Value to the Reader: Part 1 of The Business of Books

Chameleon Publishing just conducted the first of three market validation surveys: the Writer Survey. We are going to analyze and respond to the first 111 responses. Approximately 55 percent of the responses are from working writers who earn more than $5,000 a year from their writing, and half have published more than five books. The survey is still open if you’d like to respond.

In this series of articles about the business of books, we’re going to use some terms that are very familiar in many industries, but which are generally unfamiliar in the book publishing industry. The first term is value.

Writers may understand value best through the words of another writer: Oscar Wilde. “A cynic,” Wilde said, “is a man who knows the price of everything but the value of nothing.”

Ursula LeGuin and the Amazon BS Machine

On June 1, author and Book View Cafe member Ursula K. LeGuin wrote about the impact that Amazon has had upon the book industry on the Book View Cafe blog. Her objections to what she termed “The Amazon BS [best-seller] Machine” are well-founded; they are all based in her correct observations of the declining value of books and value provided to customers (readers) in today’s commercial marketplace. We’re not talking about sales or cash value, we’re talking about real value. LeGuin’s “only quarrel with Amazon is when it comes to how they market books and how they use their success in marketing to control not only bookselling, but book publication: what we write and what we read.” She’s absolutely correct. This is real, it’s true, and objectively, one may map and track “bestsellers” over recent quarters, and find that they fit her observations very well. With every passing quarter, books are becoming ever-more short-term, quick-sell, media-oriented, derivative, and niche audience-oriented. Per-title sales averages continue to decline, from extremely low in the case of self-published books to — despite the herculean efforts of large trade publishers — the frontlist titles they release each month. Amazon’s total book sales represent about 7 percent of its overall revenue, or $5.25 billion in 2013, according to Forbes writer Jeff Bercovici and New Yorker writer George Packer (whose overview of Amazon’s history and role is enlightening reading). Pulling down Amazon’s 2014 year end report shows a little bit different picture. They report approximately $10.5 billion in “media” sales and total “product” sales of $70.01 billion, along with $18.9 billion in “service” revenue. Their cost of “technology and content” (let’s lump the films, music, etc. in because they do) is $9.3 billion. Let’s just say their true cost of goods sold isn’t anything like what they report to their shareholders. They are a multinational retailer and service provider. WalMart is beating their pants off with net sales of $473 billion worldwide (not equivalent to Amazon’s gross sales of $88 billion — the “product” and “service” categories together).

The Role of Amazon’s Algorithms

At the 1995 Book Expo America, Amazon CEO Jeff Bezos told a competitor that Amazon, then identified in a large banner as “Earth’s Biggest Bookstore,” that his company

“intended to sell books as a way of gathering data on affluent, educated shoppers.”

Amazon’s algorithms are highly sophisticated and ever-evolving. They use big data to track purchases and they present products to readers based on purchase and browsing history. The Amazon customer review system seeks to deliver some measure of value to customers in the form of the 5-star rating system and reader reviews. Much like Yelp reviews can “make or break” a restaurant, reader reviews can “make or break” a book. Even with this powerful combination, it’s all about selling. The difference between the powerful information that is collected and its relationship in the value stream to the end customer can be seen in the relative failure of Amazon’s own direct publishing program.

It doesn’t take a rocket scientist or social scientist to get today’s situation in light of what has not changed about Amazon over the past 20 years. The 7 percent book segment of their business still is a way to gather data about “affluent, educated shoppers.” Amazon is WalMart for this group. They want to win in all their market segments and their emphasis is on price and selling.

Amazon understands the value to its business portion of what it does as a dominant, key e-commerce platform. It continues to misunderstand product value to its customer in nearly all divisions of its business.

Another tidbit from Packer’s New Yorker article details the experiences of Amazon employee #55, cultural critic James Marcus:

According to Marcus, Amazon executives considered publishing people “antediluvian losers with rotary phones and inventory systems designed in 1968 and warehouses full of crap.” Publishers kept no data on customers, making their bets on books a matter of instinct rather than metrics. They were full of inefficiences, starting with overpriced Manhattan offices. There was “a general feeling that the New York publishing business was just this cloistered, Gilded Age antique just barely getting by in a sort of Colonial Williamsburg of commerce, but when Amazon waded into this they would show publishing how it was done . . .”

The rotary phones are gone and thousands have been laid off. Eighteen years later, they (publishers) still keep no data on customers, and still make their bets on books a matter of instinct rather than metrics. We have yet to find any industry information in any trade publication, including international associations, that focuses on value to the customer (reader) or makes any attempt to analyze and measure value delivery resulting from the process of making and delivering the product (books).

About the Amazon-Hachette Battle and/or Golden Corral for Books

Packer’s article details the history of Amazon’s relations with suppliers, including early efforts to pressure smaller, weaker publishers to raise their discounts to ruinous levels (60 percent or higher). This strategy escalated over time to the Hachette-Amazon battle over the $9.99 e-book price point. One former Amazon employee told Packer, “If customers grew used to paying just a few dollars for an e-book, how long before publishers would have to slash the cover price of all their titles?” Today, this is seen in the Kindle Unlimited program (All-U-Can-Read for One Low Monthly Price or Golden Corral for Books) and the self-publishing explosion. No negotiation is required with the self-published on Amazon’s part: they have limitless “content” to sell for free and a locked-in customer base that have bought Kindles, or who live too far from a local bookstore to shop and buy printed books in-person.

