Macmillan CEO Fires First Shot in eBook War Against Amazon.com

Th eBook War has begun.

On January 30, Macmillan CEO John Sargent took the unusual step of going public in his company’s dispute with Amazon.com. To explain why Macmillan’s books were taken off of the Kindle and Amazon.com, Sargent took out an advertisement in Publishers Lunch, an increasingly influential blog that covers the publishing industry.

The heart of the war is increasing tensions between publishers and Internet retailers such as Apple and Amazon over the pricing of books in the digital age, an issue that I focused on in my BusinessWeek feature, eBooks: Averting a Digital Horror Story. Amazon has deeply discounted ebooks, typically charging $9.99, and sometime going as low as $7.99. However, publishers don’t take a loss. They are typically paid about half the hardcover’s retail price, whether a digital book or hardcover is sold. But Amazon has been pushing to pay them less, and many publishers think cheap digital books undervalue their product and will open the door to lower industry revenues in the future.

That’s the problem that Sargent tackled in his note. In the ad, Sargent proposes moving to a different business model in which publishers set the price of ebooks and split the revenue with retailer, with the publisher keeping 70%, and 30% going to the retailer.

This is precisely the type of business model and revenue split that Apple is reportedly offering publishers who offer ebooks on its new iPad tablet computer. The growing battle between Amazon and Apple over digital content distribution is going to be one of the most important tussles of the Digital Age. It will shape the future of electronic culture. This is just the beginning.

And publishers should be careful what they they wish for. Many publishers are worried that Amazon will end up with the same kind of pricing power in books that Apple has in music, and that the book industry will suffer the same kind of bruising decline. Now, with the iPad, they are clearly trying to use Apple as a wedge in that fight. But as Tim O’Reilly told me, Apple could very well end up being the dominant player in ebooks.

One reason: More than 50 million people have the company’s iPhone or iPod Touch, which can be used to read digital books, compared with just four million who have electronic book readers. O’Reilly says his company is generating far more sales from Apple customers than Kindle users. O’Reilly currently offers 500 books on the iPhone, compared with 350 Kindle titles. Another 500 iPhone titles are in the works. the iTunes/App store and the iPad.

Whether one company will end up benefiting content providers more than another over the long run is the big question.

Check out Sargent’s letter:
Editors’ note: This message ran as a paid advertisement in a special Saturday edition of Publishers Lunch

To: All Macmillan authors/illustrators and the literary agent community
From: John Sargent

This past Thursday I met with Amazon in Seattle. I gave them our proposal for new terms of sale for e books under the agency model which will become effective in early March. In addition, I told them they could stay with their old terms of sale, but that this would involve extensive and deep windowing of titles. By the time I arrived back in New York late yesterday afternoon they informed me that they were taking all our books off the Kindle site, and off Amazon. The books will continue to be available on Amazon.com through third parties.

I regret that we have reached this impasse. Amazon has been a valuable customer for a long time, and it is my great hope that they will continue to be in the very near future. They have been a great innovator in our industry, and I suspect they will continue to be for decades to come.

It is those decades that concern me now, as I am sure they concern you. In the ink-on-paper world we sell books to retailers far and wide on a business model that provides a level playing field, and allows all retailers the possibility of selling books profitably. Looking to the future and to a growing digital business, we need to establish the same sort of business model, one that encourages new devices and new stores. One that encourages healthy competition. One that is stable and rational. It also needs to insure that intellectual property can be widely available digitally at a price that is both fair to the consumer and allows those who create it and publish it to be fairly compensated.

Under the agency model, we will sell the digital editions of our books to consumers through our retailers. Our retailers will act as our agents and will take a 30% commission (the standard split today for many digital media businesses). The price will be set the price for each book individually. Our plan is to price the digital edition of most adult trade books in a price range from $14.99 to $5.99. At first release, concurrent with a hardcover, most titles will be priced between $14.99 and $12.99. E books will almost always appear day on date with the physical edition. Pricing will be dynamic over time.

The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short-term profitability but rather about the long-term viability and stability of the digital book market.

Amazon and Macmillan both want a healthy and vibrant future for books. We clearly do not agree on how to get there. Meanwhile, the action they chose to take last night clearly defines the importance they attribute to their view. We hold our view equally strongly. I hope you agree with us.

You are a vast and wonderful crew. It is impossible to reach you all in the very limited timeframe we are working under, so I have sent this message in unorthodox form. I hope it reaches you all, and quickly. Monday morning I will fully brief all of our editors, and they will be able to answer your questions. I hope to speak to many of you over the coming days.

Thanks for all the support you have shown in the last few hours; it is much appreciated.

