Amazon, Ebooks and the Lack of Innovation

Expert publishing blog opinions are solely those of the blogger and not necessarily endorsed by DBW.

Amazon, Ebooks and the Lack of InnovationIt’s 2016. We are landing rockets on floating platforms in the ocean. Engineers are developing high-speed transportation systems in which pressured capsules ride on air cushions facilitated by linear induction motors. A network of high-altitude Wi-Fi balloons is being designed to float on the edge of space so that everyone on the planet can connect to the Internet.

And ebooks turn pages.

What happened to the exciting digital future of ebooks?

As the leader in the digital book space, Amazon is doing very little to innovate around ebooks. Last week, ZDNet ran a series of articles titled “Why Amazon is the king of innovation.” As it pertains to Prime, drone delivery, and Amazon Web Services, Amazon is exceptionally innovative. Arguably the best. But finding one ebook in a vast digital store and reading it on an e-ink device is archaic compared to Amazon’s other initiatives. “It reads in the sunlight” is about as innovative as “It’s called a fax machine.”

Why are our friends in Seattle so slow when it comes to the future of reading?

Don’t let Jeff Bezos fool you into thinking this was an oversight on his company’s part. It wasn’t. Bezos ties his shoes and eats his breakfast with ruthless intentionality. Amazon’s lack of innovation in the ebook arena is not by accident. It is by design and choice. And here are just a few reasons why the company is dragging its heels:

1. Ebooks Don’t Move the Needle — Amazon’s annual revenues in 2015 were $107B, which make it larger than the gross domestic profit of the 59th largest country, Morocco. But its estimated ebook revenue is only $530M, which is miniscule in comparison. Investors can argue that Amazon isn’t profit-sensitive enough, which is why they continue to eek out a small (or negative) profit quarter over quarter.

But the company is exceptionally margin-sensitive, and it’s wise enough to know that it can make considerably more money selling you flat screen televisions, energy drinks and Nike gear. These other products add much more to the bottom line than ebooks do, which the top publishers only provide 30 percent on each book under agency pricing. Bottom line: Amazon likes money, and ebooks don’t do much for the bottom line.

2. Amazon Is Still Faster than the Publishers — Amazon may not be moving quickly to usher in the future of ebooks, but it is still moving faster than its publishing partners. In the last month alone, I’ve witnessed a publisher price an ebook higher than a hardcover, a senior executive tell me that ebooks are a fad, and an imprint admit that it doesn’t know all the places where its ebooks are sold.

Amazon doesn’t need to move at break-neck speeds to stay ahead of this type of behavior. There are certainly innovative people in publishing, but the industry as a whole still likes the smell and feel of print.

3. Innovation Means Breaking the Status Quo —
“If its not broken, don’t fix it” is a popular phrase, and one that is highly applicable to Amazon. The company controls 60-75 percent of the retail ebook market, so it has no incentive to change anything.

Things that would truly be innovative—like allowing authors to build audiences, gathering data on reading habits, providing sales and marketing tools, and allowing brands to incorporate digital content—would all shatter Amazon’s primary goal of controlling the end user. Amazon has zero interest in helping content creators or providing transparency into buying or reading habits.

I’m still going to buy my toilet paper from Amazon because the fluffy stuff always arrives on time and the delivery is free with my Prime membership. But I care too much about authors and content providers to continue to feed the Amazon ebook monster and watch it devour creativity. If Amazon has any weakness, it’s the lack of innovation in ebooks, which is an opportunity for a few forward-thinking groups in and around publishing to take advantage of.

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14 thoughts on “Amazon, Ebooks and the Lack of Innovation

  1. Michael W. Perry

    Good article, but you confuse revenue with profit margin. In most retail sectors, competition makes most profit margins razor thin. Amazon’s $107 billion in revenue doesn’t generate much profit, as investors know. And its recent profit jump comes from its huge server business not selling toothpaste.

