The Shatzkin Files


Amazon’s Sunshine Program is another wake-up call for the Big Six

Posted by Mike Shatzkin on June 5, 2011 at 6:44 pm · Under Authors, eBooks, New Models, Supply-Chain


Amazon began a program on June 1 that will apparently run for two weeks. When you go to the Kindle home page, there’s a banner across the top reading “Sunshine Deals, Over 600 Books on Sale for $0.99, $1.99, and $2.99″.

These books are not from the big agency publishers, who set their own prices. Amazon apparently reached out to smaller publishers and worked out deals with them. Amazon could have simply cut these prices themselves, but doing that would require them to take a big margin hit. More likely, the markdown is being shared. (And, in addition, Amazon has plenty of books priced in that band all the time that could simply be featured in this promotion.)

Amazon gains a great price promotion. The publishers in question gain substantial additional visibility for their titles.

Fortunately, there is one entity tracking the impact of price on ebook sales able to tell us: this is having a real impact.

Dan Lubart of iobyte’s “eBook MarketView” blog tracks ebook sales rankings by price band at Amazon. (He tracks it at other retailers too, but, in this case, Amazon is the one that matters.) Dan’s graph tracking the average price of Kindle bestsellers shows a pronounced impact from this promotion.

The average daily price of Kindle bestsellers took a leap on March 1 when Random House moved to agency and a whole slew of bestselling titles could no longer be discounted by Amazon. The Sunshine promotion has very suddenly brought that average bestseller price down to about where it was on March 1!

Dan has another chart showing the distribution of bestsellers among four price bands: up to $2.99, $3-$7.99, $8-$9.99, and $10 and up. Most agency-priced ebooks of titles whose currently available print versions are hardcovers are in the top two price bands. Since the promotion began, the number of bestsellers in the cheapest band has grown from 31 to 47. (He’s charting the top 100, taking out anything that he recognizes as “not a book.”) Half of the increase came out of the top-priced band with the other half distributed between the middle two bands.

In a conversation with Dan about this research, he pointed out that what he’s tracking is ranking, not sales. The movement of titles on and off and up and down on the bestseller list (top 100 rankings) doesn’t tell us anything about unit sales. That’s the piece of the puzzle that the publishers do know (for their own books).

There are a some critical points here, all of which are more important than they are surprising.

1. Amazon can create pricing promotions that will have an immediate and dramatic impact on the ebook bestseller list. (We observed three months ago that publishers might suddenly have a pricing problem with bestseller lists.)

2. Agency publishers are disadvantaged by this fact. The only way they can participate in a price promotion with Amazon is if they lower their agency price across all retailers (which isn’t going to be that exciting to Amazon). On the other hand, publishers on wholesale terms have much more flexibility to “buy into” a promotion (although that flexibility isn’t complete: Robinson-Patman would probably require them to participate in similar promotions with other retailers if other retailers wanted to create them).

3. Since Amazon has demonstrated so clearly that price has a major impact on ebook sales, and since agency publishers can control their prices, it follows that agency publishers need to be experimenting with the impact of price promotion (as self-published authors have already been doing, by the way).

But experimentation only makes sense if you can evaluate the results of what you test. As far as we know, the iobyte database is the only tool that exists right now to help publishers do that. That’s why we’ve started to work with Dan to introduce what he’s doing into the routines and workflows of the major houses.

One observer of Amazon’s new program speculated that it might be a step toward “dynamic pricing”, which is what airlines and hotels use to maximize their revenues for seats and rooms. I’m not sure that forecast makes sense. Airline seats and hotel rooms are limited in number; if you sell one too cheap, you can’t sell it to the next person for more money.

But ebooks are infinitely replicable. The trick for the airlines and hotels is to maximize revenue over a limited — fixed — number of sales. The trick for publishers is to maximize revenues over an unlimited — variable — number of sales. Cutting price to get on a bestseller list that might increase discovery and awareness and maybe generate sales at a newly-raised price is a tactic that almost certainly should be routinely, but not capriciously, employed.

It can’t be a good thing for agency publishers if the only price promoting taking place is with their competitors’ books.

I also discovered looking closely at this promotion that Amazon is not flawless. When I go to the Kindle store on my iPhone and tap on the Sunshine deals, I find lots of agency books listed, which, of course, are not price-promoted. Obviously a mistake — and from my experience a pretty rare one — by the folks at Amazon. (Since I know there are a few readers of The Shatzkin Files in Seattle, perhaps this will be corrected before you have the chance to see it but I first noticed it yesterday — Saturday — and it is still that way as I post much later in the day on Sunday.)

