Amazon Sales And New Economies Of Scale In Publishing

Based on the quarter Amazon just reported, bringing North American media sales to $5.350 billion for the 2008 calendar year, and given Barnes&Noble's guidance of a sales decrease for the last quarter of 2008, I think my prediction that Amazon would become the largest book retailer in the US in 2008 is looking pretty good. They certainly sold more media in North America during 2008 than Barnes&Noble, the only question is whether Amazon is selling a much larger proportion of DVD's and other non-book media than Barnes&Noble. It would need to be a much larger proportion since I'm estimating Amazon's North American media sales will come in about 18% higher than Barnes&Noble's overall media sales in 2008. Keep in mind that Amazon also sells more new titles at a discount, and a large number of new and used and third party books for which they only receive transaction fees, which makes the number of units sold much higher than the dollar revenue suggests. I'd be surprised if Amazon's total number of physical books sold isn't already appreciably higher than Barnes&Noble's. It's also worth noting that Amazon's international media sales exceeded their North American media sales for the first time in 2008, and did so by nearly $400 million.

I've written in the past that small publishers shouldn't try to run their businesses like large publishers because the big trade model just can't be scaled down to a hundred or a dozen titles, much less one or two. The same is true for independent bookstores vs bookstore chains. But in recent months, the hunters are rapidly becoming the hunted, with Borders chain fighting for survival and large publishers cutting staff and frontlist plans. Let's take the problem facing the Barnes&Noble, Borders and Books-a-Million first. Large retail chains are built to function as large retail chains. They can't decide tomorrow to focus on the 20% or 30% of their stores with the best sales and close the rest, the lease agreements or mortgage payments for stores alone make that impossible without bankruptcy filing and protection. They have hundreds of millions of dollars locked up in inventory, and need lots of cash flow to pay creditors, employees, etc. The big bookstore chains will live or die as big bookstore chains.

Large trade publishers face a more complicated future because they appear to have more options than the retailers, but some of those options are illusions. Many publishers are currently seeking salvation in ebooks, approaching the business like Internet start-ups in the Dot Com era - eyeballs first, worry about profit later. Everybody likes talking about the number of titles they have available for Kindle, but I haven't seen much bragging about the bottom line. I seriously doubt that any of the large publishers talking about deriving half of their sales from ebooks in the near future could remain in business if that boast became a reality. A small nonfiction publisher can sell ebooks through content based website and add 20% or more to the bottom line of a the business, but the large publishers are depending on retailers (primarily Amazon) to sell their (primarily) fiction ebooks. Publishers currently treat ebook sales of backlist books as pure profit, since the acquisition and development costs were amortized years ago on the offset runs, but good luck financing their business models going forward if they have to depend on ebook profits to pay all their costs.

Publishers continue to obsess about book returns as the problem without realizing that any form of non-returnable books are the displacement technology that renders their core business model obsolete. The expertise at large publishers is in managing the large offset run returnable book model, without those they're on the same playing field with Tom, Dick and Harriet. Expect to see terminal consolidation of the large trade publishers, with the value of the publishers being measured by their backlists rather than superstar authors or name editors. When the 90% of popular backlist titles protected by copyright are held by two or three companies, we'll see whether the remaining retailers or the publishers hold the most power. The smaller publishers without expensive Manhattan offices and warehouse space leased for fifteen years are probably the safer bet for the next few years if you're new to the business and looking for a job. But somewhere down the road, when there are only two big retailers and two big publishers left standing, the economies of scale may tilt again against the small guys.

Information Tilt Causes Game Over

How many times have you seen an old-hand on a publishing list telling a newcomer that it's impossible to publish a book using Word or that shelling out a few thousand for a unique cover design is a must? How many times have you read on a website that registering a copyright isn't important or that book reviews and traditional media publicity should be the prime concern of a publisher? How many times have you seen a blog stating that Amazon requires a 55% discount from self publishers and Barnes&Noble will never stock self published books? Is the moon really made from library discards? Somebody could create a television series based on publishing industry myths, apocryphal stories, and outright falsehoods.

The problem isn't with the Internet media, it's with the authors of this "information", and it applies to many books on the publishing subject published by major trades. Unfortunately, newcomers to publishing are so overloaded with information that it would be a miracle if they could sort wheat from the self serving and often bitter chaff. What I've come to call information tilt often results in breaking the bank of new publishers either through direct expenses or by leading them in unproductive directions that result in long delays and despair. The saddest part for me is when I fail to convince new publishers that something they've been told is factually wrong because they've heard it from too many people who've done an effective job of playing on their fears. Hopefully, this graph will clear things up:



I chose the term "tilt" from my long-ago pinball days because I think it's very applicable to a process where new publishers frantically turn in every direction, just like a steel ball banging around on flashing bumpers, until a convulsive effort in one direction or another results in: Tilt - Game Over. If you're an author who has already written a book and just wants to see it in print, by all means, sign up with a service for a few hundred dollars and get it off your plate. But if you're approaching publishing as a business, slow down, step back from the table and get your ducks in line. Remember, there are plenty of good reasons to write a book for which there's no market, but there are few good reasons for a business to publish one.

