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

(April Fools) Smashwords Acquires Amazon

Smashwords today announced a definitive agreement to acquire Amazon.

As you might imagine, this is exciting news for us. We launched Smashwords three years ago, and now this happens. We are blessed.

In the last 18 months, Smashwords has developed successful ebook distribution relationships with the Apple iBookstore, Barnes & Noble, Sony, Kobo and the Diesel eBookstore. Noticeably absent from the list is Amazon, the world's largest ebook retailer. Problem solved.

The combined company is named Smashazon.

I can hear the naysayers already. Sure, $69 billion is a lot of pay for distribution, but we think it's money well-spent, especially when it's someone else's money. We purchased Amazon with one of those no-money-down deals sponsored by the US Treasury Department. Full details are below in our our official press release.

Other naysayers probably think this is some cruel April Fool's prank. Can we help it that April 1 landed on April 1? Read on and decide for yourself.

FOR IMMEDIATE RELEASE

Smashwords Acquires Amazon in World’s Largest Leveraged Buyout

(Los Mirages, Calif. and Seattle WA) – April 1, 20111 – Smashwords, a leading ebook distributor, today announced a definitive agreement to acquire Amazon for $149.99 a share or $69 billion, a 20% discount off of yesterday’s closing list price.

The merger will create the world’s largest ebook publishing and distribution platform serving billions of authors, publishers and consumers worldwide.

The combined company, to be renamed Smashazon, will undergo a strategic product line rationalization.

Although Amazon has achieved minor success in the ebook market, the Smashwords management team believes it can lead Amazon to greater success by eliminating its distracting non-book operations.

“Amazon’s doing bang-up business in edible undergarments,” said Mark Coker, founder and CEO of the company formerly known as Smashwords. “Although we appreciate their focus on customer satisfaction, these products don’t fit with our palate or long term vision. We’d rather please the customer with words. The words of great stories light up our imaginations to create sights, sounds, smells and experiences more vivid than reality.“

The Smashwords management team is optimistic the former Amazon can leverage some of their non-book experience to sell more ebooks.

“Ebooks could taste and smell better,” said Jeffrey Bezos, former Amazon CEO who will assume the new position of Chief Satisfaction Officer at Smashazon. “We will fully service the needs of our customers.”

Following the acquisition, Smashazon will operate as a private company. The combined companies’ physical operations will be consolidated into the current Smashwords Smashoplex campus in Los Mirages, California.

Financing for the leveraged buyout was arranged by Smashwords Bank, N.A., a newly formed FDIC-insured banking institution that has secured a $69 billion credit line facility. The massive credit line, which makes this the largest-ever leveraged buyout in world history, was enabled by a new US Federal Reserve zero –interest– rate economic stimulus program called “Regulated Overnight Treasury Facilitation Loan Maturity Acquisition Obligations,“ better known as ROTFLMAO.

At a press conference to announce the acquisition, Coker said he expects the new Smashazon will pay off the US taxpayer-funded loan within five years, based on his projection that ebooks will grow from 10 percent of the overall book market today to over 450 percent of the market within three to five years.

“Amazon generated over $3 billion dollars in cash flow in 2010, and Smashwords generated nearly that much,” added Coker with an air of understated modesty that led some market observers to infer Smashwords’ cash flow might actually exceed Amazon’s.

“This acquisition proves that Smashwords is bigger than Amazon, otherwise the acquisition wouldn’t have been possible,” said one publishing industry consultant in attendance who requested anonymity.

When a reporter challenged Coker about the mathematical impossibility of any market growing to 450% of its future size, Coker responded, “We were wrong to underestimate the growth of ebooks to date, so the laws of probability therefore indicate an underestimation of the probable potential of ebooks in the future, no matter how improbable. The market will grow faster than any of us expect, which means my projections understate the true potential of the ebook market.”

Smashwords, which was founded a mere three years ago, now publishes and distributes over 41,000 ebooks from 16,000 authors and publishers around the world. The company’s catalog, which added 5,400 books in the last 30 days, is on track to surpass over 75,000 ebooks by the end of 2011.

Smashwords distributes ebooks to most of the major ebook stores, including the Apple iBookstore, Barnes & Noble, Sony, Kobo and the Diesel eBook store. Noticeably absent from this list is Amazon, a problem now remedied by the acquisition.

“We’re thrilled our ebooks can now flow to our new Smashazon KindleWords store,” said Coker.