All best,
John

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The Coming E-Reader Shakeout

Fresh from his first Consumer Electronics Show, here’s my colleague Doug MacMillan’s new story about the growing number of electronic reading devices:

Johnny Makkar is intent on buying a digital book reader. Yet he won’t consider any of the more than two dozen new devices introduced in recent months, many of them at the just-completed Consumer Electronics Show (CES) in Las Vegas. For Makkar, a resident of Fairlawn, N.J., with a background in marketing, only two manufacturers will do, and one has yet to unveil a reader. “I want the e-book buying process to be as effortless as possible,” says Makkar, 26. “Only Apple or Amazon are going to be able to provide that.”

Standing out may prove challenging for many new entrants to the market for e-readers, expected by Forrester Research to double to 6 million devices this year. “Half the e-readers that have been announced [at CES] won’t be around a year from now,” says Forrester analyst James McQuivey.

Click here to read the rest of the story.

Inside Amazon.com’s Love-Hate Relationship with Book Publishers

e-Books: Averting a Digital Horror Story
Amazon.com’s growing might and the sizzling success of the Kindle has publishers terrified. Hachette, Harlequin, and others are fighting back

By Spencer E. Ante

On Christmas Day, for the first time in its history, Amazon.com (AMZN) sold more digital books than the old fashioned kind. It was a watershed moment for the book industry—but it’s scaring the hell out of traditional publishers. Even though they make the same amount on sales of both kinds of books, they see Amazon’s digital dominance as a looming threat to their business, and with good reason. Their big worry: Amazon will end up with the same kind of pricing power in books that Apple has in music, and that the book industry will suffer the same kind of bruising decline.

One goal for publishers is to dilute Amazon’s power. Hachette is selling e-books through more than a dozen partners, including Sony, Apple, and small retailers such as Fictionwise. By partnering with multiple outlets, publishers hope to regain control over pricing and gather purchasing data that could fuel future sales. They’re unhappy Amazon has dropped the price of some new digital best-sellers to as little as $7.99, compared with $35 for hardcovers. Hachette and Simon & Schuster plan to delay the release of certain digital books for several months to avoid undercutting the sale of best-sellers. “We are giving away the family jewels,” says David Young, chairman and chief executive of Hachette Book Group, which publishes authors Malcolm Gladwell and Walter Mosley.

Publishers are typically paid about half the hardcover’s retail price, whether a digital book or hardcover is sold. But Amazon has been pushing to pay them less, and many publishers think cheap digital books will open the door to lower industry revenues in the future. Amazon, for its part, says publishers’ concerns are overblown. “We are selling a lot of books for publishers. We feel like that relationship continues to be a good one,” says Ian Freed, Amazon’s vice-president for the Kindle business.

Read the rest of the feature and see pictures here at Businessweek.com

New Amazon Review: “Creative Capital is a Must Read If You’re In Business Today”

Check out a new customer review of Creative Capital, just published on Amazon.com.

Creative Capital is a Must Read If You’re In Business Today
By Carole Gunst “loves to read” (Boston, MA)

Spencer Ante has done a wonderful job writing the life story of General Georges Doriot, respected Harvard Business School professor, military general, and the father of venture capital. I had the good fortune to hear Spencer, who also writes on business for Business Week magazine, speak about Doriot’s story at the French Library in Boston before I started reading the book. His stories about the man who was so influential for U.S. business were fascinating. Here are a few of Doriot’s quotes that he pulled from the book to share with us:

* “A real courageous man is a man who does something when no one is watching him.”
* “If information is to be exchanged over whiskey, let us get rather than give it.”
* “You will get no where if you do not inspire people.”
* “Always remember that someone somewhere is making a product that wil make your product obsolete.”

From the stories about Doriot’s early introduction to entrepreneurship as the son of a Peugot engineer, to Doriot’s entry into Harvard Business School, to the importance he played with R&D during World War II which taught him how to become a venture capitalist to the part he played in the starting up of Digital Equipment Corporation, this book remains fascinating.

If you are in business today or would like to be, this is a must read from a great writer about a visionary business thinker. I think you’ll agree that Doriot really pioneered the transition of U.S. business to an economy built on entrepreneurship an innovation.

Amazon: Turning Consumer Opinions into Gold

Here’s an interesting story I wrote about Amazon.com for this week’s big How We Buy Now package in BusinessWeek. Amazon has developed an excellent reputation for customer service and this story provides some insights into their strategy for developing customer loyalty, which is based around harnessing customer passion.

Amazon: Turning Consumer Opinions into Gold
The Web giant’s cache of consumer-generated reviews lures ever-more shoppers, who increasingly research products before buying

By Spencer E. Ante

When Amazon.com (AMZN) first began letting customers post reviews of products in 1995, many people thought the Internet retailer had lost its marbles. Letting consumers rant about products in public was a recipe for retail suicide, critics thought. Now, almost 15 years later, customer reviews are as common as hyperlinks, and a retail Web site that does not have feedback loops is considered passé or irrelevant. In fact, more than 5 million consumers have posted tens of millions of reviews on Amazon.com, says the Seattle company.