I came across a real gem the other day for content publishers who want to start building a marketing platform with the help of screen capture video. It's called CamStudio, and it's a great piece of software after you tweak it a little. A few minutes after I downloaded it, I began a quick tutorial for another piece of free software, free in the sense that it comes with every copy of Windows, the much maligned Paint (from the Accessories menu). I often use Paint to knock out quick graphs for this blog, starting with making the graph paper. The third of the screen capture videos I made is the most colorful, so I'll paste it in here:



I'm not using an external microphone, I'm just talking into the air and the built-in microphone of my laptop is picking up my voice. The rest requires nothing besides a little imagination and the ability to babble on. If anybody sits through the whole video you get the prize of your choosing, providing you can find somebody to buy it for you:-)

Publishing Technology vs Content (Yes, it is versus)

Today I dropped the "self" from the title of this blog because I find I'm writing more and more about general publishing issues, of which self publishing is a subset. But don't expect me to become a publishing technologist. I see the technology and content components of publishing as existing in opposition to each, rather than in partnership. To quote a well known former self publishing blogger of the 21st century, "Technology is the last refuge of a scoundrel." I'm not such a Luddite to question the value of cut-and-paste in editing, though as the video below shows, I find cutting the more valuable of the pair:



The publishing world is rapidly filling up with new standards and devices, none of which I believe are doing anything to boost readership, or literacy. The large trades and newspapers are rapidly cutting back on employees, and it's not simply a question of their audiences migrating to reading elsewhere. In many cases, their audiences are simply giving up reading in the long form, and satisfying themselves with blurbs of news and "culture" delivered through e-mail portals that they can click and follow to a news website or YouTube if desired.

The core misconception about publishing technology is that it provides a solution, when in reality publishing technology is a tool, and often a problematic tool at that. Publishers who think that a new technology is going to change the popularity of their books or their web content with their audience are fools. At best, chasing the latest standards and devices may give the earliest adopters some PR opportunities, as most publishing journalists are obsessed with technology because it provides the easiest fodder for a regular column. But the time and money those publishers invest in adopting the new technology only makes sense if it provides a profitable revenue stream.

Books may slowly give way to some form of ebooks, but it's not publishers who will shape or control this transition, it's the reading public. As a lifetime addicted reader, I don't have any doubts about the crowning glory of the printed book. It's the ability of a novel to lift the reader out of the surrounding environment, be it an armchair or a subway car, and into the world created by the author and the reader's joint imaginations. While some ebook devices may succeed in doing this, I don't believe that a dedicated ebook reader, such as the Kindle, has a long term future as a single function device. And as soon as you are receiving e-mail alerts or phone calls on your ebook reader, the basic function of the novel in creating an alternative universe is shattered.

Clearly, I don't control the future of Kindle and Sony reader, or the multi-function devices already used to deliver book content, like cellphones, MP3 players, laptops and desktop computers. But neither do the manufacturers or the publishers control the future of these devices, it's all up to consumer choice. My suspicion is that even devices like dedicated ebook readers for public school students which would seem no-brainers will be overtaken by the potential of technology to "add" to the book experience. Therefore, I believe that non-printed books will always suffer from dilution by addition, even though the market share of paper books may one day occupy the market share position that ebooks hold today.

The publishers who survive will be those who concentrate on producing the best possible content for their audiences. Those publishers who fail to identify their audience are wasting their time even thinking about delivery platforms. Once you identify your audience, if it turns out they are all Oprah watchers, by all means release a Kindle edition. But don't put your trust in technologies that promise profits down the road if and when the business model firms up. That only works for the Googles and the Amazons of the world. Any business can buy incremental unit sales at a negative profit margin, but it's simpler to stand on the corner handing out $20 bills until you go broke.

Title Production of Author Services or Self Publishing Companies

Jeff Trachtenberg reported in the WSJ today that Author Services (oops, make that Solutions) Inc. is acquiring Xlibris. That brings the original Big Three of the author services companies (critics term them vanity presses) under one umbrella. In the same article, Tractenberg reports that Lulu has cut their staff by 25%. Consolidation and cut-backs immediately brings to mind an industry in recession, but that may not be the case here. The reason is the rapid build-out of Amazon's self publishing services, which may be forcing these acquisitions and cuts as a defensive measure.

