Why Amazon May End Up Unglued

I was surprised by the number of people interested in my short post about Amazon’s treatment of the unglued book Oral Literature in Africa. Last weekend I was in France and decided to check the price of the book on Amazon from there. It was listed at $2.31. Yes, the price was shown in dollars, despite my IP address, which clearly tells Amazon I’m visiting from France. Not sure what’s up with that, but I also see the price in dollars from Switzerland. That seems odd, since apparently Amazon has now set the Kindle edition to free in the US, so the only reason to display a price to me at all is if I won’t be buying it in dollars. Besides, Amazon doesn’t seem to let me buy items from the US store with a non-US credit card anymore, but that’s another story.

I was also surprised by some of the comments on the story I read both here and elsewhere. A good number of people came to Amazon’s defense in charging for the eBook even though the publisher wants to offer it for free. While it might be that people’s values have been shaped by beliefs in the virtues of business, prompting them to defend the exercise of capitalism in the face of free cultural movements, I suspect there may also be other factors at work here.

There was a fairly high click-through rate on the Unglue.it link I placed in the article. Since Unglue.it is relatively new, many people who are interested in this debate may not yet be aware of the underlying concept. For those just joining now, Unglue.it has launched a platform for creating campaigns to “free” books into the public domain. They work with rights holders to establish how much it will cost to license an eBook for free distribution. They call this “ungluing.” Then they raise money to unglue the book through crowd funding.

The first eBook that was unglued in this way was Oral Literature in Africa by Ruth Finnegan. It’s available for free download from the Open Book Publishers site, Unglue.it, Google Play and even the iBookstore, but until customers started reporting (via Amazon’s “tell us about a lower price” button) that the book was free at other sites, Amazon refused to let the publisher set the price to zero. Indeed, the lowest price Amazon lets a publisher choose is $0.99 (see Amazon List Price Requirements).

People don’t always stop and think about the distinction between the publisher and the retailer. Some people defending Amazon seemed to do so on the understanding that “someone has to do the work to prepare the eBook for delivery,” and whoever does so has a legitimate case for wanting to recover these costs and even make a profit in order to continue doing so for other books in the future. What these folks missed is that in this case Open Book Publishers did the work in question, and they’re the ones who’d like to make the work available for free.

Another argument defends Amazon’s policy against free books by citing hosting and download charges. There’s some merit to that argument, but the costs in question are far smaller than people probably imagine. Looking into the details led me to a passionate debate I’d missed on another subject: Amazon’s reporting and payments to self-publishers.

It seems Amazon’s much talked about publishing contract that lets authors keep 70% of revenues has a lesser known hitch: to cover mobile data costs, Amazon charges authors a fee for each eBook download, reducing the author’s take by an amount that depends on the size of the eBook file.

Again, that might seem reasonable on the face of it. After all, Amazon is paying the carrier costs when users download books via 3G or 4G networks. It doesn’t seem unjustified to ask authors to foot some of the bill, and Amazon charges a fifteen cents per megabyte download fee. Again, this seems to make sense because obviously, the larger the file, the higher the download cost, but this is where things start to get interesting.

Adding “free” wireless connectivity for Kindle was a genius move on Amazon’s part when the Kindle was first introduced since it made impulse purchase and instant gratification possible. Kindle owners were buying more books than ever before. Who realized this would be at the expense of author’s royalties? Worse, because all models since Kindle 3 come with WiFi, it doesn’t actually cost Amazon anything when the download happens on WiFi. You’d be forgiven for thinking that Amazon could tell what type of Internet connection was being used by the application and apply the charge only when the download happens over 3G. This could all be done in software on both the client and server and would cost them virtually nothing to keep track of, except the lost revenue from the download fee, of course. Amazon doesn’t seem to do that though, which means that in many cases the author or rights holder is subsidizing a cost that Amazon may not actually incur.

Amazon’s defenders might argue there’s another option for publishers, Amazon will cover the download fees when the rights holder takes only 35% of the revenues. In this case no one reimburses Amazon for the download fee, so couldn’t one be forgiven for thinking it’s not a sin to pass it along to customers by requiring a non-zero eBook price? Well, no. The argument about charging only when used still applies.

To make it clear: if you are connecting via WiFi they pay nothing; you pay for the network costs, yet they still charge a download fee. Yes, it’s true that the first generation Kindles didn’t support WiFi, but all models since Kindle 3 do. Previous generation Kindles are able to load books downloaded from computer via USB. Would it be too much trouble to ask users whether they want to download an eBook for free on WiFi/USB or pay a download fee?

Coming back to Oral Literature in Africa, the eBook has a number of photos and a map showing the locations of peoples discussed, so the file is 9.3MB, which is quite a bit larger than the typical eBook. Amazon charges authors a $0.15/MB download fee (in the 70% revenue share model) so this works out to $1.40. However, Open Book Publishers doesn’t pay the fee (so we can assume they’ve chosen a different revenue-sharing option). According to Eric Helman the lowest price Amazon lets them chose for the book is $1.99. If the download actually costs Amazon $.02 per MB (75th percentile public rate from iGR U.S. Mobile Data Pricing Survey, page 4) the cost would be $0.19. (Calculation: 9.3Mb Mobi file * $0.02/Mb = $0.19). This is far less than the minimum price Amazon allows publishers to set, and less than the price I saw in France. Lest anyone protest that the US mobile data rate I used is irrelevant for download pricing in France, I was not able to find equally clear pricing data for France, so let me just point out that if the rate is as high as €0.10 per MB (BEREC Report On Mobile Broadband Prices, Sept 2012 and Tariffs For Orange M2M Packages, July 2012), which is almost inconceivable, then the download cost would be €0.93 or $1.23 at current exchange rates.

