NEWDEALPRESS Domain To Good Home

NetworkSolutions tells me that the domain name I purchased for a new publishing company six years ago, NEWDEALPRESS.COM, is up for renewal next month. I don't want to let it expire and get picked up by a spammer, but I'm not real enthusiastic about continuing to pay for it without using it either. I think it makes a pretty good name for a new publishing venture, easy to remember, and probably not a bad match for somebody with progressive politics, which I lack:-) I originally reserved the name because of another one of my shortcomings - cover design. I thought I'd use Depression era public domain art from the WPA (Works Progress Administration) for the covers and give the books a branded, professional look. I never launched that publishing company because I couldn't come up with a business model where I wasn't just donating my time to previously unpublished authors. So if you want the NEWDEALPRESS domain name, drop me a line and tell me why.

I'm frequently asked to publish books for other authors, even though there's nothing on my website suggesting I'm in that business, but I'm rarely tempted. The bottom line, even if somebody seems to have a good book idea, is that authors are a high-maintenance bunch. That's the nice way of saying that as a group, we tend to be non-conformist whackos who don't get along with authority in general and people we work for in particular. I've also noticed a strong hand biting tendency in authors, I think it has to do with lashing out at anybody who will actually pay attention. It's one of the reasons I gave up the POD publisher's group I started back in 2003, which is now over 1500 members if you're looking for a true publishers group to join. As the active moderator at that time, there was just too much correspondence with misunderstood geniuses who didn't believe the rules should apply to them, or that I should be the one to interpret the rules. Who needs it?

But I still get served my share of humility by way of blog comments. The comment below which came in this morning (anonymously) was too good to waste on a post that no one will ever read again:

I've read your stuff off and on for years looking for help with my POD business, but I have to say that although you SEEM to be saying some instructive things, I can find no way to apply anything helpful from your advice. I already have Adsense, but who on earth except you can make $25,000 a year with it? And really, you aren't helping with your blog except in a very general way. Nothing to take away and use oneself. I guess that's part of how you got where you are. At least, you haven't blown it all on fancy clothes and expensive haircuts.

Well, Anonymous. I suspect it's a good thing that you chose not to include your name or your website, as I would have looked at it and given you honest feedback as to what you're doing wrong. Since you chose to be anonymous, I'll assume that your website and books fall into the general category of unsuccessful websites and books and give you the general advice. Your website lacks content, it's just an advertisement for your books, with a lot of personal information about you and your life that doesn't serve any business purpose. If you want to share all that stuff, put it on a Facebook page. A publisher website needs to be a resource to attract visitors, it's that's simple. Perhaps you wanted a recipe for writing good resource content? Try acquiring hands-on knowledge in a field and writing about your actual experiences, numbers and all. And don't expect to please everybody, I certainly don't.

Thanks for the help in giving me an easy blog post today, saved me the four to six hours I usually spend trying to say something useful. In another month, Blogger will be shutting down their FTP service, which means I'll stop using them to generate this blog, which will be the end of anonymous comments. So if anybody else wants to vent, you only have a few weeks left to do it, and that's only if you get past the censor. And Anonymous, part of your problem is clearly time management. If you don't find my blog useful, why on earth do you read it? I'm hardly an inspirational writer, and I don't think I'm that entertaining. If you have to read blogs, try some of those inspirational guys who don't confuse the issue with their actual historic data and focus on how they made their first million as "thought leaders" and inspirational speakers. Maybe my "secret" to making a decent living is that I don't read any other blogs myself.

Amazon Profit Driven By MarketPlace Sellers?

Everybody knows the old business school joke about selling at a loss and making it up on volume. A casual analysis of Amazon’s balance sheet and press releases suggests that they sell many things at a loss and make it up with MarketPlace revenue. Another way to look at it would be to say that Amazon runs a highly successful MarketPlace for third party sellers with a struggling retail store attached. I’ll run through the rough numbers, and you can make up your own mind. Feel free to call me an idiot if you think my estimate of MarketPlace impact is too high, I tried to be very conservative. Just do me the favor to point out the flaws. Estimates are necessary because Amazon doesn’t break these numbers out in their financial reporting for competitive reasons. They don’t give any data about Kindle sales or eBook purchases in their reports. In fact, it’s not even clear to me whether Kindle device sales are counted as “Media” or “Electronics and other Merchandise”.

Amazon reported in their 2009 Annual Statement that 30% of their unit sales came from MarketPlace vendors. MarketPlace vendors vary from large retailers taking advantage of Amazon’s storefront to sell their items, to college kids reselling textbooks and grandparents reselling gifts from their progeny. The only difference between the large sellers and the small sellers, in terms of revenues earned by Amazon, is that small sellers pay $0.99 per listing before other fees, while serious sellers pay $39.99 a month to list as many items as they desire. Both pay closing fees on certain items (it’s $1.35 for books) and a percentage of the selling price to Amazon, varying from a low of 6% on PCs and 8% on electronics and cameras, to 15% on books and 20% on Jewlery.

