E-Book Market 2011: Apple Tightens Its Grip

Interesting news coming out of Cupertino... Apple is getting tougher with apps that sell products outside of Apple's usual 30% cut. Apparently Apple has blocked Sony's e-reader app and mandated that purchases of e-books cannot be sold without giving Apple their cut. Even books you bought outside the App would not be allowed within.

This has massive implications. Kindle has been successful partly because the software is available on all sorts of platforms, and wherever you bought your Kindle book it's available, and bookmarked the same. So if you start reading a book on your Kindle reader, then go to it on your iPhone, it's in the same place. No longer; under Apple's new policy apps can no longer access content purchased outside the App Store.

As you can imagine, there's already widespread concern since this article was published in the New York Times. I can understand Apple's concern, because at its logical extreme this would encourage app makers to funnel in-app purchases to outside places, and Apple would lose what's currently 50% of App Store revenue: the in-app purchase. On the other hand, you can see where Amazon wouldn't want to take an extra 30% hit on ebooks they sell... there goes the profit margin, and then some.

Conceptually there seems to be a difference to me between buying an e-book on Amazon, then wanting to read it on my iPhone or iPad, versus going to an app on my iPhone and buying an ebook there. Though it gets fuzzy when I think about using a Kindle app on my iPhone to buy an ebook... would the user even know where the transaction takes place, or care? Well, Apple and Amazon sure do.

So this struggle is going to be a major one, and it may well affect how ebooks are sold and distributed and read. I'd hate to see ebooks become walled off based on the platform where you purchased them, and I don't think consumers will sit still for that, either. This same policy would also affect things like Sony's plan to bring PSOne games to iOS, for instance; Apple would not allow sales of Sony games within a Sony app unless Apple got a cut, under this policy. Would Sony sit still for that?

This also bears on the magazine/newspaper subscription revenue issue that's still outstanding.

Apple's going to be in the middle of some interesting discussions. I hope this ultimately plays out to the benefit of the customers. Apple may have to make its simple 70/30 split structure a little more complicated to accommodate reality and customer needs.

UPDATE: Apple has responded, to clarify that content purchased elsewhere is OK as long as it is also available through an in-app purchase (where Apple can get its cut). If the app developer doesn’t want to use Apple’s in-app purchases to sell content, then the app can’t access content purchased elsewhere either. I don't think this solves the problem, and no doubt the discussions will continue.

E-book Market Predictions 2011

The e-book market is finally arriving in a big way. Amazon hasn't released sales figures for the Kindle, but they have admitted that it's their best-selling product ever. Even beating out Harry Potter... and Kindles are a tad more expensive. Barnes & Noble reports the Nook is their bestselling product ever. Meanwhile, Borders edges closer to bankruptcy. Here's some relevant info:

Forrester Research expects U.S. e-book sales to total $2.8 billion in 2015, up from nearly $1 billion in 2010. The research firm projects the number of e-readers and tablets in the U.S. will soar from more than 15 million in 2010 to nearly 60 million in 2015.

And I think those numbers are conservative.

