Thursday, August 23, 2012

The e-Book Bubble Pops

The e-book is dead! Log live the e-book!

Various authors have noted that their experience with Amazon's KDP Select has deteriorated this year. In the past, their new book would have been offered up free for a few days on its introduction, during which time it would climb the 'free' sales charts. Then, coming off the 'free' list, its standing in the charts would plunge into the 'paid' entry list like a cliff diver, find a bottom, and rise to whatever its 'natural' position in the published food chain turned out to be.

Kindle sales since 4th quarter 2011
Today authors are not getting that same bounce, and their books are not selling as well, despite using the same methods. This is especially vexing considering these authors have already established some sort of readership via their previous (and recent) books. Their sales should have established a base and be on the rise, not falling.

Many have blamed Amazon, rashly accusing them of colluding with Big Publishing against indie authors. Such reports are driven by fear and ignorance, not facts.

What has really happened, and what it means for authors, is the subject of this post.

The change in sales behavior in 2012 is the result of two factors. First: Kindle sales have peaked and fallen off sharply. The Kindle Fire, for instance, fell from second banana to third, behind Samsung tablets. That's quite a drop off the pace of the market-leading iPad, which Amazon had previously given something of a run for its money.

This was classic peak/crash herd behavior. (See for yourself.) Amazon had ordered a record number of displays for their tablets around or shortly after Christmas 2011. In the first half of 2012, they cut those orders to zero.

It's important to understand how Kindle sales shaped the ebook market to begin with. Unlike iPads, Kindles were bought expressly to read e-books. The owners of new Kindles understandably wanted to have as useful a device as possible, which meant filling them with as many bargain-basement-priced e-books as possible. (Remember that when the boomlet started a few years ago, big publishers had little by way of e-book wares to offer. Buying e-books therefore meant buying the cheap, independently-published titles Amazon had available.)

NASDAQ from 1992 - 2003
Each Kindle sold, therefore, drove a spike of two-or-ten-or-twenty e-book sales, and Kindle sales were surging. In addition, the publicity this generated spurred sales even further, and the prophesy became somewhat self-fulfilling. When Kindle sales crashed, e-book sales crashed as well, following a behavioral pattern illustrated by the NASDAQ chart at right.

The second factor is, as many have now guessed, that Amazon changed it sales algorithms to favor higher prices. However, it did not change them because they 'caved in' to pressure from Big Publishing.

To understand the real reason why Amazon now favors higher-priced e-books, we need to go back briefly to the previous technical-revolution-that-will-destroy-publishing-as-we-know it. During the great 'pulp fiction' paperback explosion of the 30's-40's, bookstores were going out of business in droves even as sales of books enabled by new printing technology ['pulps'] soared. (Sound familiar?) As sales for these new books soared, they generated a gold-rush mentality and would-be authors flocked to write books. Events finally reached a point when it seemed everyone was writing a book, and there were widespread complaints about the increasingly poor quality of both the writing and their manufacture as products were rushed to market to meet a seemingly insatiable demand. Finally, the pulp fad peaked and scaled itself back, and paperbacks learned to co-exist with hardcovers, to the enrichment of many traditional publishers.

This foreshadows the way the recent explosion of cheap, hastily-produced e-books produced headaches for Amazon. Many fly-by-night operators infringed on the copyrights of others, some produced poorly-made or unreadable wares, a few dealt with subjects Amazon wanted no part of, and many, of course, were just really bad books. These products were a drain on Amazon's resources, since they obliged them to appease unhappy customers.

In light of this, and in the context of having hit an apparent ceiling (at least for now) in e-book sales, Amazon adjusted its internal policies. The changes were kept behind-the-scenes. Amazon did not want them apparent because (a) they did not want to be in the 'censorship business' by keeping books out of its marketplace, and (b) they wanted to avoid accusations of 'price-fixing' (of the sort Apple waded into) that would have come about by setting higher profit-sharing price levels (currently 99 cents and $2.99).

