Why I’m Not Worried About “Winner-Takes-All” Hitting the eBook Market

For some time now pundits have bemoaned the way technology has enabled single companies to dominate an entire market.

The term "winner-take-all" was first coined in Robert Frank's and Philip Cook's book, The Winner-Take-All Society, and whether it's Google ( search), or US Steel, or AT&T. aqor Facebook/Google (online ads), or Standard Oil, or Amazon (online retail), there are dozens of examples you can use to prove the point that one company can dominate a market or industry.

There's even been some speculation that we would soon see the same effect in the ebook market as revenue concentrates among a handful of mega-hit best-sellers, leaving less popular authors high and dry.

As someone who would like to see authors maintain their independence and earn enough to be able to write full time, I thought this would be a terrible future.

Lately, though, I have come to worry about it less and less.

I was reading an article on The Spectator this afternoon which made me realize that the large-scale effect of winner-take-all doesn't matter on the small scale.

Rory Sutherland tried to argue that the internet amplifies the winner-take-all effect, but in order to do so he first overlooked the fact that winner never actually took all.

In fact digital connectivity increases rather than reduces the drive towards urban concentration. By greatly extending the range, ease and frequency with which people can form networks, it increases the number of people who need to meet each other in person: such meetings increasingly concentrate in the world’s few megahub cities. So the draw of London is magnified still further.

This distortion happens at a smaller scale everywhere, of course. If you have two offices, with ten employees in Liverpool and six in Preston, you will find that over 90 per cent of all meetings take place in Liverpool. But at a larger scale things get more extreme.

When technology and globalisation break down the buffer of geography entirely, the winner-takes-all effect intensifies. An early manifestation of this came with the invention of the gramophone: in an era of live performance, there was a good living to be made as the fifth best tenor in Denmark; when the gramophone appeared, one man, Caruso, earned the lion’s share of worldwide royalties.

If you ever wondered why so many of the world’s packaged goods brands have their origins in the American Midwest of the late 19th century, it’s the same effect at work. Before the advent of the railways, the United States was home to thousands of smaller regional brands. The railways killed this diversity, with the winners overwhelmingly being manufacturers close to the rail hub in Chicago

The problem with Sutherland's lamentations is that his facts don't hold up to scrutiny.

He was wrong to claim that national distribution killed local brands, and furthermore, he is even more wrong on what market concentration really means in terms of consumer choice.

InBev may dominate the beer market, but there are also ten thousand craft brewers. A handful of companies make most of the packaged food you eat, but there are also thousands of local brands and niche food providers (and let's not forget the tens of thousands of farmers selling direct).

And while the occasional Amazon AWS S3 outage can take down a lot of the internet, there are still hundreds of alternative hosting companies - including one just down the road from me here in Prince William county, VA.

And the same goes for ebooks.

In 2014 Marcello Vena argued that the ebook market would soon see the same winner-take-all effect as blockbuster ebook titles siphoned sales from the backlists, as mega authors occluded lesser-known authors.

Thankfully, the Big Five's insistence on retail price maintenance in the ebook market has made that impossible, but even without agency, winner-takes-all will not have the expected destructive impact on the ebook market.

If there is anything we can learn from the study of market history, it is that no matter how concentrated the market might be, there will always be room for indies.

In fact, when it comes to content creators, the internet may have the exact opposite of the winner-take-all effect.

Take the music industry, for example.

Under the winner-take-all concept, the record labels should control the music industry even more so after the internet than before, but that has not happened. Instead, the internet has fragmented the market by creating an infinity of channels like Soundcloud, Youtube, etc which creators can use to route around the labels.

The same holds true for many other types of content, but alas, we don't quite have that situation in the ebook market. The supply side of the ebook market shows no sign of market consolidation, but thanks to agency the retail side has been reduced to Amazon and a handful of large ebook retailers.

Does that consolidation still prove the point of the winner-take-all effect?

image by protohiro

About Nate Hoffelder (10617 Articles)
Nate Hoffelder is the founder and editor of The Digital Reader:"I've been into reading ebooks since forever, but I only got my first ereader in July 2007. Everything quickly spiraled out of control from there. Before I started this blog in January 2010 I covered ebooks, ebook readers, and digital publishing for about 2 years as a part of MobileRead Forums. It's a great community, and being a member is a joy. But I thought I could make something out of how I covered the news for MobileRead, so I started this blog."

