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May 29 2012

Amazon, ebooks and advertising

This post originally appeared on Joe Wikert's Publishing 2020 Blog ("Why Advertising Could Become Amazon's Knockout Punch"). This version has been lightly edited.

Your Ad Here by KarenLizzie, on FlickrIt all started harmlessly enough with Amazon's Kindle with Special Offers. That's the cheaper Kindle that displays ads when the device is in sleep mode or at the bottom of the screen when paging through the owner's catalog of books. It is very unobtrusive and, since it lowered the price of the device, has made that Kindle an extremely popular device.

Now there are rumors that Amazon is selling ad space on the Kindle Fire's welcome screen. That sounds pretty reasonable, too, as it's a simple way for Amazon to drive a bit of additional income that's pure profit for them.

Given that Amazon's goal is to offer customers the lowest prices on everything, what's the next logical step? How about even lower prices on ebooks where Amazon starts making money on in-book ads? Think Google AdWords, built right into the book. Of course, Amazon won't want to use Google's platform. They'll use their own so they keep 100% of the revenue.

The changes the DOJ is requiring for the agency model means a retailer can't sell ebooks at a loss, but they can still sell them for no profit, or break even. In other words, the 30% the retailer would keep on an agency ebook sale can be passed along to the customer as a 30% discount on the list price, but that's as deep a discount as that retailer can offer.

The rules are different with the wholesale model. Amazon already loses money on sales of many wholesale-model ebooks. Let's talk about a hypothetical wholesale model title with a digital list price of $25. Amazon is required to pay the publisher roughly half that price, or about $12.50 for every copy sold, but that ebook might be one of the many that are listed at $9.99 for the Kindle. So every time Amazon sells a copy, they lose $2.51 ($12.50 minus $9.99). Amazon has deep enough pockets to continue doing this, though, so they're quite comfortable losing money and building market share.

So, what's preventing Amazon from taking an even bigger loss and selling that ebook for $4.99 or $0.99 instead? In the wholesale model world, the answer to that question is: "nothing is preventing them from doing that." And if selling ebooks at a loss for $9.99 makes sense, especially when it comes to building market share, why doesn't it also make sense to sell them at $4.99, $0.99 or even free for some period of time? It probably depends on how much pain Amazon wants to inflict on other retailers and how much attention they're willing to call to themselves for predatory pricing.

Make no mistake about the fact that Amazon would love to see ebook pricing approach zero. That's right. Zero. That might seem outlandish, but isn't that exactly what they're doing with their Kindle Owner's Lending Library program? Now you can read ebooks for free as part of your Prime membership. The cost of Prime didn't go up, so they've essentially made the consumer price of those ebooks zero.

Why wouldn't they take the same approach with in-book advertising?

At some point in the not-too-distant future, I believe we'll see ebooks on Amazon at fire-sale prices. I'm not just talking about self-published titles or books nobody wants. I'll bet this happens with some bestsellers and midlist titles. Amazon will make a big deal out of it and note how these cheaper prices are only available through Amazon's in-book advertising program. Maybe they'll still offer the ad-free editions at the higher prices, but you can bet they'll make the ad-subsidized editions irresistible.

Remember that they can only do this for books in the wholesale model. But quite a few publishers use the wholesale model, so the list opportunities are enormous. And as Amazon builds momentum with this, they'll also build a very strong advertising platform. One that could conceivably compete with Google AdWords outside of ebooks, too.

Publishers and authors won't suffer as long as Amazon still has to pay the full wholesale discount price. Other ebook retailers will, though. Imagine B&N trying to compete if a large portion of Amazon's ebook list drops from $9.99 to $4.99 or less. Even with Microsoft's cash injection, B&N simply doesn't have deep enough pockets to compete on losses like this, at least not for very long.

