It’s common knowledge in the indie world that something is happening at Amazon. Authors, be they wide or in KU, are reporting major losses. Some of them down by as much as 50% or more. Its no longer a question of if something is happening, but more of what is happening?
Amazon of course, says everything is fine.
Well, we know better. Changes to the way our book pages are happening daily. Also-boughts are in a major state of flux. “Most Recent” reviews are on the page as usual, or sometimes hidden behind a drop down. Some are seeing a second bar of Sponsored Ads. Some are seeing a shrinkage in the number of also-bought pages. Yasiv clouds are shrinking or are populated with books that don’t match. The list goes on and on. We authors talk to each other. We see what is happening.
Everything is not fine…for us.
Obviously, there is a lot of A-B testing going on right now, and most of it points to Amazon building its advertising revenue. We, as indie authors, are the guinea pigs. How long this will go on is anyone’s guess.
I write political thrillers. My loss-leader, Closure, is currently #1 (Free) in Political Fiction, #2 in Organized Crime, and #3 in Political Suspense. As such, I expect it to be targeted by other authors with ads. Its just the way it works now.
But the titles I’m seeing in my also-boughts are nothing like you would imagine or anything like they have been historically. In my also-boughts I’m now seeing things like Witch’s, Space Marines, Horror, Reverse Harem, and Side-Chick Confessionals (!?) attached to my books. And despite the beefcake and cleavage now present, the number of pages has shrunk dramatically. What use to be around 30 is now a total of 7.
The sponsored ad bar however, that’s a different story.
Its full of what you would expect to see. Other political thrillers, mystery and suspense, a few legal thrillers, and a lot of police procedurals. Plus, there’s two sponsored ad bars now where before there was only one. The first one has 30 pages, the second a whopping 81!
So, something is definitely going on. When I think about it I ask myself “Why would Amazon do this? What advantage does it have for them?”
Put on your best tin-foil hat and come with me for a second.
As I mentioned, I have “Side-Chick Confessional” books attached to my political thrillers. I find it hard to believe that someone has that broad of a taste in their reading. So it’s either another author rather foolishly targeting my book simply because its number one in a category.
Or it’s something else…..
Let’s say I’m Amazon now, and I want to do two things; make money, and gain a chunk of my competitors margin. I’m focusing on building my advertising business at the moment. My competitors are Google and Facebook. How can I sell books, collect ad revenue, and gain market share all at the same time?
If I were on the Amazon side of this (and evil-er than I am already) I would be looking for a way to pull the customers attention from the also-boughts and direct it instead toward the sponsored ads. If the sponsored ads get more traffic it’s to Amazons advantage as they now have two income streams from that page/book instead of one.
Won’t Amazon lose money?
Maybe. But they have a long history of taking a loss in order to gain market share.
That prompts another question: Would it be to Amazons advantage if they were to suppress the alsobots while promoting and applying their A.I. to the sponsored ads?
Again, maybe. There has to be a certain balance. With also-boughts, you get higher customer satisfaction, because those are real books chosen by the readers who enjoyed yours, and as such not as easily manipulated. The theory is that people find books they like in these also-boughts. So, if you provide a better also-bought, the more useful a customer finds it for buying more books, the more they spend on Amazon, the wealthier Amazon gets.
On the other hand, sponsored ads increase Amazon’s take of each sale. Instead of earning 30% off each unit they earn a bit more, because the author now has to spend money on ads for each unit. Apply scale to that and Amazon earns way more. And the author now has an incentive to do so, because the more they spend on ads the more they profit.
BUT, if we were only to consider these variables, one could say “Hey, that’s hurting customers’ experience and therefore Amazon’s bottom line.” And they’d be correct. But authors only have the incentive to keep spending if the ads are profitable, and they’re only profitable if the customer is buying books, therefore you, the author, would only profit and keep spending on ads if the customer experience was good.
However, the customer experience can be a little less-good, and at the same time give Amazon a huge payout.
Two scenarios: No advertising vs Advertising.
For simplicity sake, let’s assume there’s a book for sale. This book has only 1 book in the also-boughts, and both books have a fixed cost of $10.
Now, with no sponsored products / advertising, 75% of the customers who buy the main book will also buy the also-bought book because such suggestion is deemed a good one.
Therefore, Amazon earned $10 x 0.3 + $7.50 x 0.3 for a total of $5.25.