12 Comments on Why I’m Not Worried About “Winner-Takes-All” Hitting the eBook Market

  1. There’s really no comparison between Google dominating search engines, or AT&T dominating cell phones (which they don’t) and ebooks or entertainment in a general form. It’s not apples and oranges, it’s apples and copper ore. People inherently look for a variety of entertainment, not so from their search engines (or computer operating systems). And, to quote Michael Corleone, “if history has taught us anything, it is that you can kill anyone.” That is, no company maintains dominance forever. The recent fall of Microsoft as the unstoppable tech monopoly, not to mention the lesser falls of MySpace and Yahoo (ancient history for the internet), show being on top doesn’t mean you will stay there.

    There is one thing that is true. The internet, through unlimited shelf-space forever for entertainment (movies, music and ebooks) creates not only a long tail (lots and lots of stuff) but a tall head (some stuff will be insanely popular and seen by just about everyone).

    So two things are happening at once. There are small indy writers that are making money with everything from dinosaur porn, to decent Walking Dead ripoffs, to Sweet Romance (and similar things with music and video) and meanwhile virtually every person on the planet will probably break down and read at least one of the Harry Potter books (or sit through a movie, or see the play, or buy a trinket, or go to the theme park). So there are going to be lots and lots of indies making some nice cash here and there, and some big guys making insane amounts of money unheard of in human history. And probably not so much stuff in the middle.

    Which, frankly, is not how the big entertainment congloms would like it. They would frankly prefer to control distribution, cut out the small guys all together, and spread the wealth around between the big hits and their pet projects. Unfortunately, that time has passed.(Hollywood is going crazy because no one is seeing just about anything but Disney and comic book movies. Their darling Oscar movies ever year are big money losers.)

    This is why the NY Times gets rid of their ebook best seller list. Because they simply can’t control, or even pretend to, what will be in the top ranking and that pissed off the big publishers. Sure, they can generate a hit every now and then, and monetize the hell out of it, but their pet projects don’t go anywhere. And meanwhile, all sorts of indies can have their fifteen minutes.

    • Until it was broken up, AT&T controlled the US telephone industry – long distance, local, hardware.

      That was a perfect example of what Sutherland was saying.

      • I wasn’t sure which AT&T you were referring to, but you **sigh** forced me to actually read Sutherland’s piece, which makes even less sense that I thought based on your summary. Since I did, here some more reaction:

        AT&T old or new is not a good example of “winner takes all” unless you mean by “winner” whoever convinces the government to legalize a monopoly to destroy competition. AT&T’s original growth back in the 1900-1950’s came, not by offering better service and prices and naturally defeating competitors, but by buying up other companies and convincing the US government that phone service was a “natural” monopoly that should be encouraged, and enforced through legal restrictions. They eventually made it illegal for competitors to exist and took huge amounts of money from the government during WWII to build out their privately owned infrastructure. Ultimately, the “natural” monopoly made no sense legally or economically and it fell apart first in the courts and then in the business sphere. The instant other companies could compete against it, they pretty much defeated it.

        As for the new AT&T, it’s pursued pretty much the old plan. It uses legal monopolies on land lines in various states and cities (where competition is not allowed) to raise rates while providing lousy service to buy up other companies with local monopolies to buy up other companies to destroy competition. It did not create it’s own cell service, but rather swallowed up another company that did. It grew it’s cell service by having a monopoly (on iPhones) and almost instantly lost massive amounts of market share when it was allowed competitors. It doesn’t offer the best service or lowest prices, it’s just that in many areas customers have no choice. Once it’s bid to buy up T-Mobile failed, it’s been forced to actually compete and it isn’t really “winning.”

        (Which kind of brings up the question, what is a good example of “winner take all” that wasn’t assisted in a large part by government action to limit competition? Certainly not US Steel or Standard Oil. Or the railroads or the major TV networks, etc.)

        Also, where does Sutherland get this “writers in the 50’s on average made more money” statistic? I sincerely doubt that’s true, and even if it is, the 1950’s is a strange place to pick at key reference. It might be interesting to know if writers made more or less pre or post internet, but why the 1950’s? That was a very artificial time of post war USA growth and dominance and baby boom stuff.

