While that is true, notice Amazon didn't mention the revenue from Kindle books, just the units sold. The majority of those Kindle sales could be from $0.99 bargain books. In a way that would be even better for Amazon because it means the Kindle is complimenting rather than cannibalizing its dead tree sales. Either way, it's a little early to believe Amazon is getting more revenue or profit from Kindle books than from dead tree books.
Also, running the Kindle store has placed a burden on Amazon it didn't have with dead tree sales. If the Kindle Store is anything like the iOS App Store, free books outsell paid books by 6-to-1 or more. So Amazon has to pay the digital distribution costs for a lot of books that bring in zero revenue. That adds up and can chip away the profit it makes on non-free books.
Consider that Netflix is making a profit providing hour(s) long HD videos for $8 per month.
Let's assume that Amazon isn't less competent in that area, with their AWS expertise and operating large-scale websites since 1995.
Given than I watch much more than 8 hours of video, it's safe to say that the cost of delivering an hour worth of video is less than $1. In fact, I remember reading (can't find a reference) than it's around 5 cents.
Let's assume that hour of video is 1GB and an eBook is 100kB.
Delivering more than 10 thousand ebooks (which is way more than most everyone will ever buy in their lifetime) probably costs Amazon about 5 cents and certainly well below $1 (even if you choose to nitpick and adjust my numbers).
That means that they need to sell three 99 cent books (at 30% profit) to cover their lifetime costs per customer.
Let's stop this talk about costs of delivering digital goods, and especially ebooks. Ebooks are a fraction of the size of music or video files and people download few ebooks once while they stream audio and video for hours and in case of music repeatedly and radio and video streaming services still manage to make a profit after paying huge royalties.
I could probably personally fund the cost of bandwidth to deliver ebooks for the entire population of the US and still afford a latte.
Delivering the goods is not the only thing that costs them money, and, likely, only a tiny fraction of the costs. Without further arguments one must assume that that DVD more or less has a similar size web page advertising it as a 99c book, that page gets the same number of views for every sale, help desk and accounting costs of a DVD are about equal to those of a 99c ebook, etc.
I do not know how large those costs are, but it might be possible to get an idea from Netflix data, if it is publicly available. How much profit do they make per $8 customer? I bet it isn't $7.95.
Does it make a difference that Amazon delivers e-books over a cellular connection I get for free, while Netflix delivers them over a cable internet connection I pay $100/month for?
I wrote some notes about the economics of delivering ebooks last year at http://lists.canonical.org/pipermail/kragen-tol/2010-October.... The short version is that yes, you can deliver a million ebooks for seven bucks, so you probably could underwrite the cost of everybody downloading ebooks — if they only downloaded the ones they read, at least.
Another important book vs film distinction: digital films/tv shows will increase in quality, so the files will get larger over time. However ebook files are not getting longer, since books (similar to movies) are not getting longer to read/watch. Bandwidth gets cheaper as the years go on.
Not just anyone can PUT a book on the Kindle Store for free. You either need to be a big publisher that has a deal with amazon, or they have to CHOOSE to price match free from somewhere else like smashwords. They recently did this with ~300 indie books, but in general the number of freebies is controlled and limited by Amazon
edit: I'd just like to say, getting down voted when stating facts amuses me to no end.
Considering Kindle books are probably hosted over s3, those costs are relatively marginal. Amazon charges third party S3 usage for storage/transfer in cents/gigabyte, presumably at some appreciable margin. Their revenue from a single 0.99c purchase can probably cover costs related to a copy of that one book, plus another four or five free ones, for a year or more. Even better if they have a single "canonical" copy that is encrypted for your device on the fly at download time.
I wonder how much this is true. I'm not doubting it, per se, but this is always argued when digital vs. analog comes up and I think it's a little presumptuous to say so. Let's consider this example:
1) It takes a big infrastructure to manage an eBook store. Amazon has to be able to deliver books at near instantaneous speeds. They have to deliver magazines and newspapers at a scheduled time (time is critical).
2) Amazon provides 3G delivery to (many of) its customers for free. It's not free for Amazon.
3) Amazon already has built up warehousing/delivery infrastructure and must maintain it because their retail business isn't going away. The cost of delivering a single book is not the same as for Barnes & Noble.
1) Bigger than having a bunch of warehouses spread all over the world, fully staffed, with logistics and inventories to worry about? It seems unlikely this is smaller than the infrastructure for digital deliveries.
2) "free" in the same way your coffee might be "free" with the purchase of a bagel...
3) True, but let's taked away all the fixed costs (and presume the warehouses would have existed anyways, which may or may not be true). There are still plenty of variable costs - storage space costs money, handling costs labour, and shipping cannot be escaped (and is expensive!)...
> Amazon already has built up warehousing/delivery infrastructure and must maintain it because their retail business isn't going away.
Amazon's retail business is expanding, and is currently building new facilities. Storing and shipping fewer books means less new warehouse space they must build.
|It takes a big infrastructure to manage an eBook store.
It also takes as big infrastructure to manage selling physical books. and the size of a book(900kb) is pretty close to the size of it's amazon product page.
|Amazon already has built up warehousing/delivery infrastructure and must maintain it
Amazon's retail business shows nice year-on-year growth, and probably can eat the extra capacity left by the book business.
Why not? Given that you don't need a big publishing house, there's still room in the business for folks who are experts in taking a written piece and putting it into the ebook retailers, plus promoting it. A lot of authors want to write, not deal with selling. An agent could do this for a few dozen authors and have a perfectly valid business, with happy customers.
Because they are offering little real value (the vast majority of value publishers really offered was the advance, which I haven't heard of these guys offering, and distribution which you can do as well yourself thanks to Kindle + Nook stores).
The one MAJOR cost left to self publishing if you are truly serious is editing, unless you are in a genre where stock image covers won't cut it. Giving up a % of sales revenue for the rest of time for a book considering the limited help they really offer these days is just silly. Dean Wesley Smith has been discussing this on his blog at length over time.
I don't think it's a matter of the cost of self publishing. It's the benefit of having someone whose full-time job is to distribute and promote your book. Having every single author become an expert in that is hugely inefficient, and it's probably not what your average writer wants to be doing.
Just because you can do your own dental work doesn't suddenly make it a good idea, much less an economic one. For work that's somewhat specialized and very intermittent in nature (like promoting a new book) it's often better to aggregate the labor.
Promotion and connecting writers and editors is not an insignificant value. I don't know what cut they're trying to arrange for themselves, but these are services that the writer is going to pay for one way or the other.
Outside of to Editors/publishers agents aren't currently set up for promotion. Their place has, for a good while, been primarily as taking over the slush pile from publishers plus getting better contracts WITH those publishers for the author. Good agents increase the advance and/or royalties such that the contract is for more than the 15% they take as a cut so you get more money.
Editors they MIGHT have connections with, but so do a lot of indie authors these days, so if you join those communities you can get good recommendations from fellow writers.
Again, "one way or the other".
If a writer doesn't have an agent who provides these services well, writers will have to spend their own time and energy on those endeavors, even if only to cultivate and manage direct relationships to other (editing/marketing) professionals. Many writers don't care to do any of that and can be well-served by hiring on someone else to do it.
Surely, some, or even many, agents aren't doing particularly great. But that's no different than any other provider of a service. Most may suck, but that doesn't mean the whole category is of questionable benefit.
It's actually a huge positive sign that they're at least recognizing the deficiency and trying to reposition themselves. It means they'll be eager to become even better at the things that writers most-need in the new landscape.
Next up on the disruption bus: literary agents and book publishers.