    One exception is digital media. You sneer at that Amazon only makes 30% on some ebook sales. Sorry, but 30% is a heck of a lot if your cost for that transaction only say 5% of the retail price. It’s a virtually risk-free transaction that earns 600% more than it cost. When Amazon sells a $9.99 ebook, it earns about $3.00 and spend maybe a dime or two. And that’s not taking into account ebook priced outside the narrow $2.99-9.99 window where Amazon takes a massive 65% of that retail price: say $13.00 on a $20 ebook. That’s for a file download and a credit card transaction. No factories, no factory employees, no shipping.

    There are a number of clues to just how fat Amazon’s profit margins are on digital media, including ebooks.

    1. Amazon’s willingness to heavily subsidize the cost of its Kindle ereaders and tablets. Than hints at just how profitable it is to get customers into Amazon’s ecosystem. This is a bit like give the razor away and make money on the razors. When that’s done, you know the razors are making lots of money.

    2. When it iTunes store first opened many years ago, Steve Jobs noted that their 70/30 split was about the break-even point, that Apple would be making its profits on the hardware. When I lived in Seattle a few years ago, I heard one of Amazon’s top webserver gurus speak and one of his major points was how rapidly the cost of webservices has gone down. If Apple broke even serving music files about 2007 at 30%, the real cost of providing that service today must be around well under 10%, particularly for Amazon, with its huge economy of scale. Amazon could easily offer authors an 80/20 split or even a 90/10. It doesn’t because the ebook market lacks the fierce competition of most retail.

    3. Amazon’s obsession with dominating the ebook market. Amazon didn’t just stumble into its 70% market share. It fought for it, including pushing that DOJ prosecution through a Seattle law firm. You can say a lot of nasty things about Amazon, but it and Bezos are not fools. It wants that marketshare because the business is extremely low-risk and highly profitable.
    One final note. I agree that the ebook market is virtually devoid of innovation. Gutenberg’s first printed book, looks beautiful, because he intended to make it look as good at the illustrated Bibles of his day. Current ebooks look awful, because no one seems to be trying to even come close to matching, much less improving on the standards of print books. Your typical Kindle book looks little different from that people viewed on their Palm Pilots fifteen years ago. If computers were similar, we’d still be using a command-driven DOS interface.

    And Amazon is hardly the only one the blame. Those setting epub standards seem to think that an ebook is merely a crude webpage than happens to be longer. They’ve obsessed over including audio and video, even though readers don’t want that. There are indications that they want to clutter ebooks, like webpages, with ads, particularly targeted ads. Women reading romance novels will, for instance, find the ebook cluttered with ads for beauty products. Yuck! Books are one of the few places we can escape from all-pervasive advertising.

    Those setting the standards, both at Amazon and with ePub, have yet to note a fundamental distinction between webpages and ebook. People scroll through webpages. They page through books. To look attractive, ebook layout standards and ebook readers need to know how to intelligently format pages so they look attractive on various sizes of screen. It’s not rocket science. It’s not even tricycle science. But it’s not being done.

    And the public, having noted just how bland or ugly ebooks appear, are now turning back to print. For a parallel, imagine 15+ years into the automobile age the car still as primitive as the first horseless carriages. It’s that bad. It’s that deficient in innovation. Amazon isn’t the problem, but Amazon is a part of that problem.

    1. Paul Cain

      good comment on the article, regarding bland and ugly eBooks I would say that only applies to the very restricted Kindle formats which unfortunately are the largest sellers (due to price). When I create an eBook I make sure the ePub interpretation of the book looks good and on most ePub readers it does. I then compare, with a heavy heart, the kindle version which is very ugly and as a proprietary Amazon format I have little control over. Oh how I wish that ePUB was the dominant format and sold in the greater numbers.

  2. David Biddle

    An excellent and timely post. In some ways Apple is guilty of the same managed innovative impotence. And since neither company seems to want to see digital readers actually push the envelope of reading, there is little competition. Amazon should not be the full market ogre it has become, but apparently it’s all part of the plan.

    You’re insinuating you don’t want to support the Amazon ebook monster anymore, but you’re not offering an alternative. Kobo? B&N? Apple?