The solution they hit on to weed out the problem products was this: While the externals would remain the same (marketplace open to most all comers, recommended price levels same as before) their marketing muscle would be reserved strictly for books over a certain price level.

Each book sold by Amazon is analyzed by algorithms that compare its sales to every other book. If books 'a' and 'b' enter the marketplace and 'a' outsells 'b' (or gets more downloads in the 'free' entry mode), Amazon takes note. It then begins to apply some of its marketing muscle to 'a'. For example, book 'a' might appear in a 'customers who bought book 'c' also bought book 'a' sales pitch. If book 'a' then outperforms others receiving that boost, Amazon will bump it up further. Amazon will continue to bump a book until it reaches a marketing level where it no longer outperforms its peers.

It is because of these boosts that e-books previously 'bounced' in the paid lists after their initial giveaway periods. The difference now is that the low-priced books no longer get the same treatment. Amazon marketing sweeteners are now applied only to books over a certain price level. (What that price is, unfortunately, I do not know.)

This method, in Amazon's view, allows the cream to rise to the top, though I imagine the company may have some built-in mechanism to spot outperformers regardless of price. For instance, if a 99-cent book sold three times the volume of its similarly-priced brethren, Amazon's algorithms might spot it and begin to boost it. For the most part, though, Amazon expects the market to mature and begin to price itself in a manner more closely aligned to relative value.

One reason for that expectation, of course, is the late entry of 'traditional' publishers to the e-book game. Publishing companies have no choice but to price their entries higher than indie authors, since they inevitably have more overhead. Amazon's presumption is that this higher-priced product will also tend to be of higher quality than its indie competition. That is: As a rule, it will be better-edited, better-produced, have better cover art and be better-marketed. In addition, there have been no stats suggesting public resistance to higher-priced books, or any clear advantage to an author selling at $4.99 rather than $5.99 (or even $10.99). The public has indicated that it will pay what is necessary (at least within certain parameters) to get the product it wants. It's clear - though easier said than done - that an author does far better by providing an outstanding product at a higher price than a lesser product at a bargain price. (This is not only true in publishing. It's been noted that Apple, for example, rarely has clearance sales - despite the fact that it regularly obsoletes its own offerings.)

Since there seems to be no downside in promoting only the presumably 'better' (i.e., higher-priced) product, and since there is clear benefit in allowing the dregs to sink to the bottom, Amazon has adjusted its sails to this new tack. Pricing decisions now weigh heavily on indie authors, who once simply went with the flow, following the 99-cent or $2.99 guidelines with slavish devotion. Today, an author who wishes to see some semblance of the 'Amazon bounce' of old must be willing to stand apart from his peers and allow them to undercut him on price.

So, where do indie authors stand? It's almost certain that ebook sales peaked this year, and that we are now in a period of consolidation. In the chart at right, you'll see a similar (but smaller) peak-and-drop-off in the 4th quarter of 2004, leading to a year of consolidation in 2005.

The rising tide that once floated all boats has ended, but that does not mean a return to low-tide levels. It does mean that authors, more than ever, must be prepared to row. Here's one author who graduated from 'hoping for an Amazon bounce' (with no results) to actively making things happen.

Some authors have caught on that the 'pricing wisdom' of recent years no longer holds sway (if, in fact, it ever really did). From Dean Wesley Smith: "Due to changes Amazon made to their ranking algorithm it no longer pays to sell a book for under $2.99. If you want to build a long-term career, with fans finding you slowly, over time, who are willing to pay a respectable price for your work, have some respect in your own time and craft. Price your book in the same range as traditional publishers price their works. ($4.99 to $8.99 for most for e-books)"

Yes, this was a bubble - but it was not a 'tulip bubble'. Book publishing, in fits and starts that can be said to have their roots in the 1930's, has finally entered the thousand-channel world we live in. There is nothing today's publishers can do to halt the intrusion of this new world into their domain. All that remains now is for a new generation of entrepreneurial authors to embrace it.