As a customer, given the choice of a $1.99 download fee, would you still choose to use the wireless option? In any case it’s irrelevant because Amazon doesn’t give you the choice. Where you should be able to get a free book to download over a WiFi connection you already probably pay for, they’ll try to charge you a fee unless enough customers alert them that other sellers offer the book for free.

This sounds like mobile carriers who fleeced customers for years on excessive fees for SMS messages. Once people realized this and alternatives appeared, unlimited SMS packages became more commonplace, but not until opinion had already turned against the operators for abusive pricing methods.

So we’ve established that except for promotions Amazon doesn’t want publishers to give books away for free in the Amazon store, even if they’ve been unglued. Furthermore, Amazon is charging “fees” for expenses they may not actually have, which is a misrepresentation at best. Still, I’m sure some people will remain unconvinced. Afterall, Amazon is trying to be a business and rumor has it that they need to start making money.

One way Amazon hopes to make money is with the Amazon Prime subscription service. For a monthly fee, in addition to free shipping on physical merchandise, US subscribers get access to a large streaming media catalog including film and TV shows and one free eBook a month through the Kindle Owners Lending Library. Perhaps Amazon doesn’t want too many free items in its catalog so that Prime subscribers feel like they’re getting a good value by purchasing access to items they’d otherwise have to pay for individually. In any case, while that’s not a good excuse anywhere, it’s certainly not a good excuse in Europe where Amazon Prime doesn’t include free access to digital media.

Besides the fact that it’s just the right thing to do, there are some other reasons Amazon should let publishers set prices to zero for Oral Literature in Africa and other books like it.

1. Other stores don’t have this restriction. I downloaded the book for free from the Swiss iBookstore, and it’s also free on Google Play. People generally feel cheated when they find out they’ve paid for something that should have been free (or is freely available elsewhere). This situation may create bad will toward Amazon.

2. Every time customers go to another store you risk losing them for future business. People shop around, and frequently they hear about books from friends, acquaintance and teachers. When customers learn that Amazon charges for books they can get for free at other stores (and they will), then they will check other stores first with the risk that Amazon will then lose these customers for some (or all) of their business. Offering a free book to keep a customer and reinforce the impression that Amazon has the most competitive offer just makes good business sense. In this case, it seems especially relevant since the demographic likely to be interested in Oral Literature in Africa will probably be savvy and accustomed to shopping around.

3. Recommendations. Even if customers don’t pay for the book, the fact that they are interested lets Amazon use that data to offer something related for purchase.

4. Advertising. Offering free books instead of having people go to other sites to get them (see point 2) lets Amazon construct customer profiles that are ever more detailed and complete. Amazon has been developing a sophisticated advertising business for the last several years and is in a very special position that allows them to match customer profiles based on past purchases (and downloads) with available inventory on an extensive array of partner sites. This lucrative offer could command a premium for ad revenues, so Amazon probably shouldn’t fret the lost $1.99.

Of course Amazon would like to have both advertising and sales revenues. They probably just wish Unglue.it would go away. The model of freeing eBooks to the world once they’ve achieved a certain revenue is certainly not the future envisioned by Amazon. However Amazon won’t get to choose. If customers become accustomed to the concept of ungluing, Amazon will ultimately have to accommodate it too.

Further reading:

Amazon Charges Kindle eBook Delivery Fees & Other Non-News Stories
Amazon’s Diminishing Discounts
Amazon Prime now $7.99 per month or $79 for the year
Amazon Breaks Silence on Ad Ambitions in Advertising Week Foray
Look Out, Google—’Amazon Is Already Doing More Than $1 Billion In Ad Revenue’

Previously here:

Amazon Really Doesn’t Like Free eBooks

This entry was posted in Amazon, eBooks and tagged , . Bookmark the permalink.

3 Responses to Why Amazon May End Up Unglued

  1. mikecane says:

    There are thousands and thousands and thousands of free Kindle books every day. Just see:

    http://hundredzeros.com
    http://kindlenationdaily.com/kindle-nation-daily-free-and-bargain-book-listings/

    Never mind the Twitter accounts that tweet them every day.

  2. Jason Lee says:

    GREAT POST! Your insight here is a prime example of a industry that is growing so fast it’s overlooked some fundamental basics.

    One big question many people are asking is, “Will there be free Kindles from Amazon offered in concert with Prime Memberships.”

    Lots of insiders expect this in 2013. I have linked your article here as additional reading on future trends and we’d love to get your comment on whether you expect to see this.

    The article is titled, ‘Free Kindles from Amazon in 2013? – ‘A Discussion about the future of Amazon ebooks’ at: http://ebookhowto.org/free-kindles-from-amazon-in-2013-a-discussion-about-the-future-of-amazon-ebooks/ – Chime in if you get a moment.

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