Amazon Gambles on the Kids

This Blog post first appeared on the Digital Book World Experts blog on 4th Sep 2014 here

Amazon Gambles on the Kids

Amazon’s announcement of their Kindle Kids’ publishing software platform probably caught very few in the industry off-guard. It’s been clear that Amazon’s ambition is to become both the publisher and the retailer, which, irrespective of what the industry feels, lines up perfectly with Amazon’s stated goal of delivering better value to their customers.

I thought it would be interesting to explore what Amazon’s goal is here and whether it will work. It boils down to three questions for me;

  1. Are Amazon meaningfully disrupting the paradigm?
  2. Will it work?
  3. Is Kids’ Publishing the right genre for Amazon to be betting on?

The status quo

One of the key economic trends that has emerged in the Internet age is that of “disintermediation.” Disintermediation is defined as the elimination of an intermediary in a transaction between two parties. Disintermediation as a concept is pretty easy to understand. Airlines cut out travel agents to go directly to passengers. Dell cut out the distributors and computer stores and sold directly to businesses and consumers. Amazon themselves were one of the original disruptors, making the path between the manufacturer of products and the consumer much shorter and, as a result, cheaper.

Most if not all of these disruptive business models succeeded because of the web. Fast-forward to today and low-cost cloud infrastructure (often powered by Amazon) allows more and more businesses to go direct to the consumer and save the consumer money while retaining more margin themselves.

When we think of Amazon in the physical book space overall, they haven’t disrupted that market infrastructure in a significant manner. It could actually be argued that they simply replicated the same ecosystem in a more efficient way. They became both the warehouse and retailer, if you will.

Over the past number of years Amazon have moved, reasonably successfully, to really disintermediate the ecosystem in physical and digital. You can argue that their efforts in the physical space haven’t been a runaway success (Amazon Publishing), but in the digital space their long term strategy is certainly clear: displace publishers and connect readers to authors with as few links in the supply chain as possible.

By providing the tools and infrastructure for an author to sell their titles direct to the reader, Amazon are not just disintermediating the industry, they are disemboweling it.

By the way, I am not saying this is the right or wrong thing to do, but the fact is that through the Kindle Direct Program, Amazon brings readers one step away from the author or creator of the content.

Think about that for a moment. The company that has the strongest influence on pricing in the industry will also be the same business that effectively creates, rates and ranks that content.

Despite its Orwellian connotations, it makes perfect sense for Amazon. They can supply the titles readers want, at the best price and with the best assurance of quality.

So how does this translate to kids’ books?

Will it work?

The likelihood is that it will, at least to a certain extent. Providing really good software and a platform for authors to be able to create their own content easily and intuitively, they will certainly gain some traction. Add to this the best royalty rates in the industry and it’s nearly irresistible.

As the market narrows more and more to Amazon as the primary route to market it is understandable that many authors are attracted to the concept of forging a direct relationship with the giant retailer. (Or publisher, take your pick.) The value of a publisher appears diminished in the author’s eyes.

“So wait a minute, I can make five times or more per copy and control it myself?” That’s a pretty powerful internal monologue.

What’s interesting is that it’s quite similar to iTunes disruption of the music market.  In that instance iTunes were equally committed to getting artists to sell directly through iTunes, but played very little part in the creative process. So a musician could sell their songs and albums through iTunes but by and large their ‘content’ was complete and ready for market.

While Amazon have decided to play a much more involved part in the creative process for their Amazon Publishing venture, they have adopted a very similar approach to iTunes for their Kindle Direct programs which has now been extended to KDP Kids. Essentially they will provide children’s authors with the tools for production but not be involved in the creative process. They’re betting that enough authors will be incentivized enough to create really good content.

Is it the right bet?

You could argue that this is a bet on the Kindle Fire tablet range as much as a bet on Kids’ books. However, in either case, they are calculating that there will be a rise in digital book reading for children in the coming years. There are several generations growing up that have practically been using iPhones since the cradle and they are much more comfortable with digital content than even the millennials. 

Our data tell us this is an ebook market beginning to accelerate significantly.

Here’s the average growth patterns across kids fiction ebooks for the last 18 months;

You can see steady, strong growth across the 19 months.

Here’s nonfiction: much steadier growth, but nonetheless impressive, particularly in 2014.

So it’s not only in terms of a long term bet that this makes sense–short term it’s already outperforming many other genres.

Publishers, beware. The biggest retailer, with the best tools, offering the best terms–for a children’s author, it’s a no-brainer.