Patent suggests Amazon could create used e-book market

Patent suggests Amazon could create used e-book market

Yow!

This

Amazon patent

shows to me what could clearly and in a practical sense create a market for used e-books, eliminating one of the few remaining “deficiencies” compared to p-books (paperbooks), and allowing Amazon to make a considerable segment of readers into very, very loyal customers.

First, let me briefly address why we don’t already have the right to sell used e-books.

You can sell a used p-book that you bought thanks to something called the “First Sale Doctrine”. It goes back to a landmark 1908 U.S. Supreme Court ruling. Basically what happened was that a publisher had sold the books to a retailer (that’s how it works with paperbooks) and had included a notice that it could not be sold to the public below a certain price. The retailer discounted it below that price. That started a legal battle, and the Supreme Court (and I’m simplifying here) basically said that copyright did not extend to control over the actual physical copies that were sold.

That’s why, when you buy a copy of a p-book, you can resell it, burn it, use it to level your pool table, without the publisher’s permission.

With e-books, it’s different. You don’t get a physical copy, you buy a license. You own the license just as much as you owned the p-book copy…but you agree to certain conditions when you buy it.

One of those conditions has usually been that it is a non-transferable license: you can’t sell the license to someone else.

That has meant no used e-book market, for the most part.

However, this patent suggests something that Amazon could do that would change that…and which, I think, might be embraced by readers, publishers, and authors.

The key thing about the First Sale Doctrine is that you can do it without getting permission.

Publishers could grant you permission to sell copies of your e-books after you download them…that’s basically what they do with Amazon, right? They let Amazon distribute copies to people (who pay Amazon), and Amazon compensates them.

Amazon could make that all work under this patent.

Here’s how I see it going:

When you “bought a book” in the Kindle store, it would allow it to be sold (or given away) again a certain number of times…let’s say two.

The first person pays ten dollars for it, and it can be sold two more times.

That person can sell it, recouping some of the cost of purchase (which is what a lot of people do with p-books…they sell them to used bookstores, or at a garage sale, just for two possibilities).

When they do that with a p-book, the publisher gets no more compensation (and downstream, neither does the author).

Instead, Amazon requires that on the first “used” sale”, the initial owner has to send a certain amount of the money from the sale back to the publisher (who will give some of it to the author as a royalty).

That’s crazy, right?

How would Pat Purchaser be able to send the money to the right place without a lot of hassle?

Simple.

The sale takes place at Amazon, and Amazon handles that part of it!

I believe Amazon could even set the price for the used sale (and the subsequent used sales) and people would go for it.

Each subsequent sale of the book would require a lower amount of payment to the publisher (oh, and Amazon takes a cut in some way for handling all of this, of course).

Why?

That would be the deal agreed to by the publisher, and they would have worked out diminishing royalties for the author with each subsequent sale.

Remember that, right now, with p-books they get nothing.

The first purchaser wins because they can resell it and get back part of the cost of purchase.

The second purchaser wins because they get it for a lower price than they would get for it new (although their resale price is also reduced).

The publisher wins because they get some money for the secondary sale, which they wouldn’t have gotten otherwise.

The author wins because they get multiple royalties on the same book.

Who would say no to this?

Well, I remember thinking the same thing with text-to-speech on the Kindle 2. :) I was really surprised that publishers and authors would fight Amazon making a book more accessible to a wider market at no cost to them.

Their argument then, to some extent, was that the text-to-speech would cannibalize audiobook sales.

One could argue that the availability of lower-priced used sales would cannibalize the new sale market.

I think it would generally much more than compensate for the amount of that which would happen, though.

Okay, back to the example:

Buyer 1 pays $10 for it. Let’s say that Amazon gets $5 of that, and the publisher gets $5 of it. The publisher pays the author, say, $1 of it (these aren’t realistic numbers, but I want to keep the math simple).

Buyer 2 is allowed to resell it through Amazon…but on the second sale, the publisher gets $4 of that, and Amazon gets $1. The author, who got 20% of the publisher’s income the first time gets, oh, 15 percent of it this time (sixty cents). I could, by the way, see the author’s royalty percentage stay steady or even go up with subsequent sales. Secondary sales cost the publisher less (they don’t have to do the whole marketing thing, and they can amortize the cost of production), so might be seen as more valuable.