• Regular book sales drop, e-books continue explosive growth. There's an easy prediction for you. I might as well start off with a no-brainer. B&N is selling more digital books online than physical books. With physical bookstores going out of business, it's clear which way the trends are going. Physical books will tend to be more for certain types of books (like coffee-table books), and popular fiction will inevitably for the e-book.
• E-book readers hit $99 or less. This is already happening, but expect it from the market leaders (I'm looking at you, Kindle) with a resulting jump in sales. When the e-reader is less than 3 or 4 hardback books, it's harder to resist. When publishers finally get smarter and lower e-book prices more, sales will jump even further. If they don't, authors will step in. Lower prices are inevitable in a friction-free distribution network; publishers should get ahead of the trend instead of being rolled over by it. Sadly, very few if any will.
• Explosive growth in the tablet market contributes to e-book sales growth. Tablets are eating into dedicated e-reader market share, too. The Kindle has a 47% share, down 15 points, while the iPad has a 32% share, up 16 points. The Nook and Sony's E-reader are hanging in around 5%, though I expect the Nook's numbers to improve. It looks like the iPad sold about 13 million units in 2010; Apple is expected to at least double, and maybe triple that number in 2011.
• More companies spring up offering a la carte services to authors; big publishers lose some big names to self-publishing. These two things are related, of course. The easier it gets for authors to publish their e-books themselves, the more authors will do it.
• Magazines finally crack the e-reader market in a big way as Apple makes it easy to buy subs. This one is dependent on Apple and magazine publishers reaching some sort of agreement on revenue splits. Publishers don't want to give up 30% of their sub fees to Apple, and Apple doesn't really want to go to the extra effort of negotiating with everybody. I'm hopeful Apple will do something to really help magazines out, but I fear they won't. Eventually magazines will be viewed on tablets, but getting to that point will be difficult for the businesses. Current iPad versions of magazines are individually priced and difficult for the magazines to produce well, since they take different skill sets. I foresee many magazines having trouble until subscriptions to tablet versions become easy, and magazines get more adept at crafting them. Maybe Google will add this capability to Android before Apple gets around to it; if so, a big win for Android. Hey, Google, if you really want to make an inroad on the iPad's market share, cut a deal with textbook publishers before Apple does.
• Android tablet version finally appears; Android tablets boom; e-book sales zoom faster. It may happen late in 2011, but it will happen. The opportunity is huge and Google won't pass it up. Prices will drop as competition roars. Maybe we'll even see a two-page tablet at a reasonable price.
• Apple introduces iPad 2, drops iPad prices, sales zoom. Yeah, it's inevitable. People are so focused on the new iPad that they forget what Apple does with old technology... they drop the price. So even more iBookstores will open up.

All in all, it will be a great year for e-book authors. The only downside is that marketing e-books will get tougher due to the increased numbers of titles. Authors will need to make sure they've done their marketing properly. Persistence is a key virtue; if you don't do something correctly at first, figure it out, fix it and continue.

Finding E-Books

As a corollary to my last post on finding digital products, I thought I'd talk about the problems of finding e-books. It's a related issue that's of concern to many authors, especially new ones. How will readers find my books? Fortunately, the tools for finding books have been refined much more than for finding games. Amazon has developed some great software behind the scenes that helps you find books you might be interested in, knowing what you've already purchased.

The problem with Amazon's tools, for instance, from the author's standpoint is that this is a black box. You don't know how Amazon figures this out, and there's no clear way to influence it. You don't know who will find out about your book, or how many of them. So it's not really something you should worry about. It just is, and hopefully it will be of some help.

Authors do face something of a conundrum. For the most part, they don't want to be marketers, or to become marketers. It's hard enough being a writer, and the time you spend marketing your book is time you could be spending writing another book. Yet you see books become bestsellers that you know aren't particularly well-written... so you figure it must be marketing, and if only you could add some of that magic pixie dust maybe your book would be touted by Oprah, too.

If only it was that easy... but there is a middle ground. Setting up a Facebook page for yourself as Author is pretty simple, and an easy way to get started. You'll have to spend some regular time adding to it, though, to make it work for you. Social media like Facebook and Twitter only help if you (or someone working for you) is using them to be social. (Authors may want to enlist a friend or big fan to help... but you have to monitor that to be sure you're getting the kind of help you want.)

Authors who make friends with other authors can cross-promote, if their fan bases are at all similar. The experiment that Draculas conducted was interesting and worked well on a number of levels.

I'm making notes towards a book to help authors market themselves. I think it's most important for authors to know how to get maximum marketing impact for the minimum time and effort. Authors should be spending time writing more books, and making sure they are the best they can be. A good series of quality books is a terrific marketing tool all by itself. Besides, they make money. Dean Wesley Smith, an author who blogs about such things, believes writers should write and spend a minimal amount of time marketing. I agree; if you don't enjoy marketing, don't really understand what it is you should be doing with it, then do enough to cover the basics and get back to writing. You might try to buy some marketing services and see if it brings in enough extra revenue to pay for itself. Otherwise, get back to turning out some books you can sell, and hone your craft.

