Barnes & Noble: Years Later & Still No Clue

As long-time readers of An American Editor know, I prefer to purchase my books at Barnes & Noble (B&N), largely so as to keep a competitor to Amazon alive. But I have to admit, even after years of struggling against Amazon, B&N still doesn’t have a clue and seems to not care that it is following a path of self-destruction.

Consider these past essays on AAE about B&N: On Mourning the Passing of Barnes & Noble (2014), B&N in a Fantasy World (2014), Can Barnes & Noble Be Saved? (2013), and And Then There Was One: Barnes & Noble’s Lack of Customer Service (2012). You would think that by now, especially with all the troubles that B&N has had, a light bulb would come on and B&N management would have an epiphany: “We need to greatly improve our customer service, because our poor customer service is what keeps us down!” Alas, dimwittedness continues to prevail.

I preorder a lot of hardcovers. At the beginning of last week I had 17 hardcovers on preorder and another dozen I have been thinking about. Last week I received four of those 17 hardcovers, in addition to two hardcovers in addition to two hardcovers that I read about or saw an ad for that I ordered. Six hardcovers purchased and received last week alone. In addition, I added 11 more hardcovers to my list of books that I want to preorder but have not.

And therein begins my tale, with one of the preorders I received last week: “Strange Gods: A Secular History of Conversion” by Susan Jacoby.

I preordered the book many months ago. At the time of the preorder, the price was an undiscounted $30.00. Because it was an early preorder, I didn’t worry about the price, because I (wrongly) assumed that if the book was discounted, B&N would bill me the discounted price. I wanted the book and if it wasn’t discounted, well, I’d pay the $30.00.

When the book arrived, I looked at the invoice and saw it was for $30.00. So I decided to check B&N’s website to see if that was the correct price. It wasn’t. B&N was selling the book for $20.63 — a $9.37 discount. Had the difference in price been a few cents, I would have let it go, but the difference was too much to not call B&N customer service.

I called B&N and the representative told me that “as a one-time courtesy” they would refund the difference but that it is B&N’s policy “not to match prices.” Match prices? I was not asking B&N to match a competitor’s price; I was asking it to sell me the book for the price B&N itself was selling the book, not the inflated preorder price. I thought perhaps I was not getting through because the representative was clearly not a native American English speaker, so I asked to speak to a supervisor.

Even the customer service supervisor seemed to have no clue. She began repeating the excuses the original representative gave — none of which were pertinent, such as “the preorder price depends on inventory, depends on number of preorders, and depends on the publisher” — and then repeated the words, “as a one-time courtesy.”

Unbelievable. I stopped the supervisor and asked, “If this is B&N’s policy, why would I ever preorder a book from you? You do know, do you not, that your biggest competitor, Amazon, offers a preorder price guarantee; that is, if I preorder a book I will be charged the lowest price that Amazon advertised the book for between the time of preorder and the time of delivery?” A waste of breath because she started to repeat the excuses, beginning with “Barnes & Noble doesn’t match prices.”

I decided to give it one more try. I said: “Does it make sense that I can return this book to you at your cost and get a full refund and then reorder the book at the discounted price, which you will ship to me at no charge? If I do that, you will have paid the cost of shipping three times rather than once, and thus lose even more money.” The supervisor’s response was that it is B&N’s policy not to match prices.

I gave up.

I know that contrary to what our Supreme Court has declared, corporations are not human; they are inanimate objects that cannot think. Consequently, they rely on human beings to do their thinking. And that appears to be the difference between corporations: some have smart humans doing their thinking and others not-so-smart, bordering on ill-informed, humans doing their thinking. Sadly, B&N continues to flail in the not-so-smart category.

It doesn’t take much of a light bulb to recognize that if you have a successful competitor who does X, you should be looking at X and figuring out how to make X yours. It doesn’t take much of a light bulb to see that good, credible, noteworthy customer-centric service is the one thing Amazon has going for it, the one thing that Amazon is really well-known in the marketplace for, the most important thing Amazon has that B&N does not have — customer-centric service.

It is not that Amazon never fails at customer service. I stopped buying from its subsidiary Woot a couple of years ago because of exceedingly poor customer service. But the Amazon that B&N competes with has a stellar reputation for customer service. Amazon has consistently said that it may not have the lowest price but it has the best customer service, and I know people who will vouch for that and have said they’d rather pay a bit more to Amazon and know they’ll get great customer service than save a few cents and risk poor customer service.

Is this a difficult concept? Not really. I would think any businessperson would know this, but then B&N management is the exception that proves the rule.

B&N is a struggling company that with a little bit of effort wouldn’t need to struggle so much. All it needs to do is change its culture by putting customers first. This was pointed out to B&N years ago, but even with changes in management it refuses to learn the lesson.

I am the customer that B&N needs and wants. I buy a book because I want it, not because of the price, and I buy hardcovers. I also preorder books, which tells B&N that it has a sure sale. B&N knows this (or should); all it has to do is look at my purchases in its databases. It’s computers must recognize me as a desirable customer because my membership has been renewed at no charge to me. The problem is getting B&N’s human staff to recognize what the computers recognize.

But B&N is driving me away. The customer service supervisor didn’t seem to care when I suggested that perhaps I should cancel all my B&N preorders and instead preorder the books at Amazon. I suspect she would have given me Amazon’s URL, thinking she was passing a problem customer to Amazon.

Years ago I said that B&N’s problem was very poor management. Even though there has been some management change, its poor quality seems to continue. If I were a shareholder, I’d be complaining loudly about how poor management is killing my investment by failing to invest in great customer relations. But I’m not a shareholder; I am just a customer who is thinking of jumping ship because I have had enough poor customer service and I am sure I can find some other bookseller who would like a customer who buys dozens of hardcovers every year.

Richard Adin, An American Editor

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On Mourning the Passing of Barnes & Noble

After this week’s news that Barnes & Noble has lost money yet again, I decided that perhaps I should begin thinking about writing B&N’s obituary. After all, I am a B&N member and I buy a lot of books from B&N and I will miss it when the last store and website is finally shuttered.

But I was told not to don my mourning clothes yet. B&N has a plan. Great, I thought, until I realized that the same people who have brought B&N to its knees are the ones with the plan to save it. Not very likely.