Let’s say the sale price of that first resale is $7. $5 of that goes to Amazon to distribute, so Purchaser 1 got $2 from the resale. That makes Purchaser 1′s effective price for the book $8.

Purchaser 2 saved $2 on the book (so far).

The publisher has gotten $9 for the book, instead of $5.

The author has gotten $1.60, instead of sixty.

Amazon has gotten $6, instead of $5.

Everybody is winning, right?

Now, Purchaser 2 resales the book.

This time, the deal is that the publisher gets $2 of it, and Amazon still gets their $1 (that stays constant, in my scenario…it’s more of a processing fee than a royalty).

The author gets a royalty: let’s say it stays at 15% for all secondary sales. That’s thirty more cents.

Purchaser 2 sells it for $5.

Purchaser 3 saved $5 over the original new price.

The publisher has made $5+$4+$2, or $11 instead of $5.

The author has gotten $1+$0.60+$0.30, or $1.90 instead of $1.

Amazon has gotten $5+$1+$1, or $7 instead of $5.

Purchaser 2 paid an effective $2 for the book.

Is Purchaser 3 going to sell it?

Maybe.

However, it’s been around for a while now…the market isn’t as strong for it.  Maybe what happens is that Purchaser 3 gives it to a friend…but that uses up a resale. Getting nothing means that there is no amount to go back to the publisher, but the book can also not be resold again.

I really think this is a viable model.

The patent would allow, I think, for Amazon not to be the processor of the secondary sales…but they sure could be!

What might happen on this is that independent publishers would lead the way in the acceptance of it (which is what has happened with Amazon’s peer-to-peer book lending). I think, though, that people might embrace this so strongly that the big tradpubs (traditional publishers) would follow suit.

This could cause e-book prices to go down, because they have these secondary revenue streams. However, I don’t think that would necessarily happen. If you are, as a customer, going to pay an effective $2 for the book, why do you care if it’s originally priced at $10 or $3? Higher resale allowances could even drive up the price, but my intuition is that it wouldn’t have much of an impact.

It could have a big effect on p-book prices, though. Even though Amazon could hypothetically set up something similar for p-books, there would be two major problems with it. One is that First Sale Doctrine, which could derail it. The second is the added costs in shipping p-books to a customer, back to Amazon, to another customer, back to Amazon, and so on. You also just can’t track p-books well enough.

P-books might become much less desirable, at least for new purchases.

I want to credit Wired for this article by Marcus Wohlsen

Amazon Wants to Get Into the Used E-Book Business — Or Bury It

even though I think that headline misunderstands the possibilities.

I found it through my morning Flipboard read, and that’s how I was alerted to the patent.

What do you think? Could this work? Would people be too concerned about Amazon tracking and controlling these secondary sales to use it? Would it cut down on piracy by making more lower cost books available? Would you want to be the first purchaser so you could read the book first, or would you want to get it later for a lower price? Feel free to let me and my readers know what you think by commenting on this post.

This post by Bufo Calvin originally appeared in the I Love My Kindle blog.

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8 Responses to “Patent suggests Amazon could create used e-book market”

  1. Lady Galaxy Says:

    I like the idea of being able to give books to friends. The only times I can see selling books are for those books that I bought because I liked the sample then grew disillusioned as I got further into the book. I also wonder what kind of an effect this policy would have on book reviews. The current book review process is already on the unreliable side. Would people write more positive reviews for books they were planning to sell even if they didn’t like them?

    • Bufo Calvin Says:

      Thanks for writing, Lady!

      Hmm…would people be Machiavellian enough to give something a good review when they didn’t like it in order to up the demand for a used copy? I suppose that is possible, especially if the reselling customer set the price. I’m not sure they’d allow competitive pricing, but they might.

  2. Deanna Says:

    I find your article very balanced. I have quite a few author friends and they are up in arms about it, threatening to pull all their books from Amazon, never selling via the Kindle again (they are really spiting themselves there since about 90% of their sales are through Amazon!) just because they seem to think that Amazon is out to control (possibly?) the book market and monopolize everything.

