Amazon is now a vertically integrated publisher

What if Amazon became a vertically integrated publisher and no one even noticed? It happened in 2009. If you're an Amazon investor, maybe a shareholder report laid out some vision for you last year - if a business newsletter subscriber, maybe you paid for a special report. I have seen nothing and assembled the pieces from press releases (linked below).

First, background. A year or two ago, Amazon got kudos from bloggers who understood "long tail" publishing. The problem of the long tail (of the bell curve) is this: if anyone can make money selling 50,000 copies of one title (the bell top), how does one make money selling 50,000 copies each of 50,000 titles (the tail of the curve)? Amazon bought a print-on-demand business (POD) and allowed writers to supply content to Kindle. Long tail celebration stopped short of a deeper analysis.

When Amazon bought this POD, called BookSurge, the technology behind on-demand printing seemed poised to enable profit-per-single-unit under the right model. Although BookSurge and its competitiors seemed to be using POD in a long tail way, their actual revenue was based (in my opinion) primarily on fees charged the author. POD was used to generate a break-even product after the profitable author fee cycle ended.

In other words, the POD publishers were still playing at the top of the curve, looking for big numbers of authors in what was a cheaper (for authors) vanity press business model. Lower the production cost threshhold and attract more authors (customers) than brick-and-mortar old style vanities. After the fees were collected, the book part of the business could be supported logistically without losing money, thanks to POD. Sales would be through (usually) a single feeble website run by the POD and through the author ordering copies.

Recently, Amazon collapsed the Booksurge model. The acquisition had made crude sense originally. Here was CreateSpace, which was POD for films and music and owned by Amazon and here was BookSurge, an acquisition that added books to the mix. Problem: Createspace was a true (self) publishing model based on profit through sales. BookSurge was not. When Amazon decided that a long tail publishing model could work for POD books, as they worked for dilm and music, they added book publishing functionality to CreateSpace, a platform that better suited their needs.

Now they have collapsed BookSurge, a maneuver long overdue. BookSurge reminds us of Marshall McLuhan's observation that new technologies are initially put at the service of old content (and models).

The CreateSpace author - who paid no fees except optional ones - had instant access to parent company Amazon as a retail outlet after publishing his book. This should have concentrated the interest of any would-be self publisher. His only cost was proof copies and proof shipping and his shop window was a highly trafficked international site. He could now sell profitably on the old idiot's lottery basis. If you win the idiot's lottery, you collect a dollar a year for a million years. The CreateSpace author could conceivable sell a book a year and have a profitable year every time.

In several bold new moves late this year, Amazon went into the wholesale business. That is the business that puts physical books on physical shelves in brick and mortar stores. Its CreateSpace authors are permitted (without fee) to opt into three wholesale channels.

The first is a CreateSpace trade wholesaler. This is likeley to be either an alliance of independent wholesalers acting under the CreateSpace banner or CreateSpace launching an independent wholesaler on its own model, terms, and conditions.

The second channel offered authors is wholesale to libraries. This would be executed in one of two scenarios as above, I think.

The third channel is conventional trade wholesale through Ingram. I say conventional - Ingram is one of only two major book wholesalers in the USA - but the details reside in something called the Ingram Content Group which has POD capability.

My view is that Ingram is taking orders for CreateSpace titles and PODing them on its own presses for additional $ margins. In fact, CreateSpace authors who opt into the Ingram distribution are warned that the finished product will look different than the proofs they originally approved. I wonder if stores can return unsold POD books?

In addition to self-published content, CreateSpace is filling its wholesale channels with long-tail commercial product: MGM films and scientific publications from Springer Verlag. Long tail: everyone benefits.

So, Amazon, a retailer, owns two new wholesale channels (its own trade and library distributors), plus manufacturing plant (CreateSpace). The one thing it does not yet deal in is rights. However, it occupies a position in which it can calculate the sales and margin for any CreateSpace title. This means that when the time comes, it can make safe, sane, sensible and attractive offers to authors to buy the rights to titles it is interested in.

Topside: an irrelevant cover from an irrelevant publication.