Ed Robertson believes Amazon is employing three different algorithms at oncePhoenix Sullivan also looks at Amazon's algos.

Smashwords' Mark Coker tells Forbes that indie authors are underpricing their wares: "We found that the $2.99 to $5.99 price band appears to be the sweet spot for indie authors, those prices over-performed the average in terms of income for the author. But 99¢ and $1.99 under-performed."

A few authors are still getting the old Amazon bounce. Here's what they're doing that makes them stand out.


  1. An excellent article and it matches what I've been tracking on the Amazon Top 100 bestseller lists. I was beginning to think that no one had eyes to see what was really going on in the favor of rosy-tinted illusions that many seem to want to believe.

  2. Most authors, I'm afraid, see the e-book market through the backwards-looking prism of what it was a few years ago, when no one saw it coming. It's a rose-colored perspective, as you say, and does not reflect today's reality. That's not to say today's market is hostile toward the indie author, but it is certainly not the free ride that, for a short time, it truly was.

    This is now a game for the prepared author who is willing to look dispassionately at the true state of the marketplace and then work hard at the marketing end with all of today's tools. The good news is that it is still possible for an author with a good product to effectively take on the big bad publishing institutions - and even do well financially! That was certainly not always true, and it is a very positive and (apparently) sustainable development. The bad news is that the mediocre products and lackluster promotions many authors are bringing to the table will no longer cut it. And that's news that many do not want to hear.

    1. Brilliant article, Jeff. Thank you.

  3. Another point to consider is the negative experience college students are having with e-textbooks. These students could be considered the "seed corn" for the e-reader market. Yet studies referenced in the Chronicle of Higher Education showed students rejecting e-textbooks in favor of print due to poor instructional design (features/convenience.) Another article noted that e-textbooks have failed to deliver on their "Unique Selling Proposition," lower prices.

    How does this relate to e-books? From a consumer's view, the two selling propositions for e-books are price and convenience. There must be a significant price difference between e and print to drive the market. And the convenience (features) of e must significantly outweigh the convenience of print. In time, I'm sure that will happen. But it may just be too early in the life cycle of e-reading for either to have made an impact.

  4. E-textbooks as a market have a huge potential. But as far as I know, no one has yet developed the e-textbook that blows away its print counterpart. (I may be wrong about that, and if I am I hope someone will correct me.) At some point there will be enough e-textbooks with such an edge over print that the scales will tip, and everyone will flock to the electronic side. That's what happened with slide rules and calculators - early on, even once calculators could demonstrably do the same work, they were not embraced. Then one day, seemingly all at once, slide rules became antiques.

  5. Interesting take on why Amazon changed up their algos. I can believe it.

    For the record, Amazon was only using three different algorithms (for the popularity lists) between about March 17 and May 3. At that time, they condensed to a single one that is indeed biased in favor of higher-priced books.

  6. A key bit of information there, Ed. Thank you for sharing it!

  7. Wow. Thanks for that, it explains a lot. I had certainly noticed that it was getting tougher out there for self-published books but now I understand why.

  8. Thank you for stopping to comment, Stephen, I appreciate it!

  9. Do smashwords have the same unfair algorithms? I'm more inclined to smashwords than amazon anyway

  10. My sense of them is that Smashwords is much more transparent in its methods, so the answer is no. However, Amazon's potential market for a book (or any product) dwarfs Smashwords (or just about any retailer outside Apple). BTW, in terms of non-Amazon book markets: Apple's online store can be a bit of a pain to get into, but they tend to recommend products based on merit (as determined by humans, rather than algorithms). If Apple happened to get behind your book, its sales would skyrocket. The Apple online store seems to get overlooked by many authors.