At the same time, Amazon will likely tell publishers the only way they can compete is by significantly lowering their ebook list prices. They'll have the data to show how sales went up dramatically when consumer prices dropped to $4.99 or less. I wouldn't be surprised if Amazon would give preferential treatment to publishers who agree to lower their list prices (e.g., more promotions, better visibility, etc.).

By the time all that happens, Amazon will probably have more than 90% of the ebook market and a nice chunk of their ebook list that no longer has to be sold at a loss. And oh, let's not forget about the wonderful in-book advertising platform they'll have built buy then. That's an advertising revenue stream that Amazon would not have to share with publishers or authors. That might be the most important point of all.

What do you think? Why wouldn't Amazon follow this strategy, especially since it helps eliminate competitors, leads to market dominance and fixes the loss-leader problem they currently have with many ebook sales?

Photo: Your Ad Here by KarenLizzie, on Flickr

Related:

February 17 2012

Publishing News: Let's remember why we got into this business

TOC 2012In this special edition of the Publishing Week in Review, I'm taking a look at highlights from the 2012 Tools of Change for Publishing Conference held in New York City earlier this week.

Publishing isn't about print vs digital or incompatible ereading formats — it's about storytelling

As far as inspiration goes, it doesn't get much better than LeVar Burton's TOC keynote address. Burton first talked about how he came to literature and publishing. Going back to his childhood, he reminisced that you were either reading a book or getting hit by one — his mother didn't care how, but "in her house, you were going to have an encounter with the written word."

His experiences with storytelling became more profound when he landed a major role on the miniseries "Roots," which taught him about the transformative nature of literature when combined with a visual medium. That experience was so profound for Burton that he left his priesthood studies, deciding storytelling was more effective at reaching people. This decision also later led to 25 years of "Reading Rainbow," the series that used TV to get kids interested in books.

Burton said that "stories are bridges to real-world experiences" and that he's a "firm believer between that which we imagine and that which we create."

"The stories that we tell each other and have told each other throughout the history of the development of civilization are integrally important, are inextricably linked, to how we continue to invent the world in which we live."

Burton said reading and storytelling go far beyond discussions of print versus digital or which digital format should prevail:

"We are going to be absolutely fine, so long as we do not fail ourselves in the one fundamental aspect of who it is we are and what we bring to the table. Remember, human beings are manifesting machines. We are just like that child watching the episodes of 'Star Trek,' seeing those images, using our imaginations, coming up with a piece of technology that actually serves humanity going forward.

"Our imaginations always have been, always will be, our continuing link into ourselves in order to make contact with ourselves so that then we might share the beauty of ourselves through culture with the rest of the world ... I encourage you to remember the nature of what it is you signed on for. You've come here to make a difference. You've come here to use your imaginations in the service of storytelling. Doing the same things we have done for years with a new opportunity, with new tools, a few more bells and whistles — it's still, and always will be, about storytelling."

Burton's full keynote is available in the following video:

The Publishing Panic of 2015 is coming. Can we stop it?

Joe Karaganis, vice president of The American Assembly at Columbia University, addressed issues of piracy and enforcement in a keynote address. Using his work with the Media Piracy in Emerging Economies project as a backdrop, Karaganis said the opposition to SOPA/PIPA and ACTA has moved the conversation beyond online piracy to the convergence of citizenship, democratic accountability and different rights.

The main ingredients of piracy, Karaganis said, are "high prices, low incomes and cheap digital technologies" and that "enforcement has been irrelevant — it's what happens around the edges of these underlying economic drivers." He argued that the current system doesn't scale well and that prosecution rarely occurs:

"When you look at how enforcement works in middle- and low-income countries, you find a pretty simple, consistent pattern: You find raid-based enforcement, characterized by the ramping up of police actions and little to no follow through. There's little likelihood that these cases will make it to trial, and in fact, little expectation that they will."

