McStudge’s guide to capitalism

Reposted from a comment on The Passive Voice, in response to a discussion on Amazon, and why consumers hate and fear it so. (This remark may possibly have been made with the tongue somewhere in the vicinity of the cheek.)
Well, that’s capitalism for you. You see, my poppets, under the capitalist system, the Wicked Capitalist (who always wears a top hat and a waxed moustache, like Snidely Whiplash; that is how you recognize him) gets his money by forcibly abducting Sweet Cathy Consumer and tying her to the railroad tracks in front of an onrushing locomotive: on which, for reasons not yet fully understood, is mounted a furiously whirling buzz saw. Nobody ever buys anything voluntarily, you see; it is all done by force and fraud. And of course Snidely twirls his moustache whilst he is doing it. That bit is Very Important. All genuinely cultured and caring persons, including (it goes without saying) Great Authors and the Great Publishers who graciously permit them to live on leftover dog kibble, and occasionally on even richer and more Lucullan repasts than this, believe that there is a far more enlightened system, under which Sweet Cathy Consumer gives all her money to a Wise and Benevolent Bureaucracy, which then spends it for her on the Things That Really Matter (such as dog kibble for the right kind of Great Authors, and Mercedes-Benzes for the bureaucrats). Of course, if Sweet Cathy is insufficiently public-spirited (as, for some perverse reason, she almost always is), the Wise and Benevolent Bureaucrats will themselves have to resort to the locomotive and buzz saw to get her money out of her. But this is totally different from when a Wicked Capitalist does it, because, you see, it is All For Her Own Good and the Good of Society. Also the Benevolent Bureaucrats are clean-shaven, so they do not twirl their moustaches. Just remember, nobody ever bought anything voluntarily from Evil Amazon. Then, my poppets, you will be properly educated so as to swallow the rest of the stories we require you to believe.    (signed)    H. Smiggy McStudge

