Adding up Kindle Unlimited

When it comes to numbers Amazon seems to prefer communicating like it was using Snapchat. Every now and again it will send you a flash of something interesting that disappears a few moments after it was revealed.

Two months ago, Amazon launched its eBook subscription service Kindle Unlimited (KU) in the US. The move itself was widely expected, and was extended to the UK today. This felt like an obvious move for a company that already understands subscription well thanks to Prime and had experimented with delivering eBooks through this model with the Kindle Owners Lending Library (KOLL). It also felt like the right move strategically given that other eBook subscription services (Scribd, Oyster, etc) had been attracting a lot of VC funding (by publishing standards anyway). A subscription service had started to feel like a necessary part of Amazon’s competitive armoury.

Until that moment, eBook subscription had operated like a black box. The main providers preferred to talk about their business as ‘growing’ and when pressed for numbers talked about inventory rather than users. It all felt a bit coy, especially given that these services had very searching questions to answer as to why a reader should want to sign up to a service.

Amazon’s entry has changed that somewhat, so it’s possible — with a bit of basic adding up — to guess at the size of the eBook subscription market.

We can do this because Amazon has taken the decision to pay Kindle Direct Publishing (KDP) authors, who were auto-enrolled in the scheme, from a payment pool rather than royalties. Every month Amazon sets the size of the pool, which begins at $2 million and authors receive a flat fee for every ‘borrow’ one of their books receives.

This is the payment system that Amazon first used for KOLL, and which has since been extended to include KU. It was an expedient move. Why bother creating a new system for paying authors when you have a perfectly good one up and running? Yet it also gives us an excellent basis from which to see how KU has driven additional downloads of KDP books.

This is what the bonus pool paid out to authors in June 2014, just before KU launched in July. The estimated payment per borrows are based on the numbers disclosed by individual KDP authors.

June 2014

Total monthly pool = $1,200,000

Estimated payment per borrow = $2.25

Estimated no books borrowed in June = 533,333

If these numbers bear out, KOLL was already responsible for half a million eBook downloads among Amazon Prime customers. This is a small number by Amazon standards, but not unrespectable. Many eBook retailers would be immensely pleased to sell half a million units a month. And remember, this only includes KDP titles. It’s entirely possible that the conventionally published titles available through KOLL shifted the same number of units again.

Fast forward to July, and the first pay-out following the launch of KU. Amazon’s first action was to increase the total size of the monthly pool to $2 million. It then announced two further bonus additions that brought the monthly amount to $2.785 million.

July 2014

Total monthly pool = $2,785,000

Estimated payment per borrow = $1.80

Estimated no books borrowed in July = 1,547,222

This decision suggests that Amazon had modest expectations for the first month of the service. The fact it intervened to increase the bonus pool, rather than let individual per borrow payments slip much below the $2 mark that participants in the KOLL scheme expected is interesting. It implies that Amazon intervened to keep authors on-side at a crucial time for the service, when it wanted to keep their content in the KU catalogue.

It also suggests that in the first 2 weeks of the service existing in the US, KU helped Amazon to shift an additional million units. Again, not market-changing by the retailer’s standards, but who would turn their nose up at a million sales?

Now let’s take a look at the numbers for August, which were released last week. Amazon sent a couple of very clear messages that KU was exceeding expectations. It increased the size of the payment pool by $2.7 million (to a total of $4.7 million) and also announced a round of special bonus payments for the most popular books and authors on its service. These bonuses, which are presumably paid out from the monthly pool, would reduce the size of the pool available for per borrow payments by $590,000.

August 2014

Total monthly pool = $4,110,000

Estimated payment per borrow = $1.54

Estimated no books borrowed in August = 2,721,854

If these numbers are correct, then the first full month of KU drove an extra 2 million book downloads, compared to the last full month where eBooks could only be borrowed via KOLL. The scheme has proven so successful that even after Amazon pumped an additional $2.1 million into the fund (after subtracting special bonuses) the per borrow payment declined again to $1.54. This is a clear signal that the size of the eBook subscription market among Amazon customers had grown enormously in just over one month.

So on the day that KU launches in the UK, what does this tell us about how it might affect the eBook market?

1. Amazon is very keen to keep KDP authors on-side with KU

As with other eBook subscription services, KU might lead its consumer marketing on the (relatively small) number of household name titles, but indie published content makes up most of the inventory.

To keep this content in the KU catalogue, Amazon has to convince authors to stay exclusive to Kindle. It has achieved this by increasing the payment pool on a month-to-month basis. Propping up the per borrow payment as KU gathers pace could be its way of tiding authors over in a transitional period.

As the number of KU subscribers grows, the individual per borrow payment may decline even while the total amount of money authors receive from KU each month increases. It will certainly be interesting to see how important the performance bonuses it introduced this month become in future, and whether this results in a two-tier system of payments for KU authors.

2. Don’t under-estimate the effect of FOMO (Fear Of Missing Out)

It looks like Amazon did a very clever thing by not placing sales via its subscription service in a silo. This blog post by indie author Chris McMullin suggests that many KDP authors are staying in KU because a download via the service counts as an Amazon sale and lifts the book in its all-important sales rankings.

3. It seems reasonable to measure the subscription opportunity in millions

The number of people using eBook subscription services could be significantly higher than cynics (like me) originally thought. Even if we assume that KU’s initial spike in downloads has been driven by 30 day free trials of the service, we can expect a lot of these consumers to convert into full membership by indifference alone. They have already entered their credit card details. Withdrawing from the service would represent an extra effort and

It may be just like Mark Coker said it was earlier this year when he described eBook subscription services as being like gym memberships: things we continue to pay for even if we don’t use them. They may just also have one significant advantage over music streaming services like Spotify, which continue to haemorrage money. With only a small quantity of star content and a lot of indie published content in their catalogue, services (or those that adopt a pool-style payment model at least) may be able to achieve a balance between their revenues and their pay-outs.

The question remains, however, whether Amazon entering the subscription market will see the tide rise for their competitors too, or merely sink them. This interview with Scribd’s Jonathan Weinstein suggests the former, but only time will tell.