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  • Pturner108

    Well, I sure hope they don't need any more wake-up calls and that brilliant new programs and initiatives are on the cusp of being announced. Yes, I'm a foolish optimist, but largely because I know there are some very, very smart people in those big publishing houses in New York.

    But, the main point here, I think is simple: Amazon is in a different business than publishers. Amazon is trying to acquire customers and publishers are trying to make their quarterly projections. That's pretty tough terrain.

    • /blog Mike Shatzkin

      I detect serious efforts to get ready for price experimentation in some of

      the Big Six houses, but not all. You're right that there are smart people in

      all of them, but you're also right that maintaining the current model (which

      they must do) is very consuming and makes invention difficult.

      Mike

  • http://luzme.com Rachel Willmer

    “As far as we know, the iobyte database is the only tool that exists right now to help publishers do that.”

    Mike, there's also my website http://luzme.com. I've been providing ebook price data commercially for a year now to publishers in the US and the UK. I provide daily database exports for publishers for use with their own analysis. I've also recently announced an API into the database for casual usage.

    Racbel
    [email protected]
    @askluzme

  • http://www.facebook.com/profile.php?id=745395309 Sean Cranbury

    Hi Mike

    The fact that digital files are infinitely replicable and that DRM doesn't work certainly affect the leverage that online retailers have in terms of convincing the public to pay something/anything for the product. Amazon is very good at this but because, as a company, they're essentially digital natives, they have the wisdom and ability to adapt and adjust to the digital terrain.

    BIG 6, not so much. The digital space didn't bend for Film, TV and music industries. It won't bend for books.

    What methods of control for pricing/distribution do book publishers have now? Esp the Big 6? Their Era of Dictation is over.

    Amazon the company, like a certain river of the same name, flows around obstacles. They;ve identified willing partners among small presses and indies? Then why not showcase their works in an agreement that both sides find amicable?

    Big 6 publishers still believe that their bestselling hardcover price is good enough for the digital edition, too? No problem there, either. Amazon and their customer base will just flow right past it to something else.

    The question is: Do the BIG 6 need to care about Amazon ebook sales?

    The reality of dynamic pricing is something that the industry has needed for a long time. On physical books, I mean.

    For ebooks, obviously, the dynamic pricing in many cases will be zero.

    • /blog Mike Shatzkin

      I think there's rampant misuse of the term “dynamic pricing” which I believe

      means *either* charging different prices to different customers (based on

      what you know about the customers) or having pricing change as the

      supply-demand equation changes (such as what airlines and hotels do as their

      seats and rooms become scarcer for any particular flight or night.) It might

      also perhaps pertain to responding to pricing competition when another

      outlet is charging less than you do for something.

      I would agree that we need something other than *static *pricing (setting

      one price that reigns for a very long time).

      There are some inherent problems for the agency publishers with agency

      itself, because it doesn't permit price-promotion by any particular

      retailer. But that doesn't mean that the price can't move. What would happen

      if a major publisher cut the price of a major title to $2.99 for the two

      weeks coinciding with the Sunshine Promotion? That's the question I think

      every big publisher should be asking. And testing.

      And to answer what I believe is a rhetorical question: damn right the

      publishers need to care about Amazon's ebook sales!

      Mike

      • http://www.facebook.com/profile.php?id=745395309 Sean Cranbury

        Rhetorical indeed! Thanks for the response, Mike.

        As a long-time brick and mortar bookseller – I worked for 4 very good book shops that are all now extinct – it always frustrated me that static pricing was universal. Printed right on the cover of the book!

        It really tied the hands of retailers in ways that other media product never did – cds, dvds, almost every other product didn't come with pricing stamped on the product itself.

        I often wonder whether this little aspect of publishing is really quite important in terms of the difficulty that the industry has in terms of adaptation right now.

        This kind of static pricing enforces the classic – and untenable – 40% margin. No brick and mortar business can sustain retail space in urban locations on that model.

        What does a more fluid, adaptive or 'dynamic' pricing model look like? Does it end up looking like the stock market – fluctuating throughout the day?

        Do external events suddenly affect a price? Do keywords in major media stories start to drive placement and price on Amazon?