There's a simple explanation for the discrepancy: "It's cheaper to buy cops than lawyers — raids are cheap, but due process is expensive and slow." He argued that the new enforcement measures (SOPA/PIPA/ACTA) realize this futility and so they instead focus on abridging due process: "The only way to scale up enforcement is to take it out of the courts, to make it an administrative function, and whenever possible, and automated one."

Karaganis said his research showed there's a lot of casual infringement, but very little large-scale or hard-core infringement — 1-3% are hard-core pirates, according to his data.

Bringing the discussion around to publishing, specifically the education market, Karaganis asked, "What happens when the access problem is solved without any corresponding solution to the crisis of the library or the commercial markets — there will be access; the question is, who will make it convenient and affordable?" Using open-education research as an example, he said the problem is that they're not competing with the commercial market, they're competing with the pirate market:

"They're competing with a 'copy culture' that hasn't waited for approved institutional solutions to emerge. As digital readers get very, very cheap in the next few years, that copy culture is going to grow exponentially and produce a huge democratization in educational opportunity and access to knowledge. That will be a hugely disruptive challenge to all parties involved and produce its own cause for enforcement and control."

Karaganis referred to this impending phenomenon as "The Publishing Panic of 2015," and to address it we'll need more than just opposition to legislation like SOPA and PIPA:

"It's not enough to simply say SOPA is bad or enforcement doesn't work, even among people who agree. We need to develop a positive set of proposals for what we want, collectively, for what the public interest is in and around intellectual property. 'What's the positive agenda?' is a very fair question."

More background on Karaganis' research can be found at The American Assembly website. The "Media Piracy in Emerging Economies" report can be downloaded here.

Karaganis' full keynote can be viewed in the following video:

Bookstores: It's about monetizing relationships and experiences, not about selling books

The "Kepler's 2020: Building the Community Bookstore of the 21st Century" session created quite a buzz at the show. For a bit of background, The Kepler's 2020 Project release described it:

"The project aims to create an innovative hybrid business model that includes a for-profit, community-owned-and-operated bookstore, and a nonprofit organization that will feature on-stage author interviews, lectures by leading intellectuals, educational workshops and other literary and cultural events."

Thad McIlroy, owner of TheFutureofPublishing.com, opened the conference session with thoughts on reinventing "the notion of the bookstore in the midst of this crazy time of change." McIlroy said that the Kepler's 2020 project, being led by literary entrepreneur Praveen Madan, is blazing a trail.

Madan's subsequent presentation focused on debunking industry myths. Specifically, printed books are not going to survive and we don't need bookstores in the age of instantly downloadable ebooks.

Madan shared a survey finding that revealed overwhelming support (95%) for using bookstores as "a place for browsing and discovering new ideas" and (72%) as "a place to buy books." He pointed out that more than half of the responders had ereading devices.

Madan also offered two trends that explain why bookstores need to be reinvented and why they still have a future:

  1. Technology is having an isolating impact — "People are more and more disconnected from each other." We are working from home, shopping from home, and community gathering places (churches, schools, community centers) aren't as effective. So, what places are going to bring people together? "We think that can be bookstores," Madan said. "Bookstores need to be re-imagined as those places."
  2. Browsing — We still need showrooms for books. "The reality is that 18 years after Amazon started tweaking its algorithms for recommending books, a well-curated, physical, in-store experience is still better at helping readers discover books," Madan said.

"What we really need is for someone in the technology world to step up and say, "I think there is an opportunity here," he said. Madan also insisted it needs to be open: "We'll pay for the services and we'll pay for the development, but the platform needs to be open source."

The buzz was heightened at the end of the Q&A session when Madan said he was looking to partner with Amazon to sell ebooks through his store:

"[Ebooks are] something we want to provide; we want to be part of the overall experience. But the solution and the technology has to come from somebody else. I'm very serious about looking at [partnering with] Amazon and just giving away Kindles and telling people it's okay — you have our permission. Walk into the bookstore, browse the books and download the books on your Kindle."

When people ask Madan how he'll make money, he answers that that isn't the point — he doesn't need to make money on every downloaded book; he'll make money on the relationships in other ways.

