The realities of the Amazon/POD controversy

I don't pretend to have any insider information here.  Only my own business experiences.

Many self-publishing websites have been abuzz over the weekend at the earth shattering announcement that Amazon is going to pull the plug on all POD books not printed via their own POD outfit, Booksurge.  Needless to say, people are having fits about it.  On the surface, it seems to be a flagrant attempt by Amazon to monopolize the POD market by forcing POD authors to use them or else.  But is it really?

To understand some of what is going on, it helps to have a firm idea of how Amazon handles POD books.  The beauty of POD is that it does not require inventory.  Books are printed when they are actually ordered.  Small presses, niche publishers, and self-publishers can bring a book to the public without the huge up front inventory and warehousing costs.  POD saves trees, resources, and warehouse space.  This is a great thing.

The problem is that POD books generally are not profitable for booksellers.  The vast majority of POD companies use LSI/Ingrams to handle printing and distribution.  Generally, these books are non-returnable, and sold at what is known as a "short" discount (20% or less.)  Booksellers generally are use to full returnability and larger discounts (40-55%).  Because of this, most brick and mortar shops won't stock a POD book without good reason (strong marketing plan, local author, etc). 

Now some of this problem can be circumvented if you deal directly with LSI.  You can set up your account to allow returns at your own expense, and offer larger discounts.  When you do this, generally your book will be flagged as "available" instead of print-on-demand, so potential booksellers don't even know the book is POD.

Amazon, and most online retailers, have in the past pretty much automatically listed anything sold via LSI on their sites.  This is a great thing for self-publishing authors, because it gets your book listed on the biggest online sites in the world.  WOOT!  I'm on Amazon!  Buy Me!

Unfortunately, this has also caused problems.  In some cases, some POD companies have been slow to fill orders.  Because Amazon only gets a short discount on books, its highly likely they often lose money on sales when customers select the free shipping option.  Books have been returned for poor quality, because Amazon allows returns.  However, Amazon can't return the books to LSI or some other POD services because the books are non-returnable.

So Amazon, as a retailer, needs to decide whether or not to continue listing POD titles as all.  They surely can't afford to stock every single POD book printed (tens of thousands a year!).  But they also pride themselves on being the source for customers to get just about anything.

So a while ago Amazon bought its own POD company, Booksurge.  And now they are telling POD services that if they want to continue having books listed as In Stock they need to print through Booksurge.

To note, they are NOT deleting listings.  Non-Booksurge books are still being listed on Amazon.  However, the ADD TO SHOPPING CART button is being replaced with SEE ALL BUYING OPTIONS.

Third Party Sellers on Amazon

Amazon has a huge base of third party sellers that sell through their site.  Many of these sellers often sell books for less than the Amazon list price (though some sell for higher prices).  These third party sellers don't stock the books either.  When they get an order, they process it through the POD printer, and ship to the customer.  This is almost the same process Amazon was doing. 

Will small presses and self publishers still be able to use the Search Inside function?  Yes.  Will customers still be able to leave reviews?  Yes.  With publishers still be able to edit their listings?  Yes.  The only difference to the is that the books sold through the third party vendors aren't eligible for free shipping.

Costs getting passed on to authors

Some POD services are screaming that this will equal higher costs for self-publishing authors, because Amazon is expecting a bigger cut and Booksurge has significantly higher prices.  But will it?

I have been using Amazon's Createspace service for some time now.  This service also makes books available on Amazon, and the books are printed by...Booksurge (there is a surprise).  You upload your files, fill in the details, and once you approve the proof the book is listed on Amazon.  If you are a small press with your own set of ISBNs, you can use your own ISBN for your listing.  If you don't have an ISBN, they assign a virtual one to your book. 

Now when you list your book on Amazon via Createspace, Amazon gets a 40% cut of the retail price.  GASP!  But this is the trick.  Do you know how most POD services calculate the retail price?

How about I use one of my books as an example:

Sample Book. 
6 x 9, black and white, 96 pages

I want to set my retail price for this book at $10.59

Lulu/LSI
Fixed price:
Manufacturing/printing cost: $3.46
Lulu commission: .37

Calculated royalty:  $1.46 (what my profit is on a book sold for $10.59)

TOTAL FIXED PRICE:  $5.29

This number is then doubled to set the retail price. 

Retail mark-up: $5.30

So Amazon gets a 20% discount or less, off the retail.  So Amazon pays $8.48.  That leaves $3.19 unaccounted for?  Where does that go?  LSI/Ingram's pocket. 

Now don't get me wrong, they deserve to make a profit.  But...

Createspace/Amazon (standard)
Fixed price: $3.66 (book less than 108 pages)
Amazon discount: $4.24
Profit: $2.69

My profit increases substantially when I move my title to Createspace...for free. But they actually upgraded my titles to their new pro plan for free. So this is my real cost structure now.

Createspace/Amazon (pro plan)
Fixed price: $2.25 (book less than 108 pages)
Amazon 40% of retail=$4.24
Profit: $4.10 to the author

So Amazon can print my book for less, increase their own profit, AND increase my profit.

What am I missing here?

So smart small presses and self-publishers can actually increase their income dealing directly with Amazon. 

Who really stands to lose here?

The POD services that have been playing middleman and double dipping. 

Personally, I don't know what has been said to who.  I'm looking at this based on what I know about how this works.  Nobody from Amazon or Booksurge has contacted me with any threats, even though I still have a few titles handled through Lulu/LSI.  In fact, most of the news circulating around the internet has come from two sources.  The press release posted by PublishAmerica on their website, and Angela Hoy at WritersWeekly.com.  PublishAmerica's credibility has always been suspect (google PublishAmerica and see how many of those search results come back with the word "scam" attached.)  Angela is highly respected and knowledgeable about the industry, but she also owns a POD service and therefore her spin should be considered before reading anything as gospel.  But every news article has simply recycled these two news sources, and not independently verified the actual terms. 

1. If your books are in distribution traditionally (i.e. books are returnable with normal expected discounts) this probably won't affect you.  In fact, it may help you, because several large publishers are jumping on Amazon's POD service in order to keep backlist in stock longer.
2. If your books are through LSI already, they will continue to be listed, they just won't be eligible for free shipping.
3. If you desperately feel you MUST have the free shipping option, set up a free account at Createspace to list your title.

Until someone at Amazon actually says to me, you must use the Booksurge author program, and it will cost you X to do it, then all of this is much ado about nothing.  But frankly, all I see right now is Amazon cleaning up its house to better serve its customers.