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On Judging Whether the Subscription eBook Model Works

16748391124_e9b31008d1_bLast week’s news about Amazon changing the payment terms offered to the authors who sign up for Amazon’s subscription ebook service has sparked a wave of dissent.

First came the authors who hated the terms Amazon was offering (but were never going to sign up for it in the first place), and now one startup founder is claiming that the subscription ebooks don’t work.

Jason Illian, the co-founder of Bookshout, posted an argument-deficient piece on Entrepreneur today in which he claims that  the subscription ebook model itself is unworkable.

Note that I said that he claims it is unworkable; I cannot say that he argues the point because he doesn’t actually present any arguments. Instead Illian raises irrelevant details like ebooks only making up a minority of the retail consumer book market. He also claims the model doesn’t work because "many of the world’s top publishers" are still holding out.

The reason that these details are irrelevant, folks, is that Illian claims that the subscription ebook model itself doesn’t work.

He doesn’t claim the market doesn’t work. He doesn’t claim the market isn’t viable. Instead he points to the abstract idea of the business model itself and claims it is unworkable.

One can make that argument, and the best way to do so is by pointing to specific examples of the model having been tried and failed.  Remember a few weeks ago when I argued that micropayments wouldn’t work, and named all those failed startups as proof?

That is how you argue whether a model will work or not.

Conversely, one can prove that a model works by pointing to examples where it worked. The Wright brothers, for example, proved powered flight worked when they launched their planes at Kitty Hawk.

And in the case of the subscription ebook model, I can give you a couple of examples which show that the model is working. (I could give you more examples but I don’t think it’s worth my time.)

For example, an author left a comment on a post earlier this week. The subscription ebook model is working for her:

I am a romance author with two series in KU, and currently make enough off KU alone to pay my living expenses. Since my books are 200+ pages, I for one look forward to the imminent change. Apart from the money, it will be highly motivating to know how many pages of my books were read every day.

Readers are signing up, authors are making money, and Amazon isn’t complaining. I’d say that Kindle Unlimited works.

And it’s not just working for her and many of the other authors with ebooks in Kindle Unlimited; this model is also working for Safari Books Online. That service has been offering nonfiction books for going on fifteen years.

If that is not a definition of a working business model, I don’t know what is.

In conclusion, this was a poorly argued piece from someone who has shown himself to lack basic knowledge of the current ebook market.

And no, I am not being unduly insulting; in his conclusion Illian lays out his concept for the ideal ebook service but doesn’t realize that he had described Amazon’s current operations:

I see the leading ebook service of the future as being a combination of lucrative subscription verticals, advertising in and around the book; new sales channels, where ebooks are bundled with physical content; comprehensive music/movie/ebook programs; and services that include digital ebooks and other content.

Aside from the advert aspect, Amazon already does all this in one form or another.

Edit: Felix reminded me in the comments that Amazon has ads on the Fire tablets and Kindle ereaders.  So they are doing everything on that list.

image by Claudiabrauer

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jjj June 26, 2015 um 7:10 pm

lol he makes a lot more sense than you, you sound like you couldn’t be bothered to even read the article and just jumped to defend Amazon at all cost (as always).
All he’s saying is that the current version of subscription model is not perfect and doesn’t work perfectly for everybody. It’s not utopia just yet but things will get there, that is what he’s saying. He even supports the model and wants for it to get better.
" I want as much as anyone for subscription services to thrive. …This model will continue to evolve, and I do believe it will thrive one day."

fjtorres June 26, 2015 um 7:30 pm

Amazon *is* doing adverts around the books. In the form of ad-supported Kindles. 😉
And then there are the ad-books like the Land Rover case from a few months back. Pretty much everything he suggests has already been tried.

There is nothing about books that makes them inherently different from music or video or games and all three of those markets have robust subscriotion services so to say that subscription services don’t work for books pretty much demands an explanation of what is different about books.

Absent that, all that remains is handwaving and hyperventilation.

Nate Hoffelder June 26, 2015 um 7:36 pm

D’oh. You’re right. I was thinking ads around the ebooks, not the devices, but you’re right.

William Ockham June 26, 2015 um 8:00 pm

That article averages more than one wrong thing per sentence. That is hard to do.

Daniel Vian June 26, 2015 um 8:52 pm

The Governor of New York once complained to President Andrew Jackson that railroads would not last because the noise and smoke frightened too many cows and God did not make people to travel at 15 miles an hour anyway. He begged Jackson to stop promoting the building of railroads across America. Lesson: It’s possible to be governor of New York and also be an imbecile. In our new age of communication, anyone who has a stupid idea can find a platform to present the idea to millions. Amazon KU apparently has 1.5 million subscribers paying in $15M each month, $10.5M of which goes to authors, and $4.5 million to Amazon. That’s $126M per year to KU authors. Maybe we need to stop publicizing the moronic ideas of Internet quacks.

fjtorres June 26, 2015 um 9:04 pm

That 1.5M number is interesting.
Just wondering about rate of growth.