  11. A very interesting post. My publishing company seemed to have caught a wave where we priced the book at launch at $2.99 or better, worked feverishly to optimize our Amazon book pages and get at least 50 reviews, and then drop the books down to .99. This entire process took around 7-9 months per book, but around month 9-10, each book took off going from selling 20 copies per month at the higher price points all the way to nearly 2,000 a month of 1 title priced at .99. Each book has sold over 5,000 copies in the first 12 months of launch until our 4th novel was released last November. This book has had our greatest marketing push to date, but is still languishing at the .99 price point, selling around 70 copies a month for the last 3 months. Your article makes me want to attempt to raise the price back to $3.99 to see what might happen. If I do, I will report back!

  12. Your experience seems to demonstrate the point: What worked before, no longer does.

  13. Very instructive article and comment thread. Thank you.

  14. This is timely information for me as I am about to launch my first book. For a long time as I was in the process of creation I thought I would need to price my book higher to stand apart from the crowd that markets at 99 cents or $2.99, but also to express my confidence that my book is worth it. Then I started to doubt and was about to fall into listing it for $2.99. Thinking long term, that now seems like a bad idea.

  15. Even short term, it seems like a bad idea (IMHO)! But most authors will, in fact, adhere to one Amazon-suggested price point or the other. These decisions aren't based on sales logic or market data, but are a product of our human nature and the instinct to (safely) conform.

  16. I think pricing your book, e-book or otherwise, above $10 is smart.

    1. I think Amazon pays a dramatically lower percentage to the author/publisher for e-books $10 and up. I may be mistaken (you'd think I'd know for sure, but I think I saw that at some point, set my price and never revisited the issue). Printed books may be another matter. If that info is wrong, please correct me, but if it's correct, it strikes me that it's going to be tough making more money by pricing an e-book above $10 than just under it.

  17. Dear Jeff,

    Thank you for explaining why my Kindle book sales suddenly went to hell. (I wish I'd found your blog two months ago.)

    But most of all, thank you for showing me what I can do to correct these recent dismal sales. Your blog (which I think I found on Goodreads) is the most informative of all "self published ebook" blogs– all other blogs should bow before you!

    Cheers from John in Indonesia

    1. Hello again, John.

      At this point it's hard to imagine people are finding ANYthing out about me on Goodreads. I have done very little with that site. I know I should, but I have been too busy wrapping up 'Patriots' (a process which is ongoing) and building a Twitter/Facebook following on the book's behalf. Goodreads seems the obvious place for an author to gravitate, of course, but I've never been a big fan of anything that was too on-the-nose. Besides which, Facebook and Twitter (especially Twitter) are far more flexible in terms of what you can do with them. In any event, Goodreads was not the thrust of your message. I'm just assuaging my guilt about my neglect of that site. (But I'm feeling much better now, thank you.)

      Re dismal e-book (or physical book) sales: I think step one is affirming that it's probably not the book's fault. There are many badly-made books out there, no doubt. There always have been, and the percentage of the whole that are truly abysmal probably has not changed dramatically. I find that many people who have written something worthwhile tend to be harder on themselves than the people who write garbage. So let's assume in your case, it's not the book's fault. In which case, what you have is a book that's not finding its legitimate readership.

      That being said, let me talk briefly about my background. I started out in NYC marketing books back in the 80's. I worked for some of the Big Six (and some pretty-big also-rans) creating the various displays and marketing materials and promo strategies that sold books. It was, I noticed, an abysmal thing to be an author. I saw them brought into the limelight for a moment, squeezed dry, and cast aside. Ink-stained wretches they were, indeed.

      I saw how authors made/paid their own way to book signings and personal appearances arranged by their publishers. Sometimes these appearances were quite BADLY arranged. The author had to travel to and from these appearances, regardless of weather. Sometimes no one appeared. Sometimes there was a crowd but no books. Anyway, these were hit-or-miss affairs, and a very inefficient use of an author's time and energy.

      So today, when an author who has never spent years making personal appearances complains about the time-sink that is social media, I just shake my head. Social media is SO much more efficient than what came before that there just is no comparison with the bad old days. It is the combination of social media, and the great technical (if not artistic) meritocracy that we call Amazon that enables authors today to go forth and take their fate into their own hands in ways that was never before possible. (Fodder for another day's post is the degree to which Apple's bookstore works quite similarly, if on a smaller scale, to Amazon's. But let's press on.)