The problem with B&N is simple: management that cannot see even a baby step’s worth of distance in the future. There are any number of relatively simple steps that could bring B&N back from the precipice, but each would have to begin with a recognition that today’s management team needs to be gone yesterday.

Start with customer service. How poor can customer service be? I don’t know but B&N is surely leading the way. Consider what happens when you call customer service. If you are lucky, you get someone who speaks English like a native and without a thick brogue that makes them incomprehensible. You know you are in trouble when the representative calls you “Mr. Richard.” The reason this is a problem is that the reps do not understand the problem you are trying to convey and so insist on a solution that is no solution.

For example, I recently ordered a book from Amazon Canada. I had to order it there because neither B&N nor Amazon US was showing the book except in their marketplace and the marketplace pricing for a clean copy was double or more the price Amazon Canada was asking. (The book cost over $100 to begin with, even at Amazon Canada.) When I received the book from Amazon, it was the right book but not the advertised book. The advertised book was for the correct print year and did not state that it was a print-on-demand reprint; in other words, I thought I was buying an original copy.

I realized that because of the book’s age, all that would be available would be like this, so I wrote Amazon Canada and told them I intended to keep the book but that they should note on their website that the edition they were selling was a POD reprint. Within a few hours I received a reply thanking me, telling me that the information had been passed on to the appropriate people, and because I planned to keep the book, Amazon was refunding 25% of the price.

The book from Amazon was the first volume in a nonfiction trilogy. Volumes 2 and 3 were available from B&N, and so I ordered them from B&N. Volume 3 was just released, so it was not a problem. Volume 2 was released several years ago but not so long ago that I should expect a POD reprint — but that is what I got. So I called B&N customer service (sending an email is, I have found, an utter waste of time). I got one of the “Mr. Richard” representatives. I tried to explain the problem and explicitly said I planned to keep the book and that my only purpose in calling was so that they could adjust their website to indicate that it is a POD reprint. After all, this was another very expensive book and the website implies you are getting an original.

I might as well have been talking in a hurricane for all that the representative either understood or cared. The rep “resolved” the problem by ordering another copy be sent to me because he agreed that website did indicate it was not a POD reprint that was being offered. I tried to prevent this, but after a few minutes, I gave up. I received the second copy of the POD reprint and sent it back with a detailed note indicating what was wrong and what I thought they should do. And so the tale ends.

There was no follow-up from B&N and the rep didn’t understand the problem or the solution I was suggesting. (He did say that there was nothing he could do about the website. Apparently that includes notifying anyone of an error at the site.) Bottom line is that B&N customer service continues to be an example of what not to do and Amazon continues to be an example of what to do. This same complaint about customer service was made several years ago on AAE and elsewhere and the same management team continues to do nothing.

The second place for B&N to go is to improve the interaction between buyers and B&N. B&N needs to be innovative, especially when it comes to its members. How difficult, for example, would it be to let members create a list of authors in which they are interested and for B&N to send a monthly email saying that a new book by one of my listed authors has been announced; click this link to preorder.

Along with that, B&N should guarantee that the preorder price is the highest price I would have to pay (which it B&N already does do without saying so) but that should at anytime before shipment the price be less, B&N guarantees that the lower price will be the price I will pay. As it is now, because I preorder books months in advance, I need to constantly recheck and if a price is lower, I need to cancel my existing preorder and re-preorder. Can B&N make it any more inconvenient for the customer?

In addition, B&N should be sending me monthly emails telling me of upcoming or newly released (since the last email) books that are similar to books I have previously bought. I know they have the information because both online customer service and the local store management are able to peruse books I have bought. To entice me to buy from this list (or even to preorder), B&N should offer me an additional 10% discount on the listed titles, which discount is good until the release of the next email and the next list of books.

Members of B&N are the prize for B&N. Members are likely to be those who buy exclusively or primarily from B&N and not Amazon and are the people who are more than casual readers. If you buy 1 or 2 books a year, you wouldn’t pay for a membership; it is people who buy a large number of books who pay for membership (e.g., just before writing this essay, I preordered 1 hardcover and ordered 2 others). So why not reward members based on their buying? For example, buy 15 books and beginning with the book 16, you will get overnight shipping or an additional 5% discount or something. Buy 20 books and get a gift certificate. Think up rewards that encourage more buying and offer those rewards to members. Make membership valuable. It isn’t rocket science.

Much (but not all) of B&N’s problems are from a mismanaged ebook division. Even though ebooks aren’t the bulk of sales, B&N should not be conceding the market. It doesn’t take much imagination to figure out how to improve sales or get more Nook loyalty. A simple way is to make it so that when a person buys the hardcover they can get the ebook for $2 more if they would like both options. Buy the first ebook in a trilogy and if you buy books 2 and 3 at the same time, you get book 2 for 50% off and book 3 for free. Maybe these won’t work but they are worth exploring and cutting special deals with publishers to make them happen.

The publishers have an interest in B&N remaining afloat. Should B&N shutter its brick-and-mortar stores, publishers will lose showrooms as well as major sales outlets. Publishers should create special editions available only at B&N. They should make shopping at B&N and at brick-and-mortar stores worthwhile. Make these deals available only through physical stores.

There are a lot of things that B&N — and publishers — can and should do to rejuvenate B&N. Unfortunately, these things require imagination, something B&N has in very short supply. Consequently, because I do not expect any miracles at B&N, I will continue to prepare its obituary. Maybe I’ll be fooled and my masterpiece will never see the light of the Internet; if so, I’ll be pleasantly surprised. But until B&N calls me and asks me for my ideas and calls other members and asks for their ideas, I won’t get my hopes up.

What would you do if given the opportunity to turn B&N around?

Richard Adin, An American Editor

B&N in a Fantasy World

The Amazon versus Hachette stories in the newspapers and the blogosphere started me thinking about Barnes & Noble yet again. (For those of you unfamiliar with the Amazon–Hachette dispute, it boils down to this: In a few months, the prohibition against agency pricing that came about as part of the settlement agreement between the U.S. Department of Justice and the big publishers expires. Amazon is trying to get Hachette to agree to a new division of fees — Amazon gets more, Hachette gets less — as a sort of preemptive strike to stop the reimposition of agency pricing. For the first time in its history, Amazon is under pressure to produce large profits and it sees as one avenue to doing so receiving a larger discount from publishers. Although the fight is currently over print books, most commentators see it as a proxy for ebooks. The speculation is that if Hachette succumbs, the other publishers will follow; if Hachette prevails, agency pricing is likely to be reinstated by all of the publishers.)