        For instance, major political figure shot in major foreign capital. As news breaks across twitter and the major outlets pick it up does that send consumers scurrying for more information, reference materials, biographies of the political figure, contextual histories of the place, whatever?

        Does this sudden burst of interest represented by keywords drive book sales – properly meta-tagged by publishers, of course, so as to actually appear in search results! – and how does it affect pricing? Does the price increase or does the price decrease accordingly?

        As the web plays a bigger part in purchasing decisions for both ebooks and pbooks, discoverability becomes a big issue. It's dovetailed in with pricing.

        It's one thing to have your book discovered by a consumer online but it's another thing to convert.

      • /blog Mike Shatzkin

        Sean, we have a different view of the printed price on the book. No retailer

        was *required* to charge that price. If they charged less than that, it was

        clear they were giving their customer a bargain. And it really isn't tenable

        to charge more than that because the consumer would find out soon enough

        that they were ripped off, even if the price were not printed on the book.

        (In the pre-internet days, the publisher would happily sell you the book for

        the printed retail price plus postage and handling.)

        I don't think up-pricing is particularly practical except for items which

        are in short supply. (Like hotel rooms and airline seats might be.)

        There *is *pricing that is dynamic. The Book Depository does *4 million

        price changes a day*! That's probably because Amazon does a similar number.

        They're responding to what they see being charged by competitors (each other

        and others) and how consumers are reacting to the price that is out there.

        So they bring prices down to meet competition or push them back up to gain

        margin if competition backs off.

        Only the very biggest companies with fabulous technology and very large

        volumes of customers can execute on this, I would think. What agency pricing

        does is protect the interests of smaller retailers.

        Mike

      • http://www.facebook.com/profile.php?id=745395309 Sean Cranbury

        Hi Mike,

        Thanks, yes.

        No one is questioning the SRP. I am merely questioning 'printing the price on the cover' and therefore hand-cuffing the retailer.

        If they're not required to charge what the publisher has printed on the cover of the book then why put the price on the cover of the book? Or should retailers cut the corners of new hard covers or black out the pricing on the back with marker?

        Agency Pricing won't protect anyone. The industry has sat idly by since '94 as the smaller retailers were eviscerated by Amazon, their own antiquated business model, and the rise of the web. What protection could publishers possibly offer now?

        Answer: none.

        Take the prices off the covers of the books, let small retailers price according to their knowledge of their own market, either increase the price, lower it, whatever.

        Amazon has already made a mockery of the practice of printing the price on the book cover by using that information against small retailers in terms of leveraged discounts.

        I'm not sure that it's a practice that we need to continue.

        Also: the weird adaptive pricing that I describe will come because the web will push it in that direction – through consumer behavior – not because the industry wants it, IMHO.

      • Amanda Dowdy

        This isn’t relevant to ebook pricing. But Sean mentions the
        idea of taking prices off the covers of books. Yet if you do, you will be
        considered non-compliant with chains.

        As a consumer I like when the price is printed on the back
        of the book. In a print world, how else would I know how much I will spend at
        the cash register? This is, of course, yet another limitation of print books
        and their ability to respond to the market, social issues, and so on.

      • /blog Mike Shatzkin

        Amanda, I think the people who advocate taking the printed prices off the

        books believe the stores will sticker them. That's an expense, and it is one

        reason I'm against the idea. The other is that I think it benefits the

        stores to have the highest possible price (the “list” price) attributed to

        the publisher, not to them. Then any discounting they do will stand out.

        Taking prices off books presumably would allow a store to up-price: to

        charge a premium. I really don't think that would work and I can't see any

        other benefit, real or imagined.

        So, I'm with you: against this idea.

        Mike

      • Chris

        The Book Depository also throws out different prices depending on you IP.

        Ie, geographic/regional pricing.

      • /blog Mike Shatzkin

        Makes sense for many reasons.

        Mike

      • Dan Lubart

        Great post, Sean.

        The demand spikes you describe should absolutely be met by promotional reactions on the part of both publishers and retailers.  When the unrest began in Egypt, B&N promoted a book by an Egyptian author.  Unfortunately, they chose a title that was selling barely a copy a month, so it didn't really do much.  Had they worked with the publisher to identify a better-suited title to promote, perhaps supported by a price drop on the publisher's part, it could have been a much more valuable use of the real estate and the transient value provided by the demand spike.  End result is, more users would have been enticed to purchase a book and more books would have been sold. 

