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Waves of Change in the Kindlesphere: How the Kindle Store is Evolving into Three Stores to Sharpen Competition and Marginalize Outliers

The waves of change continue in the Kindlesphere.

  • In the next few weeks we expect to see the launch of the Kindle Apps Store, the rollout of new accessibility features including what Amazon calls “audible menuing,” big changes in royalties and publishing features for Kindle authors and publishers, and a completion of the rollout of version of 2.5 of the operating software for the latest generation Kindle and Kindle DX. 
  • Many of us are watching with great interest for the denouement of the negotiations/controversies/conflicts that’s currently keeping new Penguin titles out of the Kindle Store and all Random House titles out of the iBooks Store.
  • On the hardware side, it remains to be seen whether Amazon will work as hard or place as high a priority on delivering the inevitable Super Kindle with the color touch display as it is working to make what will soon be an installed base of 100 millions iPads, iPhones, and iPod Touches super selling venues for Kindle and other digital content, including wolfish Video on Demand offerings donning the sheep’s clothing of the Netflix for iPad app if Amazon pulls the trigger on a Netflix acquisition.

But let’s focus today on dramatic if evolutionary changes that are occurring in the Kindle Store catalog.

Yesterday’s report that Amazon will soon drop free Kindle books from its main Kindle Store bestseller lists is just another portent that, in some ways, the Kindle Store is in the process of being transformed into three stores:

  • the Kindle bookstore to which we have grown accustomed over the past couple of years, with a large and diverse catalog of over half a million titles priced mostly between $2.99 and $9.99, currently growing at around 25,000 titles a month, and including work of distinction by emerging authors as well as bestsellers by established author;
  • several thousand other “new release” titles from publishers who have signed onto the agency model price-fixing pact, at least temporarily, with prices set between $10 and $15;
  • a growing number of free books including Amazon’s current “private label” catalog of public domain titles, a growing number of free promotional titles, and millions of other free public domain titles from third-party sites that Amazon will make increasingly seamless to download and read on the Kindle platform, perhaps with the kind of overhauled, Kindle-compatible “Stanza @ Kindle” offering that might have been behind the departure of Stanza fountainhead Neelan Choksi from Stanza.Amazon.com the other day). .

Now, or beginning at some point between now and June 30, Amazon will be making a major effort to organize the vast majority of Kindle store prices so that they fall in the $2.99 to $9.99 range. As I noted here when Amazon announced this program, Amazon will be using honey rather than vinegar, with an offer to pay direct 70% royalties to all authors and publishers who set prices in this price range through Amazon’s Kindle-compatible Digital Text Platform and participate fully in other Kindle features like text-to-speech.

There will be other outliers, including declining percentages of the total catalog that is priced between $.01 and $2.98 or over $14.99. The contraction of offerings in these price ranges, of course, will be driven by the promise of direct 70% royalties. For titles currently earning the standard Kindle DTP royalty of 35% at sales-suppressing prices from $15 to $19.99, (or, for that matter, $10 to $14.99), bringing the suggested retail list price down to $9.99 and taking any other steps necessary to comply with the new 70% royalty program ought to be a no-brainer for any author or publisher capable of doing the math. As a cursory check of the Kindle Store’s current bestselling titles in that $15-to-$20 price range reveals, there are precious few titles that are cracking the top 2,500 at such prices, and many would experience significantly higher sales at the $9.99 price range.

In a post the other day about bargain prices for a couple of Elizabeth Peters ebooks in the Kindle Store, I made the point that readers may actually be able to influence publisher pricing behavior when we jump on bargain prices like those mentioned in the post, even while the Kindle bestseller list shows some signs that Kindle owners are accepting agency-model pricing:

When an agency model publisher fixes a low price for a backlist title like these, the publishing is putting itself in a position to learn a great deal about pricing, sales, and profitability in the ebook world. Based on my own experiences and those of other authors, I believe that the ideal Kindle Store price for many backlist titles is in the $2.99 to $4.99 range, and that most such titles, if they are quality books with a little bit of marketing effort behind them are likely to sell roughly twice as many copies if they are reduced from $9.99 to $4.99 or roughly three times as many if they are reduced from $9.99 to $2.99. If Hachette and other publishers find out that such formulas apply to their backlist titles, it could be a powerful incentive for them to lower prices wherever possible.

So, the fun continues. When there’s competition between business behemoths like Amazon and Apple, it tends to be complicated by all kinds of counterforces, not the least of which are the many ways in which the two companies are partners. But as nice a guy as Jeff Bezos may be, he is also, to his great credit, the leader of a company that is as ruthlessly committed to fostering competition within the Kindle Store as it is to competing with other businesses in the ebook sector. The result for customers in the Kindle Store as elsewhere in AmazonWorld is like to be ever greater selection and, over the long haul, ever better pricing.

Related posts:

What If Big Six Market Share Leader Random House Breaks Ranks with the Apple Five?