As many of you know, I buy a lot of books through B&N. In May alone, I received eight hardcovers from B&N and preordered several more. In looking at my list of preorders, I find that I currently have 11 preordered hardcovers and 18 that I am thinking of preordering. (I do not preorder ebooks. I only preorder books that I want in hardcover.) Since January 1, I have purchased (and received) another 21 books from B&N.

In my fantasy world, B&N cares very much about me as a customer. In the real world, B&N cares for me as much as Amazon does, which isn’t a whole lot. Yet with the Amazon–Hachette dispute, B&N has a golden opportunity to strike a blow for its own special relationship with its customers. Alas, if history is any guide to the future, this will be another opportunity that B&N misses.

So let’s look longer term than what B&N could do tomorrow while the Amazon–Hachette dispute festers. What is it that I, as a regular customer of B&N, would like that would entice me to spend even more money at B&N (and also might be appealing enough to draw in new customers)?

A fundamental rule for all businesses is that to survive and grow you need not only new customers, but you need to retain existing customers. B&N doesn’t do a great job at either.

Both Amazon and B&N use some algorithm that, when you buy a book, says “customers who bought this book also bought”. Who cares? I don’t care what someone I don’t know bought, especially when the suggested books are so unlike what I did buy. To me, it is like the anonymous reviews or the reviews by IAteMyTongueYesterday.

Instead, I would like to be given opportunities to (a) have forthcoming books by the author automatically preordered for me with (b) a guarantee that I will pay only the lowest price at which the book is offered by B&N and (c) with the opportunity to cancel the preorder before the book is shipped. This would be particularly valuable because customers would no longer need to remember to keep checking to see whether an author has a new book coming out.

I would also like to be able to create a custom newsletter that would keep me abreast of new releases in particular areas. Now I can sign up for broad categories but I want to be able to narrowly focus. I want to be able to say, for example, “World War II history, European theater” of “Fantasy but no vampires or time travel.” I also want to be able to set the frequency. Personally, I would opt for once a month; weekly is far too often for me.

It happens that I am also a member of B&N. With the number of books that I order, it is worth the $25 annual fee to save on the shipping. But except for the shipping savings, being a member is a pretty useless thing at B&N if you shop online. (It isn’t that valuable if you shop in the stores, either.) There area no member discounts or specials online; just the saving of the shipping charges and the getting of “express” shipping, which isn’t all that express.

Now, while Amazon and Hachette (and subsequently the other big publishers) fight over terms and Amazon cuts access to Hachette books, B&N should enhance its membership — give inducements to become a member and to shop at B&N.

I recommended a long time ago that B&N cut deals with publishers to offer a very significant discount on the ebook version of a book if a customer buys the hardcover version. Or, twist it around and offer a significant discount on the hardcover version to the ebook buyer. That’s one inducement that would work with someone like me. But there are a lot of people who are uninterested in having a second copy of a book, even if in a different format.

Perhaps the way to do it is to give members reward points. One point for each dollar spent on books and ebooks, with the points redeemable for a B&N gift card or as a discount on a future purchase.

The point is that B&N needs to quickly figure out some way to immediately take advantage of the Amazon–Hachette spat. It also needs to come up with some ways of inducing book buyers who are currently buying from Amazon to buy, instead, from B&N. Although B&N will not move those who are in lock-step with Amazon, there are a lot of book buyers who are open to shopping elsewhere.

And B&N has to move because its big box competitors, like Walmart, are attempting to woo those same Amazon customers with steep discounts on Hachette books. The odds are long — very long — against B&N doing anything but blowing this opportunity, but one can hope.

Richard Adin, An American Editor

 

Worth Noting: The Business of Editing Now in Kindle Format

Some good news for those waiting for the Amazon Kindle version of The Business of Editing — it has arrived! Here is the link:

http://www.amazon.com/Business-Editing-Effective-Efficient-Prosper-ebook/dp/B00GWU2AC8/

Coming shortly is a hardcover version of The Business of Editing.

Here are links to the other options for buying the book. For the print version of The Business of Editing, go to:

1. Waking Lion Press at http://www.wakinglionpress.com/businessofediting.htm or
2. Amazon at http://www.amazon.com/Business-Editing-Richard-H-Adin/dp/1434103692/ref=sr_1_1?s=books&ie=UTF8&qid=1385545644&sr=1-1&keywords=the+business+of+editing
3. Barnes & Noble at http://www.barnesandnoble.com/w/the-business-of-editing-richard-h-adin/1117405104?ean=9781434103697

For the ePub version of The Business of Editing, go to https://www.swreg.org/com/storefront/47578/product/47578-23

Can Barnes & Noble Be Saved?

With the release of both Amazon’s and Barnes & Nobles quarterly figures, which include the 2012 holiday season, the blogosphere has been rife with posts foretelling the demise of Barnes & Noble. I find it interesting that Amazon’s results weren’t much better than B&N’s (according to Businessweek, Amazon earned one-half cent for each dollar of revenue), yet investors continue to support Amazon and blast B&N.

I suppose the reason for the different treatment by investors is that Amazon has a broader range of goods for sale and that investors think eventually Amazon will be able to increase margins by raising prices as soon as Amazon can force competitors out of business.

So, what it boils down to is what can B&N do to revive its fortunes? Can its fortunes be revived?

As it stands today, pessimism is probably appropriate for B&N. Mitchell Klipper, B&N CEO, Leonard Riggio, chairman, and management crew have shown that they are incapable of forward or strategic, or maybe even tactical, thinking. Yet they remain in control of B&N.

It was not so long ago that my wife and I visited our local B&N nearly every week. We rarely left the store without purchasing at least a couple of books, and my purchases were always hardcovers (my wife would buy both hardcovers and paperbacks) — and that was in addition to what I would buy online at B&N and to my ebook purchases. But Klipper and his predecessor have done everything they can to turn me away from B&N stores.