You can learn more about The Kepler's 2020 Project in the following short video:


If you couldn't make it to TOC, or you missed a session you wanted to see, sign up for the TOC 2012 Complete Video Compilation and check out our archive of free keynotes and interviews.


Related:

December 09 2011

The best cities around the world for specialist shops and shopping

From kitsch fashion in Tokyo to furniture in Copenhagen, our experts reveal their top cities for specialist shopping

Rugs, Marrakech

Shopping in Marrakech is practically an Olympic sport – so you should get in training before you venture out. Serious shoppers need information and determination. I love the bejewelled and embroidered babouches (slippers) and bags, the tasselled accessories, Berber jewellery, chiselled tiles, decorated pottery, ground cinnamon … However, when I'm in Marrakech I crave rugs. My favourites are the Berber rag rugs called boucherouite. I've found vintage versions in the Bab El Khemis flea market (the north-east corner of the medina, open daily 9.30am–6pm). During a recent visit I bought a pretty multicoloured checkerboard rug that folded nicely into my luggage. There are some stunning examples of boucherouite in fading solid colours at Art Ouarzazate (15 Rue Rahba Kdima, which is actually Rue Rahb el Biadyne). The shop's specialities include knotted and printed leather rugs and goatskin patchwork rugs. Tuareg rugs from the Sahara, made with tightly woven palm leaves and camel leather that make them impervious to the desert sand, can be found at Mustapha Blaoui (144 Rue Bab Doukkala – there's no sign, so knock on the brass-studded double doors). Shaggy white or cream rugs with black tribal patterns are called beni ouarain, and are ubiquitous. Bargain when you find one you like – it's expected. In the Guéliz section of the new city you'll find Ben Rahal (28 Rue de la Liberté), a shop dedicated to rugs. The small space is filled with carpets, each selected for its exceptional quality. You'll pay a bit more, but it's worth every penny.
Susan Simon is the author of Shopping in Marrakech (Little Bookroom, £9.74, guardianbookshop.co.uk) is out now

Furniture, Copenhagen

Mid-century design is a massive trend, driven by things like Mad Men, and Danish design was at its best then. Such furniture is also timeless and built to last. Copenhagen is very small, but the best furniture shops are scattered around. Østerbro is home to Normann Copenhagen (Østerbrogade 70, normann- copenhagen.com, see page 8), a cool shop for quirky items, plus some modern homeware stores. Bredgade is a street full of high-end vintage shops. Klassik Moderne Møbelkunst (en.klassik.dk) at No 3 is one of the best. The best piece I found in Copenhagen was a beautiful Aero walnut oval sideboard – but sadly it costs £4,700 ...

It's hard to find a bargain anywhere in Scandinavia, but Ilva (Gammel Lundtoftevej 5, ilva.dk) is still a very big deal, and Bo Concept (Gammel Kongevej 29A, boconcept.co.uk) has affordable, nicely designed pieces. Hay (Østergade 61, hay.dk) represents the current design resurgence in Denmark – its beautiful shop is full of designed and found objects.
Finally, Copenhagen has fantastic (if sometimes expensive) restaurants and hotels – Hotel Fox (Jarmers Plads 3, hotelfox.dk, doubles from £80 room-only); and the original design hotel (Hammerichsgade 1, radissonblu.com/royalhotel-copenhagen, doubles from £150 room-only); Nimb (Bernstorffsgade 5, doubles from £280 B&B) – and it's a very friendly place.
Dan Cooper, buyer, home collections and gifts, John Lewis

Books, Cecil Court, London

It's a struggle not to pluck the phrase "remarkable survival" from the catechism of cliche when describing Cecil Court, a Victorian thoroughfare in London that is still as full of bookshops as it was in the 1950s. They're all good, but my favourite is Tindley & Chapman at No 4. Tilling the rich brown earth of 20th century literature, their stock is well chosen and fast changing.
Ed Maggs, rare book dealer, Maggs Bros Ltd (maggs.com)