Now let’s estimate how many items they sell. Amazon used to report the total number of items shipped during the holiday season in a press release each year, but they stopped after 2005. That year, the Delight-O-Meter reported over 108 million items ordered from Amazon worldwide from November 1st through Christmas. I’m leaving October out of the estimate for the time being, we’ll stick it back in a couple inches down. Amazon’s 2009 sales were more than double 2005 sales (2.8X), so could lead us to estimate that Amazon’s 2009 holiday sales were 302 million items ordered. This extrapolation is a weak point in the analysis as the averaging selling price in 2009 might be appreciably higher than 2005, especially given growth in Electronics. So instead of 2.8X, I simply doubled the 108 million items to 216 million for the 209 holiday season. From Amazon’s 10K, we know that 4th quarter 2009 sales accounted for 39% of the year’s sales (it was 35% back in 2005). If we assume that holiday items sell at the same average price as year round items, it yields a first order approximation of over 338 million items shipped during the first three quarters of the 2009.

If we now estimate that October was an average month, we can include another 38 million unit orders (338 million / nine months). This should make 216 + 338 + 38 = 592 million a first order approximation of the number of orders Amazon took in 2009. For a second iteration, we now add the 38 million estimate for October to the 216 million holiday season estimate for 254 million units ordered in the 4th quarter, and recalculate the first nine months as 397 million units. That puts the total year (minus the week after Christmas) at 651 million units worldwide. I’m not going to try for a third iteration or we’ll be here all day.

Since Amazon sold about $24.5 billion in total merchandise in 2009, that would put the average item a little under $38 dollars. I expect that MarketPlace orders would average much less, unless there are lots of people buying computers and diamond rings through third party vendors, but it’s important to keep in mind that both Amazon and Marketplace sell some big ticket items, like Kindles and big screen TVs. This leaves us with the estimate that Amazon processed orders for 651 million units in 2009, with MarketPlace vendors share at 30% amounting to 195 million units. This calculation assumes that the average MarketPlace item sold for the same amount as the average new-from-Amazon item, which I suspect is extraordinarily conservative.

So, the remaining question is how much does Amazon net from the average marketplace unit sale? For a book sold by granny, we know that the minimum is $0.99 + $1.35 = $2.34, and that assumes that granny sells the book for a penny. Serious sellers save the $0.99 listing fee, but at least one professional seller I spoke to won’t bother listing books for less than $10, which means Amazon makes a minimum of $1.50 (15% of $10) plus $1.35 = $2.85 on each of his sales. And I suspect these book examples are very conservative for Amazon marketplace, where I’ve paid around $100 (around $10 net to Amazon) for a replacement laptop battery, amongst other transactions. So let’s round down the average of the two book examples and say the average unit sold through MarketPlace nets Amazon $2.50 even.

We’re left with 195 million units at $2.50 profit each, for $487 million dollars profit. Yes, I know that it costs Amazon something to run the MarketPlace, but we’ve been so conservative at every turn that I’m going to ignore that as part of the noise and consider some other numbers. Amazon’s reported net income for 2009 was $902 million. That profit remains after they lost $849 million dollars on shipping. Under what I think is a very conservative estimate, more than half of Amazon’s net profit came from MarketPlace vendors. Another bit of conservatism was interpeting Amazon's holiday season as Nov 1st to December 25th (and not bothering with the week after Christmas), when in other places, they imply that the holiday season is Thanksgiving to Christmas.

Now let’s go back and look at a few of the variables. $38 dollars for the average unit selling price does seem awfully high, no matter what the Delight-O-Meter extrapolation suggests. If you had been asked to guess the average selling price of an item on Amazon, I wouldn’t be surprised if you’d chosen $20, which would almost double the number of units sold, and almost double the MarketPlace earnings so they accounted for all of Amazon’s profit. But let’s leave the average selling price alone and consider the average Amazon net per MarketPlace item. At $5.00 net per marketplace transaction, all of Amazon’s reported profit would come from MarketPlace. It true that some advanced MarketPlace vendors have been moving to “Fulfillment By Amazon” and saving a little on fees, but it really only makes sense for higher average ticket items, and my understanding is that it hasn’t really caught on yet. And if the average MarketPlace transaction was really $38, a number we stuck with to hold down the total number of items sold, it would almost certainly put Amazon’s net per MarketPlace transaction over $5.00. And don't forget our assumption that average item prices had risen. If the average selling price in 2009 was the same as 2005, what with all the inexpensive eBooks on Kindle, falling electronics prices, etc, the total items sold would have been a couple hundred million higher.

All of this suggests one conclusion. That it’s very difficult for any other bookstores selling new books, online or off, to compete with Amazon without losing their shirts. Amazon’s secret may be that they’re losing their shirt as well, but making it up in MarketPlace.

Is Amazon’s Kindle Killing Book Publishing?

Amazon filed their 10K annual report on Thursday and two numbers jumped off the virtual page at me. First, Amazon’s international media sales (no Kindle component to speak of) were up 19%, bringing the total to $6.8 billion. Amazon’s North American media sales were up 11%, bring the total to $5.94 billion. In the three years prior to Kindle’s release, Amazon’s International media sales (books, music, movies) grew just a little faster than their North American sales. Since the Kindle began to take off in late 2007/early 2008, the North American media rate of sales growth has lagged international media rate of sales growth by 37%. One possible explanation is the Kindle sales are cannibalizing growth from Amazon’s North American book sales, and Amazon is betting the future farm on capturing the eReader market.