Amazon Sees Itself as Totally Customer-Centric

For a retailer — it is. According to another former Amazon employee, “Jeff [Bezos] is trying to create a machine that assumes the shape of public demand.” The employee characterized Bezos as a “Shmoo” from Al Capp’s cartoons.

But the critical mistake that Amazon has made is one that is now being experienced by big businesses in many other sectors. It’s a retailer trying to become its own supplier and is more onerous with its vendors and less-interested in basic customer needs or corporate social responsibility (i.e. not being complete and total bastards to the point everyone notices) than even the much-maligned WalMart. Also, it’s entire business model is about giving the customer what they want based on previously-shown interests, which in the case of books, are themselves, based on what they chose out of goods produced . . .

See above: “Publishers kept no data on customers . . . making their bets on books as a matter of instinct, not metrics.”

Amazon as Retailer — Not Manufacturer

Amazon is doing great right now as a retailer. But it has little, to no, ability to make things on its own and sell them effectively other than its retail and consumer services. Its own publishing program is akin to grocery private label programs — but it’s not doing well in terms of product value or sales. The Kindle Fire Phone has, by all accounts, been a failure. The Kindle itself has a fatal flaw that ease of delivery and affordable pricing will find difficult to overcome: its rigidity and lack of adoption of EPUB3 standards. The “customer” served by both devices is primarily Amazon itself by locking customers in to schemes akin to cell phone “free” or low-cost devices and long-term, monthly contracts. These devices were designed and developed to deliver value to the overall business. The choice to use the rigid Mobi and current KF8 e-book standards can only be seen as ones made by a business that values its profits over the customer’s needs and genuine value.

Fundamental Lack of Understanding of Books as a Product and Readers as Customers

If I had a dollar for every article I’ve read making an assertion similar to George Packer’s in the New Yorker article on the history and influence of Amazon, Chameleon would be fully-funded:

Whatever the temporary fluctuations in publishers’ profits, the long-term outlook is discouraging. This is partly because Americans don’t read as many books as they used to — they are too busy doing other things with their devices — but also because of the relentless downward pressure on prices that Amazon enforces.

Packer told the New Yorker’s significant readership something that is untrue. The long-term outlook is anything but “discouraging.” Packer isn’t a business writer. He’s a staff writer for the publication since 2003 and has covered mostly world conflicts and cultural matters. He therefore naturally makes the same assumption, unchecked, as did most of the respondents to our writer market survey. Well over 70 percent of those who responded thought the reason more people didn’t regularly buy and read books was competition from other media: “they are too busy doing other things with their devices.” This is in the same article that noted that e-books had leveled off at about 30 percent of book sales (an overstatement — e-books don’t really have 30 percent of the book market even today and have leveled off, largely due to reasons detailed above — the vendors, led by Amazon, have zero focus on delivering satisfying product in a timely manner delivering real value to the reader).

Back to Basics: What the Book Market Really Is

Currently, about 20 percent of North American adults, or 70 million people, regularly buy and read books. They are about 54% female, and 46% male. Of female readers, the majority are ages 44–55, have at least some college education, and incomes over $50,000 a year. The majority of male regular readers also fit in this age demographic, and have incomes over $80,000 a year. To this group and the much larger group of occasional readers, more than 1 billion books were sold in 2014.

Worldwide, the book market is valued at $150 billion. Video games, movies and entertainment do not reduce the book market. Neither do they, strictly, compete in the way that most publishers think and apparently just about every single person who isn’t an independent bookstore owner, teacher, librarian or caring parent. Amazon’s own experience, building its business based on data acquired from its initial and ongoing customer base (and struggles to keep and grow its “other media” content sales) show this fact. The more people who become genuinely literate and recognize the value inherent in books, the more the market grows. Because it is foundational. Books are to the mind and human learning, growth and communication as real food is to the human body.

It is this market which the New Yorker’s Packer described as “small and weak.” To compare, the global toy industry was valued at $80 billion in 2013. The global shoe industry was valued at $190 billion. Nobody, particularly not industry experts, go around writing dozens of reports and articles saying that “children don’t play with toys any longer” or “nobody wears shoes any more.” The global beverage industry is indeed, about ten times the size of the publishing industry. It is fiercely competitive and rocked by changes in all sectors, many related to increased awareness of health concerns, such as high-fructose corn syrup being bad for you and flavored, easy-to-drink alcoholic beverages.

Out of the entire population (more than 380 million in the U.S. and Canada), nearly 100 percent are literate — i.e. they are able to read and are potential book buying and reading customers. Everyone who uses a mobile device, some 280 million North Americans as of 2015, reads to some extent.