Bags, Udaipur

Nobody hassles you in Udaipur in south-western Rajasthan. I fell in love with its market and spent a glorious day exploring the alleyways bedecked with stalls on the hill leading to the castle. The multicoloured rugs are superb, as is the marquetry (inlaid patterned) furniture but, being a "fashion girl", I was most excited about finding some really special leather bags. I like simple styles, which India does not always do, so I was very surprised to find wonderful tan satchels. Unlined and made of fairly robust leather, they really hold their shape, but also wear wonderfully well. The cross-body mini is the ideal hands-free travel companion, just big enough to hold all your vital documents, wallet and phone. The "Andreya" is my favourite for everyday, and the mini weekend bag makes you look like a traveller, not a tourist.
Sarah Walter, managing director and founder, style-passport.com

Fashion, Tokyo

Tokyo is like a super-modern alien planet magically entwined in tradition – every facet of the city references the country's ancient and complex culture. Tokyo's excessiveness – from huge video screens pumping J-pop, hordes of mini-skirted schoolgirls and crazy elevator music (even emanating from rubbish trucks), to insane rush-hour crowds and out-of-control fashion – can be overwhelming, but it is a shopaholic's dream. For the girl who loves to get dressed up, Tokyo is the place to hunt and gather. Whether you're into vintage wonders, avant garde statement-makers or ridiculous cuteness, you will find the dress of your dreams in one of Tokyo's eclectic shopping precincts. In Shibuya, Candy (candy-nippon.com) is dedicated to the most fashion-forward Japanese and international brands, and 109 (shibuya109.jp), a six-level extravaganza, is a shopping mecca for all gyaru girls (tanned, blonde Japanese girls). In Harajuku/Aoyama, Faline (bambifaline.com) is all about Harajuku Kawaii style, which roughly translates as shockingly cute and crazy. Cosmic Wonder (cosmicwonder.com) is a fashion/art project, the shop doubling as an exhibition and performance space. In Daikanyama/Nakameguro, Hollywood Ranch Market (hrm.co.jp) focuses on amazing American-style vintage denim and casuals, while Mercibeaucoup (mercibeaucoup.jp) has a kitschy-cool 1950s-inspired interior to match its unrelentingly pop wares.
Indigo Clarke, fashion writer

Art, Amsterdam

Buying art is a way to get a shopping buzz while making a smart investment, and Amsterdam is one of the finest cities to start your collection. It is home to the magnificent Rijksmuseum (Jan Luijkenstraat 1, rijksmuseum.nl), which sits in the Spiegelkwartier district of art galleries, antique merchants and retro boutiques. The most prominent art fair is Art Amsterdam (20-23 September 2012, artamsterdam.nl), a huge offering of contemporary and modern art. For a more leisurely experience, take a stroll to the Spui Square on a Sunday, where you'll find a collection of established and emerging artists selling their work.

For something a little more highbrow, check out PAN Amsterdam (18-25 November, RAI-Parkhal, Europaplein 22, pan.nl), the leading contemporary fair for art and design. Last but by no means least is the Affordable Art Fair (25-28 October, Cultuurpark Westergasfabriek, Klönne Plein 1, affordableartfair.nl), which generates a whole array of small satellite exhibitions and open studios, with work for all tastes and budgets.
Angela Murray, art and object buyer, Achica (achica.com)

Homewares, New York

Zabar's (zabars.com) is a legendary Upper West Side food retailer known for its imported cheeses, fish, bakery, and coffee and tea counters. But also check out the nearly block-long mezzanine for a world-class selection of homewares, especially the assortment of non-stick and copper cookware. It's one of America's best home emporiums. Macy's (macys.com) is the largest department store in the world and is synonymous with NYC and fashion. The headquarters at Herald Square stocks an impressive range of culinary and tabletop goods in all styles and prices. There are frequent sales and celebrity chefs make routine appearances.