The graph below shows the title count on Amazon for the players involved in this news for the last six years. Note that both BookSurge and CreateSpace are Amazon acquisitions, as they bought their way into the POD driven self publishing services industry. Note also that the number of titles listed on Amazon does not equal the total number of titles published by any of these companies. But titles that are published without access to Amazon are generally non-commercial, printed at low cost for friends and family.



The numbers I used to draw the graph were gathered from Amazon and are included on my sales statistics page. The combined Author Services imprints of AuthorHouse, Xlibris and iUniverse made the most titles available on Amazon in 2008, but the two Amazon entities, BookSurge and CreateSpace, are gaining rapidly. It looks like Amazon is moving closer to dominating the author services world, even as they've become the main player in the trade book business.

Of course, paying to get a book published and making a living as an author are two different subjects, and I'd be surprised if one in a thousand authors using these companies to publish original works can make a living at it. See my interview today with Aaron Shepard if your ambition is to make a living selling your books through Amazon.

Interview with Aaron Shepard

Aiming at Amazon is the definitive guide to an Amazon centric approach to publishing. Could you describe the business model in a nutshell and explain how many publishers will see a higher net profit with your approach, as opposed following the traditional model of targetting all bookstores.

Regardless of the quality of your book, it's extremely difficult for a self publisher to sell to bookstores, and it always has been. But now, luckily, you don't need to do that at all for your book to succeed. Amazon has enough market share that you can sell a good number of copies, year in and year out, without ever approaching a bookstore at all. "Aiming at Amazon" provides marketing strategies tailored to Amazon that can help make that happen.

At the same time, you can now get your book sold on Amazon automatically through any number of print-on-demand services that also dramatically lower your entry cost. What's more, a more ambitious and skilled self publisher can go to the behind-the-scenes supplier of most of those services, Lightning Source. With the control this gives you over cost, price, and discount, you can literally double your profit per copy, in regard to what you'd make through either most other POD services or traditional self publishing. I discuss this in "Aiming at Amazon," and I'll expand on it in a later volume, "POD for Profit."

What contingency plans do you recommend publishers following your model put in place against the possibility of Amazon changing their relationship with Lightning Source and Ingram, or dictating new terms that significantly alter the economics.

Despite Amazon's campaign to move larger publishers from Lightning Source to BookSurge, it has signaled pretty clearly that self publishers are beneath its notice. The smallest publisher I've heard of Amazon pestering has about 150 books! So, I highly doubt we'll have to worry about it.

If I'm wrong, and if Amazon does come after the small fry, I believe there will still be holes in the net big enough to swim through. (And yes, I'm running some experiments to establish that.) If not, we can always sign up our books with CreateSpace. For a Lightning Source publisher at short discount, that would cut profits by about a third -- a big chunk, but leaving enough, I think, to make our publishing efforts worthwhile. And the transition wouldn't be at all difficult or expensive. (Yes, I've experimented with that too.)

You started out in publishing as a children's book author, and continue to write children's books for both the trades and your own imprint. Do you forsee the day that a full color children's book will become a bestseller soley based on the Amazon/POD platform, and if so, what needs to happen before this can become reality?

I don't think that's possible. Children's picture books sell mostly as gifts to customers who browse through them in bookstores. The only picture books from any publisher that sell well online are those that have established their success offline. My own self publishing of picture books is strictly a hobby, not for profit. (Though I'm now exploring what that can open up in terms of foreign rights sales.)

You were an early adopter of e-Docs on Amazon, an early form of ebook delivery, but you've switched over to using free ebook downloads primarily as promotions for your print books. Do you have any plans to retest the ebook selling waters, especially with the apparent rise of iPhone as a reader? (something I remember telling you would never happen in the US:-)

For the books I make most of my money on -- how-to and professional resource books with no urgency attached -- there would really be no sense in that, because people will buy the information in whatever format I make it available. And it doesn't make much more sense for fiction, because now that ebooks are becoming more popular, the big publishers are moving quickly to dominate that space, just as they dominate it in print. So, self-published fiction will be just as hard to sell profitably in ebooks as anywhere else.

But ebooks do provide an opportunity to _promote_ fiction to help start a career, because they make it possible to give away your book at almost no cost to yourself. For instance, last year I published my wife's second novel, "Pacific Avenue," in paperback. This year, to promote it, I've just uploaded it for the Kindle, to sell at the price of a penny. (You're apparently allowed to do that when you go through Mobipocket.) Giving away a whole novel is something a big publisher couldn't even think of doing, so this is a tremendous advantage.

The one opening that I personally see for making money directly from ebooks is, ironically, in children's picture books. Not anytime soon on the Kindle or the Sony Reader, because of the lack of color, but on the iPhone. But I won't say any more about those ideas, because I'd like to get there first!