From the New Yorker‘s George Packer to Digital Book World to Publishers Weekly, which just tweeted its amazement and thanks to young readers at the BEA, which “touched” them with their love for books and reading, there is an “I don’t get it” factor five thousand miles wide that only Pew, which doesn’t make or sell anything, seems to perceive.

Oh. And us.

As to the commonly-heard phrase, “Young people don’t read any longer,” Pew has put paid to this over and over.

Without question, these high rates of regular readership are attributable to our schools, our teachers, and our librarians. And to the lasting value, importance and fundamental nature of books.

Reading rates were not 100 percent in the past. There was no “golden age” when “everyone read books,” now devolved to a time where the majority sit slack-jawed, staring at their smartphones and drooling over Instagram snaps of Dan Bilzerian, his cars, guns and b***ches.

For the highest-readership group in the U.S. today, African-Americans, the numbers were reversed in 1870. For reasons we all know, almost 80 percent of black Americans couldn’t read 145 years ago.

The type of thinking that goes on regarding books — the type of writing — the type of reporting, the almost-constant drumbeat that “books are dead” and “no one reads any longer” — it’s almost like today’s version of the anti-reading and writing laws passed by southern states prior to the Civil War that prohibited anyone from teaching a slave to read or write with severe penalties.

Only 13 percent of those who responded to our writer survey thought that it would be possible that everyone who could read could be a potential book buyer and reader.

Until we actively began to solicit responses from indy-published writers, there was only one “yes” answer under this category (me).

In 2013, Digital Book World and Writers Digest surveyed almost 5,000 writers, including aspiring, self-published, traditionally-published and “hybrid” authors. All of Book View Cafe authors fit in the “hybrid” category, defined as writers who are traditionally published and also self-publish their work. Book View Cafe books are sold directly through the Book View Cafe store (DRM-free), and members also sell the books individually via online vendors.

Social scientist Dana Beth Weinberg analyzed the DBW/WD survey results in a series of articles, concluding, “The hybrid authors surveyed were good enough to break into traditional publishing due on average to some greater talent or marketability that also translates well into the world of self-publishing.”

This is a huge leap based on basic questions about numbers of books published, earnings, and aspirations.

From the 2014 survey, which included nearly twice the number of respondents, results showed that the majority preferred traditional publishing, likely a result of diminishing sales via self-publishing routes.

This survey asked respondents what was the most important thing they hoped to achieve in publishing their book. The majority, 60%, said “to produce a book that people will buy.”

And that — is a start.

As to our writer survey, the overwhelming majority, almost 90 percent, said that they had written a book they thought a large number (we defined this as 50,000 or more) people would enjoy buying and reading.

As to whether or not this belief had translated into reality — the answers were different.

Our next posts will be about marketing and book production with value to the reader in mind.

Not “selling.” Marketing. Not price. Value. Books are more important, more essential, than athletic shoes or soft drinks or alcoholic beverages. Everyone who can read is a potential book-buyer and reader.

The primary reason more people who can read do not regularly buy and read books is they are not presented with books they’d enjoy or want to read in market channels to which they’d respond. Library use is up, by the way, and continues to rise among younger and more diverse audiences. Millennials are quickest to say that the information they need is less-likely to be found on the internet than it is … in the library.

Ursula LeGuin said of Amazon’s impact on book publishing, “Agribusiness and the food packagers sell us sweetened fat to live on, so we come to think that’s what food is. Amazon uses the BS Machine to sell us sweetened fat to live on, so we begin to think that’s what literature is.”

Food is still in the process of changing but it proves that change can and will occur.

In 2000, there were only six organic, grass-fed beef producers in North America. Today, there are more than 2,000. In 1980, when Whole Foods Market was founded by John Mackey, there were only 6 organic, natural food grocers in the U.S. Today, Whole Foods is a $14.9 billion annual business and the fastest-growing company in its sector worldwide. Retail sales of organic food topped $83 billion in 2012 in North America. Natural/organic foods occupy at least 15 percent of retail store space in traditional grocers in the U.S., up from minimal shelf space only ten years ago.

As to “the food packagers” and purveyors, McDonalds’ profits were down 21 percent 4th quarter 2014, sales down 9 percent worldwide — CEO Don Thompson resigned January 2015. Much like WalMart, everyone keys on McDonalds as the biggest industry player in fast food. Yum Brands, which owns KFC, Taco Bell and Pizza Hut, took a 68% percent hit in sales in 2013 after a serious Chinese health scandal, and is only showing modest profits in 2014 because of “restructuring” — i.e. closing stores and laying off people.

You read articles here every day that are focused on tech, equipment, platforms and the expected. Thirty-five years ago, nobody had heard of “kombucha” and no one thought organic, grass-fed beef or “free-range chickens” would ever be seen again. Thirty-five years from now, this person who’s drinking out of the hose on the loading platform at the store thinks people will be laughing at the system that thought 50 Shades of Grey was the type of book the waning readership wanted and the only way to get someone to buy and read a book was to out-shock, out-gamify and hoodwink the customer.

Originally published at on June 5, 2015.

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