Update: According to news feeds, Amazon has announced they will back down and compromise with Macmillan.

Most of the publishing world is Tweeting from the sidelines as Macmillan and Amazon face off in a power play over the future of book publishing. Trade publishers are finally waking up to the fact that Amazon’s growing power as the world’s leading book retailer puts their businesses in a precarious position of dependency. This isn’t a simple argument about the retail pricing of eBooks. Increasing eBook sales lowers the volume of paper books printed and forces up the marginal cost of publishing on paper. The result is a positive feedback loop for eBooks and a death spiral for paper books. Quoting myself from a couple years ago when pointing out that Amazon’s US book sales were poised to pass the bricks-and-mortar sales of the whole Barnes&Noble chain, "I can't predict exactly how far into the future the day of reckoning will arrive for large publishers, but it's clear that Amazon can control the timetable with the pace of their investment in POD and Kindle." It appears for Macmillan, the day of reckoning has arrived.

On Friday Amazon stopped selling books published by Macmillan, one of the largest publishing groups in the world, in a dispute over eBook pricing and distribution control. Nobody outside of Macmillan and Amazon knows for sure what their existing deal was, though it’s widely reported that Amazon was losing money selling Kindle versions of Macmillan bestsellers by paying Macmillan more than Amazon’s selling price. Nor does anybody outside of Amazon and Macmillan know what percentage of Macmillan’s overall sales have been going through Amazon. Macmillan’s heavy presence in the education market, from elementary right through university, makes them less vulnerable to Amazon’s boycott of their books than publishers dependent entirely on leisure readers. It’s also unclear whether the whole issue would have come to a head this week without the announcement of Apples iPad, and their support for a pricing model that leaves more control in the hands of the publishers.

Make no mistake about what’s at stake here. Publishers don’t want to find themselves in a position couple years down the road where Amazon can start dictating the wholesale pricing for publisher content. This can only if Kindle remains the dominant eBook reader, something I suspect has grown a little less likely with Amazon's actions this week. The current stand-off has brought out the usual commentary by instant eBook experts who have never published a book on paper or electronically. They don’t have a clue about economics of publishing, the time invested by an author or the money invested by a publisher, and endlessly repeat the mantra that authors and publishers are all stupid and will earn more money through increased volume. If the volume doesn’t materialize, that can only mean that the price isn’t low enough. I guess there’s a quantity of alcohol or emotional age that makes watching people falling on their backs while trying to limbo under a pole hilarious, but substitute “going out of business” with “falling on their backs” and you may sober up. For a hair of the dog, consider the “creative destruction” preached by our economic sages and how well that’s turned out for us all.

Just a week ago, Booklocker and Amazon settled Booklocker's anti-trust class action lawsuit over Amazon’s threat to remove “Buy it now” buttons from Booklocker’s titles on Amazon if Booklocker didn’t agree to have Amazon print their books. At the time, Amazon claimed that the move was necessary to better serve their customers, a nonsensical claim at best, yet one that is being used today in regards to the eBook distribution model. In the settlement agreement, Booklocker won what they had sought, Amazon’s agreement not to remove their “Buy it now” buttons, and Amazon paid $300,000 to Booklocker’s law firm for the legal costs of the suit. One wonders if Amazon’s lawyers had kept the button removal monster in a cage during the lawsuit, and set him free once the settlement was signed.

Given the lack of solidarity within the publishing "community" during Amazon's POD take-over, I doubt that Macmillan will see a groundswell of support from self publishers or small trades. The question of who will “win” the Amazon vs Macmillan war (and the winner appears to be Macmillan)can be influenced by the other large publishing groups. As much as they depend on Amazon for sales, Amazon depends on them even more for books. Nobody outside those publishers and Amazon knows if they have contractual commitments that will prevent them from telling Amazon that they are changing model under which they are will to provide Amazon with eBooks. But even if the CEO’s of the other publishing groups have the legal ability to turn the tables on Amazon, they may not have the desire. For the time being, Macmillan’s loss is their gain, and as far as anybody knows, the large publishing groups aren’t losing money on their Kindle titles under the current regime. The future? Well, that’s off in the future somewhere, and it’s much more fun to make money today and not worry about it.

Amazon also surprised the small publishing world last week with the announcement of a new Kindle business model to be launched this summer. The new model for Digital Text Platform users will up the author/publisher share from 35% to roughly 70%, in return for the author/publisher agreeing to a maximum list price of $9.99 and a minimum 20% discount from the paper price. The 70% royalty will be based on the sales price, which will be determined by Amazon in a manner that's not entirely clear at this point. The deal is nearly irrelevant for my own self publishing business since I only sell my weakest title through Kindle due to formatting constraints, but all of these events stacking up since the first of the year should serve as a welcome reminder that absolute power makes a negative impression. Or maybe that’s absolute numbers make negative signs positive, or some CEO's found courage in a bottle of Absolut and stood by Macmillan.