Saturday, December 31, 2011

Smashwords Year in Review 2011

Welcome to my annual Smashwords year in review.

2011 was another strong year for Smashwords and our authors.

We're ending the year with over 92,000 titles published, up from 28,800 at the end of last year.

In my 2010 year in review post, 75,000 was my stretch goal for this year, so we beat it by a good margin.

Smashwords today supports over 34,000 authors and small publishers around the world, up from 12,000 a year ago.

I launched Smashwords four years ago with a crazy idea to change the way books were published, marketed and sold. I believed authors should have the freedom to publish directly to their readers without the interference of publishing gatekeepers. My ideas were not unique. The great Dan Poynter has been evangelizing the virtues of self-publishing for over 30 years.

I’d like to think we’ve helped bring Dan’s vision to life. Smashwords married self-publishing with ebooks, and we did it with a free platform that enabled any writer, anywhere in the world, to easily publish an ebook using nothing more than a word processor. We took the printing press – once under the sole dominion of the publisher – and put it in the cloud for all to use.

Unlike publishing services that earn their income by selling paid services to authors, Smashwords doesn’t sell services. Smashwords earns income only if we help sell books. We earn a small commission on sales equal to 10% of the list price for distributed books, and 15% of the net for books sold at our retail operation. We think our approach aligns our interests with the interests of authors. The more we help you sell your book, the better we all do.

What started as crazy dream has become a reality. We've created a business that empowers authors to reach readers with their words. Smashwords authors collectively earned millions of dollars in 2011. More importantly, we've helped tens of thousands of authors enjoy the freedom to publish and get read.

When we launched in early 2008, many writers viewed self-publishing as the option of last resort. Self-pubbed authors were often ridiculed as "vanity" authors, and much of the most vitriolic criticism came from fellow writers. We don’t hear much of that anymore. Self-publishing is finally earning the respect it deserves.

Today, self publishing is the option of first choice for many first-time authors. Previously published authors - the backbone of Big Publishing, are also wading into the indie waters. Most start with their reverted-rights works. Then they catch the indie bug and release unsold works, and then they move on to original first releases. You might think of it as a graduated progression toward enlightenment that starts with baby steps before the big leap. More will take those first steps in 2012, inspired by other successful indies, possibly inspired by you.

I think few people in the traditional publishing industry comprehend how this indie author revolution will transform their business in the next few years. Their world is about to be turned upside down.

Unfortunately, when faced with simultaneous convergence of multiple big trends (the rise of ebooks, the rise of the indie authors, the shift of bookselling from brick and mortar to online), most big publishers have taken actions counterproductive to their own self-preservation. They're trying to grab author rights they don't deserve. They're trying to the hold the line at 25% net royalties for ebooks, which works out to a paltry 12-17.5% of list. That line can't hold when authors can earn 60-80% list by self-publishing, and enjoy better distribution.

The power of publishing is shifting from large publishers to authors. It's what I’ve predicted for four years, and now the trend is plain as day for anyone who chooses to see it. What happens when authors lose faith in Big Publishing? This was the subject of my blog post earlier this year, Nietzsche and the Downfall of Big Publishing, inspired by what I thought were interesting parallels with the Arab Spring.

2011 was the year indies proved they can out-publish, out-compete, out-distribute and out-sell the large publishers. Look no further than the bestseller lists at major retailers to see how the indie insurgents are scaling the lists. A few have even landed in the NY Times ebook bestseller list. We’ll see more of this in 2012.

The Indie Movement Reaches Adolescence

Indie authors, free of the legacy business practices and expense structures of the large publishers, are beginning to feel their oats.

If the indie author movement was a person, it would just now be entering puberty. It's in that gawky awkward pimply stage of life. The participants are filled with unbridled optimism for the future, confident they're writing the new rules for the future (and they are!).

Visit any writers message board and you’ll find writers plotting the future of publishing. Sure, the skeptical observer will find petty internecine squabbles reminiscent of high school, and copious uniformed opinions dripping with unfounded speculation, fear, greed, envy and aspiration. But dig deeper and you'll see something profound is happening. These newly fledged indie ebook authors (old timers are the ones with two or three years of experience) are piecing together the secrets of successful modern day publishing.

They’re sharing information, debating, arguing and leading the revolution that is upon us. We're witnessing the rise of the indie author collective, and the collective - warts and all – is giving rise to an intelligence and sophistication that will redefine publishing for the better.