First, they did away with the discount that membership gave me. The first time was by the refusal to sell me Nooks with a member’s discount. The tale then told was that the Nooks were already being sold at cost (remember when the first Nook was sold for $249?). So for the same price, I bought Sonys, which were better devices and bought ebooks at the Sony store and Smashwords instead of B&N, because B&N ‘s DRM was incompatible with my Sonys (although B&N could have made them compatible). It wasn’t long after that Amazon began cutting the price on its Kindles and B&N began cutting the price on the Nook. Riggio and Klipper should have given that discount to members!

Second, they changed the discount members received. I bought hardcovers at the B&N store and received a 20% discount on adult hardcovers that were not already discounted. This was not as much a discount as was being offered at B&N online, but it was satisfactory and I bought more than 100 books a year at the local store. Then the terms changed — the discount became 10%. That wasn’t competitive at all, and so I stopped buying locally, shifting to online purchases.

Third, when B&N finally offered a reasonable deal on a Nook, I bought a Nook tablet. The tablet has been wonderful. In fact, it has become my preferred reading device. But the device has a terrible built-in flaw: the worst customer service imaginable. Even though I have spoken to several higher-ups at B&N about the customer service problems, nothing has been done. It hasn’t gotten worse, but it hasn’t gotten better.

Let me clarify this: The customer service I am referring to is the online customer service, not the customer service at my local store. My local store gives great customer service — as good as Amazon’s and perhaps even better — but it can’t give me the customer service I need for the Nook and Nook ebooks. Also, it is worth noting that I rarely have ever needed customer service for a pbook.

When I need to call B&N customer service, I know I am in for a runaround and an aggravating time. The Nook “technical” support people are so ill-trained and so lack product knowledge and so lack customer service common sense that they do not even warrant being called a joke — it would be an insult to jokes. And this is Klipper’s fault. Based on what I see as a customer, B&N places no emphasis on customer service and apparently little on training. As the CEO of B&N, Klipper should be making customer service the #1, #2, and #3 priorities. You cannot keep frustrating customers and expect them to keep coming back. At some point they will abandon you for the competitor who is viewed as caring. Some of us will hold on longer, but not because we love B&N; rather, because we do not want to see one company become so dominant that there is little market competition. That’s why I continue to buy at B&N.

Klipper and crew also need to become innovative. It is clear that they cannot compete with Amazon based on either price or customer service, so they need to be innovative. They need to increase reasons for Nook owners to visit stores; they need to increase the number of members they have and entice them into stores; they need to entice the general public into the stores.

There are things that they can do. For example, arrange with publishers and authors to exclusively offer limited numbers of first edition, first printing, signed copies of new books. Some of us are collectors and would be willing to pay for such books. Make it so that these limited edition books can be bought online for a minimal to no discount but if bought at the local store — even if having to be shipped from a warehouse — the buyer would get a 20% to 25% discount on the book but also the same discount on any other book purchased at the same time at the store.

Make membership truly worthwhile. Increase the price to $50 a year (from the current $25) but give the member a guaranteed minimum discount of 20% to 25% on everything purchased, whether in the store or online, and if purchased online, with free 2-day shipping.

Another thing that can be done is to offer a free copy of the ebook with the purchase of the hardcover. Nonmembers would pay full price for the hardcover but members would get a 15% to 20% discount (or receive a higher discount if they chose not to get the free ebook). Get a jump on Amazon by getting publishers to offer this arrangement exclusive to B&N (i.e., the free ebook with hardcover purchase) for at least 90 days.

B&N could also make it so that a Nook owner could visit the local store and check out books but buy, on the spot, only the ebook version using a special code that gives the Nook owner a discount off the normal ebook price because it is bought while in the store.

Because the Nook and ebooks are central to B&N’s future, really make the stores a place for Nook buyers. Have a problem with your Nook or a Nook ebook purchase? Come to your local store for real customer service. Train local staff to do real technical troubleshooting, not what is currently done when you call tech support, and authorize local staff to really resolve customer service problems, including giving refunds.

One thing that B&N should immediately implement is a new library system and a new option button. What I mean is this: Now when I buy an ebook, the ebook appears in my Nook Library. In the Library there are option buttons that let me, for example, download the ebook so I can save a copy locally and recommend or lend the ebook. B&N needs to add an option button that tells B&N to notify me when the author has published another book that is for sale by B&N. Additionally, my Nook Library should be changed to my B&N Library and should include all books — p and e — that I buy from B&N, whether online or in-store, each with the notify option button. The one thing that should not happen is that I receive notification for books by authors for whom I did not ask for notification. In that case, a good idea becomes a bad idea and spam.

Most important of all, spend some money on providing real online customer service. Fire your current providers/staff and start from scratch with people who speak English and do not read from a script.

Can B&N be saved? Yes. Will it be saved? Not unless it changes its attitudes and direction.

Bye Bye $9.99 and Price Competition in eBooks

The mantra for many ebookers over the past year or so was “get rid of agency pricing and bring back lower ebook prices based on competition.” These ebookers are ecstatic over the approval of the settlement terms in the Department of Justice’s lawsuit against five of the Agency 6 publishers and Apple by Judge Denise Cote on September 6, 2012.

I think it is way too early to celebrate and I think ebook prices of bestsellers will rise, not become lower.

To set the mood to say goodbye to $9.99, here is a song from the past — Don McLean singing his Bye Bye Miss American Pie:

Now that you’ve been entertained, let’s discuss why I think we can say goodbye to the $9.99 bestseller and to real price competition among the big publishing houses which control the majority of popular publishing today.

The first problem lies within the settlement agreement itself. As Judge Cote wrote (p. 10 of the Opinion & Order filed September 6, 2012), the publishers, although they cannot use agency pricing, which presumably means a return to the wholesale pricing of the preagency days, can “enter into contracts that prevent the retailer from selling a Settling Defendant’s e-books at a cumulative loss over the course of one year.” This is a threefold problem for consumers.

First, it means that publishers will be able to require Amazon (and/or Barnes & Noble and/or Apple and/or all other ebooksellers) to disclose both sales numbers and pricing, something that Amazon has been loathe to disclose even to its shareholders. Under the current system of no such requirement, a publisher knows how many of a title have been sold by Amazon because Amazon has to pay for each title sold. But what has not been known, and what every analyst wants to know, is whether the sales are profitable, not just how many units are sold. Analysts want to know whether Amazon has sold 1 million ebooks and made or lost $5 million from the ebook sales alone. And knowing that information, analysts can determine whether or not Kindle hardware sales are profitable — all information that Amazon has steadfastly refused to isolate.