    2. The business models offered by the Joe Konrath types are the exact WRONG models for a self-pubbed author today. Konrath was, at best, a middling talent ecking out a middling living and wondering how to improve his lot. Then, BAM, e-books took off out of (almost) nowhere, and Konrath was sitting on a stack of manuscripts no one wanted. He put them online, and since at that moment demand far exceeded supply, he got caught up in a heady e-book gold rush.

      A few others did as well. Amanda Hocking, probably most famously. But the profound difference between Hocking and Konrath is this: Hocking was sufficiently self-aware and spiritually grounded to realize that, for as hard as she'd worked to promote herself (and make NO mistake, that girl worked like hell), she owed much of her success to being in the right place at the right time. She wisely settled in to a more-or-less standard arrangement with a conventional publisher who would provide her with the editing, design and marketing services she knew she needed. True, she might have just built up her own little publishing enterprise by securing those services freelance, but she wanted to settle in to writing, and acknowledged that this was an acceptable compromise. (Personally, I think she showed a wisdom beyond her years.)

      Konrath, on the other hand, is thin-skinned, profoundly insecure, and at best a mediocre writer. He indulges a terrible, desperate need for approval by constantly reminding his blog's readers of how much money he makes, as if that could somehow compensate for the simple fact that he has nothing worthwhile to say.

      But because Konrath makes money, many newbie authors (and note that his site IS slanted to 'newbie' - read naive - authors) buy into Konrath's blather, when in fact he has no actual marketing skills. Konrath was simply Jed Clampett, shootin' at some food, and now the uninitiated are beating a path to his door looking for insights that he simply does not have.

      There is indeed a great deal of bad advice, like the blowhard Konrath's, out there, and plenty of authors looking rather desperately (and understandably so) for good advice. As to my own history, I do have a background in marketing where I did well by analyzing existing client campaigns and building new, improved ones based on the findings. Typically my campaigns outperformed the old ones by 10% or so. I could post examples of this work, but the best test of my theories as applied to the self-pubbed space (the only place I AM applying my skills these days) will be 'Patriots' release. As I say, if the book does not sell, hey, clearly I don't know nearly as much as I'd thought (or at least hoped) I did.

      So... we'll soon see, won't we? Stay tuned. If my approach works, let's see what can be learned from it, and what we can apply going forward, together.

      Happy Thanksgiving.

    3. Dear Jeff,

      Thank you for writing a such a full response to my post. It is very much appreciated and I’m hanging on to every word. I published my first novel in June and the last 6 months have been an emotional roller-coaster.

      Blogs like yours are very important. Example: I am an American who is somewhat geographically impaired due to my living in Indonesia for the past 10 years. I wrote my book because I thought it was a good story. That’s about it- I didn’t know how, when or where I would publish it. You may not believe me, but I had no idea that ebooks (and Kindle, etc.) were so popular. It wasn’t until the book was about three quarters done that I even started to think about the marketing. Yes, I am a hick.

      So then I published on Kindle first, and started marketing, second. I now know that it was a big mistake. Like a hamster on his wheel, I started to spend every spare minute of my time figuring out what to do, via the internet. Ha ha. (Damn, there’s a lot of junk out there!)

      Two sites that I spent a lot of time on were Mr. Konrath’s and the KDP Authors sites. If you are into old movies, the experience is like Olivia de Havilland’s in “The Snake Pit.” Hundreds, maybe thousands of people walking around in circles chanting, “SEE ME! BUY ME! READ ME!”

      It was unpleasant. Mostly what I’ve found is contradiction.

      I see from your blog writing (and the people you link to) that you are approaching the marketing of your book(s) in a precise, studied and adult manner. This is what I’m looking for, so I plan to hang on to your coat tails for a while. I hope you don’t mind.

