Amazon’s report of quarterly earnings last Thursday was greeted widely as an indication that the company can’t generate sufficient margins with Kindle devices and content. That interpretation has been reasonably straightforward, with strong echoes of sentiments that characterized critics’ views of Amazon during its early pre-profitability years in late 1990s and into the 21st century:
Despite rapid growth in Kindle hardware and content sales [the thinking goes], the combination of competition and Amazon’s penchant for pursuing loss-leader strategies to capture market share have forced Kindle-associated margins so low that, as the Kindle portion of Amazon’s overall business grows, it will lead inevitably to erosion of profits.
Due in part to this interpretation, Amazon’s share price, which closed Thursday within 3 percent of its all-time trading high, dipped dramatically in after-hours trading that day and has gained back only a fraction of those losses since.
But the low-margins interpretation misses another, much more dramatic story:
The big story is that in just three years Amazon has positioned itself to triple its overall share of the U.S. book business for all formats. Before the end of 2012, Amazon could own more than half of the U.S. book business across all formats.
How stunning a development would that be? Prior to the launch of the Kindle in 2007, Amazon was widely considered to account, at most, for somewhere around 15 percent of all U.S. book sales in all formats by all retailers.
Amazon has not reached 50 per cent yet, and is still far from that range where all titles are concerned. But one of the most reliable crystal balls for determining future bookselling trends is to examine and parse developments as they play out with inpidual bestsellers in the overall book marketplace, when numbers are available.
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| Room author Emma Donoghue |
Last week both Amazon and one of its most consistent publishing business critics, paid subscription site Publishers’ Marketplace, shined their respective spotlights on sale trends that have been playing out with a single bestselling novel, Emma Donoghue’s Room. (Room was published September 13, 2010 and became a breakthrough bestseller for the Dublin-born Canadian transplant Donoghue. Room currently stands at #26 among ebooks in the Kindle Store despite its agency-model price of $11.99. The hardcover, discounted by Amazon to $14.41 (20 percent higher than the Kindle edition), is #43 in the main Amazon store. It is #13 among far fewer available bestsellers listed in the iBooks store, and #35 on the Nook. Importantly for these discussions, the book has also been on the IndieBound bestseller list for independent brick-and-mortar booksellers for the past 20 weeks, and currently stands at #4.)
Helpfully, it turns out that we know a lot about Room sales, thanks to Amazon and Publisher’s Marketplace.
Russ Grandinetti, Amazon’s vice-president for Kindle Content,told a Digital Book World conference last week that, for Room, “total Kindle sales are equal to 85 percent of Nielsen BookScan’s print sales number.” Publisher’s Marketplace then performed some very helpful extrapolations and further calculations arriving here:
If the BookScan number is 80 percent of the print sales total, then Kindle sales here would 68 percent of all print. More importantly, though, to calculate what percentage of the book’s total sale was on Kindle, you need to add Kindle + BookScan + that other 20 percent together and look at Kindle as a percentage of that sum. So it’s 68 over 168, meaning that Kindle sales were 40 percent of the total sale in all formats for ROOM.
But it doesn’t end there. Grandinetti and other Amazon spokespersons said repeatedly last week that Kindle editions were currently outselling Amazon sales of their hardcover counterparts by a 3-to-1 margin, which means that Amazon hardcovers equal about 25 per cent of combined sales for these titles. Even if hardcover sales of Room fell short of this and constituted only 20 percent of Amazon’s combined, this would mean that total Amazon sales of Room constitutes about 50 percent of the total sale in all formats for ROOM.
It’s just one title, but what we’ve been seeing quite often with Amazon and the Kindle over the past few years is that what happens first with one title happens subsequently with more titles and then, ultimately, with most titles. It was a big deal in 2009 when Kindle sales of The Lost Symbol
But there are other forces at play, and I’m not just talking about the fact that Room is one of the strongest sellers over the past five months for indie booksellers. Back on January 5 when USA Today reported that 19 of the top 50 titles on its bestseller list had sold more ebook than print copies for the previous week, publishing industry insiders blamed Santa Claus and downplayed the significance.