This is problematic because if Amazon has to verify that over the entire line of, say, Macmillan ebooks it is making a profit — and note that it is over the entire Macmillan line, not over the combined lines of Macmillan and Simon & Schuster — Amazon will have to be very cautious about pricing. One cannot easily take a loss on a million-selling ebook in hopes that over the course of the next months it will sell enough ebooks from that publisher to end the year in profit. How likely is it that Amazon will take that gamble and reinstitute $9.99 pricing?

The second reason this is problematic for consumers is because the order essentially orders a return to the wholesale pricing scheme but sets no boundaries on that scheme. There is nothing to prevent the publishers from altering the discount rate or even giving a different discount rate to different ebooksellers. As part of its order, the court did away with the most-favored-nation clause, which said whatever terms you give X you must give me.

I know the response to this is that the publishers need Amazon more than Amazon needs the publishers. I think, however, that Amazon’s caving in to Macmillan when Macmillan demanded agency pricing demonstrates that it is the publishers who are in the catbird’s seat, not Amazon. Amazon is the seller of product and thus needs product to survive. Each of the Big 6 publishers controls a significant portion of the necessary product that Amazon cannot afford to do without. Besides, I expect that each of the publishers will come, independently, to the position of squeezing Amazon similarly, so Amazon will have little recourse, just as it had little recourse in the Macmillan dispute.

The third problem for consumers is that the answer to the worries of the publishers that brought about agency pricing is simply raising the list price of newly published books. The way publishers do this is to take an expected blockbuster and raise its price to the new price point and watch sales. If expected sales (or close thereto) occur, then the next expected blockbuster is given the same price point, and this is repeated until there is confidence that consumers are now expecting to pay the price point.

And this is already beginning. J.K. Rowling’s new book, The Casual Vacancy, a Little, Brown, imprint, has a new price point for a novel: $35. If you check Amazon and Barnes & Noble, you will find that the ebook price at both is $17.99 — a far cry from the previous bestseller price point of $9.99 at Amazon. And the $17.99 is a 49% discount off the list price, which means that the ebook is likely to be generating a 1% gross profit for the retailers, just barely meeting the condition in the settlement order. I see this as an indication that the ebooksellers are concerned about profitability over the entire Little, Brown ebook line over the coming year.

Under the agency system, it would have been expected that Rowling’s new ebook would carry a price no higher than $14.99.

There is also the question of whether Amazon has gotten used to actually making money on ebooks and is using the profit to subsidize the Kindle hardware. Nate Hoffelder raised this question in Did the Agency Model Lead to Cheap eReaders? at his The Digital Reader blog. Having made money on ebooks over the past year, how likely is it that Amazon will want to subsidize both the hardware and the content, perhaps taking a loss on both? At some point, Amazon has to show a profit to prevent shareholder rebellion. And now it has the perfect excuse to do so: Judge Cote’s approval of the settlement agreement that allows publishers to require Amazon to earn a profit on ebooks.

It is the combination of forces that have been unleashed by the approved settlement agreement that will result in no agency pricing for at least 2 years but, instead, higher prices for consumers and the end of the $9.99 bestseller price. We may occasionally see a bestseller being offered at the $9.99 price, but it will be the occasional bestseller, not all bestsellers as in the past. And if we watch prices, I think we will see list prices climb; it will be the rare bestseller that will have a list price below $30. Rowling is leading the way and if her book is a bestseller at $35, it won’t take long for other top-tier writers to insist on equal list pricing. That is how it happened in the past and how it will happen this time.

I may be wrong, but I doubt it. History does tend to repeat itself and the DOJ and Judge Cote have let loose a rising tide. Do you agree?

Are Free eBooks Killing the Market?

Every day I find another traditional publisher is offering free ebooks. Amazon has made a business out of offering free ebooks. And let’s not forget the many indie authors who are offering their ebooks for free.

What is this doing to the market for ebooks?

I admit that I may be atypical in my buying and reading habits, but I do not think so. I have watched my to-be-read (TBR) pile grow dramatically in the past couple of months from fewer than 300 ebooks to more than 1,100 ebooks. If I obtained not another ebook until I read everything in my TBR pile, at my current average rate of reading two to three ebooks per week, I have enough reading material for between 367 and 550 weeks or 7 and 10.5 years.

How has this impacted my buying of ebooks? Greatly! In past years, I bought ebooks regularly. Granted, I was buying mainly indie and low-priced, on-sale traditionally published ebooks, rarely spending more than $6 for an ebook, but I was spending money.

That has all changed. Now I rarely spend any money on an ebook. In the past three months, the only ebook I paid for was Emma Jameson’s Blue Murder, which is her sequel to Ice Blue (which I reviewed in On Books: Ice Blue), at $4.99. Otherwise, all I have done is download free ebooks.

I understand the reason for giving ebooks away for free. How else are authors to attract new readers? This is particularly true when one considers how many ebooks are published each year in the United States alone — more than one million. Some how one has to stand out from the crowd. But with the ever-increasing number of free ebooks, giving away ebooks is less of a way to stand out.

The problem is that too often all of the ebooks in a series (or at least many of the ebooks in a series) or older, standalone titles by an author are given away. All an ebooker need do is wait. Giving away the first book in a series makes a lot of sense to me. If I like the first book, I’ll buy the subsequent books. But when I see that if I have patience I’ll be able to get the subsequent books free, too, then I don’t rush to buy.

The giving away of the free ebooks has brought about another problem: the decline of the must-read author list. I’ve noted before that my must-read author list has signficantly changed over the past few years. In past years, I had a list of more than 20 authors whose books I bought in hardcover as soon as published; today that list is effectively two authors. My must-read ebook author list has grown, but that is a list of indie authors, not traditionally published authors.

Again, the problem is free ebooks. As a consumer, I like free. However, free has so radically altered my book-buying habits — and I suspect the book-buying habits of many readers — that I find it difficult to see a rosy future for publishers, whether traditional or self-publishers. It is because of this that I wonder what lies behind the thinking of publishers who give their ebooks away, especially those who do so in one of Amazon’s programs.