Broadway Panhandler (broadwaypanhandler.com) is a SoHo outpost for top quality, well-designed kitchenware at discounted prices. The family business's staff are well qualified to dish out advice to kitchen pros and novices – many are trained chefs. Gracious Home (gracioushome.com) is also a must-visit for anyone looking to revamp their home. Branches in Chelsea, the Upper East and West Side sell gadgets, furniture, hardware, linen and lighting for the entire house. Fishs Eddy (fishseddy.com) is a Flatiron neighbourhood destination for discounted tableware, including some vintage pieces. Fun, colourful and unique goods, such as an NYC skyline motif glass ($5) and other novelty pieces, make super gifts.
Gerry Frank is the author of Where to Find It, Buy It, Eat It in New York (newyorkcityguidebook.net, $19.95)


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March 02 2011

Publishers get creative to keep books on shelves

ChronicleLogo.png As publishers struggle to adapt to the changing economy and the changing technological landscapes, distribution becomes more and more of a challenge. With large bookstore chains failing and consumers turning to the Internet to buy books, the sales agreements with traditional bookstores are starting to make less sense. Sheila Bounford, deputy managing director of NBN International, described the distribution problem in a recent blog post:

It is well known that when it comes to returns, bricks and mortar booksellers feel that they deserve equal discounts to those enjoyed by the online retailers whilst also maintaining that in order to offer range, they must have the right to return. What this ignores is that although the online retailers theoretically have the right to return, they almost never exercise it. Returns from online resellers run at less than 1% of invoice value. From the high street it is usually well in excess of 10% and often very very much higher. Returns are a drain on publishers' resources. Not just in terms of the cost of the book which is often unsaleable — but in terms of the cost of administration.

Some publishers are addressing distribution and point-of-sale issues with creativity. A recent New York Times piece looked at how publishers are selling books through non-traditional, non-bookstore retailers. These niche outlets expand sales reach, allowing publishers access to consumers who might never step foot in a bookstore. Another plus noted in the Times article: books sold through these channels are generally non-returnable.

One publisher tapping these non-traditional markets is Chronicle Books, which sells titles through Urban Outfitters, Nordstrom, Toys R Us, and Paper Source. In an e-mail interview, Kim Anderson, executive director of sales at Chronicle Books, said this model has worked very well:

Chronicle has long relied on non-traditional book retailers as an important part of our business model and long-term growth. The change in the book retail landscape over the last couple of years has only further highlighted the importance of this channel to our overall success.



Related:


February 24 2011

For booksellers, the future is brighter than it seems

Brick-and-mortar bookstores may look like they're in trouble, and the Borders bankruptcy certainly doesn't help. But Kassia Krozser, owner of Booksquare.com, says that amidst all this upheaval, we're actually in a golden age of publishing. People are discovering and reading content all the time, and the very definition of "publisher" is expanding.

This golden age extends to brick and mortar booksellers as well. During a recent interview, Krozser said traditional retailers that can accept and adapt to digital realities will survive this transition:

Booksellers have to accept that digital publishing exists, because that is what your customers want. They want a digital book in certain instances, they want a print book in certain instances — they want to buy a combination of those books. They want to be able to buy a book in the middle of the night.

Krozser also pointed out that offering digital options isn't enough — booksellers need to learn how all the various technology works so they can pass that information on to their customers.

You can't just sell an ebook. You have know how to download it because that's what your customer is going to ask you. You have to know how it works and what the file formats are. The retailers who actually spend time learning the technology, integrating it and accepting that it's out there are the ones who will succeed.

For more of Krozser's thoughts on the future of booksellers, check out the full interview in the following video:

June 02 2010

Bookshop challenge

What does it take to bag a book bargain in Hay? Andrew Dickson packed artist Grayson Perry off to the Hay Cinema Bookshop



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