Amazon’s review program reflects a new reality for the way consumers shop in the Digital Age: The Internet has become the world’s greatest research tool, and consumers hardly buy anything anymore without first getting the skinny online. Some 70% of Americans say they consult product reviews or consumer ratings before making a purchase, according to an October 2008 survey by Penn, Schoen & Berland Associates, a research and consulting firm. Amazon has played a central role in the change in consumer behavior by being the first successful Web retailer to embrace consumers’ views. “What we try to spend our time on is harnessing customer passion,” says Russell Dicker, Amazon.com’s senior manager of community.

Click here to read the rest of the story.

At Amazon, Marketing Is for Dummies

Here is a story I wrote in this week’s Top 100 Brands cover story about Amazon’s counter-intuitive and very effective branding strategy.

At Amazon, Marketing Is for Dummies
Instead of lavish ads, it invests in technology and distribution—and the results are startlingly effective
By Spencer E. Ante

The world’s best-known companies typically spend hundreds of millions of dollars a year on advertising and marketing to build their brands.

Not Amazon.com. The giant online retailer has created one of the world’s strongest brands by eschewing conventional tactics. Instead of shelling out big bucks for lavish trade shows and TV and magazine ads, Amazon pours money into technology for its Web site, distribution capability, and good deals on shipping. The result: a smooth shopping experience that burnishes the company name. “It is pretty unprecedented that their brand has ascended so quickly without a large marketing budget,” says Hayes Roth, chief marketing officer at brand consultant Landor Associates. “It’s not about splaying their logo everywhere. They are all about ease of use.”

Check out the rest of my BusinessWeek story here.

The Kindle: A Platform That Can No Longer Be Ignored

The big news today is that Amazon released the new version of the Kindle, its electronic reader. I’ve been a big critic of e-books for years but it’s clear that Amazon is changing the game for e-books, perhaps in the same way that Apple changed the game for digital music. And that means authors–and the publishing industry–can no longer afford to ignore the Kindle.

This would mark a huge shift in attitude and practice. I remember back in 2000, after I wrote my first cover story for BusinessWeek on Napster, Random House editor Jonathan Karp made me an offer to do an electronic book about Napster. I passed on the opportunity primarily because my goal was to write a real book, i.e. a book that you could hold in your hands and show off on a bookshelf. I also passed because the money was not huge and it wasn’t clear to me that people even wanted to read books in a digital version.

Now, the tables have turned big-time. Amazon won’t say how many Kindles it has sold but estimates put the number around 500,000. Also consider that Amazon underestimated the demand for the Kindle because it quickly sold out and has been out of stock pretty much since last November. If the 500,000 number is true, that would mean Kindle outsold the first iPod in unit numbers by 32%, according to Citigroup analyst Mark Mahaney. In addition, Mahaney now estimates that Amazon will sell 1 million more Kindles this year, and another 3.5 million in 2010.

Add it all up and we could have 4 million Kindles in the market pretty soon, and that, thanks to Amazon’s huge and loyal customer base, Mahanney says “it’s not too hard to see 10 million Kindles sold one day.” Can you say PLATFORM???!!!

The stigma about e-books is going away. People are starting to read them as the technology improves. And now readers are, gasp, starting to actually request electronic versions of a book! A few weeks ago, I had lunch with a very smart venture capitalist. I asked him if he had read my book, Creative Capital. He said he wanted to buy it, and then he asked, “Is it on the Kindle?”

“No,” I said sadly. “I am looking into it now.”

This is true. I am in talks with my publisher Harvard Business School Press to create a Kindle version of my book. The main challenge is over the rights issue. Depending on what rights you have negotiated, authors and publishers may need to renegotiate permissions to receive rights to publish certain photos and text for the digital world.

So here’s the deal. Thanks to Amazon and the Kindle, e-books have gone from the “can afford to ignore” category to the “I am looking into it” category, and now are entering “I have to have it” bucket.

I think this should be good for readers and the publishing industry as a whole because it represents another outlet and market. But the transition may be a little bumpy as business models could be disrupted, and publishers become concerned that they are getting dis-intermediated out of their core business by technology companies.

But hey, it was inevitable that a technology that is thousands of years old would eventually give way to new forms of reading. And now that future has finally arrived.

Caveat Author: Two Readers Have Spoken

One of the great (and potentially humiliating) things about Amazon.com is that its Web site enables absolute strangers to publish reviews of your book. Caveat author.

In April, one of my friends wrote the first review of my book on Amazon. I was thrilled–especially because she liked it and made me see the book in a new light. The funny thing is I didn’t ask her too. She did it completely on her own volition, without any bidding from me.