The practice and professionalism of self-publishing grew by leaps and bounds in 2011 as indie authors collaborated. The best indie authors and small presses are publishing books of equal or higher quality than traditional publishers, and they're doing it faster, smarter and less expensively. Because the indies are earning 60-80% of the list price as their royalty, they're earning higher profits while producing a product that is more affordable and more accessible to more readers around the globe than ever before.

As some lucky indies strike gold (and let’s be realistic, most indies do not sell well, just as most traditionally published books don't sell well), they share their secrets in real time and inspire all authors to raise their game.

We're witnessing a publishing renaissance that will lead to more readers, more reading, greater literacy, and greater and more amazing published works than could ever have been realized under the old gatekeeping system.

As I've often stated here and elsewhere, traditional publishers are in the business of selling books, not publishing books. They acquire books they think they can sell. Nothing wrong with that, unless you’re an author whose work is not perceived as commercial, or you lack the fame of an established platform, or you’re a reader who appreciates more choice at less cost.

Writers write for reasons different than publishers publish, and it's at the nexus of these opposing motivations that the indie author revolution took root.

Today’s indie ebook author is at the right place at the right time. Print is in decline as reading moves to screens, brick and mortar fades, and book buying moves online.

The Free Printing Press Helps Shift Publishing Power to Authors

In the old world of two or three years ago, publishers controlled the printing press and access to distribution. Today, thanks to free ebook publishing and distribution tools like Smashwords, the printing press is free and available to any author, and distribution is open to all.

Retailers such as Apple, Barnes & Noble, Sony, Kobo, Diesel and Amazon deserve a lot of credit for welcoming indies to their virtual shelves. These ebook retailers are hungry to carry the books of indie authors because these books satisfy their customers (they sell). Retailers also understand that readers could care less about the name of the publisher on the book’s virtual spine.

The implications of this revolution are profound. Writers are now in charge. The writer decides when their manuscript graduates to published book. Readers decide which books are read.
Along with this power shift also comes the responsibility for authors to honor the best-practices of the best traditional publishers. Readers have little tolerance for anything less, and this is how it should be.

In this age of abundance where consumers have unlimited access to myriad high-quality sources of entertainment and knowledge - much of it accessible for free - writers need to up their game. Those who honor the reader by publishing great books will reach the most readers.

Book marketing has always been a word of mouth business. If you write a book that touches your reader’s soul, or inspires them with passion or knowledge, your readers will market your book for you.

There's never been a better time to be a writer. The opportunity to reach readers with words has never been greater.

Against this backdrop, you might understand why I’m so excited about the future I see for Smashwords authors and publishers. Our business is dedicated to helping authors stake their rightful claim to this bright future.

So let's turn the page to Smashwords...

If I were to sum up our focus in 2011 in one word, that word would be infrastructure.

Smashwords has been profitable for 15 months. We're reinvesting these profits to build a solid foundation upon which we’ll deliver continuous service enhances to our authors, publishers and retailers for many years to come.
Our development roadmap calls for over 500 minor and major service enhancements. Some are so minor you might not notice them. Others we think will knock your socks off. The Smashwords you see today barely scratches the surface of what we think is possible.

The bulk of our development effort this year focused on building a scalable technology infrastructure that can support one million or more published and distributed books (or, about 10X our current size). To enable this future, we invested heavily in infrastructure. Much of this infrastructure build-out is invisible to users, and if we do our job right it remains invisible. You don’t care how we build it, you just want what we build to work for you, whether you're an author, publisher, retailer or reader.

Notable Smashwords Milestones 2011

Before I review the plans for 2012, let’s summarize some of the notable business, technology and competitive highlights for 2011:

1. People - There are real people behind Smashwords. 12 months ago, we were barely three employees. Today we're 13. We've got a great team here in California, all of whom are dedicated to serving our authors, publishers, retailers and customers. We value every client.

2. Platform infrastructure - We completely rearchitected the underlying Smashwords platform this year to improve scalability, reliability, performance and security. As one of the Twitter founders once said, developing a fast-growing web service is akin to rebuilding a rocket ship in mid-flight. I grok that. The Smashwords platform has a lot of complex moving parts. Most of our last six months of development work has been focused on this infrastructure under the hood; the nuts, bolts, gears, glue and magic that hold our systems together. Most people never think about infrastructure except for when it fails. The proof in our pudding: Our infrastructure improvements have led to fewer website outages and faster page load times at the same time our catalog of books and traffic have exploded.

3. Distribution - We revamped our technical integrations with our retail partners so our books can flow to them faster and more accurately than ever before. Most of our retail partners also upped their games to accommodate our incredible increase in title volume. This is not to say everything is perfect. It is not. We view distribution as a never-ending work in progress, and we will continue to work in a constructive manner with all our retail partners to explore how we can improve our mutual performance.