      Enough about me. Both of the Patriots of Mars prologues are excellent and feel very real. I look forward to reading it. I like that the miners are disgruntled teenagers, working for a US/Chinese corporation. It seems an all-too-real possibility nowadays.

      Once again, thanks for sharing your valuables.

      John in Jakarta

    4. Thank you also, BTW, for the kind words about 'Patriots'. Funny thing, I have been hearing a lot lately about how 'real' the circumstances of the book seem, both from readers of the prologue and the synopsis. That's certainly something every author strives for (or should) - authenticity. It's an important balancing act, too, since a good deal of the book goes off into the realms of science fantasy and even occasional whimsy. Without authenticity, there's nothing to anchor it and give it meaning, and it becomes a weightless Star Wars type romp. Star Wars is fun, but i don't wish to either imitate or compete with it. I don't want to write about a galaxy far, far away, but rather the world we live in.

  18. I'm happy to share my experiences. Right now, I am trying to wrap up both the book and the prep work for my marketing campaign, so that it can be rolled out the minute the book is released. Now, I put in countless hours of work this year in getting ready for this moment. Some folks I know, a while back, had their book launches and didn't do anything remotely like what I am doing. Instead, they pretty much relied on the many sites that list free e-books, and were kind enough to share their lists with myself and others.

    Naturally, I'm thinking that all my work will be outdone by simply listing with these sites - there's quite a stack of them. Altogether, they should amount to quite a traffic surge. So today, while I'm getting my ducks in a row, I check on the links. I want everything ready to be deployed. Well, lo and behold, some of them went out of business, others began charging for what used to be free, and others have instituted rules that make it impossible to launch a book with a giveaway (that is, if you're relying on them to put the word out).

    Aside from the sites that went out of business, it's evident that all these sites experienced such a glut of ebooks seeking publicity that they were emboldened to both eliminate formerly free services and enforce onerous rules for participation. In any event, so far going through that list none of the sites I was given will be of any use to me.

    Fortunately, I was not relying on them. Giving books away at launch is the best and quickest way to build a following for a new book. By insisting that a book already HAVE a following, the asses running these free-book-listing sites have created a classic Catch-22: You can't get the reviews without the readers, and the way they've set things up, now you also can't get the readers without the reviews. Of course, guys like John Locke once had a workaround - buy the reviews. But Amazon has curtailed that shortcut pretty dramatically of late.

    There's good news and bad news in all this. The bad news is that very few authors are going to have much luck with the free ebook launch routine now, unless they have something in place (as I do) to drive publicity. There's going to be an enormous glut of books this holiday, and these swamped 'free-book' sites won't help anyone cut through the clutter. (Except Pixel of Ink, and maybe one or two I have not identified yet, which hand-pick their selections. Authors will do well with them, if they make the cut.)

    The good news is that an author who is not dependent on outside sources for publicity has an enormous advantage right now. If you're a John Scalzi, with a personal fan base he hand-crafted for over a decade, you are truly sitting pretty, but there are few Scalzi types out there. If you are a traditionally-published author and your publisher is sharp enough to have a really strong online presence (like Tor Books), you will most likely be pleasantly surprised this holiday. Online publicity, consistent, persistent, and clear, is the name of the game. The other piece of good news is that the ebook market is bigger than ever. An author who can break out from the herd stands a good chance of pulling way, way out ahead of the pack.

    In essence, it still boils down to escaping the slush pile, and by having done so, getting Amazon's attention. An author has got to (as Scalzi, Hocking and others have done) build and deploy his own army of devotees. You have just got to develop that following and nurture them. That's a responsibility that comes with the indie territory now.

  19. The question of how to handle library e-books is just one of many that have resulted from the digitalization of literature. I have written previously about Macmillan's fight with Amazon last year over e-book prices, Google's usurpation of rights to out-of-print works and newspapers' fights to retain control of, and profit from, the content they produce. As we move into new legal territory, the specific provisions of existing copyright laws are increasingly proving inadequate to address new issues.

    Digital Book Printing