble can stay healthy and the other e-book platforms aren’t crushed by losing titles to Kindle exclusives, that will remain the case. And “remain” means “for quite a while” but not “forever.”

Mike Shatzkin, founder and CEO of The Idea Logical Company, has been an industry consultant for more than three decades. His blog, The Shatzkin Files (idealog.com/blog), is the source of this article and offers links to speeches and posts that document the evolution in his thinking that led to it.

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