4. Meatgrinder - We completed multiple updates to our Meatgrinder conversion engine, both in terms of scalability and also capability. On the scalability front, earlier in the year Meatgrinder was taking up to 30 hours to convert a single ebook. We tripled conversion capacity and now complete most conversions within three minutes. On the capability front, we improved Meatgrinder's ability to produce higher-quality books by adding greater styling control, automatically generated NCXes, and automatic error correction for some common formatting problems.

5. Categorization - We're in the final stages of a complete remapping of our categorization system to provide complete support for the latest BISAC categorization specifications. We're now supporting more categories than ever. Good categorization is a foundational element of what comes next in 2012.

6. Discovery - Multiple items here. Books aren’t purchasable unless they’re findable (or tripped over or stumbled upon or recommended by a friend or promoted), and that's where discovery comes in. We kicked off 2011 by adding support for long book descriptions (4,000 characters). We updated the shopping cart so it recommends up to 12 other books by the same author. In March, we launched the official Smashwords Facebook page which now gets thousands of visitors each week (thanks to the great volunteer efforts of Smashwords author John Low!) including many readers looking to discover new authors. In June, we acquired a block of 50,000 ISBNs from Bowker so we could give them away for free (ISBNs enable distribution to Apple, Sony and Kobo).

7. Reporting – We increased the frequency of our aggregated sales reporting from retail partners. We introduced a new downloadable spreadsheet that maps each quarterly payment to the sales behind that payment, and we made the data easy to query by author, retailer or title. For sales at, we improved our email notifications so authors can more easily monitor more information about about their sales as they happen. Customers, too, now receive more complete purchase confirmations to help them access their books faster and easier.

8. Literary Agents – We updated our publishing platform so literary agents can now upload and manage the indie ebook efforts of their clients.

9. Globalization – On a percentage basis, most countries outside the US are just now entering the exponential growth phase. Their markets are where the US market was two, three or four years ago. Within a few years, the market for ebooks outside the US will dwarf the US market. We took a number of steps in 2011 to expand the global footprint of Smashwords ebooks. We signed an expanded distribution deal with Apple which increased our international coverage to Apple iBookstores in 32 different countries. Today, nearly half of our Apple sales come from outside the U.S (I’m surprised the media hasn’t picked up more on Apple’s impressive international success in 2011). We updated our payment and reporting systems to track VAT, which is handled differently by different retailers. Thanks to the volunteer efforts of Smashwords authors around the world, we released translated Smashwords Style Guides in German, French, Spanish, Italian (also the Smashwords Book Marketing Guide in Italian) and Dutch. A Bengali version is completed and a Danish version is in the works.

10. Smashwords Gifting - Our final big feature of the year launched on Christmas eve. We now make it easy for customers (and authors too, if they choose) to purchase ebooks as gifts. We think this is a nice complement to our popular Smashwords Coupon tool.

11. Competition - Many new ebook distribution competitors came on the scene in 2011. Back in 2008, we were the only game in town when we became the first ebook distributor to focus exclusively on self-published authors. Now you have choices. We feel honored that so many authors, small publishers and agents continue to choose Smashwords over the competition.

The ebook market remains in an exponential growth phase. 2011 will probably show ebooks at 20% of the US book market, up from 8.3% the year before and 3% the year before that. Based on preliminary post-Christmas sales results I’ve seen for Smashwords books at Apple, B&N and Sony, I think 2012 could see ebook market share in the US rise to between 40 and 50%. I expect many more competitors will come online in 2012 and 2013. I've been in technology for the last 20 years, so I'm intimately familiar with the inevitable boom and bust cycles of things touched by tech (and I have the old scars to prove it). Ebooks are in the boom phase now, but they cannot continue the torrid pace of growth. The new competitors and the noise they create will draw more authors, books and readers into the market, and will act as a growth catalyst for a couple years. When the exponential growth ends and the bust comes (and yes, it will come), some of these new competitors will disappear. Any one of us could disappear if we fail to build profitable businesses that add measurable value to those we serve.

In 2011, the most formidable competition came from Amazon, which has been on a multi-year rampage to disintermediate anyone or anything that stands between Amazon and their target customer. Three weeks ago Amazon launched KDP Select, a new opt-in service that represents their boldest broadside yet aimed at competing ebook retailers. KDP Select requires participating authors to remove their books from all retailers except for Amazon. I blogged why I think KDP Select is bad for authors (here and here). While most Smashwords authors share my view that exclusivity is a dangerously slippery slope to trod, thousands of authors enrolled titles in the Amazon program before Christmas. Of the approximate 65,000 or so books enrolled in KDP Select, nearly 6,000 books came from - and disappeared from - Smashwords as a result.