        As to another of your points, I don't believe that eBook pricing needs to fluctuate intra-day, but there are parallels to the financial markets with regard to demand-pricing that I think will be very helpful once we can get them into the ecosystem.  Certainly most titles should be programatically analyzed monthly, if not weekly and repriced based on the best set of rules that publishers and/or their partners can come up with. 
         
        Since markets tend to find their highest efficiency over time,  i imagine we will get there eventually.  I just hope it's sooner rather than later.

  • http://twitter.com/queridapatricia Patricia Arancibia

    Mike, first, Amazon can take a few hits for two weeks and more without dramatically hurting its bottom line in the long or even quarterly run. Second, if you check these ISBNs in competing websites, you'll find them at the same low price that Amazon is offering these weeks. Most contracts establish price parity, as they should to allow a fair market to be.

    One of the main reasons for publishers and booksellers to stick to Agency is to preserve some rationale for profitability in content pricing. Amazon has many sources of profit, books not being the main one. Amazon has pushed for very low prices in eBooks from the start. As a consumer, I can understand the beauty of it. As an industry person and before that as a person who loves many books and wants authors and editors to have an income, I am not sure that $2.99 is such a generous proposition.

    Hug again and be well,
    Patricia

    • /blog Mike Shatzkin

      I am not advocating that the big publishers abandon agency. I'm only trying

      to point out that it requires them to be proactive. Price-promoting works,

      and the publishers have to employ it. But I don't mean they should be

      permanently deep-discounting major authors.

      You're absolutely right that Amazon can do a promotion like this at

      negligible cost from their perspective. The fact that they can have this

      impact on their own bestseller list, which we know affects a large

      percentage of the ebooks old, at such minimal expense actually makes it all

      a bit scarier from everybody else's point of view. Or so I would have

      thought…

      Mike

  • Chris

    I kind of feel the same way as Joe Wikert about the Sunshine Deals. He wrote this in a recent blog post:

    I was prepared to buy quite a few books, saving a ton along the way, but
    I only wound up buying 3.  That's right.  I looked at 650 titles and
    only found 3 worth spending no more than $2.99 on.

    So, yeah, like Joe, for me the prices were great… the content not so.

    • /blog Mike Shatzkin

      You felt that way. Joe felt that way. But then there's that Amazon

      bestseller list data to suggest that not everybody felt that way.

      Mike

      • Chris

        I guess you're right - http://amzn.to/kaZBXr

        Plenty of those titles in the Top 100. They may even sit up there for a week or so.

        Man, Amazon could run something like this every week: 10 Best Thrillers of all time; Hundred Hottest Romances of the Decade; Biographies of People Who Changed The World… etc etc.

      • /blog Mike Shatzkin

        And another aspect of this is it helps Amazon make the case to authors that

        even if their ebook is only available on Kindle, that's viable. Nobody else

        can do that credibly. It could become a real problem for everybody else if

        they corner a chunk of top talent.

        Mike

      • Chris

        The Kindle Singles experiment has probably already encouraged a few big authors to reconsider their future book releases.

        If Amazon begins to offer epub versions then I think it may just be game-over for a lot of online retailers and publishers.

        And once the advances dwindle … .

      • /blog Mike Shatzkin

        Well, ultimately, very much in that direction. But “ultimately” is nothing

        at all like “instantly”.

        The bookstores haven't all closed yet. In fact, they (and the mass

        merchants) still sell most of the books.

        Mike

      • Chris

        Ha!! Define 'Ultimately' or 'Instantly' in today's publishing universe? :)

        We know how the landscape looked 5 years ago… we know how it looks at present… 

        And in another 5 years? 

        All the bookstores still will not have closed but I very much doubt we'll be saying they are selling most of the books. 

        Of course, I'm telling you nothing you don't already know here but… Amazon is 17 years old. Worth $85billion. They're one of the very few cutting edge online dinosaurs. This in itself says something about the company. They created a viable ebook business and changed – almost 'instantly' – the publishing universe. No one is going to truly compete with them. Everyone else is an anchovy in a shark tank.

        I'm not an Amazon fan-boy, but geez, Mike, there's no going back if Konrath and co. can turn their failed titles into hundreds of thousands of bucks from, essentially, a single sales platform.