        Finally, certain well off people (the kind that fret about writers not making as much as they did in the 1950’s) meet in London or New York because it’s cool to do so, and they have money they can waste being cool. I don’t see any connection to the rise of technology or world wide communications, other than maybe it’s simple to get cheap flights and rooms. There are plenty of people who do completely do business online without any need for physical meetings. And if they did need to meet, they would just as happily go to a cool cheap hotel in Arizona. They might not be at that really cool London pub Sutherland frequents with his buddies, but they do exist and their numbers are growing. Talk about living in a bubble.

  2. Agree with you, Nate. Also agree pretty much with Mackay.

    As organizations grow big, they get less able to respond quickly to change. And since technology moves so swiftly, even if they dominate, they won’t do it for very long. About 20 years ago, I started asking friends in the newspaper business what they were doing with the Internet. The standard answer, with variations, was, “Nobody ever made any money on the Internet.” The next morning, they woke up and there was Google, Craigslist and Amazon.

    • Oooh, this is a whole other master’s thesis on what’s wrong with the winner-take-all theory.

      Large organizations, almost by definition, can’t focus on small niches. This creates opportunities for smaller competitors to thrive in the shadow of the giant.

      Excellent point!

      • Except in terms of product. Newspapers thought they were in the media business, when they are in the advertising business. As the Guardian said the other day, Google and Facebook between them get 99% of the new advertising dollars. Hence newspapers are in trouble.

        Talking of which, have you noticed how google never talks about its dominate position in advertising? Its all about driverless cars etc.. Its because they are worried that when people look too closely at their business, they will start realizing what a false set of cards it is.

        I know advertisers who tell me that all they have to do is spend $20 grand a month on google ad words, they don’t need to advertise in a magazine. Slowly they are starting to realize its not all sunshine and roses and advertising in a magazine can pay off. But a lot of the time its too late before they realize this.

  3. The problem for the book business is NOT that one type of book, or one publisher, or one author in a market segment, will become too dominant.

    I see our problem as the fact that Amazon owns access to most of our customer base while also not getting much of its revenue from the book business. This in turn means that Amazon can exert irresistible force to grab a larger and larger fraction of the available profits.

    It doesn’t care, doesn’t need to care, if most publishers (traditional houses and/or self-publishing authors) go out of business. There will always be more newbie writers who want to self-publish on CS and KDP and will fill their virtual shelves — whether making any profit is a 1 in 100 or 1 in 1,000,000 chance.

    I know some folks don’t think that’s likely. But it’s already squeezing the largest targets, and occasionally taking minor shots at even the smallest ones. When the big houses go under, if they do, the indie authors will be next on the firing lines.

    • Those darn newbies again! Publishing books when the odds of them making money are a million to one! When will they learn that Amazon will eventually come and get them?! Oh, how they will all suffer once they are in the firing line!

      Please explain to me how (and why) Amazon is going to hurt “newbies” who aren’t making money anyway?

      Currently, Amazon makes a lot of money from “newbies” who never make any money from their writing. Those newbies buy ebooks on self-publishing (from Amazon and indy writers) and they buy proofs of their print books. They buy copies to give to friends and family. They pay for advertising for their books that don’t sell. They also buy each others books trying to push up their sales and learn genre tropes. They also probably buy a lot of other stuff from Amazon like soap and diapers. That’s all pretty sweet for Amazon. So why would Amazon come after them?

      Now, let’s ignore the fact that many of those newbie writers are simply doing it for fun (like myself) and do not have huge expectations of getting rich through self-publishing. Why would Amazon risk doing anything that might appear to be hurting them? (Like lowering the 70% cut on books that aren’t selling anyway. Or charging annual fees to be listed?)

      Instead, Amazon does everything they can to encourage these writers, including offering them tips on how to sell, offering them new advertising options and offering various contests to reward them when sales are good. That’s simply good PR. It’s also good PR for Amazon to allow a few writers to actually make a lot of money, if their books do sell. (I never get this argument that since Amazon wants to sell diapers, it will screw writers. Seems like the opposite is true, if they want to sell diapers to writers, why not help them make money?)

      Now, could those “newbies” be hurting established indy writers by flooding the market? Well, only if they are selling books. So either some of those newbies are succeeding, and selling books, or they aren’t, in which case they don’t matter.

      Now, are those newbies and indies hurting some traditionally published writers? Yes. Absolutely. But only the ones that write books no one wants to read anyway. Sorry about that.

