Showing posts with label predatory business practices. Show all posts
Showing posts with label predatory business practices. Show all posts

Thursday, December 8, 2011

Amazon Shows Predatory Spots with KDP Select

Amazon today announced a new service offering for authors and publishers who upload to their KDP platform: KDP Select. Writer beware.

At first glance, the program looks enticing. Amazon has created a $500,000 monthly pool of cash they'll distribute to participating authors based on the number of times your book is borrowed from their new lending library.

As they note in their FAQ, if your book accounts for 1.5% of the downloads during the monthly lending period, you'll earn 1.5% of the pot, or in this case $7,500.

But there's a catch. Actually, multiple catches, which are outlined in their Terms and Conditions:

  1. For the time your book is enrolled in the program, you cannot distribute or sell your book anywhere else. Not Apple, not Barnes & Noble, not Smashwords, not Kobo, not Sony, not even your own personal blog or web site. Your title must be 100% exclusive to Amazon.
  2. If you violate their exclusivity terms at any point during the three-month enrollment period, or you unpublish your book to remove it from the program so you can distribute your book elsewhere, you risk forfeited earnings, delayed payments, a lien on future earnings, or you may get kicked out of the Kindle Direct Publishing program altogether.
  3. Your enrollment, and thus your liability to Amazon, automatically renews every three months if you neglect to opt out.
Amazon has also modified the Kindle Direct Platform's user interface with the effect of making it almost difficult not to enroll your books. Where they once placed their pull down menu for managing your book's settings, they've now placed the enrollment link. The pull down settings menu is moved to the bottom of their dashboard.

Let's examine the implications for this new program, not only for authors but for the nascent ebook industry as well.

When authors enroll a title in the program, they're contractually obligated to remove their books from all other distribution channels.

Wow. Most indie authors appreciate their independence. This rule is quite restrictive.

Impact on authors:
  • Forces the author to remove the book from sale from the Apple iBookstore, Barnes & Noble, Sony, Kobo, Smashwords and others, thereby causing the author to lose out on sales from competing retailers.
  • By unpublishing a title from any retailer, the author destroys any accrued sales rank, making their book less visible and less discoverable when and if they reactivate distribution to competing retailers
  • Makes the author more dependent upon Amazon for sales. Do you want to become a tenant farmer, 100% dependent upon a single retailer? As some of you history buffs may know, tenant farming, and the abuses of power by landlords, was a primary contributor behind the great Irish potato famine.

Impact on competing retailers:
  • Harms other retailers by denying them access to your book.
  • Many authors will permanently stop distributing to Amazon's competitors once they become fully dependent upon Amazon for the lion's share of their earnings
  • Motivates more customers to purchase at Amazon since Amazon has this exclusive content.
  • Discourages formation of new ebook retailers around the world
The new Amazon KDP Select program strikes me as a startling example of a predatory business practice. Amazon has the opportunity to leverage their dominance as the world's largest ebook retailer (and world's largest payer to indie authors) to attain monopolistic advantage by effectively denying its competing retailers (Apple, B&N, Kobo, Sony, etc) access to the books from indie authors.

The move will also make it more difficult for new retailers operating outside the US to gain footholds in their respective markets if they lose fair access to the content readers want to read.

Amazon might argue that indie ebooks today only account for a fraction of overall book industry sales. True, but that fraction is growing quickly as indies scale all the best-seller charts. This trend will continue as more and more professional authors turn their back on traditional book publishers in favor of self-publishing. Amazon is smart. They understand indies are the future of book publishing.

European Commission and US Department of Justice Unwittingly Working to Create Amazon Monopoly

Amazon's new service offering comes at a time when the European Commission and even the US Department of Justice are scrutinizing the legality of agency ebook pricing. Agency ebook pricing, as you'll recall (see my blog post last year on our move to agency pricing) allows authors and publishers to set their own price and receive higher royalty rates. Amazon is a long time foe of agency, and as a result is probably enjoying a virtual wet dream as they savor the implications of potential restrictions against the agency model.

If agency pricing is limited or overturned, it would allow Amazon to price ebooks at below cost and effectively eliminate the profitability of all its competing retailers. This would also discourage the formation of new competitors. It's ironic that the EC and US DOJ are pursuing these ill-advised campaigns that could lead to less competition in the ebook market, not more.

What the EC and US DOJ fail to realize is that big publishers (the target of these investigations), which (I agree) price their books too high, are becoming less relevant to the future of book publishing as authors lose faith in the myth of big publishing. The problem of high prices from big publishers is not an agency issue, it's big publishers pricing their books too high.

Agency Pricing Enables Indie Authors and Small Publishers to Lower Prices

Despite fears to the contrary, we see evidence at Smashwords that agency pricing might actually encourage lower book prices. Indies, which are enjoying great benefits from the agency model (Smashwords only distributes to agency retailers), are using agency to offer customers lower prices, not higher prices. The average ebook at Smashwords is priced under $5.00, and we have over 15,000 books priced at FREE. Why do indies price their books lower when they have the freedom to charge anything they want? The reason is that indies realize that consumers value fair prices, and as a result these lower prices give indies a competitive advantage over the large publishers.

When an indie author can earn 60-70% of list with agency pricing, they can set a lower price yet still earn more per unit than if the book was sold under a wholesale pricing model (where the royalty would equal 43-50% of list). As an example, if an author wants to earn $2.00 from each book they sell, at a 70% agency rate they'd price the book at $2.85. Under the wholesale model (50% discount off list), they'd need to price the same book at $4.00.

The agency model puts profits in the pockets of the author or publisher, where it belongs, while allowing the retailer to earn a fair profit. Agency pricing relieves retailers from the pressure of competing on price and instead forces them to compete on customer experience, such as developing discovery tools and recommendation systems that help match readers with the books they'd enjoy reading.

How should indie authors respond? Horror might be a good start. Recognize that your long term interests are best served by enabling a vibrant and competitive global ebook retailing ecosystem to develop. Distribute your book to as many retailers as possible. A world of many ebook retailers, all working to attract readers to your books, is much preferable to a world where a single retailer dictates all the terms.

Obviously, I have a horse in this game. Smashwords is probably the world's largest distributor of indie ebooks. We publish and distribute over 90,000 ebooks from 33,000 indie authors and small presses around the world. We exist to serve our authors and publishers. We supply Amazon's competitors. We'd love to supply Amazon as well, but they're unwilling to provide us agency terms.


Image credit: Wikipedia