Publishers who participate in Amazon giveaways double hex themselves. First, they undermine their own argument that ebooks are valuable. Second, they antagonize ebookers like me who do not own Kindles or are not Amazon Prime members and thus unable to get those ebooks for free. I have seen so many ebooks available for free on Amazon that are not available to me for free as a Nook or Sony or Kobo owner, that I have simply resolved, with some limited exceptions, not to buy ebooks. Either I’ll get them for free or not at all.

The Amazon giveaways also tempt me to join the “darkside,” that is, if there is a book in which I am interested, to search for it on pirate sites. The publishers, by their action of giving away the ebook on Amazon, are enticing people to pirate by not making their ebooks free at all ebookstores. When publishers degrade the value of ebooks, their message is received by all readers and is acted on by many readers.

This is a no-win situation for everyone. Ultimately, even readers lose because the incentive to write disappears when there is little to no hope of earning any money for the effort. And even if authors continue to write, the quality of the writing will suffer because no one will see the sense in investing their own money in a product they are going to give away.

It is still early in ebook revolution, so no one really knows what eBook World will look like in a decade or two. But it is pretty clear to me that freebie programs like Amazon’s are detrimental to the overall health of the book market. Authors and publishers should rethink the giving away of their ebooks, other than, perhaps, the first book in a series, before they establish in concrete the reader expectation that “if I just wait, I’ll get it for free, so why pay for it now.” If nothing else, the giving away of ebooks is helping to depress the pricing of ebooks and perhaps driving some ebookers to the pirate sites. My own experience as a buyer of ebooks demonstrates this.

I know that ebooksellers like Amazon are reporting rising ebook sales, but the data I want to see are sales numbers without the one-shot blockbusters and the price levels. The current problem with sales data is that we are seeing only the macro information and so do not know what the real effect free ebooks are having on the market. We are also still in the era of growth in the number of ebookers. When that growth stops, we may get a clearer picture. In the meantime, I know that my spending on ebooks has declined from the thousands of dollars to the tens of dollars and is getting close to zero. I’m sure I’m not the only one who has experienced this decline in spending.

Why Aren’t Publishers Pushing eBooks?

In a post discussing a twit from author Brent Weeks, Nat Hoffhelder of The Digital Reader wondered, in his blog post “Not All of Us Drink a $4 Coffee, Mr. Weeks,” why publishers aren’t “trying to convert paper book buyers to ebook buyers,” considering that publishers make more money on ebooks than on mass market paperbacks. Setting aside the question of whether publishers make more money on ebooks than on mass market paperbacks, the question is truly piercing: Why aren’t publishers trying to convert readers to ebooks?

We can begin with the proposition that ebooks are clearly the tsunami of the future for reading. It is not that the demand for pbooks will disappear entirely, just that ebooks will become greater than a majority share of the book market. One would think that publishers would want to grab the brass ring early while they can still steer the market.

Under the current scheme of things, ebooks are a much better investment than pbooks for publishers. If I buy a pbook, I can share it with an infinite number of friends, none of whom has to buy his or her own copy as long as they are willing to wait. In contrast, assuming I don’t pirate the ebook, every one of my friends who wants to read the ebook has to buy a copy.

OK, I realize that I cannot just shunt aside the pirating problem as if it didn’t exist, but there is a certain reality to pirating — the very vast majority of readers do not pirate ebooks. Instead, they buy a copy and if they share it, it is shared only among immediate family, often by letting the family member borrow the reading device. It is a small number of readers who post pirated copies of books and a small number who go to the trouble of finding them and downloading them.

Offsetting, I think, what believe the cost of pirating to be — or at least a goodly portion of that cost — are that with ebooks, publishers have no physical inventory to maintain, no cost of returns (unsold and overinventoried pbooks are returned by booksellers), errors can be inexpensively fixed (i.e., books do not need to be destroyed and entire print runs lost; with ebooks, the errors can be fixed and the ebook replaced very inexpensively), and sales are certain (under the pbook wholesale model, the publisher sells pbooks to a bookstore but doesn’t know how much it will ultimately be paid for the pbooks because they are subject to returns by both the consumer and the bookseller; contrast this with how the ebook market works). I’m sure there are other offsetting features of ebooks.

The publishers have been focusing, I think, on the wrong numbers when they discuss pirating. They seem to focus on the number of books available rather than on the number of downloads. Haven’t the Harry Potter ebooks demonstrated the problem with piracy numbers? Before the release of the ebooks, pirated versions were available. But their availability doesn’t seem to have affected very much sales of the official-release versions.

Publishers should be pushing ebooks, trying to convert pbook readers to becoming ebookers. In fact, if publishers wanted to twist Amazon’s nose a bit, they could subsidize Barnes & Nobles’ Nook: Buy a Nook for $99 and receive $99 worth of popular books of your choice (not the publisher’s choice) published by XYZ Publisher. Yes, the publishers would probably lose a bit of money to start, but once people get in the habit of reading electronically, few, I think, would stop.

Electronic reading done on an ereader is addictive, or at least I, my wife, and our ebooker friends have found it so. We are reading at least twice the number of books we previously read, and we read a lot. What we are not doing is reading more of the Big 6’s books — in fact, we are reading significantly fewer of those books. The reasons are simple: the big publishers, often called the Agency 6, are not pushing us toward their ebooks but away from their ebooks by their overpricing and their use restrictions.

Yes, pricing is an old argument that keeps coming back, but the bottom line is that it is an argument that cannot be avoided. Brent Weeks’ new novel — regardless of how much time and effort he put into its authorship — simply is not worth $14.99 to many of us. He is not a must-read author. Each reader has his or her own set of must-read authors, that handful of authors for whom we will pay $14.99. But the kicker is that for many of us, we’ll spend that $14.99 on the pbook version, not the ebook version, because that is the way publishers are pushing us.

This is a strategic mistake. It would be better to push us to the ebook version at a significantly lower price so that we become accustomed to buying the ebook version at a “reasonable” price. I have found that my list of must-read authors has dwindled considerably over the past several years. The more ebook reading I do, the less pbook reading I want or am willing to do. Consequently, when a must-read author’s new book arrives, I rethink how “must-read” the author really is.