      But what if it all just collapses for some reason? Too many books, too many choices, too many writers. Well, it hasn’t for five years (indy ebook sales are up again), so why would it? If there isn’t much money to be made, then the newbies who are mostly interested in money will publish less books. End of problem. Those newbies who just enjoy writing, will either write books that are good or bad. Some will sell and some won’t. I don’t really see any problem here. Only a really fun way for creative people to express themselves.

      As far as Amazon not sharing access to the customer base, put a little button in the back of your book to sign up for your mailing list. You will instantly be creating your own independent means of contacting your customers (thanks to Amazon’s huge market). People are doing that and it works fine. And there’s Facebook and Twitter. If you’re selling a lot of books, and readers can’t find you on their own, you’re doing something very wrong.

  4. Mackay Bell: I’m sorry, I wasn’t clear.

    I’m an ADVOCATE of self-publishing, and have spent more than a decade trying to help authors do so successfully.

    When I talk about newbies — I’m drawing a bright line between the authors who are successfully self-publishing, and the ones who know nothing about it yet.

    When I tell you that Amazon will inevitably be FORCED by its managers’ ethical obligations to stockholders to reduce the profits made by them to zero or nearly so, you might find it more effective to consider my point than to give in to a knee-jerk reaction.

  5. Mackay Bell: You made my point for me, better than I ever could.

    There will always be plenty of books published by people who don’t care about making money on them and/or who don’t know enough about publishing to realize that certain terms of trade guarantee a money-losing proposition.

    The pro (self-publishing and otherwise) authors, who do care, and do know, will inevitably leave when Amazon completes its obvious strategy:
    1. Squeeze the big houses, because that’s where you can get the most from authors and publishers the fastest. When they’re gone:
    2. Squeeze self-publishers by degrees. NB: they have already started taking margin back from self-publishing authors, as we all know — or we do if we’ve been around long enough.

    They have to do this, because they can do this without harm to the company, and therefore owe it to their stockholders.

    They don’t need books, but the book business needs them. Anyone who ignores that fact is riding for a fall.

  6. Oh, and one last clarification: the problem is NOT that the newbie writers are taking away sales from the old-pros. The problem is that Amazon is taking a bigger and bigger share of the profit from everyone’s sales.

    The newbies don’t know that it’s happening. So Amazon will continue to have some books to sell, and, to the extent that they need books at all, that’s all that they need.

    • “When I tell you that Amazon will inevitably be FORCED by its managers’ ethical obligations to stockholders to reduce the profits made by them to zero or nearly so, you might find it more effective to consider my point than to give in to a knee-jerk reaction.”

      I got that was your basic point, so my reaction was correct. It makes utterly no sense for Amazon to squeeze any kind of publisher until they have zero profits. Or even close to zero profits.

      “The newbies don’t know that it’s happening. So Amazon will continue to have some books to sell, and, to the extent that they need books at all, that’s all that they need.”

      So you’re saying Amazon intends to squeeze the big publishers (and successful indies) so much they either stop publishing or use another distributor? That Amazon will be fine simply offering books by newbies who don’t care about sales?

      That’s absurd.

      You say that Amazon’s “obvious” strategy is:

      “1. Squeeze the big houses, because that’s where you can get the most from authors and publishers the fastest. When they’re gone:

      2. Squeeze self-publishers by degrees. NB: they have already started taking margin back from self-publishing authors, as we all know — or we do if we’ve been around long enough.”

      And then… what? Amazon simply offers books by newbies? Really?

      Amazon bills itself as the biggest book market on the planet. The second that isn’t true, readers will go elsewhere. The LAST thing Amazon wants is for all their books to be newbies. Apple and Google would be thrilled to carry all the big names. Barnes and Noble might even survive and grow. It’s not going to happen.

      If someone goes to Amazon and they can’t find Steven King or Harry Potter, they will go elsewhere. Instantly. And might not come back for books again. Amazon can’t risk that.

      Even if Amazon, with some evil nefarious plan, used all the money they made from books to build up their company with the intention of making all their money selling other stuff, they can’t risk losing books. That’s because… obviously, another company could come along and follow Amazon’s same path. They become the new place with all the best selling books by best selling authors, then they start selling other stuff, etc. Amazon targeted books for very specific business reasons. They don’t spoil, the customers who buy them generally have a little more money, there wasn’t much competition at the time that carried large selection, etc. If Amazon stops being the best place to buy books, they will be in danger of losing a lot of customers for their other stuff.

