Monday, August 07, 2006

Is Amazon Going After the Long Tail?

As detailed in another post (and in many other places), is about to legitimize e-books. Or give it one helluva try.

Why is Amazon doing this? Well, you can count on statements from Amazon along the lines of "level the playing field" (gawd--what an absurd statement!) and "give every writer the exposure she deserves" (nobody "deserves" nuthin', mister--they gotta earn it!) But such sentiments will be little more than public relations squibs.

The real reason is money--dollars, bucks, ducketts, simoleons, squeeze, cronkites, jack, lucre, loot--cash! Amazon will make $149 from anyone who wants to publish e-books, because you have to use the proprietary Mobipocket software if you want Amazon to sell your wares--and the Mobipocket creator costs $149.

In addition to the entry fee, Amazon will, if it continues the business plan already in place at Mobipocket, take 60 percent of each book's cover price.

With anyone able to be an author, the field is likely to get very crowded. So crowded, in fact, that it will be difficult for writers who aren't already established to get noticed. A lot of books will sell a few copies, and a few books will sell a lot of copies, just like in the real world.

Which is okay from Amazon’s viewpoint, because they are going to make money on the poorest sellers, and it will be pure profit.

To explain: As has been demonstrated by Chris Anderson in his book, The Long Tail, 20 percent of the goods offered by a given retailer generate 80 percent of the profit. The remaining 80 percent of goods generate decreasing profits, and in general aren't worth stocking when the space they take up could be used to stock more of the top-selling 20 percent of products.

However, as Anderson shows us, when it comes to downloadable products there is no "space" taken up by virtual stock. So it's possible to stock literally everything. Further (as his studies demonstrate) if you stock everything, at least 98 percent (ninety-eight percent) of all items will be purchased at least once in a year.

With no cost for stocking items, it’s profitable to stock the 20,000 virtual books that could not be justified in a brick-and-mortar bookstore because they sell one copy a year. So, you (Amazon) stock those 20,000 books, and 19,600 of them rack up sales because there is a market for anything and you’re serving not only the market for “hits,” but also the niche markets. Markets for books on subjects like aerial photography that interest only a few people. Even markets for books that people don’t know they want until they see them.

So, if your haul is $3.60 per book (net on a sale price of $6.00), your poor sellers still bring in $70,560. If the next 20,000 low sellers have “only’ 3 sales a year, you have another $211,680. And so on, up into the millions.

So, in allowing anyone to put up an e-book for sale (and charging them for it) Amazon is serving those niche markets and scoring sales that those who stick with the 20/80 rule lose.

As a bonus, the Mobipocket business model allows the company to hold back royalties amounts under $150. Since the majority of books are going to be small sellers, Amazon is going to have one heck of a float--all the more reason to encourage people to become “authors.”

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