        Amazon knows their customers, they know how to contact them and push a promo like Sunshine, plus they have their credit card details! This is not even about book publishing anymore … this is all about crunching data. 

      • /blog Mike Shatzkin

        I agree with you about the bookstores. I can't remember if I wrote it yet

        (maybe you do) but I see us in a 10 year transition from when most books

        sold in stores to when most books don't. You're right that most books will

        not be sold in brick stores in five years, in my opinion.

        The question is still what the ebook marketplace will look like. I think

        we'll see some big disruptions in curation and presentation that we haven't

        seen yet. But I agree that Amazon has a big lead and is playing the best

        ball, making them very hard to catch.

        Mike

  • Pturner108

    As a long-time bookseller turned publisher, I agree that up-pricing is “no-go” for print, unless the bookseller can offer some value added feature, which are often hard to scale up and administer (e.g. signed book plates, bundled eBook edition, etc.)

    When it comes to eBooks, I find much of the discussion about dynamic pricing a bit frustrating, frankly. The biggest eBook retailers are not all that concerned with the margins they make on low-priced eBooks–they're either in the “customer acquisition” business, the hardware business, or some combo of the two, with book-selling being a peripheral concern. For the agency publishers, keeping prices up is a necessity, because they're actually in the business of trying to make money selling books. Only a narrow band of their titles will actually make up in volume what they loose in price p/unit. The rest of their eBooks (the vast bulk of their titles) are impacted by the customer's perceived value of eBooks in general (whether these are price influenced titles or not).

    • /blog Mike Shatzkin

      I think your observations about the differential incentives and interests of

      the players are both accurate and important.

      Amazon knows a lot more about setting prices than publishers do. There's no

      doubt about that. But their incentives in price-setting are different. They

      both would have the motivation to set a price where revenues (units times

      price) are as high as possible. But Amazon's other motivation would be to

      have the largest market share; the publishers' second motivation is to

      disperse sales as much as possible across retailers (which is another way of

      saying they want to, as much as they can, *depress* Amazon's dominant market

      share.) Whatever the levels of knowledge, their motivations are not the

      same.

      Mike

  • http://FifthColumnBooks.com Fifth Column Press

    Thanks for the article–very useful–however I do think you may be underestimating the impact this program is also intended to have on the Indie publishers and authors sales whose Kindle eBooks are sourced through the KDP platform and who most certainly have been dominating the Kindle store of late. (Until this 'Sunshine' thingee was launched, that is. And other similar strategies…)

    Fifth Column Press

    • /blog Mike Shatzkin

      You're right. Providing more sales for the self-publishers is definitely a

      plus for Amazon here. They certainly are the first stop for anybody who

      wants to do it themselves and, of course, they'd prefer those publishers

      just don't go any further. Since many of them are apparently getting a huge

      percentage of their sales from Kindle, that's not a silly case to make. This

      strengthens it.

      Mike

      • http://www.amazon.co.uk/The-Company-of-Fellows/dp/B004PLMHYC Dan Holloway

        I think the commenter meant the opposite – that Amazon wants to crush self-publishers' prominence. We are rather irksome for them, and publishers seem singularly bad at handling us by utiliszing the clout they have with Amazon to slash initial prices and pump their position in the algorithms before hitting up the price (as you mention, this should be routine for them, and it shoulkd be enought to crush most of us indies out of the algorithm, but they're not doing it, and we're getting a bigger and bigger foothold as a result). The way US Amazon has clamped down on promotion in the forums has to be taken as an anti-indie sign. As does the lack of access to free pricing for us except by pricing free elsewhere and then reporting our own books for breaching price policy so they price match.

      • /blog Mike Shatzkin

        Dan, I don't follow the indie scene as closely as perhaps I should, but your

        interpretation just doesn't feel right to me. Amazon is not holding hands

        with the big boys; from some perspectives, they're more or less at war

        (except that they still very much need each other.) Amazon seems to sell

        more than their fair share of the indie books and part of their growing

        strength is in the deals they can make for Kindle-only, and none of those

        are with major publishers.

        So I doubt very much that Amazon has an “anti-indie” policy by ideological

        design. In Amazon's case, usually their first allegiance is to the

        purchasing customer and their highest value is to deliver them the lowest

        price, particularly if it is a non-agency title and the lowest price is

        beating competition or forcing it make unprofitable sales.

        Mike

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