E-Book Pricing Excites Discussion

E-book pricing is a hot issue among authors and publishers, because prices are all over the map. New York publishers would like you to pay somewhere between $7.99 and $15.99 for an e-book, the difference being in how new it is or how much in demand it is. Joe Konrath, a midlist mystery/horror writer, prices his e-books at $2.99. Who's right?

Many discussion revolve around "value", as in the proper value of an e-book should reflect the author's time and skill level. I think the more practical way to look at it is "How much will a customer pay for it?" Some publishers (and authors) think the pricing should be related to the length of an e-book. That certainly seems reasonable; the price I pay for a short story should be less than I pay for a long novel. But what should those prices be?

I don't think there is an easy answer. Some of the authors weighing in on the question feel the same way. Some take issue with the idea that their books should be $2.99, and argue for a higher price point. Author Dean Wesley Smith lays out a price structure that puts long novels at a higher price point of $4.99 to $5.99. One thing they all seem to agree on is that there isn't enough hard data to really answer the question of pricing.

A few things seem pretty obvious to me. New York publishers have their offices in Manhattan to pay for, an extensive staff, all sorts of expenses... while authors putting their own e-books online don't have to worry about those things. So prices those New York publishers choose for their e-books are rooted in their past, and their current situations... and should not be taken as gospel for an independent author.

Another good point is that a low price won't rescue a bad novel. The first thing an author has to do is make sure their work is good, because pricing and marketing won't transform it into a hit. Especially since, as barriers to entry lower, we're going to be seeing a lot more writing coming onto the market.

I think the most important thing about e-book (and other digital product) pricing is that you can easily experiment with pricing. There's no need to price-protect retailers, somehow notify all retail channels about the price change, make stickers to put over the price that's printed on the covers... you just change the price online. And change it back after a week and see if the sales have changed. Then see if it's made a difference after a month, or two. If you only sold 10 more copies by lowering the price $1, and you normally sell 100 copies, lowering the price doesn't help you enough. If you suddenly sold 500 more copies by lowering the price $1, then you should probably stick to the lower price point.

You can hold sales for any reason, and make the time period brief or long. The data you get will be invaluable. Especially because your data may not transfer to some other author. I would guess that Stephen King could charge more for a novel than I could because of his enormous brand value. But even King might want to have at least one book at a low price point in order to attract new readers.

The e-book market is still developing and changing, so don't look for a hard and fast answer on pricing. Look at the data; look at the deal you can land; take your best guess. Then, if you have control over pricing, experiment. See what works best for you. Don't just pick a price and never change it, because then you'll never know whether you were right or wrong.

E-Book Marketing Success Story

Yesterday the new e-book Draculas was released on Amazon, and the results of the marketing campaign they conducted are in. I interviewed one of the four authors in this post about their marketing efforts, and now we can see the results after one day. It's a smash hit, reaching #76 on the Paid Kindle bestseller list in one day, with over 120 reviews already posted. They've already sold over 800 copies at $2.99, which puts them in the black given their $1300 upfront costs (which includes formatting, cover art, interior art, the website, and some ads on Kindleboards and Kindle Nation). Everything from now on is gravy... and since they never have to worry about printing, the book will stay in print and keep generating revenue.

One of the authors, J.A. Konrath, details the marketing campaign they conducted in this post on his blog. I'd like to add some of my own comments about their marketing efforts.

First off, the level of success they've had does depend to some extent on their previous success as novelists. They have a fan base, or rather four fan bases. By collaborating on this book and on its marketing, they've successfully cross-marketed to all four fan bases, which not only helps the sales of this book but should have a nice boost to each author's e-book sales going forward. Point: Look to ways to expand whatever your current market is by tapping into another existing customer base.