By Stephen Windwalker
Originally posted February 16, 2010 – © Kindle Nation Daily 2010

“The sense of entitlement of the American consumer is absolutely astonishing,” said novelist Douglas Preston in a direct reference to Kindle owners in the New York Times last week, but Preston’s equally astonishing notion that we in Kindle Nation are governed by “the Wal-Mart mentality” misses the mark by plenty.

Much of the reporting about the ebook pricing controversy has strongly suggested that Steve Jobs and the Apple Five (thanks to The Kindle Chronicles podcaster Len Edgerly for this currently apt label for MacMillan, Hachette, Penguin, Simon & Schuster and HarperCollins) will have their way and impose 30% to 50% price increases on Kindle Store bestsellers and new releases by the end of March, so it should not be surprising if Kindle owners’ backs are up.

It’s true that a majority of respondents in the Winter 2010 Kindle Nation Citizen Survey is ready to take a stand against anticipated increases in Kindle Store ebook prices above the $9.99 figure that Amazon has associated with bestsellers and new releases since the Kindle’s launch over two years ago, but inside the numbers are some indications of flexibility:

  • 54% disagreed somewhat or strongly with the statement “I will probably pay $10 to $14.99 for new ebook titles if necessary,” but a significant number (37%) agreed with the statement and another 52% disagreed with the statement that “I will never pay more than $9.99 for an ebook.”
  • Given further choices, 75% agreed with the statement “I’ll pay over $9.99, but only rarely when I simply must have an ebook,” and 33% said they would pay more for professional or technical books.

With this range of views,  there may be significant numbers of Kindle owners who occasionally pay more than $9.99, and indeed there have been many Kindle books that have sold briskly with double-digit prices during the past two years. Kindle owners are by their very nature likely to be too  fair-minded and attuned to subtleties to participate in a totally unified boycott based on price or any other single, simple factor.

While it will be fascinating both to me and, perhaps, to the U.S. Department of Justice to study the array of ebook prices in the Kindle Store and in other venues like Apple’s yet-to-be-opened iBooks store on April Fool’s Day, it may be more telling to see where they settle out on May Day, Independence Day, or Thanksgiving Day. In the interim, competition may have its effects in more traditional ways than we have seen so far, and the behavior of Random House, the largest of the Big Six in U.S. operations, may ultimately say the most about how this drama shakes out. As reported here earlier, a key Random House senior executive indicated to a confab of booksellers a few days ago that her company could pursue an independent course on ebook pricing instead of trying to impose its own retail pricing wisdom on a company — Amazon — that knows more about price elasticity and its own customers than anyone else in the world.

Kindle owners now say in large numbers (73%) that they have become more price-conscious as a result of the recent price controversy, and an overwhelming 87% in our survey disagreed with the rather broad statement that “publishers know their costs, so I’m happy to pay the prices they set.” If Amazon’s temporary deletion of MacMillan titles was intended to send an implicit message about the extent to which key players should be viewed as benign or malignant, it worked: a remarkable 68% of our respondents agreed with the statement that “Jeff Bezos and Amazon have my back, and I know they price things to sell.”

Some may think this perspective is an indication that Kindle owners are bellying up to the Bezos Family Kool-Aid Stand in large numbers, but given the significant and growing role that ebook readers will continue to play in the retail book business, publishers who fail to pay close attention may be risking more than they can afford to risk.

One Kindle Nation citizen commented, on an earlier post here, that “some anti-publisher bias is understandable” in the survey results, give the “kindle specific audience” of Kindle Nation Daily, but the comment itself is commentary on the extent to which important things have changed. The book publishing industry is not Big Oil, Big Pharma, or the Wall Street Bonus Bankers. Not all that long ago it was widely seen by the American reading public as being composed of venerable houses and imprints that were well-deserving of the roles we granted them as gatekeepers and arbiters of taste and quality. The idea that large numbers of voracious readers hold something like an anti-publisher bias represents a stunning fall from grace.

If Random House breaks ranks with the Apple Five, it could do itself and its authors a tremendous amount of good, and a return to more traditional competitive behavior could soon follow. In  the long run, or that middle run before we are all dead, we as the increasingly savvy, quality-conscious, price-conscious citizens of Kindle Nation could find ourselves holding more of the cards than we thought we might be holding.

Click Here to View Likely Kindle Owner Buying Behavior at Strategic Price Points

Click here to see complete, detailed results of the survey, and keep your dial tuned to Kindle Nation Dailyhere on the web or here to have posts pushed directly to your Kindle — for ongoing breakdowns of the significance of the survey results.