The profit for the author is $12.25
But if the book has sponsored books attached to it, it’s a different story. Let’s say Amazon charges 80% of the books profit to make the ad sell the product. But the also-boughts aren’t as good, they don’t match the genre of the main book in any way or maybe do so only vaguely, so instead of the 70% we saw before, this time only 30% of the customers go on to buy the also-bought book.
In this situation Amazon earned $10 x 0.3 + $3x(0.3+0.8×0.7) for a profit of $5.58.
The authors profit was $11.92, or 33 cents less due to their investment in the ads.
That .33 goes in Amazons pocket.
Now, this is actually the worst-case scenario for Amazon. This scenario assumes that people go to the Amazon store, see a book, buy it, then see a similar book and buy it as well.
This is not what happens, nearly always.
What does happen is they’ll instead go to the store, see a book, buy it, and then see several books before they pick out and buy the second one.
With no sponsored ad books, 75% of the customers who see a book in the also-boughts buy it because it’s such a good suggestion. Therefore, Amazon didn’t earn anything for the first product (because the customer didn’t buy), and earned $3 for the second product. That customer gave Amazon $3.
With sponsored products the same rules of the previous scenario still apply, but this time the customer didn’t buy the first product they saw, instead they only bought the second. Therefore, Amazon earns $10 x (0.3+0.8×0.7) for a profit of $8.60.*
*This comes with the caveat that if the suggestions aren’t as good, the customer will buy less books/month. But as you can see, Amazon has a big margin. That margin allows them to give, let’s say, less than stellar, suggestions and still profit much more. IE: even if the sponsored products were only 35% as good as the also-boughts, Amazon still earns just as much money ($3.01) but now Amazon has two revenue streams where before it only had one.
Its to Amazons advantage for the customer to buy from the sponsored ad bar rather than the also-boughts.
Also, Amazon has the economies of scale on its side. As I mentioned above, there’s the self-correcting mechanism of advertisers (authors) only spending money if they’re having profits. This means that the sponsored products should self-correct themselves to be good suggestions for customers, especially the more advertisers Amazon has. The more advertisers, the bigger chunk of your profit Amazon takes, the more goes to Amazon’s bottom line.
It’s actually fascinating the wealth one can create with simple economics.
But, the question was:
Would it be to Amazons advantage if they were to suppress, or simply mess up, the also-boughts while simultaneously promoting (and applying their A.I. to) the sponsored ads?
Even without A.I. helping their sponsored ads, it would be to Amazon’s advantage (I did not add A.I. into the calculations above; just economics and math). If you add A.I. to the equation, then it would be ridiculous for Amazon not to do this!
The authors margin is indeed Amazon’s opportunity.
But the authors and Amazon lose money!?!
Yes, but it helps Amazon and its goal of building its advertising business. Besides, what little profit the authors make they give right back to Amazon in the form of advertising revenue. For Amazon its still a win-win.
Amazon is not at the point yet where it can reduce the authors royalty, but if it can get the authors to spend their profits on ads, it’s basically the same thing. Those that don’t will suffer when Amazon throttles their discovery/exposure.
I’m not saying that this is what’s really happening, but it might be. You have to ask yourself one question: Is it to Amazons advantage to suppress the also-boughts and promote the ads?
That answer to that is a resounding YES.
So what’s the end game here? How does this all apply to the indie community?
Amazon is experimenting.
Indie authors are the guinea pigs.
Some of us are in the control group and are seeing little to no change, the rest of us are breaking out in an odd rash while slowly being starved.
The ones doing the experimenting will never admit to the experiment happening.
The results of this experiment will never be published, they will have to be figured out from various sources once the data has been crunched and the recommended changes are incorporated into the already mysterious Amazon system. This will take months.
During those months several guinea pigs may perish. Some will escape. Some will be oblivious to what is happening. Other will stew and bitch and complain and fire off emails at Amazon, who will ignore them or placate them, whatever works best for them.
I predict that also-boughts will go the way of FREE and carry much less weight toward discovery. Sponsored Ads will take their place and the amount of return divided by the amount spent on these ads will be factored into the algorithms that determine each books level of discovery and visibility.
Outside ads, such as those from FaceBook and Google, will have much less of an impact on books, or anything really, sold on Amazon.
This is the new norm.
The choices are: Bail out and go wide, or, ride it out and hope there is a Happily Ever After….until the next experiment.
But, I could be wrong, and seriously hope I am. But something tells me I’m not.
I feel like Scott in the picture.