By the way, e-Docs are still there, and in fact have just been given a bit of a revival by Amazon. Being in non-DRM PDF, and giving 50% of list price to the publisher, they're still the best ebook option that Amazon offers, if you can handle the XML data submission. But my main interest in them was in allowing me to do books shorter than Lightning Source's 48-page minimum. Now I have alternate suppliers that let me go down to 24 pages, including CreateSpace. So, I no longer see a personal need for e-Docs.

Aaron Shepard is an author, publisher, and creator of SalesRankExpress.com. His website is www.newselfpublishing.com

Website Aesthetics and Content SEO

This morning brought me the usual number of e-mailed questions and the comment "I found your website interesting but not eye appealing." So let's examine my options. I can spend some money on new software and invest a couple hundred hours in designing a new website around my existing content, or I can spend a couple paragraphs explaining why aesthetics don't make it onto my priority list. Since my site draws over two million unique visitors a year, I'm going with the latter option. But it does give me an excuse to review why website design and SEO cannot be treated as separate job functions, with the design coming first and the content optimization coming later.

Website aesthetics are the Achilles heel of most content based Internet sites, and not because the sites are ugly. Rather, the pursuit of a high grade aesthetic forces these publishers into expensive and unwieldy approaches and a high degree of reliance on outsourcing and custom design tools. I can't count the number of people I've known over the last decade who have locked into one proprietary content management system (CMS) after another, nor how many of those CMS systems have been orphaned, leaving the publisher with an expensive conversion task. The quest for a high aesthetic can postpone (sometimes indefinitely) the launch of the website, and cost of paying an outsider for every change can lead to an existing site languishing. Content publishers who commit to a high aesthetic are preparing for the big show by braiding the hair over the horse's eyes, rather than its mane and tail. Or to use a publishing analogy, it's like writing a book based on the cover design.

But website designers, who are the first stop for most publishers looking to build or expand their website, insist that the design function stands apart from the critical mission of drawing visitors from search. If your business is already famous, or has a government granted monopoly, then you can focus solely on the aesthetics and navigation and not worry about drawing visitors. But for the rest of us, drawing visitors from search to sell our products is the main mission of the website. So let me pose a question to you. How many websites have you visited, ever, because you Googled something and got back a list of results based on aesthetics?

The only way to draw visitors to your website without advertising or cheating is to provide content. Increasingly, the job of an honest SEO firm has less to do with optimizing your existing content and more to do with helping you determine what content you need on your website to achieve your goals. There are only two types of content that matter for most publishers: existing content, usually in the form of published books or excerpts thereof, and purpose written content, produced in order to have your say in the world and attract visitors to your website. Existing content is easy, the only decisions involved are determining how much of it to put online and how to organize it in the hierarchy of the site. Purpose written content is much more of a challenge for most publishers because it represents a future, ongoing task, and because it requires a knowledge base or research skills in the area in which the publisher aspires to become prominent.

Here's a simple example of a purpose written piece of content, my annually updated article on book sales, gathered from publicly available information. The page averaged just under a hundred visitors a day in 2008, who spent an average of three minutes on the page. That's more traffic than most small publishers get for their entire website. It's a subject I'm interested in and track, in part, so I can draw my own conclusions from the data. It probably took me a day to put together the original page back in 2003, and I might invest an hour or two a year in keeping it up-to-date. The only changes to the page's aesthetic design in the last six years are that I added a pair of videos and pasted the horses into the top right corner:-)

Many of my strongest web pages for drawing visitors are book excerpts, usually whole chapters that cover self contained subjects, making them a stand-alone resource that visitors consider worthy of linking. But one great advantage of purpose written content is that it's much easier to keep up to date, and allows you to address subjects that you wouldn't consider publishing an entire book about. And blogs are not the answer. I've written quite a bit about why blogs normally do poorly in drawing search visitors. Even though it's possible to produce blog posts with the exact same content as your would put on a static page, those visitors who give you links will often prefer to link to the main page of your blog. That leaves your blog with a lot of incoming links for diverse subjects which the main page will rarely address, while the specific blog post will starve for relevant links.

I think my greatest failure as an Internet publishing guru has been failing to get major publishers to follow my content based website approach. One reason is that I refuse to charge for advice, something which scares off most professionals who are either distrust or despise something for nothing. I don't blame them, having the same outlook myself, but I'm not interested in selling my time. For those of you who aren't comfortable accepting free advice by e-mail or phone, I'll put it in writing.

Forget about hiring somebody to build a website that will meet your needs until you figure out what your needs are. At that point, if you don't want to build the website in-house, you can hire somebody to do the job, based on their track record in meeting needs like yours with other websites. And remember, whether we're talking about existing content or purpose written content, it has to come 100% from your end. If you're looking to hire somebody to produce your website content for you, that means you're looking for somebody to who knows more about your business than you do, which means you're in the wrong business.

In conclusion, to prove I do have a sense of aesthetics, I'm re-running my website publishing video with the best backdrop: