In our last article, we discussed the impact Amazon has on the sales of physical books and what it could mean for future bookselling. But look at what it is already doing in e-books.
Amazon has a lot invested in e-books. It owns the Kindle e-book platform, where most people buy digital copies of books, and it sells Kindle e-readers, the most popular reading devices. It also runs Kindle Direct Publishing, which is how most self-published authors go to market. It has two services, Prime Reading and Kindle Unlimited, that offer subscription access to e-books. It adds up to an 83% market share of the e-book market (Apple has about 9%).
That’s not a perfect monopoly but it will do. In practical terms, Amazon has cornered e-books. And it is a highly-profitable market, virtually free of distribution and storage costs.
How does it treat publishers on e-books? Not well, unless you’re happy playing Amazon’s game by Amazon’s precise, profit-killing rules.
Amazon will take a mere 35% cut of a sale if you sell an e-book on its platform at less than $10. Less than $10 is cheap, even for an e-book. Most of our physical books are priced between $20 and $25. If we adjusted our prices to earn the same profit on physical books and e-books (eliminating printing and distribution costs, among others, from the e-book price), we’d sell the e-books for between $14 and $16. But Amazon makes sure we won’t do that.
If we price our e-books a nickle above $10, Amazon raises its cut to 70%. At that rate, pricing an e-book between $14 and $16 would bring a significantly thinner margin than the already negligible one we would have got with a $10 price. If we want to protect our margins, we have to raise the prices of our e-books up to the same $20-plus range as our physical copies. That will scare away a lot of e-book buyers and kill our sales volume. One publisher who has tried pricing e-books and physical books the same tells me the drop-off in e-book sales is dramatic and not compensated for by higher physical book sales.
As a result, only our highest priced physical books, the ones that fetch $35 or more, are priced over $10 as e-books. We’ll be selling them in the $24-to-$25 range. We’ll probably experiment with $10 sales to see if it has a dramatic effect on volume, and to see if the lower price moves buyers from physical books to e-books.
The $10 threshold is a brilliant if vicious strategy on Amazon’s part. It keeps e-book prices low and builds that sector at the expense of physical books where its margins are often negative. That’s why, when you look up any book on Amazon, the first buying option you see, reading left to right, is the e-book.
The people at Amazon say publishers still have the “choice” of pricing our e-books at any level we want. Of course, we also have the “choice” of not listing our e-books on the platform where 83% of e-books are sold.
What’s especially annoying is that Amazon’s iron-clad $10 rule only applies to independent publishers and self-publishers. Penguin Random House, Simon & Schuster, and the other big players are all pricing their e-books around $13.99, indicating that Amazon jumps them up from 35% to 70% at $14.
Scale likes scale.