I’ve been thinking about Amazon’s entry into the ebook lending market, initially via Overdrive and now through the Prime subscription program, and considering its ramifications. I am hardly alone; publishers are obviously evaluating this move as well. Penguin’s abdication from the library market has been widely perceived to be a response to Amazon’s entry into ebook lending. As Eric Hellman notes on his blog, “The Penguin move should be seen not as corporate verdict on libraries, but as a reaction to Amazon’s entry into the library market. … The recently announced Kindle Owner’s Lending Library demonstrates that Amazon, blessed with its trove of marketing data, understands the power of libraries to promote sales. But it also demonstrates that Amazon is not content to leave libraries to libraries.”
The unique characteristic of Amazon’s lending programs is that the books are sourced directly from Amazon regardless of whether the reader finds the work through Overdrive or directly on Amazon, for Prime subscribers. This makes absolute sense for Amazon, and it is an opportunity enabled by their use of a proprietary ebook format. Amazon gains user intentionality data, and visits to their site are likely to drive up sales of books and other media, as well as shavers, GPS units, cell phones, and kids’ toys (and Kindle readers). From the perspective of a cloud-based platform player, a library-style lending program is an attractive offering, and will be the nexus of investment in additional content and services; among its other affordances, it is a “Look Inside” on steroids.
From a reader’s perspective, Amazon’s lending support is highly attractive, even as it erodes any competitive advantage libraries possess in ebook acquisition, i.e., borrowing. I am in the midst of my third transition in ebook providers, and for me, Amazon’s lending support is a considerable inducement, even as I am aware of the downside of further strengthening their market position, and I have no desire to support a proprietary ebook format (Kindle Format 8, in its latest iteration). However, as any economist can tell you, what seems most rational at the personal level is not necessarily the most advantageous social or market position once individual decisions are aggregated.
The actions of both Overdrive and publishers are somewhat more difficult for me to fathom. Overdrive appears to have made a bet that permitting Amazon to deliver ebook files from the Seattle company’s servers instead of being hosted at Overdrive – as is the case for EPUB files protected by Overdrive’s Adobe ACS implementation – would be a reasonable trade-off given the additive traffic and business that Kindle ebook availability would bring. Indeed, various reports of traffic growth at libraries seem to range from at 25 percent to 50 percent by various metrics once Kindle availability was announced in late September 2011.
However, Overdrive inadvertently alerted publishers that the potential market for ebook lending through libraries was significantly larger than it had been previously, and simultaneously they drove an increasing amount of traffic to publishing’s bête noire, Amazon. As Eric Hellman observed in his blog post, “When Overdrive was distributing content to libraries on their own platform, the publishers were able to view Overdrive, and libraries in general, as a counterweight to Amazon. But the extension of Overdrive lending to the Kindle flipped libraries into the Amazon column.” It also flipped Overdrive, seemingly, into another category.
Publisher motivations are less obvious. Either indirectly through the Overdrive offering, or directly via the Prime lending program, Amazon is compensating publishers for borrowing activity. In the Overdrive case, limits on the number of loans outstanding from a library’s subscription catalog meant that Amazon ate into the market share of EPUB based ebook platforms such as Sony and Barnes & Noble’s nook. Arguably this reduced the program’s value to publishers by rewarding Amazon instead of furthering a competitive market, but Penguin’s action was initiated only after Amazon entered direct lending. However, Penguin was not making titles available in the Amazon Prime lending program, so their hand was not being forced by Amazon. Penguin moved, then, after Amazon initiated a program in which the publisher was not directly affected, withdrawing both EPUB and Kindle titles from Overdrive, a service that was providing them with a growing revenue stream.
More generally, publishers who angrily denounced Amazon’s move are responding to a program which provides them attractive revenue either on a projected per-title/per-annum sell-through basis, or via direct wholesale price compensation. Rather than casting Amazon’s Prime lending as unalloyed sales and marketing, many publishers believe it a greater threat than Overdrive’s ebook lending service — even though total revenue is greater from Amazon both on a per-unit basis, and in any reasonable expectation of future sales. With Amazon selling Kindles like hotcakes, if publishers were concerned solely with ebook sales, the expansion of Amazon’s lending program would seem like much more of a business management tangle for Amazon than for publishers. Clearly, near-term revenue is not the basis for publishers’ calculation.
There’s another odd ramification from publisher reaction to lending, which is that the Big 6 (well, 4, sans Random House and partially, HarperCollins) are apparently willing to throw Overdrive’s library business under the proverbial bus. By withholding frontlist titles from Overdrive’s library product, publishers are greatly reducing the value proposition of Overdrive (and similar services from other ebook vendors) to libraries. This not only starves libraries and their communities, it also weakens a trustworthy content distribution partner. By attempting to play tactical games with Amazon, publishing is undermining one of their own retail partners; indeed, one that has strived to foster a competitive retail marketplace through the active support of open ebook standards. Overdrive is not explicitly a sales agent for Amazon; they are explicitly a distributor of ebooks for publishers, driving a controlled expansion of the ebook market in a manner that has aided all retailers, and all readers.
Whatever the outcome of this struggle, libraries are truly collateral damage. Although I recognize that there is a valid question of whether and how libraries can provide free access to ebooks without deleteriously impacting sales against already thin margins, they not only serve a high social purpose but also could provide a unique storefront for both traditional and self-published literature. Withdrawal from the library ebook market undermines the efforts of libraries to engender longer term business model discussions with publishers; adds to threats against the perceived community benefit of public institutions; and may reduce overall demand for ebooks, in comparison to other media such as games and movies. What of this is a good move?