Second Point: They mustered the power of bloggers among their fan base by getting them to post reviews. All they had to pay was a free copy of the e-book; they gave away 260 copies. Now, with a traditional book you'd have the expense of printing those copies and mailing them, and the time delay... with an e-book, costs were next to nothing. Did they lose 260 sales? Perhaps... and they've certainly gained far more than that in the added publicity and exposure for the novel.

Third Point: They didn't add in a cost for their time to do all of this marketing. I think they'd say it really didn't take that much time for them, but let's say it was some opportunity cost (meaning they could have been writing other novels) to them; perhaps as much as $10,000. Still, that should be made up in a few months of sales... and this should keep selling month after month, and the authors expect at least 1,000 units per month. Granted, Amazon takes 30% off the top. But you add together enough of those little revenue streams and you have a pretty nice living.

Fourth Point: The price is $2.99, which is far lower than traditional publishers charge... but it makes it an impulse buy for readers, and since you have no physical costs to cover, you still have a great margin. I think most e-books (particularly fiction) are overpriced; they could generate more revenue by pricing them lower. But there's no way to know for sure unless you try, and most publishers are afraid to try lest they damage sales of the physical books. If you're not a publisher of physical books, why not give it a go? You can always raise the price back up if it doesn't boost sales enough. Finding the sweet spot on digital pricing means finding the pricing that maximizes your profits, whether that's $100 or $1. What should matter is the size of the check you put into the bank, not the price on the product.

All without having to go through a New York publisher.

Ladies and gentlemen, the e-book era has officially arrived. You can make good money off of e-books without ever having to deal with the old infrastructure. I put the first e-book into a retail store, in Acrobat Reader 1.0 format, on a floppy disk about 15 years ago. It's taken a lot longer than I expected, but it's finally arrived as a viable format.

Now I have to get busy and write some books...

DRACULAS Reviewed

I'm doing something a little different on my blog today; I'm reviewing an upcoming ebook, DRACULAS. Why? As part of a marketing effort by the ebook's authors they have pre-released the book to blog authors who agreed to review the book on their blog or web site. Plus, I've interviewed one of the authors about their marketing efforts for the book. One further note: I got into this by reading J.A. Konrath's blog (on the blogroll to the right); he's one of the authors under his pen-name of Jack Kilborn.

DRACULAS
By  Blake Crouch, Jack Kilborn, Jeff Strand, and F. Paul Wilson

Teaser chapters available here; full novel available here  for $2.99 on October 19th. For more information about the book see www.draculasthebook.com.

If you're looking for a leisurely voyage into a world where vampires fall in love with young women, you'd better turn right around and head back inside. Maybe you should lock the door... there are dangerous things out here. Things that run ravening through a rural hospital and tear your expectations to shreds, right before they latch on to your throat and start to drink the rich red nectar. Oh, yeah, it's like that.

DRACULAS takes off running after just a step, and never lets up. The story takes place almost entirely within and around a hospital. Vampirisim turns out to be easily communicable, and it doesn't take long for someone to turn, so the problem escalates rapidly. The authors have chosen a fast-acting plague to create a fast action novel, and the characters are quickly sketched but memorable. Even the bad guys are given the chance to develop some interesting twists and turns.

There's plenty of graphic violence, and some horrific puns, and some choice movie references by the film buffs trapped in the hospital. If you like movie references, this will, in fact, make your day. The writing is well-honed; you barely feel the needle when it slides under your skin, until the punchline finds a nerve. I found it hard to believe that four different authors worked on this, since their styles meshed so well. It did feel at times as if there was some one-upsmanship going on, as I would find some gruesome scene where I thought "Wow, that's just nasty!" and then I'd find something even nastier in the next scene. The closest analogy I can give you is the recent film Machete, where there was some amazing action scenes that I just didn't expect, but thoroughly enjoyed.

Let's be clear: There are disturbing images in this novel that will haunt you for some time to come. The clown, oh my god, the clown... I didn't know I could laugh while grimacing in horror. If you like action, and horror, and a fast-paced novel with some twisted scenes you've never before encountered, this is the place for you.

Marketing DRACULAS

I asked some questions of Blake Crouch, one of the authors of DRACULAS, about their marketing efforts for the ebook.

