Tuesday, February 28, 2012

eBook Industry: Does Amazon Have a Winning Hand or a Dead Man’s Hand?

Does Amazon have a winning hand or do they need to draw more cards to stay ahead in the game? Amazon is the dominate player in the ebook industry, hands down. In fact, they are so strong that they can sell some products at a loss and still win the hand.

They can do this because ebooks have a very high profit margin. Check this hand out. I can buy an ebook from Amazon and it’s never touched by human hands. No shipping. No warehousing unless you want to count their file servers. The first physical action is when I pay with my credit card and that can be automated if I chose. So the overhead is very low.

Amazon has attacked the ebook industry with a very aggressive marketing strategy. They have chased away bookstore chains and changed publisher’s ways of doing business. In a few words, they have played their hand perfectly by bluffing the other players into thinking that they can’t be beat.

But as most gamblers know the hand is not over until the last card is dealt. Can someone out draw Amazon by coming up with a better strategy or change the game itself?

The Strengths of Amazon’s Hand

So what is the strength of their hand?
Organization: They have setup an organization and internal software system to effectively manage an online business. A customer can buy an ebook online with immediate download and access the ebook, all at a reasonable price.

They approached the industry with deep pockets by leveraging their ebook products with their large pbook distributing system and a wealth of other products all sold online.

Marketing: They have successfully marketed the Kindle eReader and Kindle Fire as a lower than cost device. Readers have rushed to get the affordable devices not realizing they were committing to a controlled, lasting relationship.

Devices: The eReaders are tied to the Amazon format which allows Amazon to control the user and create a captive audience for their ebooks.

Software: Amazon created a software system to sell ebooks electronically and gather information for marketing at the same time.

Sales Tax: I feel the number one advantage Amazon used to defeat bookstores was the lack of sales tax on their products. This translated into a discount in price for all customer purchases. Customers were going to bookstores and reviewing the book. Then they would access the Internet and purchase the pbook or ebook online avoiding the sales tax.

They are starting to lose this winning hand as States across the country are attacking the free lunch tax advantage Amazon has over physical bookstores.

Self-Publishing: They developed an easy to use self-publishing system for would-be authors with a good royalty package. Now established authors are catching on to the added revenue they can earn and are moving their ebooks to the Amazon game.

Amazon Select: They have developed a program called Amazon Select. This program connects publishers who publish exclusively on Kindle to enter the ebook Lending Library. They will then share in Amazon funding, based on the borrowing of their title. Again EXCLUSIVELY is the key word.

Amazon Exclusives: Their Exclusives program is aimed at securing a captive author’s team. Successful authors can opt-in to sell their titles only at the Amazon publishing venture and avoid Apple and other competitors selling them. It is rumored that Amazon’s new retail store venture will handle only Amazon Exclusive titles.

The Weaknesses of Amazon’s Hand

We can see Amazon’s cards. They have a strong hand but the deal isn’t over. Other players will start to play at the ebook table. Here is the ‘tell’ as they say in the gambling world.

Control: Amazon doesn’t control or own the content. They are the distributor of the products but they don’t create it. The publishers and the authors control the ebooks and they can do anything they want to with it. The Amazon Exclusives program is another move to gain control of the marketplace. There is a good chance that the next big superstar author could start in the ebook self-publishing ranks and they are betting on it.

Single Device: One of the weaknesses is Amazon is betting on their own eReader to capture the market. The Kindle and the Fire are not the best or the fastest eReaders on the market. They have tried to buy the market on price and have done so up to this time. But what stands in their way is they will need to move from their proprietary ebook format to more accessible ebook strategy.

Internet Only: Amazon has no physical presence. They have recognized this and have started to setup a bookstore model in Seattle with only the books they publish and their Kindle devices available; again a closed product offering.

Publishers: Their continuing struggle with publishers is another major problem. For example, the problems have put a major hurdle in front of Amazon’s Lending program.

Prime: Amazon has initiated the Prime program with free shipping, movie streaming and ebook lending but there is no apparent ebook advantage or discount to the program unless you count the ebook exposure through lending.

Search Engine: They have developed a product search engine for ebooks that is becoming unwieldy. Amazon will need to limit their ebook selections at some point. My first novel was about President John F. Kennedy’s Assassination. A search for ebooks about JFK found 238 entries and 74 for the assassination. Would anyone look past entry number 50 on the lists? I doubt it.

Reviews: Self-entered reviews have little or no monitoring. Buyers don’t really know if they are true reviews or a friend of the family. Amazon will need a gatekeeper on ebook entries at some point in time to keep up the quality of their product offering.

Can Another Player Draw a Competitive Hand or Change the way the game is played?

If I could pick my hand from the rest of the deck, what cards would I select? Remember this is not like real poker. I wouldn’t have to leave it up to chance.

Multiple eReaders: First, I would sell multiple eReaders and tablets with multiple formats like Best Buy’s selection. I would pick the best devices for the price including Kindle, Nook (while still available) and the iPad because of the popularity.

Physical Stores: Next I would create stores in high density locations with a showroom of products using a physical, hands on approach. The Apple store model appears to be a winning model for this type of marketing.

On-line Marketplace: I would back this up with an on-line marketplace being fed information from surveys and professional reviews. Software is the key to the winning hand here. Software development is not an exclusive talent.

Franchise: I would franchise locations establishing a brand of quality and knowledge. The franchise would sell ebooks, accessories, author’s presentation, some pbooks and apps on site with a Club membership. The members would receive discounts and rewards for purchases.

Meeting and Classrooms: Each store would have in-store classrooms for special events, meetings, readings and guest presentations. The ebooks selection would be organized by genres. Possible one group would discuss Romance novels while another group would meet and discuss Science Fiction. The store would have demos of products on a continuing bases.

Personal Support: In-store product support would be one of the keys to the venture. The goal would be to provide unique hands on service. The staff would be knowledgeable, first in technology, and then the book sales environment.

Workshops: Author’s workshops would be provided for a fee to assist new authors in entering the ebook arena. The workshops would emphasis ebook concepts, formatting, cover design, where and how to sell and where to get professional help. Consulting workshops with experts in the ebook development process would be regularly scheduled.

Vertical Marketing: The new venture would use a vertical marketing approach to the type of ebooks sold. Each location would get access to local authors and seek out local ebooks for its customers. A key here is creating a human interaction using customer recommendations and selection advice. It would be like developing reading centers for groups of readers to share information. This would be backed up by blogging and social networking.

BN lost their chance. They drew to an inside straight so to speak. How BN has announced Sterling Publishing is for sale and are hunting for a buyer for their Nook product line. Their member’s program has failed in the ebook marketplace.

Know When to Hold Them and When to Draw New Cards

In the ebook industry, anyone can repeat what Amazon has done. There are no trade secrets here just aggressive marketing strategies and now deep pockets.

Like Wild Bill Hickok thought that fateful day in 1876 in Saloon No. 10; just when you think you have the winning hand, someone can come along and outdraw you. He had the Dead Man’s hand and he didn’t realize it until it was too late.

Amazon has the winning hand right now but the level of entry in this game has a relative low ante.  Can someone come up with a better solution or can they change the game by improving the products and services? Are there other things you would add this game to create a winning hand?

View my website: HBSystems Publications
Specializing in the ebook experience
Or EMAIL at: jrm@hbspub.com
Or go to my blog: The eBook Author’s Corner
LinkedIn Profile: James Moushon
Author: Call Off The Dogs, a rendered eBook

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