Despite the punch in the gut from Amazon, we still managed to grow our title count during the month of December (now over 92,000 titles), albeit at a lower rate of growth than we’re accustomed. Preliminary holiday sales results indicate our remaining authors enjoyed an impressive sales bump in the first few days following Christmas at Apple (up over 70%), Barnes & Noble (up over 100%) and Sony (up 30%). I don’t yet have results from Kobo and Diesel. If the record-breaking post-Christmas bump follows the same pattern as last year, sales will moderate a little in the next two weeks and then stabilize and begin growing again at a new normal that’s measurably higher than the pre-Christmas sales levels. These strong holiday sales, and the tremendous growth we’ve seen this year both in the US and internationally only solidify my conviction of the importance of authors maintaining broad and diversified distribution. Every retailer – even the smallest – works to introduce authors to new readers they wouldn’t reach otherwise. Yes, distribution is our business so my view is biased. I believe in the value of retailers and the distributors who serve them.

Someday, if the Amazon powers see fit, we’ll distribute more of our titles to them as well (we’re currently distributing about 200 titles to them). We’d much prefer to engage with Amazon as a partner rather than as adversary. We think we and our authors can help make their business more successful, just as we’ve helped our existing retailer partners grow their businesses. A good distributor helps retailers ingest and list more titles more efficiently and at less cost than operating their own self-pub platforms.

What's Coming to Smashwords in 2012?

Smashwords is an ebook distributor, so our priorities will be guided by this focus. Service enhancements will concentrate on making our books more available and more discoverable by readers.

In 2012 we’ll shift more of our attention from backend infrastructure to customer-facing user experience. The new features and service offerings will leverage the new infrastructure foundation we built in 2011.

Here’s a brief sampling of what you can expect from Smashwords in 2012:
Discovery – We’ll complete the BISAC recategorization mentioned above very soon, and from there we’ll turn our attention to our retail operation and give it some much overdue love and attention on the discovery front. We’ll add more search options to the Smashwords home page, more alternative discovery paths to help readers find books they'd enjoy reading, and we’ll revamp the algorithms driving our best-seller lists so they more accurately reflect the collective intelligence and reading preferences of our customers. Once that initial stage is completed, we’ll leverage some of these new features on a couple secret projects that might surprise some folks, one of which will help our retail partners identify Smashwords books that deserve extra promotion.

More Distribution - We'll add more distribution outlets in 2012, the first of which we'll probably announce in the next two months (working on the technical integration now).

Faster Distribution – We currently ship to retailers once a week. In 2012, we’ll phase in more frequent shipments to those retailers that can support it so books appear faster and metadata changes reflect faster. This will give authors greater control over their distribution.

Faster Reporting - Some Smashwords authors have already noticed that we've increased the speed and frequency of retailer sales reporting over the last two months. We will continue to make incremental progress here for the retailers that can support it.

Faster Premium Catalog Approvals - There are two variables influencing Premium Catalog approval times. The first variable rests with the author or publisher, and that's the responsibility to upload a book that's formatted to the Smashwords Style Guide. A well-formatted book gets approved on the first review. We'll continue to improve the Smashwords Style Guide and other resources to help make it faster and easier for authors to format their books. The second variable is on our side, and that's the vetting process where we manually review each title for adherence to the Style Guide and the Smashwords Terms of Service. We've added two new recent hires to the vetting team and will add additional staff in the new year as required. The goal is to get approvals down to under three days. The faster the approval, the faster we can distribute you to retailers. In addition to throwing people at the challenge, we'll also continue to develop new automated tools to accelerate the process.

More Control - There are several planned features related to providing authors greater control over more aspects of their publishing, distribution and metadata. One such feature planned for the second half of 2012 is Smashwords Direct, which will give authors the option to upload their own pre-formatted .epub files (and other formats) if they choose. Also look for greater control over foreign currency pricing.

My thanks to you

As another fabulous year draws to a close, I want to express my sincere appreciation to every Smashwords author, publisher, reader, retailer and service provider partner (shout out to the awesome pros on my “Mark’s List” who help their fellow indies with low-cost formatting and cover design services). We created this for you.

With your trust, confidence and support, we will continue to serve you. When you utilize our distribution services, you’re directly supporting our mission to reshape book publishing for the benefit of authors and readers everywhere.

Happy New Year, and safe holidays. Peace all.