The more time I spend with my ereader, the less willing I am to pickup a pbook. Yet that unwillingness does not convert to a willingness to substitute the ebook for the pbook when the ebook costs as much or more than the hardcover pbook. Increasingly, I find that I just pass on that “must-read” book and the author becomes a former must-read author. My list of must-read-traditional-publisher authors has dropped from more than 20 authors to 4 — David Weber, Robin Hobb, Harry Turtledove, and L.E. Modesitt, Jr. — although I expect Hobb and Turtledove to be dropped from the list over the next few months. (I also have a list of ebook-only indie authors, like Emma Jameson, Michael Hicks, Vicki Tyley, Shayne Parkinson, Rebecca Forster, and L.J. Sellers, among others, who I consider must-read but whose ebooks are at bargain basement prices compared to what the Big 6 and Brent Weeks want.)

By not pushing ebooks, the Big 6 are shrinking their market rather than expanding it. They are losing a significant number of sales that they (and their authors) should be making. More importantly, from the publishers’ and the authors’ perspectives, they are causing must-read author lists to shrink. As I noted earlier, it is clear that growth in the book marketplace lies in ebooks. pBooks may have some small growth, but not enough to sustain the industry.

Interestingly, I think that if the Big 6 changed their focus and pushed ebooks, they could easily pickup some of the best indie authors and publish them in ebook-only versions. The biggest problem that the indie authors have that the Big 6 could solve for them is getting the word out that they have a new book available.

I think three changes need to be made. First, publishers need to wrap themselves around ebooks as their future and start pushing them and doing so by pushing readers toward ebooks.  Second, they need to come up with a way to make brick-and-mortar bookstores relevant as showrooms for ebooks. Failure to make these changes is likely to exacerbate the decline of the Big 6. Agency pricing at current levels is really only a stopgap measure, not a sustainable plan for the future. Third, the Big 6 have to change their attitude toward indie authors and start looking to become the publisher of the better indie authors by offering intensive, high-quality marketing (along, of course, with better royalties than the standard pbook royalty scheme).

Why Aren’t Kindles Free-Marketed?

In all the hullaballoo over agency ebook pricing and how terrible it is to not allow ebooksellers like Amazon to discount ebooks and sell them at whatever price they want, even if it is at a loss, ebookers haven’t questioned the lack of dynamic pricing of ereaders themselves, especially that of Amazon’s Kindles.

Consider this: Every store that sells an Amazon Kindle sells it for exactly the same price as Amazon and every other retailer. And when one retailer has it on sale for $20 off, so does every other retailer. (This is also true of the Sony, Kobo, and Nook devices.)

Why aren’t ebookers complaining about this price-fixing? No, I’m not suggesting there is collusion between the companies to prohibit discounting of the devices. Rather, I find it disingenuous that agency pricing, which is a form of price-fixing, is so disliked among some ebookers that they complain about it and want it banned, yet no one has complained about the lack of price competition when it comes to the device to read the ebooks. Why is it OK for Amazon to price fix but not Macmillan?

I’m sure the immediate response will be that there is no complaint because the prices on these devices have dropped to where they are now half or less of the original cost. If that is the key to salvation, then all Macmillan needs to do is drop the price of an ebook from $12.99 to $10.99 and ebookers should be satisfied — after all a drop in price is a drop in price — but I know that would not satisfy. Why? Because the argument would be made that the ebook price would be even lower if true free-market competition were allowed.

So why isn’t that the ebooker argument when it comes to the devices? I could see, for example, Staples offering a free Kindle with the purchase of a $150 paper shredder, or Target offering a 50% discount on a Kindle with the purchase of Stephen King’s newest novel. But we don’t see those sales because Amazon is not ready to sell at those prices itself and no one is allowed to undersell Amazon.

If the argument against agency pricing is legitimately one against price-fixing, why doesn’t the argument carry over to the devices? What makes it OK in one category of product but not in a related category of product? When agency pricing is attacked, it is usually on the basis that it has caused ebook prices to rise.

There has been no comprehensive pricing study done, that I am aware of, to determine whether the cost of ebooks has risen, fallen, or stayed the same since the introduction of agency pricing across the entire spectrum of ebooks published by agency-pricing publishers. I know, for example, that many of the ebooks I buy cost less under agency pricing and I also know that the prices of bestsellers that Amazon sold at $9.99 have risen under agency pricing. What I don’t know is whether across the spectrum of agency-pricing publishers’ ebooks, as opposed to niches, prices have risen, fallen, or stayed the same. I think this is important information to have so that we can intelligently determine whether agency pricing is consequential or inconsequential.

It seems fairly clear to me that opponents to agency pricing fall into a few groups. There is a small group of ebookers who are free-marketers and believe everything should be priced elastically, based on demand — the libertarians of the marketplace who oppose agency pricing because it is controlled pricing. A second group of opponents are those whose reading now costs more because they only read/buy books that fall into the niches where agency pricing has caused prices to rise, such as the Amazon bestseller niche. It isn’t so much that they are opposed to agency pricing as they are opposed to the increase in pricing and assume that Amazon would, if it could, charge a lot less for the books they want to read and buy in the absence of agency pricing. The third group assumes that because prices in one niche increased under agency pricing that all prices increased and thus are opposed to agency pricing because it caused a rising tide of prices.

These same arguments can be made when it comes to the devices: In the absence of Amazon price-fixing its Kindles, WalMart would sell the Kindles for less; there would be a Kindle price war between WalMart and Target; Staples would offer package deals; and so on. On this, I would think all of the anti-agency-pricing ebookers would unite to lambast the device price-fixing. But here silence reigns.

I’m sure someone will point out to me how different these products are; how one doesn’t have to buy a Kindle to read an ebook bought from Amazon; how, instead, one could download a free app and read the ebook on one’s computer or tablet. I’m sure the point will be made that you don’t need the Kindle but you need the ebook in order to read it. It’s all true, but doesn’t change the fundamental points:

1. There are no objective data to demonstrate whether agency pricing overall has raised, lowered, or done nothing to ebook prices except in niches.
2. There are no objective data to demonstrate that in the absence of Amazon’s device price-fixing that the Kindle would not be available for less, even free.
3. Whether price-fixing is OK or not OK should not be dependant on who is doing the fixing; that is, OK if Amazon is doing it, not OK if the big publishers are doing it.

