(Although the following appears with my name on it, ths is actually a guest-post by another IAG member, who did a lot of numbers-crunching and came up with some recommendations: Michael S. Katz is an attorney, editor-in-chief of Strider Nolan Publishing, board member of the Independent Authors’ Guild, and author of the comedy novel Shalom On The Range Take it away, Mike!)
Amazon.com recently announced a new policy requiring all Print On Demand authors to use Amazon’s own printing company, Booksurge, in order to be sold through Amazon. Many POD authors and publishers are understandably upset by this, as this can only serve to cost the authors money, and cost the printing companies business. But in terms of Amazon’s market share, how much business are we actually talking about?
WHO’S ON FIRST?
Sales of books totaled $2 billion in 2000, at which time on-line sales made up between 7.5% and 10% of that total.1 Amazon and BN.com now account for more than 85% of online book sales.3 Recent data shows that Amazon’s book sales are approximately four times that of BN.com,4 and Amazon has a 70% share of the Internet book market, so this translates into a 15 to 17.5% market share for BN.com.5
Amazon’s total sales in 2006 were $4.63 billion, but this includes books, music, and various other items, including a lot of high-end electronics, jewelry, and the like. Barnes & Noble actually outsold them at $4.68 billion (and they were basically limited to books, music and movies), but their on-line presence had only $477 million in sales. Why are people flocking to Amazon over BN.com?
A LOT TO RECOMMEND IT
A lot of it has to do with programming. Amazon has a reputation for being the best at tracking customer habits, having collected information longer and used it more proactively. Over the years they have collected detailed information about what its customers buy, considered buying, browsed for but never bought, recommended to others, or even wished someone would buy them.10 Amazon uses this information to calculate recommendations that boost sales.
In the entertainment industry, recommendations are a remarkably efficient form of marketing, as they enable films, music and books to more easily find the right audience.9 For example, the book Touching the Void, a tale of a mountain-climbing tragedy, was released in 1988 to good reviews but modest success. In 1998, the book Into Thin Air, about another mountain-climbing tragedy, was released and became a bestseller. All of a sudden, people began buying the older book again. Touching the Void began to be displayed side by side with Into Thin Air, and actually wound up outselling the newer book. How did this happen? Chris Anderson, author of The Long Tail, attributes this to Amazon.com recommendations. Amazon’s programs note buying patterns and suggest similar books to readers. Some people follow the suggestion, enjoy the book, and post excellent reviews. These purchases and reviews lead to more sales, more recommendations, and the cycle continues.9
Readers’ reviews also stimulate sales, although moreso on Amazon than BN.com. One study (Chevalier and Mayzlin) examined how sales on both sites correlated with number of reviews and customers’ ratings.12 They determined that a good review will increase the number of books sold, although with much greater effect on Amazon than BN.com. A bad review has a greater effect than a good one, based on the assumption that many 5-star reviews are believed to be “planted,” whereas 1-star reviews are seen as more legitimate.12
GETTING FROM POINTS A(MAZON) TO B(ARNES & NOBLE)
How do prices compare between the big two? A study (Chevalier and Goolsbee) collected Amazon and BN.com data for 18,000 different books during three different weeks in 2001. They determined that there was significant price sensitivity for online book purchases at both sites. But the demand at BN.com was much more price sensitive—both to its own prices and to Amazon’s prices—than at Amazon.4
A one percent increase in a book’s price at Amazon reduced sales by about 0.5 percent at Amazon but raised sales at BN.com by 3.5 percent, implying that (based on the 4-to-1 ratio in sales) every customer lost by Amazon instead bought the book at BN.com. Conversely, raising prices by one percent at BN.com reduced sales about 4 percent but increased sales at Amazon by only about 0.2 percent.4 Therefore, a customer lost by Amazon would usually wind up buying the book at BN.com, whereas a customer lost by BN.com would not necessarily go to Amazon. If BN.com keeps its prices right, they can steal away a lot of Amazon traffic.
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