What are the three most important marketing efforts for Draculas?

First, the grass roots pre-publication review campaign we initiated. We’ve had 260 people confirm advance reviews.  If 70% - 80% come through, we will consider this a rousing success.

Additionally, we are placing targeting advertising on KindleBoards and KindleNation.

Finally, we’re all sending out newsletters on the release date to our fan bases.

Are you able to track the effectiveness of different marketing efforts? If so, how?

We’ll only be able to directly track the review prong of the campaign. Of course, where DRACULAS debuts in the Kindle Store, and how long it stays there will be the ultimate test.

Do you expect Draculas to perform as well as other ebooks from any of the four authors? Better? Worse? Why?

Hard to say. We are pushing harder from a marketing and publicity standpoint than we ever have. We think the title, the premise, and the execution could make this a hot book, coupled with the strategic near-Halloween release date. Potential drawbacks…will people be enthused for a 4-way collaboration, and will the violence in this book be a drawback for some?

How much time, between all of you, do you expect to put in on marketing Draculas?

We have invested about two weeks toward marketing and promotion.

I'll be interested to see how their promotional efforts pay off for them. I suspect it will have been well worth the two weeks of effort in terms of additional sales. Combining the existing fan bases should prove very useful not only for this novel, but for cross-promoting other novels. Authors who can seek out their author friends and cross-promote are probably going to get some good results for not a lot of effort.

Of course, it all starts with having a good product. An interesting aspect here is that because it's an ebook, they were able to put in a lot of extra material: An interview with the authors, short stories, excerpts from novels, bibliographies and biographies, and an extensive look into the creative process via hundreds of emails the authors exchanged. All of this adds to the value, and at $2.99 it brings me back to the casual book-buying days of my youth.

Among other things for marketers to note about this: They have a well-designed cover; they've established a web site just for the book; it's being published on multiple platforms; and they've gotten some additional promotion through this effort to get pre-release copies into the hands of bloggers like me.

I think it will be a happy Halloween for the authors of DRACULAS.

UPDATE: The marketing is a success... read about it in this post.

Ebooks Rising

Amazon has announced a milestone... ebooks are now outselling hardcover books. And not by just a little; about 50% more, and the gap is widening. This curve is following Peterson's Law of Technology Adoption: It always takes longer to actually get into the market than predicted, and if it's compelling it always gets adopted faster than predicted. (I have to work on a pithier formulation...) Ebooks are following this law (watch for electric vehicles to do the same thing).

If you're not already pursuing an ebook strategy, you must have been living under a rock for the last decade. As technology continues to evolve, your strategy has to evolve, too. New formats (like epub) demand new tools, and new devices with different aspect ratios really should be supported by different layouts. (Devising a new layout for different devices, and a workflow process for making multiple variations easy to produce, would be useful if you have a lot of books.)

Everyone with a smartphone has an ebook reader in their pocket. The iPad is selling swiftly, and there is a wave of Android tablets coming that are likely to add millions of new ebook platforms in the next year. Not to mention (as the article above does) that Kindle sales have zoomed since the price cut, and many new ebook readers have been introduced (and prices continue to drop). We'll probably see dedicated ebook readers at $99 this Christmas... and with millions of ebooks available (many of them free!), content is not an issue.

The wave is building; time to paddle faster in order to catch it!

E-Books Rising

Looks like the e-book revolution is happening swiftly. Simon & Schuster is reporting that while overall sales are down 6 per cent, digital sales grew 233%. That is, from $3 million to $12 million in the first quarter of 2010. Digital sales now represent 7.9% of total S&S revenue. At that sort of growth rate, it won't take very long before digital sales are the majority of S&S sales. While S&S didn't say, I'd bet that digital sales represent an even greater share of S&S profits.

The interesting part to note is this is occurring before truly widespread acceptance of e-readers, and while e-book pricing is still based on print book prices. And while S&S, along with other old-line publishers, still would like to pull the covers over their heads and hope the nasty e-book monster disappears.