Tuesday, December 27, 2011

Smashwords Authors Experience Blowout Christmas at Barnes & Noble

It looks like it was a blowout Christmas for Smashwords authors at Barnes & Noble.

I'm looking at the early sales results for December 25 and December 26 for the titles Smashwords distributes to Barnes & Noble. For these first two days, sales are running about 225% (125% higher) of the daily sales average for November through mid-December (12/29 update: sales are remaining strong. 12/28 sales, three days after Christmas, were 260% of previous 30 day rate, or up 160%).

While it's too early to draw definitive conclusions, I think the numbers speak well for B&N headed into January.

FREE Smashwords books were also popular with B&N customers, racking up hundreds of thousands of downloads in two days. At the current download rate, our authors with free books will yield close to 10 million downloads in the next 30 days from B&N alone.

In the next couple days I should have sales results from the Apple iBookstore, where Smashwords authors were already enjoying a surge in sales over the last two months. Early reports of iOS activations (the operating system for the Apple iPhone and iPad) indicate Santa stuffed a lot of stockings with iPhones and iPads too.

The numbers also speak well for the importance of authors maintaining broad, uninterrupted distribution to multiple ebook retailers. Earlier this month, Amazon played the Grinch who stole Christmas when it convinced thousands of authors to remove approximately 65,000 books from Amazon's competing retailers two weeks before Christmas. Thankfully, only about 5,000 of those books came from Smashwords authors, with most Smashwords authors heeding my warnings (here at the Smashwords blog and also at the Huffington Post) and their own gut instinct that exclusivity is generally a dangerous idea. I wonder how many of these authors will feel duped? I imagine some will do well by their decision, but I suspect most will have shot themselves in the foot.

If the patterns we observed last year hold true again, we'll see a massive stepping up of the sales rates across all retailers in the first few days following Christmas, followed by a week or so of moderation, and then a new normal going forward that is significantly higher than the sales rate for the weeks and months immediately preceding Christmas.

Here are the top 20 Smashwords bestsellers at Barnes and Noble for the two day period of December 25 and 26:

Smashwords Top 20 at B&N (total dollars), December 25-26

  1. Demon Dark - Penelope Fletcher
  2. Fate (My Blood Approves Series #2) - Amanda Hocking
  3. Wisdom (My Blood Approves Series #4) - Amanda Hocking
  4. Arousing Love - M. H. Strom
  5. My Blood Approves (My Blood Approves Series #1) - Amanda Hocking
  6. Mud and Gold - Shayne Parkinson
  7. Voodoo Kiss (Ancient Legends) - Jayde Scott
  8. Shotgun Groom - Ruth Ann Nordin
  9. Fires of Prophecy: The Morcyth Saga Book Two - Brian S. Pratt
  10. The Witch's Ladder - Dana Donovan
  11. A Job From Hell (Ancient Legends) - Jayde Scott
  12. The Queen's Blade II - Sacrifice - T C Southwell
  13. Immortal - Lauren Burd
  14. Demon Day - Penelope Fletcher
  15. Settling the Account - Shayne Parkinson
  16. Doomed (Ancient Legends) - Jayde Scott
  17. A Second Chance - Shayne Parkinson
  18. Warrior Priest of Dmon-Li: The Morcyth Saga Book Three - Brian S. Pratt
  19. The Mists of Sorrow: The Morcyth Saga Book Seven - Brian S. Pratt
  20. The Queen's Blade III - Invisible Assassin - T C Southwell
Congrats authors, and a warm welcome to the millions of readers who will discover and enjoy Smashwords books this holiday season.

Sunday, December 25, 2011

Smashwords Introduces New Ebook Gifting Feature

Smashwords yesterday released a new ebook gifting feature.

Because Smashwords books are available in multiple ebook formats, our books are readable on any e-reading device.

Simply click to the book you want to gift, and click the "give as gift" button. The shopping cart will ask you for their name and email address. The lucky recipient will receive an email with a hyperlink that allows them to claim their gift. If they're already logged in to their Smashwords account, the book will appear in their Smashwords Library. If they don't have a Smashwords account, they'll be prompted to register.

Prior to this new feature, authors were unable to purchase their own books. One advantage of the gifting option over Smashwords Coupons is that the recipient, assuming they're already a Smashwords member, can simply click the hyperlink in the email and the book is loaded into their Smashwords Library. No purchase or checkout process necessary.

In the next few weeks, we'll add new features based on your feedback. We'll also integrate prompts into purchase confirmation emails and review reminders so your fans are encouraged to purchase your book as a gift for their friends.

We've created a temporary email address where you can send your beta testing feedback and bug reports. Email gift at smashwords dot com

Happy holidays!

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