    I’d like to see online mainstream book reviews offer up link boxes to all four major sellers along with a publisher’s link. I’d also really like to see someone come out with a 21st century ereading application that does some of the things you list here.

    I’ve got a huge list of other innovations too. Here’s a simple one: The single most important powertool for an ereader is the onboard dictionary and the reader’s ability to touch a word and have it defined. The value of that is incommensurate. Why is there no ability to create a log of all the words I look up on my Kindle and/or iPad? The lack of stuff like that tells me these companies may well be spending too much time counting their money.

  3. Mark Watkins

    Great article! But how relatively good or bad the ebook business is for Amazon is almost beside the point. They know that if you’re going to buy a book (especially an ebook), you’re most likely going to buy it from them. Therefore (they would think), what’s the point in innovating? The ROI on additional investments is questionable.

    Now Apple has a very strong motivation to innovate, theoretically. They have a very small % of a very large market and their reading devices (iphone/ipad) are in almost everyone’s hand. I wrote about this at length for Bookseller:

    Let’s hope some interesting startups come along and rock the boat. Some of us are trying 🙂

    1. Chris Meadows

      I would say Apple actually has nearly no incentive to innovate at all. They only seem to see e-books as a little value-add for people who buy their products, and are happy with that. For all that they’ve been operating their e-book store since the spectre of agency pricing was first raised, they haven’t even bothered to crank out iBooks reader apps for other operating systems—something that they were perfectly willing to do for the Quicktime movie player and iTunes, back in the day. How are they going to innovate if they can’t even sell e-books to the vast majority of the potential market?

  4. Mark Stahura

    Amazon is a fulfillment business. They are not a retailer, in the real sense (curating products and presenting them to their best advantage to inform and persuade the customer). They are an agnostic fulfillment platform whose goal is breadth and depth of fulfillment (= customer information). They are not equipped to innovate except in this domain, and thus are in dangerous territory entering the bricks-and-mortar sphere, for instance.

    They successfully established ebooks as a delivery system, and as this article points out have little incentive to imagine enhancing that. But again, this is a fulfillment conquest, by and large. They may have some success in the IoT sphere (their Echo, for example), to the degree that it again centers around fulfillment.

    As long as they can position their advances in the fulfillment domain as \disruptive\ they will be able to be seen as a world-leading force. The degree to which others can disrupt this assumption becomes the question about Amazon’s real impact. They will undoubtedly remain the 800-pound gorilla due to their scale; their real impact could subside as consumers realize that Amazon’s value is really just as a pipeline — they become a utility.

  5. Chris Meadows

    It’s funny how Amazon takes the blame for everything. Amazon might have sewn up the e-book market, but it certainly has no monopoly on innovation. ANY company could build a better mousetrap, and indeed, they have more incentive to do so than Amazon. They don’t have Amazon’s reasons for complacency, plus a really good innovation might help them to knock Amazon off its throne.

    So, why aren’t they? It doesn’t seem as if there’s any consumer demand for innovations. “If you build it, they will come” only works in the movies. In the real world, you need to build something new on consumer dissatisfaction with the old—and it seems that the majority of e-book-buying consumers are perfectly happy with ten-year-old Kindle tech.

    Just as they were with hundreds-of-years-old paper codex tech before that, come to think of it.

  6. SpringfieldMH

    Likely answer is that an e-book is basically a book, whereas an \enhanced e-book\ would be something other than a book. Which means that such likely already exist under some other name in some other niche or have proven uninteresting and/or prohibitively difficult and expensive. Spreadsheets, word processors, paint programs and web pages are essentially enhanced/interactive paper. Computers are essentially enhanced/interactive books/movies.

    Folks used to predict interactive branching movies. We now have them… but… they are called computer games… and the branching has proven to be costly, and tends to go unused (most audiences/players choose the same paths and other branches go largely unused) or illusory (some branching in the middle, all leading back to the same one or few endings). Multiplayer computer games get around that by being sandboxes in which the players themselves become the story.