Sorry, while pulling the covers up may have worked when you were a kid, it is not effective against real-world monsters.

Fixing E-Book Readers

This is a great post on what's wrong with current e-book readers and how to fix them. We're still in the early days of the e-book business, despite the fact that e-books have been available for over decade. (I was the first, as far as I know, to sell e-books in retail stores... on floppy disks... in Acrobat 1.0. Ah, the good old days.) The iPad offers many possibilities for interesting books; check out the features of Alice in Wonderland, where you can interact with the illustrations in various ways. But there's still lot that can be done, and part of it will come from the tools available on the various platforms.

I'd like to see easy ways to annotate the books... it'd be nice to have a stylus to scribble notes in the virtual margins. Easy font and formatting changes are helpful, and we're already beginning to see those. But the area that's still really lagging is in marketing tools.

One of the things that helps the book industry is the ability to autograph a book. An autographed book instantly becomes more valuable, and a treasured possession. The prospect of getting books autographed drives people to bookstores where an author is speaking, and helps create more buzz about an author and the book. Sadly, this is all lost with an e-book. Can we get a technological fix, please? Some way for an author to attach a digital file, customizable, to an e-book?

Another marketing tool is the pass-along... when you lend a book to a friend. The Nook is trying that, albeit in a limited fashion. Let's see some more experiments along this line, too. How about letting someone resell their e-book to a friend? Maybe they could recoup some of their investment in the e-book price... though you have to figure out some reason why they don't just give away the digital file. (But the chance to earn some money from it might slow that down...)

So let's see some marketing features added, along with other features. Hello, Amazon? Better make that next Kindle pretty darn cool...

More on E-Book Pricing

The New York Times has talked to some unnamed book publishers, who must have been getting the impression that customers don't exactly believe that e-books should cost $15. This article lists the logic of these unnamed publishers in pricing e-books at that level. Fundamentally, they point to their overhead that needs to be paid for, production costs of e-books being the same as for regular books, and how, well, even if they do make a bit more on e-books it's because they need to keep the poor bookstore chains alive, so they price e-books high to keep from selling too many of them which would reduce the sale of paper books and send bookstores into oblivion.

There are so many things wrong with this logic it's hard to figure out where to start. Let's look at one unspoken assumption first: Their logic assumes that each e-book sold means one less physical book sold. If you only ever addressed your marketing to people who already buy your books, I still don't think this would be entirely true. There have been no studies on this subject that I'm aware of. Mike Stackpole address the issue in this essay on his blog.

The fundamental logic of e-books is that you have eliminated many expenses: printing, warehousing, shipping, returns, lost sales from being out of stock, and the extra margins given to distributors and retailers. All you're left with are transaction costs (getting less all the time, and generally around 3%), the overall cost of your operations (which can, as Mike points out, be conducted nearly anywhere, and most of anywhere is cheaper than New York City), your production costs (graphics, art, typesetting), and the cost of paying the author. Oh, yes, and of course any marketing costs you may have, such as web sites, PR, book tours, advertising... and all of those costs you should be spending in proportion to what you think you're going to sell of the book.

This all means that with an e-book, you can experiment much more with pricing to find if lower pricing actually generates more total profit for you. If your fixed costs for the book are less than $1, then the important thing is not whether you charge $2 or $20 for the e-book... the important thing is the total revenue you take in and the net profit you're left with. Usually the author costs are variable, being a royalty based on the selling price. If you as publisher or author get $10,000, do you really care if it was from the sale of 1000 books that earned you $10 apiece, or 10,000 books that earned you $1 apiece?

The only part you should really care about is whether you could have generated a bigger pile of cash by pricing the e-book differently, or by spending more or less on marketing (and how you chose to market). This is the sort of thing each publisher should learn through experimentation. Trying to set prices with your gut, and then spending time preaching to the customers about how you know what's best for them and the world, is a recipe for failure. You'd think the example of the music industry should have been sufficiently instructive... but it appears the publishing business is planning on similar head-in-the-sand mistakes. Small publishers should avoid this.