      In fact, the argument that Amazon is more focused on making their money from non-book merchandise, only makes it more likely the will give writers and publishers good deals to keep them in their market. If they make all their money elsewhere, why squeeze all the profits away from a key sales tool?

      Amazon wants big name writers to keep writing books. You really think Amazon wants to squeeze J. K. Rowling to the point where she says, “it’s not worth it to write anymore?” Or Steven King? Or Hugh Howey? Or anyone down the list of 1000 top best sellers?

      And all those Newbies that don’t care about sales, well, guess what, if Amazon lowers their rates below what Apple and Google offer (without proving they have better sales) they will all run too. And they can run to another distributor even faster than the big publishers and big authors. (They have nothing to lose.) Right now, newbies, and successful indies don’t leave Amazon because the terms are pretty good. That could change instantly.

      In fact, Amazon is vulnerable to a new ebook distributor coming out and offering 80% or 90% profits, which could easily be done with current technology. “Newbies” would probably flock to something like that very quickly, because they might not appreciate all the other things that Amazon offers (mainly a bigger customer base). Amazon has to watch it’s back for that to happen if they try to get a bigger cut from newbies. Amazon can’t possibly offer newbies zero profits “or nearly so.”

      So, Amazon can’t lower rates on newbies (very much) without running the danger they will start going elsewhere, and Amazon clearly can’t offer big publishers and major indies worse terms that they give newbies. So your argument doesn’t make any sense.

      The problem for big publishers is they make a ton of money from Amazon so it’s hard for them to leave. I get that they don’t like that is more competition. (Particularly on price.) That might also be problem for successful indies. But competition can also be a good thing. It can raise all boats because people improve their game. (Like writing for under served genres. Even revitalizing genres like with Fifty Shades of Grey.) They can bring new readers into the market. And yes, tons of newbies buy books just like kids playing basketball in their driveways help sell tickets to NBA games. Amazon needs the big publishers, the major indies and the newbies. They need to sell themselves as the one stop place for any book.

      I don’t have much sympathy for big publishers because they screwed up big time. They have completely failed readers by trying to fight ebooks, by ghettoing genre for years, and failing to create any viable alternatives to Amazon. But they love the money Amazon sends them. Amazon’s a business, they’re entitled to squeeze them like any business does with any supplier. At some point, if they squeeze too hard, big publishers will find a way to fight back or they will leave Amazon.

      You seem to be predicting some kind of doom. What doom? I not only don’t see how one logically gets to writers making no money, but I can’t imagine what it looks like once it happens. All the Harry Potter books disappear? Or only Apple and Barnes and Nobles sells them? Hugh Howey agrees to make zero profits from all his ebooks? Or he simply sells from his website. Or he gives up and disappears. What are you saying?

      If you want to argue a specific issue, fine. You say Amazon’s started taking margins back from self-publishers. How exactly? By changing the page count of KU? Okay, let’s talk about that rather than a nearly zero profit doomsday that will never happen.

      Amazon also takes large cuts from audiobooks, not so good. I’m not happy about that. But if your argument is that Amazon is will someday to lower the indy share from 70% to 40% to 5%, I don’t think it will happen in a million years. There will be a flood to iBooks (of writers and readers) or somewhere else. Apple still offers iOS App developers 70% and they have absolutely no where else to go. It’s good business to cut your suppliers in on the profits. The same applies to writers.

      We keep hearing about how Amazon cruelly went after the weak gazelles of small publishers and demanded more favorable terms. Okay, what were those terms? Did they go from 70% to something less? Were those publishers getting a better deal that indies? Why would they take a lesser deal than a straight 70%. I don’t get it.

      I suspect the big publishers get lots of special perks indy writers don’t get, and newbies can’t even imagine. (Like Amazon buying up and warehousing huge runs of print books in advance.) Maybe Amazon makes big publishers take a little less than 70% on ebook in exchange for promising a big sales minimum. Amazon might be squeezing the big guys over issues like that, that have nothing to do with even successful indy writers, let alone the average writer debating where to publish. But big publishers can’t be getting less than 70% unless they are getting something else in exchange. They could always force Amazon to buy all their books from Ingrams, the same as any other bookstore. They don’t (most often) because Amazon is offering them perks like discounted shipping.

      Seems a lot of fear mongering trying to get people on the side of traditional publishing over issues only traditional publishing cares about. (Which no one will completely discuss, except to say Amazon needs to share more customer data).

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