Never discussed are what obligations the price fixers have, if any, to the consumer. Do publishers have an obligation to sell ebooks at price points that consumers want? Does Amazon have an obligation to free-market its Kindles?

Isn’t it interesting that without meeting ebooker demands as regards agency pricing the sales of agency-priced ebooks steadily grow? Isn’t it interesting that the freedom Amazon wants to price ebooks as it wishes Amazon isn’t willing to give to retailers of its Kindles? Isn’t it interesting that ebookers see no conflict in their demand for the end of agency pricing and their willingness to accept Amazon’s control of Kindle pricing?

We live in fascinating times!

Should Internet-Only Retailers Pay a “Showroom Tax”?

Not so long ago, Amazon encouraged consumers to go showroom shopping at local stores and then use a smartphone app to connect to Amazon to see if the item the consumer was interested in was available at Amazon for less. Essentially, Amazon was using brick-and-mortar (b&m) retailers as auxiliary showrooms. Needless to say, this didn’t go over well with the b&m retailers, especially the small, independent bookstores, and for good reason.

Of course, there is no practical way to prevent such comparison shopping by consumers. A b&m retailer can fight back by no longer carrying any Amazon-branded merchandise, which is the approach Target took, but that will, for the most part, be an exercise in futility — how many Amazon-branded products are there and how many are sold by the b&m retailer? Perhaps a smarter approach would be to assess a “showroom tax” on products sold by Amazon (used here as a euphemism for Internet-only retailers) and passing the tax receipts on to the b&m retailers either directly or indirectly. Such a “tax” (I am using the term tax very loosely; a term such as surcharge or fee or service adjustment or other similar-concept euphemism works just as well) would have Amazon contributing to paying the costs of maintaining a b&m store without chasing customers away because they openly are comparison shopping (which, it has been reported, some independent bookstores have done).

There are a couple of ways that a showroom tax could work. (Although I use Amazon as the example, the idea is for any Internet-only retailer to be charged the tax, not just Amazon.) I think the easiest way it could work would be if the wholesalers/manufacturers of goods that are sold to both Internet-only and b&m retailers charged and collected the tax and either used the proceeds of the tax to lower the wholesale price of the same goods sold to b&m retailers or provided b&m retailers with a rebate equivalent to the amount of tax collected.

Essentially, it could work like this: If Amazon buys/sells 100 Sony TVs, Sony would collect the tax (say $1 per unit) from Amazon in addition to the wholesale price. Then when Target buys/sells 100 Sony TVs, it would either have $1 deducted from the wholesale price of each unit or it would pay the same wholesale price but receive a rebate of $1 per unit.

The alternative would be to really make it a national (federal) tax that is collected by the government and then distributed to b&m retailers by way of a tax break that is available only to b&m retailers.

I realize it is not as simple to do as I make it appear, that we are talking about a fixed pool of money that would have to be divided equitably, and the per-unit tax would need to be of a sufficient amount so as to be meaningful, but it could be done. I don’t want to nitpick details; it is the broader concept that is of interest at the moment.

The argument will certainly be made that b&m retailers are not worth saving if they cannot compete effectively; after all, there is a cadre of ebookers who currently take that position as regards b&m bookstores. Many of those who make that argument see nothing wrong with Internet-only retailers making use of the b&m stores as free showrooms; a few ebookers have boasted that that is exactly what they do: visit a local b&m bookstore to check out an item and then order it online because the price is less or they save sales tax.

The problems with the ineffective competition argument are that it (1) compares apples with oranges, that is, the playing field for b&m and Internet-only businesses is not — and cannot be, as currently contrived — level, and (2) it assumes that if all retail went Internet-only the consumer would be better served, a proposition that has neither been field-tested nor proven and on its face strikes me as inherently incorrect. It is easier to accept with certain products, like books and music, than with others, such as TVs. (If you couldn’t showroom shop TVs, how would you determine whether you like the picture and features better on the Panasonic than on the Samsung or Sony LCD TV?) Even companies like Apple and Leica have found that showrooms are important sales tools.

Companies like Amazon are able to reduce their costs, and thus offer a lower price to the consumer, because they do not have to support b&m storefronts in order to sell their goods — someone else already has a b&m storefront where those goods are displayed, and that someone else absorbs all the costs of the b&m store. I’m not suggesting that this advantage of the Internet-only retailer is illegal or immoral; instead I’m suggesting that even Internet-only retailers recognize the importance of showrooming, as witnessed by their encouraging consumers to showroom shop locally but buy online to save money.

Such consumer behavior cannot (and should not) be forbidden, In fact, it probably should be encouraged, but only if the playing field is leveled. It is impractical to devise methods to force currently Internet-only retailers to become also b&m retailers. Besides how many more b&m retailers selling the same merchandise do consumers need? The issue isn’t purchasing options, which now exist in abundance; the issue is spreading out the costs of showrooming among all those who rely on it.

Local b&m retailers would be able to compete better with Internet-only stores if their overhead costs weren’t burdened with the extra costs that are part and parcel of having a physical presence that is open to the public. Because the Internet-only retailers rely on the ability of the consumer to see the merchandise at a local b&m, the showrooming effect, it seems appropriate that the Internet-only stores should share the cost burden of maintaining the b&m showrooms.

In a way, Amazon demonstrates the correctness of this approach of cost-shifting/sharing. When a consumer buys an ebook from Amazon, Amazon charges a delivery fee to the author. Unlike some other ebook sellers, Amazon doesn’t absorb the costs of delivery as a cost of doing business; instead, it takes ancillary costs like delivery off the top and then does its split with the author/publisher. The consumer doesn’t directly see this, but it is a factor that goes into (or should go into) the author’s calculation of the ebook’s price. Whether fair or not, by not absorbing all of the delivery costs, Amazon is able to charge less for ebooks than competitors who do absorb some or all of the delivery costs.

Similarly, by not needing to have b&m showrooms, Amazon is able to sell products for less because its costs are less, yet it is able to also take advantage of the showroom effect because it can encourage consumers to check out a product hands on locally and then buy for less online.

It seems to me that under the circumstances, Internet-only stores should pay a showroom tax to help support the b&m showrooms they rely on and to help level the playing field from a cost/price perspective.