Selling eBooks: my crystal ball gazing

This week’s news reports revealed that Amazon’s Kindle store will pay Smashwords 42.5% of the retail price for eBooks that Amazon sells. Usually Amazon only pays 35% to publishers. Smashwords is an aggregator of content — which means it operates like a distributor or wholesaler does for printed books, by selling the product to other retailers on behalf of ‘content providers’ who may be publishing houses or even individual authors.

Since Smashwords is contractually obligated to pay 85% of its revenue to the publisher, we can assume that Smashwords itself will receive 50% from Amazon. I wouldn’t be surprised if 50% or better is already being offered to larger publishers, distributors and other aggregators.

My sense is that we’ll see a steady eroding of Amazon’s margin as Barnes & Noble and hundreds of others begin competing more strongly to get into the eBook sales game. Where it will end is anyone’s guess, but I don’t see much ‘customer loyalty’ involved because the web makes it so easy for the public to obtain the optimum price from any hole-in-the-wall outfit that offers a better deal on the identical product. So if Amazon wants to charge $9.99 and give the publisher $3.50, expect to see someone else offering the publisher $4.00 and selling for $4.99! Then someone else offers publishers $4.25 and sells for $4.79, etc.

Selling eBooks is the ultimate in easy commerce: no staff, no inventory, no personal service, only databases talking to other databases, low set-up costs, no barriers to entry, only ‘cash’ sales… So there will soon be hundreds, then thousands, of competing vendors. They will shrink their own margins as they compete, heading to near the ‘break-even’ mark, which I feel is only a few pennies above the wholesale price of publishers/aggregators, plus credit card costs.

My hunch about the long-term situation? Publishers (at least the bigger ones) selling eBooks and audiobooks directly from their own sites (Harlequin is already doing this), with smaller publishers selling through cooperatively-run (or at least sympathetically-run) e-stores. Plus thousands of e-vendors, none of whom dominate the marketplace, like Amazon and Barnes & Noble have for printed books.

The wild card? Google. They could set up their own store and direct search traffic there. What may hold back Google is its worries about ‘monopolistic practices’ — it doesn’t want the Feds to crash its merry, highly-profitable party.

One Response to “Selling eBooks: my crystal ball gazing”

  1. administrator says:

    UPDATE: January 20, 2010.
    Amazon has “caved in” on margin given to publishers, as predicted in the above story. But it is not because of Amazon’s fear of Google – it is Apple who is poised to be crashing Amazon’s party. In a pre-emptive move, Amazon has decided to grant content providers 70% of the retail price! (Content providers are publishers and indie authors doing it themselves.) We will be getting DOUBLE the previous royalty. Yippee! Sometimes the world does unfold as we’d like it to. Here is Amazon’s press release:
    Press release: http://tinyurl.com/yfuq4b7
    Note that there are conditions. The Kindle book must be priced at $9.99 or less – which Amazon apparently wants to set as the public’s expectation even for brand new bestsellers. The eBook retail price must be at least 20% below the price of the physical book. And you can’t sell the eBook cheaper elsewhere. This doesn’t kick in until June 30, 2010
    Does the timing of this announcement have anything to do with Apple’s imminent announcement of its tablet and terms? You betcha it does.
    This is great news for authors! And for publishers!

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