  7. Barbara Miller

    I agree about Amazon being a pipeline and distributor to the consumer. Print books weren’t so profitable for them when they were the main product. They kept going due to volume. Imagine they started shipping books from a warehouse in a corner of the country. No self respecting publisher, even small press would start out that way. However they did learn about distribution and how to make money with others using their online and distribution services. Their innovations are located there. I think we are in a lull where ebooks are now established. For now the market works. Amazon is now delivering all over greater Boston with vans 7 days a week from their local distribution centers.i noticed them more than 6 months ago in what I call the Range Rover District, but they have radiated out in recent months and weeks and the mayor of Boston demanded they deliver to a few zip codes they initially left off the list.

  8. Thomas Diehl

    It’s all rather clear to me: Enhanced eBooks s far have barely sold for a simple reason: Most people want to read a book when they read a book. Most attempts at innovation in this area actually serve to break immersion and thus annoy readers.
    This is an area where innovation simply is not welcome by costumers who want to keep their habits.

    Furthermore, innovation is not something you should force imho. If you have an idea to improve something, implement it and create innovation. But do not innovate just for innovation’s sake. That often enough ends up ruining perfectly fine products.

  9. Carmen Webster Buxton

    Well, maybe one reason no one is innovating to make ebooks into something new and different is there’s no perceived market demand? Print books are still doing pretty well, partly because most readers just want to read a good story. I am on my 6th Kindle, but when I’m immersed in a story, I mostly just want the Kindle not to get in the way. The exception is when I come to a word that I’m not certain of, and I want a definition (no problem; just long press), or when I come to a character that I can’t recall where they fit in the story. Kindle has an answer for that one, too– the X-Ray feature– but it relies on the publisher having done some set-up to make it work. A large number of times, the publisher doesn’t bother. It’s possible Amazon doesn’t push them on it, because they know readers aren’t using X-Ray often. That’s just speculation on my part. To speculate further, I think the reason the newer e-ink Kindle don’t read aloud is because Amazon knew not many folks were having the robot voice read the book to them. Maybe if the robot voice gets better at pacing and pronunciation, they’ll add that feature back. Amazon also know who buys the most ebooks, and I think that’s generally people who want a good story on an easy to use device.

  10. Derek Haines

    I agree with most of what you say, Jason. Except that, I believe Amazon makes a very good profit margin on ebooks. 30%, and more on lower priced ebooks is not bad at all for a retailer.

    The only point I would make about ebook innovation is that there is not a great deal that can be done.

    An ebook has to use flowing text to fit so many different reading device sizes, resolutions and suit colour and black & white screens, which doesn’t allow for any typographical design by a publisher. It is only the reading device that can change fonts and style. This is what makes an ebook so different from a book.

    When I publish an ebook, all I can do is make Times New Roman, bold or italic and add some space between chapter headings and text.

    It’s not easy to innovate and be cool with something this basic.

  11. George Heiner

    I agree with much of your take on Amazon. Yet I have been able to publish a few books on its CreateSpace engine without spending a dime. Pretty extraordinary in this age. The help both online and telephone has been outstanding, and free. For that alone, I think they are OK by me. (I am not too thrilled with Bezos’ takeover of the Washington Post, but that’s off subject.)

    I also buy the Kindle books because I work in a place that is inaccessible to US Post Office boxes and bookstores. The charge is excessive, so if I have a book that is not needed now, I order a used copy.

    I know. I am guilty of killing my own kind by doing this; but I see so many phony brokers out there these days. I write and have little time for worrying how I get something on the market. DBW is a good place to stay grounded in the industry.

  12. Joel Chan

    Thank you for this informative article. There is certainly a lack of innovation in ebooks, especially with Kindle allowing only certain fonts and colors to be used. However with the publishing business dying out, publishers need to take a risk into something new instead of sticking to well-acclaimed authors who have already established themselves into the public.

    Gary Nelson and I are that something new. I’m not here to brag or to sell you a product. If you check out our website, you will see through our original format and stylistic innovation that will not only challenge the status quo, read a lot easier and faster, allows a more cinematic view, integrated visual character identity, but will start a movement that will change Modern Literature.

    Colorful people read in color. Be colorful.



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