Daniel Vian June 26, 2015 um 9:14 pm

Assume AZ wants to retain 30% of KDP revenues (as it has been). Which means if $10.5M per month is currently given to authors, $10.5/.7=$15 is the gross KU revenue. Divide that by $10 per month and you get 1.5M as the probable number of subscribers. That’s my take, anyway, and since we’re playing Amazon in Wonderland, I may be wrong.

fjtorres June 26, 2015 um 9:48 pm

Not a bad model.
I would caution that 30% margin is an Apple/Tradpub thing.
Amazon has been known to run margins as low as 5% and as high as 65%, depending on market maturity.
Given that they were maintaining KU payouts at a steady $1.30 for months and that is more typical of their 50% margin price band we could just as easily be looking at 2M subscribers. Regardless, it is a safe bet they are an order of magnitude bigger than their competitors.

One thing that *is* pretty certain is they are growing the subscriber base substantially month to month, probably in line with pool growth.

Nate Hoffelder June 26, 2015 um 9:52 pm

it is a safe bet they are an order of magnitude bigger than their competitors

That would be in line with that market survey.

Daniel Vian June 26, 2015 um 10:10 pm

>>>>I would caution that 30% margin is an Apple/Tradpub thing.

I know nothing about Apple/tradpub. 30% is what AZ currently retains from KDP sales (for the most part). My guess is that each month the payout to authors is adjusted so that they can retain 30% of gross KU. The single assumption that they want to retain 30% of KU each month produces the other numbers. But as you say, it’s a "model" and my experience is never to fight to the death for a model.

fjtorres June 26, 2015 um 10:40 pm

Not always.
30% is only for $2.99 to $9.99. (And they only adopted it when they heard of the price fix conspiracy.)
Under $2.99 they charge 50-65%.

And, as a whole, Amazon is happy with 5% margins when they’re not in investment mode.Which they might be in, when it come to KU.

As I said, 30% is a good bogey but not something to bet the farm on. Amazon is tricky that way. 😉

fjtorres June 26, 2015 um 10:43 pm

That’s what I had in mind.
Plus, if the others were within even a mile of KU they’d be bragging of their subscriber base. And scrambling for more investors. 🙂

fjtorres June 26, 2015 um 10:44 pm

That last was for Nate. 🙂

Daniel Vian June 27, 2015 um 2:40 am

I don’t have a farm to bet. But I’m considering KDP and I will bet a rock or two that most KDP authors price their books between $2.99 and $9.99, which gives them a 70/30 split with Amazon. Do you disagree with that? BTW, if you use the 30% AZ margin assumption, you can calculate that KU subscribers on average borrow about 5 titles a month. Also an interesting figure. My guess is they read on average no more than 20 pages of each title, 100 pages per month on average. But we will see about that maybe in August. I really don’t see any reason to assume a 5% AZ margin in KDP and especially not in KU. I think they decided early to try to keep a 70/30 split for KDP authors. What they do with publishers outside KDP is a different ballgame.

fjtorres June 27, 2015 um 7:36 am

Not really disagreeing, okay?
But KU payouts aren’t necessarily tied to KDP pricing and, pre-change, it incentivized short fiction in KU which is generally priced below $2.99. (50% territory) I have no reason to object to 30% but neither do I see much reason to favor it over 50%. Or 65%.

Now, 5 books a month average is an interesting number since it is half the maximum checkouts allowed and, given the previous tilt towards shorts, suggests not much reading… certainly well below the maximum. And below the breakeven point for readers at 30%. It suggests the value to readers is in the no-risk sampling and not how much reading they get for their money. Which ties in to Amazon’s sales pitch to readers.

The CEO of one of the competitors has been quoted as saying their subscribers average 1 read per month which is also well below the breakeven point for readers.

Daniel Vian June 27, 2015 um 11:51 am

No problem. But if we use 65% for the AZ margin, the calculation produces 3.8 million as the number of KU subscribers, which seems too high. Anyway, much thanks for your input. Cheers…

fjtorres June 27, 2015 um 3:32 pm

One point to consider about Amazon’s reach and marketing power is that they have a lot of committed customers.
In one year, they have reportedly sold around 4.5 million FIRE TV devices.
In barely six months they have sold, by invitation only, over a million Echo devices.
Estimates vary but the best guesses put the Prime subscriber base at 30-40M and the number of active Kindle accounts at 40-50M.
Amazon has personal information on 250M credit cards and they are reportedly getting 182M unique visitors a month to their website.
So, while it is unlikely they have 3M KU subscribers after just a year…
…it isn’t impossible.
It would still be under 10% of their Kindle customer base.

My own gut tells me they’re running around 1M.
(Excluding trial members.)
But it’s just a gut feeling based on the pool size and the 10 book checkout limit.
Higher numbers would not shock me in the least.

Daniel Vian June 27, 2015 um 3:51 pm

Thanks. Big corporations don’t please me much. But if you’re both big and adventurous, you can try things, and in the long run everyone benefits from trials. The next few months in KU will be interesting…

Eric June 29, 2015 um 8:20 am

Some earlier perspective on all this :

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