Heather Lovatt asks about selling books through Amazon

In a comment on a previous post, Heather Lovatt asks some good and searching questions about what happens when an independent author sells books through Amazon’s KDP program. I shall try to answer as best I can, but bear in mind, I am neither a lawyer nor an expert at online commerce. To simplify matters, I am breaking things down fisking-style and answering bit by bit. But this is by no means a fisking; I thought I would throw my horrible nature to the winds and try being friendly for a change. Here goes:
I am looking into the idea of publishing on Amazon. I’ve hit a lot of walls on this.
Dear Heather, I hear you. I hit a lot of walls myself in the same process. I hope I can be of some help.
Something I saw recently–though I can’t quote it exactly–had something to do with the idea that giving Amazon my book to sell gave them an option to ‘sell’ my book in one of THEIR channels that directly competed, on pricing, with my own.
The KDP terms and conditions do state that Amazon is authorized to sell your books through its subsidiaries, and that it has sole authority to set its own retail prices. (However, your royalty is always based on your list price – with one caveat, which I shall discuss later.) Some articling law student, probably, wrote the terms and conditions that way to give Amazon maximum flexibility: a practice I despise. However, Amazon’s policy has been clear enough: they sell books from independent authors at the author’s list price, unless they are available at a lower price somewhere else; then they price-match. This is true, as far as I know, of all Amazon’s subsidiaries where ebooks might be sold. If you list your book on Amazon for $2.99, and sell it through your own website (or authorize another website to sell it for you) for 99 cents, then Amazon will not only cut its price to 99 cents, but pay you your royalties based on the 99-cent price. It presumes that you have full control over the prices at which other retailers offer your work, which is not always the case. It is a good idea, if you are distributing through several retailers, to keep an eye on their listed prices from time to time; it could be necessary to withdraw your books from a store if it likes to monkey with your prices, because all the other retailers, including Amazon, may cut their prices to match – and cut your royalties in proportion. CreateSpace is an Amazon subsidiary, but only sells print-on-demand books; it operates under much more complicated rules than KDP, but it won’t enter the picture unless you choose to do a POD edition of your book(s) through it. The same goes for Audible, but the rules are very complex and rather unfriendly there; I wouldn’t touch Audible unless I expected big enough sales to pay for all my recording costs and the price of a lawyer to vet all my dealings with them. It’s not a place for novices, in my opinion. If you are thinking of some other Amazon channel, then you’ll have to help me out and tell me which one. I don’t have specific information and would need at least a name before I could use my Mighty Google-fu™.
I really start getting confused with what Amazon is gonna do to me, a new writer, on their website, but these days, I have a core feeling that I’ll use them until something else comes along.
That’s about how I felt when I got into it, and you know what? I still feel that way. But Amazon has been a lot better for me to deal with than Smashwords, Kobo, or Apple, the other three distributors I have set up accounts with.
I still wish it had been about using a website where I got all my customer email address; for whatever other reasons Amazon used me for fodder, at least I would get a relevant email list out of it. But I know that’s not gonna happen any time soon on Amazon.
Unfortunately, that’s against Amazon’s privacy policy. They promise their customers not to share your personal information with suppliers, or with anybody else who doesn’t genuinely need the information in order to fulfil the order. So they’ll give a customer’s name and address to UPS or FedEx, because those guys need to know where to deliver the goods, and they’ll give a customer’s credit card data to Visa and Mastercard, because those guys need to know which account to take the money from. But they do not give out a customer’s information to a publisher. For this I blame the big publishers. Back in the 1990s, when Amazon started, publishers (for the most part) didn’t give a damn who ultimately bought their products. As far as they were concerned, their customers were the bookshops; readers were a thing they had vaguely heard of but never encountered themselves, like the kingdom of Prester John. A book went out to a store, and that was the end of it, unless the store returned it for credit. Publishers had no interest in collecting data about consumers; and they were so technologically primitive that they did not have any way of storing it if they did collect it. Nor was it easy for them to hire the needful expertise. Any new IT graduate worth his salt wants to go to work for a tech company; failing that, for a business that understands and appreciates technology. Few IT grads will even look at working for a publisher, and the contempt, sad to say, is mutual. So the publishers never bothered to ask Amazon for customer data, and Amazon, which wanted every advantage it could get in winning customers, promised not to give that data away. We independents have come to the party too late to change the rules. The best way around this, I am told, is to have a page at the end of all your books where you invite the reader to sign up for your newsletter to be informed of new releases. This will at least get you a list of email addresses. It won’t list everybody; it will only list those who read the whole book and are sufficiently motivated to want to hear about the next one. But those are the ones you most want to know about: they are asking to give you repeat business. I haven’t yet set up a newsletter myself, but I am planning to do so with my next release, provided I can figure out how. (By the way, it won’t do, I am told, to put the page at the beginning of the book. Many e-readers automatically open the book to the first page of the main text. Anything before Chapter One can only be reached if the reader knows enough to turn the pages backwards to get at it. So the front matter becomes the place to dump things like copyright notices and legal disclaimers, which need to be in the book but nobody wants to read.) Running a newsletter requires extra work, of course, which is why I have shirked it so far. But it is a decent workaround, and at this point in the game, a workaround is all we are going to get.
I still don’t even get why I keep hearing this idea that we get 70 percent royalty as, for some reason, I get the impression–and again, I could be wrong–that Amazon has all these little ‘fees’ they add to that transaction. So that percent is reduced.
The one ‘little fee’ that gets subtracted from your royalty really is little – for most books. That is a data transmission fee, which in the U.S. and Canada is 15 cents per megabyte as of this writing, and roughly similar amounts in other countries. The purpose of this fee is to make sure that people who sell things like comics, or illustrated travel books, or technical books full of diagrams, will not hog the system’s bandwidth; or worse yet, people who sell ‘enhanced’ ebooks with movies and music and other such rubbish. A typical novel, formatted as a .mobi file, is round about a megabyte in size – maybe a bit larger, depending on the cover graphic. An ‘enhanced’ ebook can hardly take up less than 10 megabytes – it may run 100 or more, if a real idiot is doing the enhancing. Amazon doesn’t really want to sell the latter, so it charges the transmission fee to encourage people to slim their files down.
And no, I don’t use the “but the trad publishers are worse” logic to compensate for this.
If you did, frankly, it would compensate for a hell of a lot. After all, trad publishers routinely take 75 percent off the top of an ebook sale – if they can be trusted to report sales accurately. (I have heard horror stories; such as the one nice lady who had a whole string of books with one publisher, and got a royalty statement saying that each and every one of those books had sold exactly three ebook copies in a six-month reporting period. It was like Monty Python and the Holy Grail: ‘Four copies thou shalt not sell, neither shalt thou sell two, except thou immediately proceedest to three. Five is right out.’ No line of products ever sells as uniformly as all that.) But I agree, that’s not good logic to use with Amazon. The thing is to keep their feet to the fire and try to get them to improve their treatment of us, their suppliers; not to give them a blank-cheque excuse by comparing them to what is, I am afraid, the sleaziest legal business I have any personal knowledge of.
I dunno. It shouldn’t have taken me this long to decide where to sell a book I make; but presently, Amazon unsettles me, still.
I don’t blame you. Self-publishing is an unsettling business for most of us; it requires learning so much, and it keeps changing so rapidly. It’s hard to stay ahead. I know you’re a reader of The Passive Voice, and I suppose you must be familiar with Joe Konrath and David Gaughran, but for the benefit of anyone new who reads this, I include the links. Those really are the three consistently best sources for self-publishing information that I have ever found. Each of them occasionally gets bees in his bonnet, but most of their advice is sound and sane and thoroughly nutritious to an indie author’s career. I would not have made it even this far without them.
Are you using Amazon?
I am. In fact, I made the experiment of putting one of my books on KDP Select. I meant to take it off of there, but then I fell down the stairs and was unable to do any useful work for about a year. It is still on my ‘to do’ list before the next book comes out. I will say this: Amazon has given me by far the best experience of any of the major retailers. Theirs is the easiest place to submit a book to; the easiest one to format a book for; the one with the widest reach, and the best record of promoting independent writers; and the one that pays best and most reliably. As of this date, Amazon is actually the only retailer where I have sold enough books to top their minimum payment threshold and receive a royalty payment. They pay off as soon as they owe you $10 or more; Smashwords, by way of contrast, pays off at $100 – and I have not earned $100 in royalties from Smashwords yet.
Heather, who found you on PG
I wish you the best of luck with your books and your career; and if you become as famous as J. K. Rowling, I hope you’ll remember to throw a link my way. –Tom, who got found there