    They also seem to mistake the difference between return and re-sell. They seem to think that the purchaser would “return” the book after they have read it and get their money back and then Amazon would sell it. That doesn’t make any sense to me, since it’s a digital copy anyway. They don’t seem to grasp the concept of a re-sell where the purchaser still “owns” the book and then sells it to another party at a lower price compared to what he / she paid for it and thus transferring the rights of the book to the new buyer, hence, the purchaser no longer having the rights to the book and the book transfers to the used buyer’s library.

    I really think that the authors who are opposed to this concept are not thinking the implications through and just reacting. Plus, it’s really early days yet, so I think we need to wait and see how Amazon decides to actually execute this.

    I actually really like the idea and concept. Of course, the proof is in the execution of it. I’d really like to see it happen particularly where they are books that I have purchased for $12.99 or more and have read (will not re-read) and happy to sell off to another person who wants to read the book for a lower price.

    I like your thought of Amazon even potentially setting prices. I would make sense to say – if it’s a first used sale, then it would be discounted say, 25%, and then possibly another 25% off the first used sale price, and so on.

    • Bufo Calvin Says:

      Thanks for writing, Deanna!

      Unfortunately, your friends’ concern is a great example of where a bit more knowledge could have given perspective.

      People can already “return” Kindle store books…and the author then gets nothing for the book, even though the person may have read it front to back.

      As a consumer, that’s always been one of the great things about the Kindle store (and a strong differentiator between Amazon on the one hand, and Barnes & Noble and Sony on the other).

      Within seven days of purchase, a Kindle store user can “return” the book for a full refund. They can even do it themselves (without having to talk to an Amazon rep) by going to

      http://www.amazon.com/manageyourkindle

      That’s part of why we don’t see our royalties instantly through Kindle Direct Publishing.

      Let’s say someone buys the book on January 10th. While we are told about the sale when we check the sales statistics, we don’t receive money for it until April or so.

      If the person buys the book on January 10th and returns it on January 15th, it will show as both a purchase and a return, and we’ll get no money for it when the royalty payment eventually happens.

      It sometimes occurs that the purchase is in one accounting period and the return in another. If you didn’t have enough sales in the second pay period to cover the returns, I believe you could actually owe Amazon money that month…but that’s very unlikely.

      This new patent, and the potential program I outlined, would greatly reduce the risk of returns as they exist in the current state. If somebody didn’t like the book now, they could return it and the author would get nothing. If they didn’t like it under the other program, they might choose to resell it instead of returning it. Yes, they would get less money that way, but there would be some possible drivers.

      I think most people want to be fair. If they read the book, but just didn’t like it, they might still want the author to get a royalty. By reselling it, the author still would…two royalties, under my system.

      You’ve expressed the difference between re-sell and return well.

      Is it scary that Amazon is such a power in publishing? Sure, I can see people being concerned. That’s not an illogical risk aversion feeling. Let’s say you’ve put all…er, 90% in your example, of your eggs in one basket. Now, somebody says, “Let me move your eggs to a better basket.” A lot of people would say “no”, simply being afraid of what could happen during transfer…and being able to live with the status quo, they don’t want to risk it.

      One always has to weigh the risks and benefits, of course. Maybe the new basket actually is a lot safer, and you end up with more eggs. ;)

  3. Supreme Court rules in First Sale Doctrine case | I Love My Kindle Says:

    [...] I do not think the decision makes it more likely that we’ll be able to re-sell e-books (although there are other things that may make that possible…see Patent suggests Amazon could create used e-book market. [...]

  4. Judge rules against ReDigi, making Amazon used e-books more likely | I Love My Kindle Says:

    [...] key thing for me is that the potential for using Amazon’s patent, which I wrote about in early February, to create a used e-book market, is strengthened by this [...]

  5. Future features #1 | I Love My Kindle Says:

    […] Patent suggests Amazon could create used e-book market […]

  6. Amazon gives numbers: it’s about prices, not share | I Love My Kindle Says:

    […] have bought the new book at the full price…but it’s a reasonable argument. Amazon has worked on creating a used e-book market, but that would presumably be a case were the publisher would get a cut of subsequent […]

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