Kindle MatchBook: Amazon has the power

Kindle MatchBook: Amazon has the power

Amazon recently announced an upcoming program called Kindle MatchBook. Customers will be able to get an e-book copy of a p-book (paperbook) they previously purchased from Amazon (back to 1995) for a reduced price…sometimes for free.

When I wrote about it, I looked to anticipate some complaints that people would have.

I underestimated one…I should know better than to think I’ve plumbed the depths of people’s ability to complain on the internet. 😉

I said people would say this:

“Why isn’t XYZ book part of the program?”

[My response]: It’s going to take a while to get this going…there are agreements to make, and features (like X-Ray, which gives you information about the book) to add.

Well, I read right away in the Kindle forums that people thought this wouldn’t include books from the Big 5 (Big 6 at the time of a lot of these purchases, before the recent merger of Penguin and Random House) USA trade publishers.

After all, those publishers commonly don’t enable lending for their books, and they are the ones that sometimes (but diminishingly, I think) block text-to-speech access.

Let’s start out with the fact that we already know Big 5 books will be part of the deal.

Amazon shows some titles on the Kindle MatchBook page linked above.

They include several books from HarperCollins, one of the Big 5.

So, the basic premise of the complaint is invalid…but hey, that’s never stopped anybody from complaining before. 🙂

I, however, also jumped to a mistaken conclusion…which I will correct now.

When I wrote about “agreements being made”, I was picturing Amazon getting publishers to choose to put their books into this program.

You know what? Amazon doesn’t need their permission.

This is a rare case where Amazon really does have the power. Typically, when Amazon goes up against the publishers, they lose…text-to-speech, the Agency Model (the latter needed the Department of Justice to intervene).

That’s not going to happen here.

There are no additional uses covered under copyright being proposed here.

It’s just a sale.

With the end of the Agency Model (and maybe Amazon waited to announce this until they had new agreements with Penguin and Random House), Amazon can discount all of the Big 5’s books.

That’s all this is: discounts.

Let’s say that a given e-book normally has a digital list price of $9.99, and Amazon normally sells it for $7.99. Amazon probably paid the traditional publisher something like $5 in that case (it might be $7, but let’s go with the traditional 50%).

Amazon could choose to sell that book to somebody for $2.99, and take a $2.01 loss on that sale.

Would they do that?

Sure, if they thought it would inspire other sales. That’s part of what the publishers were so mad about when Amazon made many New York Times bestsellers $9.99. Amazon was often losing money on each sale, even though the publisher got the same amount for the book as if Amazon had sold it for full price.

Amazon was  driving  down consumer price perceptions about what a book is worth. The publishers thought customers might start thinking $25 for a hardback was too high if you could buy an e-book for $9.99…and that low price was possible if Amazon was willing to lose money on that sale.

As a former brick-and-mortar bookstore manager, I can tell you that you have to think in terms of populations of sales, not individual transactions. We could lose money on a TV Guide sale, if it meant we made money on other books the customer bought at the same time.

Consumers often, reasonably, only think of it as one sale at a time…what am I, as the customer, paying?

Amazon could do the same thing here. They could offer every single book in Kindle MatchBook right now, no deals needed.

However, Amazon doesn’t want to lose money…despite what some investors may think. 😉

Ideally, they can make these Kindle MatchBook offerings and still make money on them…in addition to cementing customer relations like few programs before.

How could they do that?

If the publishers take less money for Kindle MatchBook sales.

Basically, the publisher would agree that the price of the e-book is less if the customer bought the p-book from Amazon, and their wholesale payment would be based on that.

Amazon doesn’t need that price-lowering to do this, but it’s better for the e-tailer if they get it.

So, my guess is that what is happening is that Amazon will not put traditional publishers’ books into the program unless the publishers agree to lower payments.

It’s Amazon’s choice whether a book is available for Kindle MatchBook, not the publishers.

HarperCollins tends to be pretty consumer forward in their policies (leaving out the weird thing they did with e-books for public libraries). They didn’t block text-to-speech access, for example. I’m not surprised they would have agreed to this earlier than some others who tend to be more drag-foot about these kinds of innovations.

Why can’t the publishers simply do this themselves, and maybe charge $3.99 instead of $2.99?

Simple…they don’t know which customers bought their books in paper.

When you buy a book from a retailer (online or in a brick-and-mortar), the publisher isn’t told that you, as an individual, bought it.

They don’t know who you are…but Amazon does.

Nobody would want to just offer this discount to everybody, regardless of whether or not they bought the p-book. That’s just lowering the price across the board, and not using a special discount to influence future shopping behavior (which is what makes discounting work).

Amazon has the data needed to make this program work. Amazon can discount the books without the publishers’ permission…they could even discount an e-book that is from a different publisher than the p-book (say, an Open Road e-book of a p-book published by Random House). However, they would rather have the publisher give them a better wholesale price when they do it.

My guess is that publishers generally want to be in this program. I think customers will make buying decisions on whether or not they get this…I also think it will draw people away from Barnes & Noble and Kobo. Those two would have a tough time matching it, especially if they lost money. Remember, Amazon can make money on “diapers and windshield wipers” (as like to say) when you are their customer. B&N and Kobo just aren’t diversified enough in their offerings to use that strategy.

Yes, it’s possible that bundling costs publishers some money in the future. Will customers buy p-books as gifts, and that way get the e-books for themselves as a reduced price? Sure, that’s possible.

However, if it shifts that people don’t want to buy the books at all unless they get this bundle, being in the bundling business is almost necessary.

Looking at the future, I wouldn’t want to be the only Big 5 publisher not in this deal…authors might not want to go with me if I wasn’t part of it, customers might opt against my books even if they don’t know one publisher from another.

Well played, Amazon!  Leveraging your data to give you an advantage…and for once, having the power over the publishers.

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