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.