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Amazon’s Cheapskate Marketing Plan

Libraryland was abuzz last week with the news that Amazon will partner with Overdrive to allow Kindle ebook lending. This is such exciting news that I might have to start using public libraries again. I can get any print book through my university library, but Overdrive seems to be available only at public libraries, which are the only libraries willing to spend money on frivolous books of no lasting interest.

This deal with help libraries can continue their important mission to provide middle class Americans with leisure reading.

Some librarians have long wondered why Amazon hasn’t marketed Kindle books to libraries. Supposedly, one earnest librarian has claimed, public libraries are a huge market and Amazon is foolish to overlook them.

That’s perhaps not supported by the facts. The latest figures are hard to come by, but in 2008 public libraries collectively spent about $1.38 billion on collections (see table 23a on p. 118). Of that, 11.3% was spent on electronic materials, and 69% on print materials.

Last year, $11.6 billion worth of books were sold. With these figures, if public libraries bought nothing but books, they would still account for less than 10% of the book market. At most, libraries might start spending half a billion dollars on ebooks as formats shift, which would account for 4% of the book market.

And how much of library budgets would ever go specifically for Kindle ebooks? A generous estimate might be $250 million. Amazon made $32 billion in net sales in 2010. Granted, Amazon sells a lot more than books, but they’re making good money on their own. Why go through the hassle of dealing with libraries for such an insignificant amount of money?

Yet now they have, since Overdrive has already gone to the hassle of dealing with libraries. Publishers are always concerned that libraries will destroy book sales. Amazon probably isn’t that worried, because they’re considerably more diversified than traditional book publishers. If Kindle ebook sales start to plummet, Amazon will probably pull out of the deal anyway.

Amazon is possibly thinking this move could expand their market and sales. Here’s one scenario. Kindle ebooks become widely available in libraries. More people decide to buy Kindles or use the Kindle apps because the books are so popular.

Readers look for Kindle ebooks from their libraries and discover that everything they want is checked out with a long waiting list. Amazon pushes an advertisement to them that for a low price, they can just buy the book themselves.

Maybe they can even offer a discount. The library has already licensed a copy for the full price, so any other sale made through the library would be a sale that probably wouldn’t have been made otherwise. Thus, Amazon lowers the price, say, to $3 for a book that might ordinarily be $10-20. It’s not like there’s a physical item being sold. It’s just a license for an ebook that otherwise wouldn’t have been purchased at all.

They could put a limit on the number of ebooks they would sell to any one person, so that people don’t just start looking for books in their library and buying them for the discount price. There could be just enough ebooks to hook the consumers, then they would start charging the full price. Publishers might even like this.

Call it Amazon’s Cheapskate Marketing Plan. It’s a way for them to sell Kindle ebooks to people who like to read but are too cheap  to buy their own books. Amazon can make it almost irresistible to just buy the book and get people who hadn’t thought about buying a Kindle before used to the process.

Even if something like this doesn’t come about, Amazon will be using libraries to market their ebooks to consumers, and all the data they gather from those consumers will help them sell even more books. When they start putting ads in Kindle books, it’ll help other companies sell stuff, too.

Or better yet, Amazon will use the data to determine if becoming a lending library is a viable business plan. They set up a Netflix like service. For a certain price every month, readers can download a set number of books and keep them indefinitely. $10/month gets you two books at a time, $20 gets you five.

Publishers love it, because it’s a guaranteed revenue stream. They can even publish more daring books instead of shrinking the market to potential bestsellers.

This could actually be the future of publishing, and it would drive libraries out of the book business entirely.

In return, libraries will get  to hand over more money for the time being for content they won’t own to provide artificially limited access to ebooks that will just get cheaper and easier to acquire otherwise as time goes by. Everyone wins!

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Comments

  1. “Everyone wins?” How do libraries win in that scenario?

  2. A key aspect of this development is that libraries were totally out of the loop. It’s another by-product of our fragmented national library ecosystem — even if Amazon had been inclined to engage the library community, what person or organization could they have contacted for a productive dialogue? Does this absence of strong library leadership and organization make OverDrive the defacto library representative in the digital content realm?

  3. bob says:

    I understand Amazon taking this route initially for the market research, but why would they even bother with a Netflix like service in the end?

    It’s simple: you can check out any book from Amazon to your Kindle, one at a time. If you end up buying it you get a discount. Simple. Amazon, through it’s subsidized 3G, becomes the one stop shop for popular reading.

    The only need for a Netflix like plan will be for people who need more than one book at a time. People like those who currently use University libraries…

  4. Spekkio says:

    “…but Overdrive seems to be available only at public libraries….”

    Not so.

    http://pitt.lib.overdrive.com/
    (Just as one example.)

  5. Rima says:

    I believe “Everyone wins” was intended as sarcasm – or snark, as the syllabically-challenged say.

  6. Fat Guy says:

    I dunno…this whole scenario presumes there is no ceiling on the popularity or impact of e-reading, a presumption I don’t think has much support. E-readers seem like all the rage now, but are really only appealing to a niche market of experimenting semi-techies. It’s still a different experience of reading than a book, and I’m failing to see how they can close the gap with print. They represent an alternative to print books, but as of yet, only that–an alternative. It’s still hard, at least for me, to see how they replace print. I wouldn’t start leading the bonfires yet, AL.

  7. olly says:

    How do you commenters not detect the heavy sarcasm in the last paragraph and throughout the piece?

    This is an astute analysis. The only real benefit for libraries is, as the AL observed, further feeding the young & middle-aged, middle class leisure reading market. It is irrelevant to researchers, (most) elderly people, and poor patrons, and people who don’t have or don’t use ereaders.

    The benefit for Amazon is, as the AL also observed, is expanding their market and increasing potential for sales. Most e-reader services are about only sales, & Amazon et al. will release only what sells–cf. libraries, who (should) collect primarily based on what will be useful in pursuing education. IOW the two do not really have corresponding purposes.

    Even if the netflix model may expand the list of titles ereader manufacturers provide access to, the choices they make will still be based on market analysis, not collecting for the purposes of education.

  8. Libraryman says:

    @ Fat guy:
    I thought the same thing about e-readers….until I tried them. It’s more than a fad. It may not replace all books, but it will be the primary format for popular fiction I suspect.

  9. Skeptic says:

    the primary format for popular fiction will be as it is now – mass market paperback.

  10. ElderLibrarian says:

    oily-There are some pretty savvy, educated elders out there who have no trouble with Nooks, Kindles, etc. But you are right about there being a money problem. I’ve mentioned before that I do get requests for my library to buy mass market paperbacks, so for some, spending for a Nook or Kindle is out of the question. Plus for Overdrive, the user needs a computer to download it first, if I remember rightly- yet another expense. I have a Kindle and can buy good nonfiction if I choose. I agree that serious researchers will be using printed works for a long time as the most used research tool with some datbases (based on printed sources, don’t forget!) or Internet sites used as well.