Additional Survey Results, coming soon:

Senior Executive Indicates Random House Could Steer Clear of Price-Fixing Cabal

Thanks to Bufo Calvin at I Love My Kindle for turning my attention to some fascinating remarks last week by Madeline McIntosh, who returned to Random House in early November in the newly created position of President, Sales, Operations, and Digital. Speaking in San Jose at the Winter Institute of the American Booksellers Association, McIntosh separated herself and Random House dramatically from what had previously seemed like lockstep among Big Six publishers around issues of pricing control over ebooks.

According to a report at Publishers Lunch:

McIntosh took on pricing control directly as one of the reasons Random House has “not acted quite as quickly as others.” She expressed a series of concerns that publishers “have no real experience at setting retail prices….”

She cited a recent visit to Powell’s, where with used books and new books sitting on the same shelves “they set the prices on every single unit in a unique, demand-based way.” But more importantly from her perspective, up until now “our authors have not been at risk if you make a different decision about how to price a given book, so it didn’t actually affect our author if a given retailer decided to aggressively discount a certain segment of books. The benefit…is that we have been able to sustain a great variety of different authors at different levels.”

On the windowing of releases, McIntosh expressed a personal opinion and noted “there are a lot of divergent opinions at Random House,” but she is “not convinced that delaying an ebook will be to the benefit of either the author or the consumer.” She prefers not to lose a potential sale because an ebook version is not available and also does not want to “create an adversarial relationship” with ebook readers or “train those readers that instead the best way to get that digital copy is to download it for free.”

Instead of through changed pricing models, McIntosh said “the best value we can offer in the digital world will be about embracing what we already know how to do well…. Our best asset is our editors.” She spoke about “allowing digital to force us to reinvent ourselves as editors” as Random looks at ways “to contract and deliver content that is a whole range of different lengths, and bring ideas to market in a much faster way than we can when its print.” For the future, she is less excited about “just about creating a digital version of a book or adding bells and whistles” but wonders instead “do we need to push ourselves into an area we really don’t know anything about, which is thinking about developing applications.” She sees the process as taking a brand and conceiving of “what would be compelling to a consumer…that would make us still relevant as a content producer” in a new way, admitting that they don’t have the answers yet–just the question.

It’s good to see some engaged, intelligent, independent thinking by someone in a position to influence how the ebook pricing saga may actually play out.

Not to worry: Pre-order Dan Brown’s The Lost Symbol now for $9.99

Fears that the Kindle edition of Dan Brown’s forthcoming blockbuster novel The Lost Symbol might not be released concurrently with the September 15 hardcover release date have been dispelled as Amazon is now accepting $9.99 pre-orders for the instant bestseller-to-be in the Kindle Store.

There has been a behind-the-scenes tug-of-war going on between Amazon and some publishers concerning the prescriptive $9.99 bestseller price point in the Kindle Store and the possibility that some publishers have considered staggering release dates in what would probably be a self-sabotaging effort to artificially fortify new hardcover prices.

Random House announced this week that “now that all of our security and logistical issues surrounding the e-book of ‘The Lost Symbol’ have been resolved, the e-book will be released simultaneously with the hardcover on Sept. 15.”

Order these free books for your Kindle 2 before they disappear

Here’s a money-saving tip for new Kindlers who are awaiting for the arrival of their Kindle 2. Amazon, publishers, and authors often get together to offer temporary “zero-price promotions” on popular books in the Kindle Store, in addition to the thousands of free public-domain titles that are now available.

Naturally, these books do not remain free forever, but you do not have to wait for the arrival of your Kindle 2 to place your order. You can order these free books today and they will be delivered wirelessly to your Kindle 2 when you power it up for the first time. Just make sure that you place the order through the Amazon account that will be linked to your Kindle.

Eight of these books are being offered free by Random House through the end of February, and many are by authors who are publishing new work in 2009.

The ninth is a real treat, a major new Kindle exclusive cookbook from Cook’s Illustrated, and it alone may help you to expand the ways you have considered using your Kindle. The promotion allows Amazon to show off how the Kindle 2’s new, crisper display, zoom feature, and better hands-free functionality are more cookbook-compatible than its predecessor.

Finally, the tenth link here isn’t free, but it’s for an accessory that I highly recommend, especially if you think you might use the Kindle 2 either as cookbook repository or as a read-aloud companion while you are in the kitchen. M-Edge, which has emerged as a leading supplier of attractive Kindle covers for the original Kindle, has come out with a great selection of Kindle 2 covers that double as stand-up hands-free Kindle platforms. They range in price from faux-leather models at the same $29.99 price that Amazon is now charging for its branded cover to $54.99 (currently discounted to $44.99) for very attractive genuine leather models in several colors. Just visit the Kindle 2 Accessories page and scroll down (if you can!) past those dreamy three-figure designer covers from Cole-Haan.

Murder List by Julie Garwood

The Idiot Girl and the Flaming Tantrum of Death by Laurie Notaro

Prague by Arthur Phillips
Caught Stealing by Charlie Huston
Six Bad Things by Charlie Huston
Free-Range Chickens by Simon Rich