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Summary:

While most thought the biggest news out of Amazon’s e-book business this week was the revelation that e-books now eclipse print books, it was the launch of the company’s second genre imprint in the span of two weeks (and fifth imprint overall) that’s the bigger deal.

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While most thought the biggest news out of Amazon’s e-book business this week was the revelation that e-books now eclipse print books, it was actually the launch of the company’s second genre imprint in the span of two weeks (and fifth imprint overall) that’s the bigger deal.

Why? Because by creating its own imprints, Amazon is essentially collapsing the entire industry into one company; everything that happens after a book is written — editing, marketing, storefront, the book itself — could conceivably be handled by Amazon.

In other words, for some authors, Amazon is book publishing “in a box.” Of course, this term is more often used (many times with disdain) in the technology industry to mean a turnkey solution, technology that, at least in the old world of off-the-shelf software, gave you everything you needed in a physical box at retail. But now, with what Amazon is offering authors through its imprints and all the services associated with Kindle, isn’t publishing a book essentially as turnkey as it gets?

Here’s another way of looking at it: With the advent of its own imprints, Amazon is finally completing its vertical integration of the book industry. In many ways this is reminiscent of old Hollywood, where the big five movie studios realized they could maximize their take by collapsing the entire life cycle of movies under their control, including production, distribution and exhibition. While antitrust regulators had a lot to do with the breakup of the vertically integrated movie industry, the strategy itself eventually fell out of favor with studios, who grew to believe it wasn’t necessary to own every part of the life cycle.

Books, however, have never seen that level of industry vertical integration, at least until now. The arrival of digital has made production, distribution and sales of books much lower cost, and for an early mover like Amazon (with all of its other built-in advantages from being so strong in online book sales), consolidation of these different stages is finally possible. The downstream services — distribution, storefront, reader — are what Amazon integrated first, and only now is it building out the up-front editorial pieces.

And while it made sense for movie studios to eventually get out of distribution and exhibition, it makes as much sense for Amazon to do the opposite, particularly since in many ways it already dominates the “exhibition business” with Kindle. By moving further upstream to act as a publisher, it can have more control over the business terms as well as the revenue split.

But what about the authors themselves? Should they worry about putting this much control in the hands of one company? Chances are that some will be just fine with it, as Joe Konrath’s many posts touting Amazon illustrate. For others, however, this is just another in an exploding number of options. Using Amazon as your publisher doesn’t mean you can’t self-publish other works across different e-book platforms (let’s not forget Nook, Kobo, Smashwords, iBookstore and so on), or you could choose to go old-school — like early e-book star Amanda Hocking — and sign a deal with one of the big five publishers.

It is, however, the big 5 publishers who should worry. While it hasn’t happened yet, eventually some of the old world’s biggest-name authors might sign a deal with Amazon to be their publisher. If they do, it would likely benefit the publishers to start considering some vertical consolidation themselves.

For more on Amazon’s new imprint, see my weekly update at GigaOM Pro.

Image courtesy of flickr user tecasorg

  1. Great Post Michael, After Movies and books…what next? which other industries are you witnessing this ‘vertical integration’ ?

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    1. Media, in certain places, continues to see vertical integration. Comcast’s acquisition of NBCU is a good example of moving vertically up towards content production. Lots of classic examples outside of media (oil, travel, etc).

      Apple is an interesting case study. They don’t have to, IMO, move into content ownership and production, since they own such a huge percentage of the collective screens, and have built out the “marketplace” so well where so much of the business is done they can collect their tax and negotiate strongly on revenue splits. They have, of course, done high levels of integration right up to the point of publishing, but have stopped short of essentially becoming publishers (they’re the ones that forced Amazon to accept agency pricing).

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  2. The world is changing rapidly. But I wonder if writers are not on the verge of simply exchanging one slave system (old school conventional publishing) for the new school of digital publishing.

    Why are companies like Amazon charging writers a percentage of the price of their book sales rather than a flat price per book sold?

    Because they can!

    This is a business model which is immensely profitable for Amazon and others that “display” digital books – but it is not the best model for writers who actually create the content that everyone else is getting rich selling.

    Write on…

    Richard

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    1. Richard – why do you think it’s not a good model for writers? IMO, it’s a fairly democratic system, even if it is controlled by a few large companies.

      At least now, established but forgotten (by their publishers) writers are making significant money off of their backlists, which were sitting languishing before because no print publisher would do anything with them. Authors like John Locke, who hadn’t done very well in print, are making a killing in digital.

      I think digital simply opens up a lot more opportunities, and the revenue take is much bigger for authors.

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      1. Michael,
        I didn’t say it was a “bad” system just not the best for writers.

        “Why are companies like Amazon charging writers a percentage of the price of their book sales rather than a flat price per book sold?”

        The fact that the cost to writers is a percentage rather than a flat fee is my main complaint.

        The “digital publishers” costs of displaying the books are not tied to the price that the customer pays for the book so how do they get off with charging the author a percentage? Because writers have been brainwashed for the last 571 years to accept any deal offered by “publishers” just to get their book in print and distributed.

        The fee should be a flat fee per book “displayed” not a percentage especially when it comes to ebooks. This new ebook publishing business model is immensely profitable for the digital publishers but only marginally better for the writers.

        Admittedly it’s better; but still a long way from ideal for the content creators.

        And while we’re at it, why doesn’t Amazon just split the income with the author at the time of sale? Instead they hold my money for 60 days or more? Amazon makes a lot of money from that float. Amazon is using the author’s money to fund their expansion.

        And here is another issue. Authors send traffic to the Amazon site ostensibly to buy their book(s). Everyone knows that traffic is gold in this digital internet age. And are the authors compensated for the traffic that they drive Amazon? No!

        Yes, Amazon has an affiliate system. But the payouts are so pathetically low that no one could make any money promoting the site.

        Like I said, this business model is fantastic for Amazon and the other digital publishers and while better, it’s not so great for the writers. While the writers provide all the content and a substantial portion of the book buying traffic they get only a sliver of the income that they generate for Amazon. It’s a bigger sliver than we were getting form conventional publishers but it’s still the short end of the stick.
        Write on…
        Richard

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      2. @Richard – I think Amazon doesn’t charge a flat fee (and instead a percentage of sales) because it’s in the business to make money. Flat-fee would be great for writers, but at the end of the day, Amazon is in business to maximize profit. They spent billions creating a platform, they have been rewarded with dominant market share, and they are now maximizing profit, something any publicly held company has a duty to do for its shareholders.

        Does that mean its not a mutually beneficial relationship for Amazon and writers? No. Writers can write good content, price their product to sell, and both Amazon and the writer profits if the book sells in big numbers. Sure, lots of things would be better for writers if they were flat-fee’d, but its not going to happen. Doesn’t mean a platform like Amazon gives writers isn’t a potentially very profitable one.

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  3. I think amazon will always be great company with profitable business prospects in future.

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  4. Please Michael,
    I understand business. I’ve owned a half dozen over the years and just started another. Profit is vital and necessary. I’m just stating a simple fact. Amazon is charging authors a huge percentage for providing very little.

    And that makes them vulnerable to anyone with a little smarts to offer writers and readers a better deal.

    Until then we’ll all just keep dealing with them and try to make the best of it.

    Write on…
    Richard

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    1. @Richard – just how is Amazon providing very little? They provide access to hundreds of millions of potential buyers, and tens of millions of devices. That’s probably worth the 30% tax, and, by the way, is a much better cut than what writers get through traditional publishers.

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