Well, after reading her post, I started to get ancy about those darn reviews. I wanted more of them. I began to compare the number of reviews my book had generated with other books I’d been following. Amazon has a knack for exposing your insecurities as an author–writers’ obsession with the Amazon’s sales rankings is only the most obvious illustration of the site’s quasi-evil ability to inspire high anxiety.

So I began asking a few other family members to pen an Amazon customer review. I pitched the task as a sort of family obligation. The result: deafening silence and inaction. As I checked my sales ranking in April and May, that lonely review became a thorn in my side. In June, though, I started to kick my daily addiction to the Amazon author page. Now, I only check my site once or twice a week.

Here’s the happy ending: While I regained some balance in my life, two people published reviews of my book on Amazon like little elves in the night spreading happiness and joy. The first review from Harvard Business School student Franklin J. Seker came on July 7; and the second, from HBS student B. Beatty, popped up July 9. Thankfully, my patience was rewarded: both gave Creative Capital five stars. See the two reviews below:

An inspirational mentor — General Doriot, July 9, 2008
By B. Beatty “cirencester” (Winston-Salem, NC United States) – See all my reviews

I was in the General’s class at HBS in 1961. When he discovered that I was an active duty military officer, he took an obvious personal interest in me (although he did not call me “Bernie”, as he called Samuel Bodman “Sammy”). Nevertheless, I will never forget the inspiring interactions with him and his varied guests from many walks in life, including Jackie Cochran, pioneer aviator. The author has done a first-rate job of pulling together details that shed light on a great man, as well as his wife. I finished the book in record time.

HARVARD BUSINESS SCHOOL’S BEST, July 7, 2008
By Franklin J. Sekera – See all my reviews

I was General Doriot’s student at Harvard in 1960. He and his views had a profound impact on my life, both in business and personally. His emphasis on ethics, patience, creativity and freedom led me, in my various roles in life, to pass on these same qualities to all my associates.
The book is well written and provides a useful insight on the private man. It’s too bad that this information was not available in 1960.

The New Bar Money: Amazon’s Associates Program

In mid-February, I joined Amazon.com’s Associates program, an affiliate marketing system that lets you receive referral fees for sellling Amazon products. Around the same time, I had bought a bunch of Google keywords. Google is a great marketing vehicle but it has one flaw: There was no way to track sales conversion, or the rate at which people who clicked on my Google text ads actually bought the product I was selling.

That’s what led me to Amazon Associates. I became a member of the program because it allowed me to track sales of my book by placing a bit of Amazon referral code on my blog. So after two months here are the results. I sold nine copies of Creative Capital and two other books, netting $13.13 in referral fees.

Clearly, it’s not enough to pay the rent but it is good enough for a few drinks at the bar. Another interesting point: The conversion rate is pretty high. Out of the 54 people who clicked on the link to my book on Amazon, 11 chose to make a purchase. That comes out to 20.37% conversion rate–an incredibly high rate. To me that shows the power of a blog. People who visit your blog are really motivated to make a purchase. See the report below from Amazon:

Earnings Report Totals
January 25, 2008 to April 25, 2008

Items Shipped Revenue Referral Fees
Total Amazon.com Items Shipped 10 $210.04 $12.17
Total Third Party Items Shipped 1 $16.00 $0.96
Total Items Shipped 11 $226.04 $13.13
Total Items Returned 0 $0.00 $0.00
Total Refunds 0 $0.00 $0.00
TOTAL REFERRAL FEES 11 $226.04 $13.13

HOW TO BUY CREATIVE CAPITAL: To pre-order Creative Capital and get a 34% discount, click here and go to Amazon

My First Amazon Customer Review–5 Stars!

My friend Julie Chang posted a review of Creative Capital this week. And honest to god, I did not put her up to it, nor did I pay her!

1 of 1 people found the following review helpful:
WWII and Venture Capital History Lovers – A MUST READ!!!!, April 22, 2008
By J. Chang (New York, NY) – See all my reviews

Americans always talk of saving France during WWII, yet at the same time, here was an intriguing French immigrant who rose to be a top professor of entrepreneurship at Harvard Business School, a founder of the venture capital industry, founder of INSEAD the European business school and to top it all off- played a critical role in saving countless American lives in WWII by leading the innovation and production of quality military equipment and supplies.

Ante’s portrait is one of a driven maverick, visionary and Renaissance man who made an astonishing contribution to the war effort and modern business culture, and yet he seems very human and at times poignant. I was especially moved by Doriot’s tireless passion in helping American soldiers as well has his 48-year marriage to his wife Edna and how they spent their last years together.

I loved this book because it’s such an unusual and valuable contribution to our understanding of the 20th century. Doriot has been an unsung hero in many ways, and by bringing his life into focus, Ante weaves people and international events in a way that makes us see our world as ever more fascinating, multi-faceted and interconnected.