One Smashwords insider, who asked not to be identified, commented, “We reached profitability last year, but billions in profits? I want a raise! Our office is only 1,200 square feet, so where are all those thousands of Amazonian employees going to fit? And we’re based in Los Gatos, not Los Mirages. This smells of an April Fools prank to me.”

About Smashazon
Created by the fictional merger of Smashwords and Amazon on April 1, 20111, Smashazon, Inc. will again become known as Smashwords starting April 2, 2011. Founded in 2008, privately held Smashwords operates the world’s leading ebook publishing and distribution platform serving authors, publishers, readers and retailers. Smashwords makes it free, fast and easy for the world’s authors and publishers to publish and distribute multi-format ebooks. Smashwords puts authors and publishers in full control over the pricing, sampling and marketing of their works. Authors and publishers receive 85 percent of the net proceeds from sales of their works. Smashwords has distribution relationships with leading online retailers such as Apple, Barnes & Noble, Sony, Kobo and the Diesel eBook Store, and also distributes to the leading mobile e-reading apps including Aldiko and Stanza. Smashwords is based in Los Gatos, California, and can be reached on the web at http://www.smashwords.com/. Visit the official Smashwords blog at http://blog.smashwords.com/.

###

Our previous April Fool's prank was in 2009 when we announced an ebook deal with JK Rowling (we can wish, can't we!?!)

Smashwords to Supply Ebooks to Amazon Kindle Store

Smashwords today announced a distribution agreement to supply ebooks to the Amazon Kindle Store.

The news follows other important Smashwords distribution agreements we announced in the last three months with Barnes & Noble, Sony and Shortcovers.

I'm so pleased to call each of these retailers a valued Smashwords partner, and I look forward to working with them to showcase our fast-growing catalog of nearly 5,000 independently published ebooks.

Our Amazon agreement marks an important milestone in the evolution of Smashwords. We launched in May 2008 as an ebook publishing platform for indie authors. In May of this year, we expanded the platform to support small publishers. In the last couple months, we've transitioned to a full-fledged distributor of ebooks capable of serving authors and publishers around the world. We're just getting started.

For most of the last few centuries, if you wanted to reach readers for your book, you worked with a publisher. Publishers controlled the means of production (the printing presses) and the means of distribution (access to book stores and readers).

With the rise of ebooks, we're witnessing the democratization of book production and distribution. In the next few years, I think more authors - including big name authors - will ask the question, "What can a publisher do for me that I can't do myself?"

Smashwords makes it possible for any ebook author or small publisher, anywhere in the world, to gain equal and free access to the virtual shelves of the most important online retailers of ebooks.

Authors will compete not on publisher advantage, but on the merits of their works. Readers, not publishers, will decide which books are worth reading.

Read the press release in the Smashwords Press Room.

Thank you for your support.

The Brave New World of Amazon.com

Much has been written over the last couple months about the controversy surrounding Amazon's decision to remove its "Buy now" button from POD book listings that don't print from its own BookSurge subsidiary. Long story made short, if you're a POD author, your books can receive preferential treatment if you use Amazon's POD printing subsidiary as opposed to using a competitor such as Lightning Source or any of the dozens of alternatives. POD printer BookLocker even filed suit in May to block prevent Amazon from, we suspect, wielding unfair and anti-competitive powers against its POD printing competitors.

The New York Times in Monday's issue provides an update to the ongoing saga, this time with news about how Amazon is cracking down on publishers in the U.K.

Our take: Amazon is the biggest single threat facing book publishers and book stores today. First, they're going to try to own the indie author POD and digital publishing segment of book publishing, and next I suspect they'll try to recruit mainstream published authors to bypass traditional publishers for future works and do their original publishing through Amazon. With Amazon's Digital Text Platform service, it's already as easy for an indie author to publish on the Amazon Kindle as it is to publish on Smashwords.

Some in the industry have suggested that Amazon should acquire Borders. I don't see that happening. Instead, I think it's only a matter of time before Amazon starts acquiring ailing mainstream print publishers and their catalogs. Amazon would acquire authors and backlists and could then disintermediate multiple members of the book industry supply chain in one fell swoop. To authors, this might at first appear a favorable outcome, considering the current system is broken from the perspective of most authors, and Amazon pays better royalties than its traditional print cousins. However, longer term, reduced choice and monolithic near-monopolistic industry control are seldom good for anyone but the monopoly.