“What’s most interesting is what happens next week or over the next month. About 3 million to 5 million e-readers were activated last week. Will the people who got them keep downloading e-books, and at what rate?” asked Publisher’s Marketplace founder Michael Cader. Bowker’s Kelly Gallagher, too often a cheerleader for the status quo in publishing, was quoted saying that the surge in e-book sales “is not a sustainable trend.”
Right. Well, that was January 5. Now it’s February 2, and that trend, far from declining, has actually become stronger. On USA Today’s most recent bestseller list, for the week ended January 23, the number of titles with greater ebook sales than print sales had grown from the 18-19 range for the first three weeks after Christmas to 23 of the top 50.
There is a wide range of factors that are likely to push the velocity of change even faster for ebook sales specifically and Amazon’s share of the overall bookselling market in general, but the fact that brick and mortar bookstores are closing at a faster rate than ever, from local indies to chains, is bound to contribute to a snowballing effect. The imminent bankruptcy of the Borders chain is this week’s headline, but it’s just the headline. And despite the recent fuss about the new partnership for ebook sales between Google and the American Booksellers Association, it is inevitable that as ebook sales rise, brick-and-mortar stores will decline and publishers will gradually lessen their investment both in the bookstore-based physical distribution network and in print editions.
Finally, there’s Amazon’s not-so-secret weapon for building retail market share for its Kindle and print content sales: direct publishing, Amazon exclusives, and indie authors. Recent developments in this area deserve a post all their own, but for now we’ll just note that 36 of the top 100 bestselling ebooks in the Kindle Store are published either by indie, direct-to-Kindle authors or by Amazon publishing subsidiary programs such as AmazonEncore, AmazonCrossing, or Kindle Singles. The vast majority of these titles are either not listed or not selling at any appreciable level on any other retail venue, and they are not yet included on any bestseller lists other than Amazon’s own, although their sales would in many cases justify such inclusion. But the sales are there, the profits are there, and once again Amazon has positioned itself to dominate the market share for this, the fastest growing sector of the fastest growing sector in bookselling.
Which brings us back to Amazon executive Grandinetti, and his summary point in last week’s discussions: “However fast you think this change is happening, its probably happening faster than you think.”
Whatever the rate of change, and whatever the velocity of change, most of the other players in the book business and many of Amazon’s market analysts and investors may be missing the point as to exactly where this change leads. AMZN is not a day-traders’ stock, but for investors who take a long view it may have just moved into a new and very positive category.
If Amazon has decided to accept single-digit margins during this Kindle “investment phase,” and the result is that the company has set itself up to own a 50 per cent market share of the entire U.S. book business by the end of 2012, there will be no shortage of happy investors — and devastated competitors — at that point in the relatively near future.
,” and I think it’s a big deal, too.
, they offer nuanced journeys of both fact and fiction. This first set of Singles was selected by our team of editors, and includes works by Rich Cohen, Pete Hamill, and Darin Strauss. We hope you enjoy reading them as much as we have.
by Rich Cohen. He wrote the first draft of Apocalypse Now. He discovered Arnold Schwarzenegger. He wrote Clint Eastwood’s “Go ahead, make my day.” The Vanity Fair writer and author of 
by Pete Hamill. From the eminent journalist and novelist comes a common-sense plea for a new immigration policy, one that asks America to embrace its illegal-alien population, not condemn it. Hamill advocates a fresh look at amnesty and pardon policies, offering illegal immigrants a “hand of welcome.”
by Mark Greif. Eight babies. A financial crash. The porn offers. The infant formula. How one woman became a scapegoat for America’s troubles–but taught us how both the mighty and the powerless are gaming our system. This comic, provocative, wittily argued essay from 
by Evan Ratliff . The thieves had a handpicked crew, a stolen helicopter, a cache of explosives, and a plan to rob a $150-million cash repository. The Stockholm police had a tip-off. Ratliff, a writer for Wired and 
by Sebastian Rotella/ProPublica. The latest reporting from ProPublica, the Pulitzer Prize-winning investigative newsroom, reports on the U.S. investigation of the 2008 terrorist attack on Mumbai and provides a detailed picture of the ties between Pakistan’s intelligence service and a leading militant group.