Leaving money on the table

Bill Peschel, a commenter on The Passive Voice, suggests that Amazon is bound to stop offering independent authors 70 percent of the retail price on well-priced ebooks, and cut the wholesale price to 60 or 50 percent of retail, or even less. He asks: ‘Why would Amazon leave money on the table if they know that authors will accept less?’ I reply: I’ll tell you exactly why Amazon would leave money on the table: When the table it’s on belongs to the consumer. Amazon isn’t in business to sell books. (Or electronics, music, movies, patio furniture, knickknacks, teddy bears, buggy whips, or anything else they have an SKU for.) Amazon is in business to lower prices. The company’s entire business model is about increasing efficiency, lowering overhead, and using that to cut prices so that consumers will shop there instead of the competition. This is a company that is perfectly content (and so are its stockholders) with a net profit margin of less than 1%. Leaving money on the table is what Amazon does. Considered in that light, why does Amazon offer authors 70% of retail on ebooks? Because it can make a sufficient profit off of the other 30%. There is only one reason why Amazon would want you, as an independent author, to cut your wholesale price from (say) $3.50 to $2.10; and that is to enable Amazon to cut its retail price from $5 to $3. It’s already established that the 30% margin is enough for Amazon to break even and follow its well-known business plan. But note: If Amazon cuts the retail price to $3, then your $2.10 is still 70% of retail. So it doesn’t need to reduce your percentage of the retail price; it just needs you to voluntarily reduce the retail price on your own – which means that your income per unit goes down, but it also means that the savings are automatically passed on to the consumer. In other words, when you lower your prices, you are playing Amazon’s game for it. Conclusion: When Amazon wants to reduce ebook prices, it won’t bother cutting that 70% rate. What it will do instead is lower the retail price range for which it offers that rate. Instead of offering it in a window from $2.99 to $9.99, it might do so from $1.99 to $6.99, or even from 99 cents to $2.99. And it will do so when its operations are efficient enough that even 30% of a 99-cent sale is enough to pay the overhead for that transaction. At the moment, Amazon can’t make a profit by selling an ebook at 30 cents above wholesale; so it does not offer the 70% rate on 99-cent books. Credit card fees and other transaction costs, it would appear, add up to more than 30 cents per transaction in that particular line of business. However, the time will probably come when Amazon can make a profit on sales that small; and then it will offer an incentive to authors to price their wares in that range – which means offering the 70% wholesale price on 99-cent books.