by Christopher R. Howard. In this pre-apocalyptic love story, Sailor, a homeless Irish teenager who’s haunted by a diabolical voice, seeks to reunite with a soul mate he hasn’t seen since boyhood, as a cosmic event threatens to extinguish life on Earth. Howard’s fiction has appeared in McSweeney’s, and his first novel, 
by Claudia Lonow. The road from Knots Landing actress to success as a Hollywood TV writer proved a bit bumpy for Claudia Lonow. It involved a high school crush accused of murder, includes unfortunate professional encounters with Michael Keaton and Mary Tyler Moore, and culminates in a boyfriend-bonding experience at a Van Nuys sex club.
by Darin Strauss. Karate belts are for losers. So novelist (and 2010 National Book Critics Circle Award finalist for his memoir, 
by Ron Rosenbaum. The author of Explaining Hitler and the forthcoming How the End Begins explores the controversial use of the term “evil,” in a provocative analysis that leads from Hitler to a psycho serial-killer cabbie in London. Rosenbaum makes a powerful case for the connection between evil and free will.
by Anand Giridharadas. After six years exploring his parents’ native India, Anand Giridharadas–a young technology columnist for the New York Times and International Herald Tribune and author of India Calling–returns to China to measure a vast, troubled nation’s accomplishments and dreams.
by Ian Ayres. What if every pound you lost also saved you some hard-earned cash? When Ian Ayres, a law professor at Yale, wanted to drop from 205 pounds to 180, he put his money where his mouth was. And it worked. The author of 
shares his unique, incentive-based plan for losing weight.
by Brendan I. Koerner. At age six, Teddy Weatherford was working in a Virginia coal mine. Two decades later, he was the jazz king of Asia. Koerner, a Wired contributing editor and author of 
by Cristina Nehring. At what should have been one of the happiest moments of her life–on the eve of a rave review of her 2009 book, A Vindication of Love, on the cover of the New York Times Book Review–Cristina Nehring learned that her young daughter had leukemia. There began a journey through the medical world, and into her little girl’s heart.
by Gever Tulley. Don’t let your kids climb on a jungle gym, eat bugs, or lick batteries. These are just a few of the standard-issue warnings that Gever Tulley, co-founder of the Tinkering School, tells us to ignore in this counter-intuitive essay. His basic message is both empowering and fun: Do try this at home.
by Rebecca Huval. A young woman with dreams of a songwriting career finds friendship–and an audience–among a group of 1960s folk musicians who still live and thrive right where it all began, in Greenwich Village.
by Robert Andrew Powell. It sounded like one of the great murder mysteries of our time: who was killing the women of Juárez? Journalist Robert Andrew Powell went to the Mexican border town to investigate, and separates fact from myth in a saga that eerily echoes the plot of Roberto Bolaño’s epic novel 2666.
by Thorsten Schier. Ever hear of the New York Thunder? Didn’t think so. They’re New York’s number-two pro basketball team. Maybe you should try rooting for them. They could use the help. Thorsten Schier spends a season inside the (rented) Thunder locker room.
by Nic Marks. Modern research proves the ancient wisdom that “money can’t buy you happiness.” But then why do our governments see their main task as simply growing GDP? Nic Marks, the founder of the London-based Centre for Well-Being, sets out an ingenious new way of defining national goals, and in the process reveals five ways people can nurture their own happiness.
by Juan Enriquez and Steve Gullans. Enriquez and Gullans–two eminent authors, researchers, and entrepreneurs–explore a world where humans increasingly shape their environment, their own selves, and other species. They envision a future in which humankind becomes a new species, one which directly and deliberately controls its own evolution and that of many other species. One of the inaugural TEDBooks.
, it would have been some other company and some other ebook reader. If it hadn’t been change-making authors like 
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, it would have been other authors. 
Million Club yesterday with a