It's almost three decades since Amazon was founded 'out of a garage' to sell books online and - it's still too early to say the rest is history. As both a lover of books and a strategist specialising in digital disruption, I find that the tale of the book industry has plenty of lessons for those who are feeling, fearing and driving disruption. There are some who will take comfort in the knowledge that disruption takes time. There are others who will be bemused to find that disruption requires the willing participation of large industry incumbents to gain pace; industries don't get disrupted, they self-disrupt. The majority will find it heartening to see that whilst disruption causes much carnage, it also catalyses resilience and reinvention of a kind that transcends technology and the reaches of capitalism. Here's an overview of the state of the book industry, twenty seven years post Amazon.
A crowded marketplace with not nearly enough stories...
There are over 30 million titles (ie unique books) available for sale at any given point in time. Each year over 4 million new titles are added to the list, with most being self published.
No other product category in the world offers so much choice.
The perennial challenge for authors, publishers and booksellers is cutting through the crowds to find 'their' readers. This isn't easy and for the most part, average books sales have been falling. Many in the industry feel that there simply isn't a market to absorb all the books being produced these days.
The strategist in me, looking at this highly saturated market, can't help but concur and very logically question the need to write another book - ever.
The inner poet wisely advises that the human spirit's appetite for stories is vaster than all the stories that can ever be written.
There are 7.9 billion of us in the world today and think it's fair to say that everyone loves a good story. We grew up with them. In Margaret Atwood's words, “In the end, we’ll all become stories".
Books maybe a saturated market, but they continue to sell, best-sellers continue to emerge and books go on to shape the stories we consume through other media - film, television and games.
Large, stagnant, but starting to grow
This likely understates the full value of the industry as eBook and audio book sales data are often incomplete and it probably hasn't captured the full extent the book trade in developing markets, the second hand book trade and the international rights trade (which is notoriously opaque).
Growth in mature markets over the last five years has been largely stagnant. This isn't 'bad news' though as after 'peaking' in late 2000's, book sales had been steadily declining. Many still fear that books are falling out of favour.
The industry has however seen a surge through COVID, with print book sales in the US achieving double digit growth in every age category from 2020 to 2021.
Similarly, the Australian book industry recorded sales growth of between 7-12% across categories over the same timeframe.
With all the lockdowns in place, it seems people had time to read once again and similar to other trends like gardening, cooking and baking sourdough, they went 'traditional' and opted for print.
Whether this habit 'sticks' post COVID is yet to be seen. The optimist in me hopes the 'new-book smell' did the trick and has hooked a whole new generation to the love of reading 'real' books.
The US and then everybody else
The US is by far the largest market accounting for 30% of global book sales.
The next three largest markets, China (10%), Germany (9%) and Japan (7%), are around a third of the size of the US market.
The Australian market whilst sizeable in it’s own right at ~$1 billion, is a dwarf on the world stage.
The trends and insights we talk to in the rest of the post have been gleaned from the US market. These can (for the most part) be generalised across other mature Anglo-Saxon and European markets. Asia is a different beast.
Self-disrupted and self-disrupting ...
The book industry ‘self-disrupted’ about three decades ago when publishers handed over their hard-earned titles (or rather authors' titles that they had distribution rights to) over to Amazon to sell online at whatever price it chose...
Flush with venture capital looking for growth rather than yield, Amazon played the price game, discounting heavily to drive sales and gain market share.
It became unsustainable for many self-funded indie bookshops and yield-focused chain bookshops to compete, with many folding. Publisher returns suffered, driving consolidation, with the top five (soon to be four) commanding 80% market share. Ultimately it was authors who paid the price, with most lucky to see ~10% of their books' sales today.
In many ways (and perhaps speaking with the benefit of hindsight), online retail was always something that was going to happen to the book industry. Others have followed and made headway in markets where there was no Amazon e.g. Booktopia in Australia and Fishpond in New Zealand.
What sets Amazon apart from these fast followers though is the moves it made after online retail (and their less than savoury conduct but more on that later).
Amazon's foray into eBooks and self-publishing, via Kindle and Kindle Direct Publishing, were seen to be the next major disruptions for the book industry. They also bought up printers, Audible (audio book platform), Good Reads (social media platform for book lovers) and expanded into more 'traditional' publishing.
Today, Amazon is entrenched right across the book value chain.
Whilst eBooks saw strong growth initially, sales over recent years has plateaued to an average of 20% and this varies greatly across categories. Audio books are the next growth story accounting for ~15% of books sold and is still seeing growth. Print however remains dominant at ~65%, with paperback formats helping to increase affordability and access.
Amazon has consolidated market power across all three formats with over ~40% share of print books sales and ~90% share of eBooks and audio books. They are easily the single largest bookseller in the world.
Amazon's foray into self-publishing has no doubt led to the production of many more titles but it hasn't displaced traditional publishing. Rather, it opened up the industry to many more voices, which is a good thing. The financial returns that it creates for self-published authors however remains doubtful, with the platform seemingly configured to extract every last dollar of value from unsuspecting punters (I explored the fraught economics of self-publishing on Amazon in depth here).
Throughout Amazon's 'rise' the company has been dogged with allegations of abusing their market power to gain a greater share of sales and margins. Those that pushed back on their terms found their titles disappearing, not ranking, being positioned badly, with sales tapering off.
The most public display of such a dispute happened in 2014 when Hachette stood up to Amazon's terms for eBooks. Amazon retaliated by penalising Hachette's titles on their platforms. The flow-on impact on authors revenue saw big names galvanise behind Hachette whilst others (predominantly self-published authors) asked for a compromise.
With the US government increasing their focus on Antitrust laws, the publishing industry has started to openly protest Amazon's dominance and tactics. Given the state of the US legislature however, it's unlikely that anything will come of it...
All in all, Amazon has done a great job at creating a business model that rides off everyone else's creativity whilst retaining the maximum value for themselves.
Amazon's heavy-handed approach with the industry comes with risks. Their relevance stems from the titles they sell and the biggest selling ones still come from traditional publishers.
If the publishing industry really wanted to protest unfair terms, one can imagine a scenario where publishers (noting that the 'big five' own ~80% of the market) pull their titles from the platform and make it available exclusively from all other retailers, most of whom also have online stores (although offer less convenient fulfilment). Mass non-cooperation in true Gandhi form if you like.
However, large publishers are also highly corporatised entities with shareholders and growth and profit targets. Amazon would be their single largest sales channel and it is even harder to imagine anyone willing to risk a large chunk of their revenue ...
In all likelihood, in spite of concerns around Amazon's dominance and conduct, publishers will continue to handover their titles to Amazon, mostly on Amazon's terms - and the self-disruption of the industry will continue...
Clunky, for the love of it
In spite of all the talk of digital disruption, the book industry is still very traditional with lots of 'clunky' systems and 'noughties' website to be found. Most people who are still in it, do it for the love of books.
The industry still supports a large number of businesses that are involved in the supply chain and share in the value from print book sales; retailers (~50%), wholesalers and distributors (~15%), printers (~10%), publishers inc. marketers (~15%)
All these business are loosely stitched together to support the book trade, work to fairly thin margins and ultimately ride on the imagination of the authors, who get to keep10% for the privilege.
Sadly, these days, imagination is being rapidly replaced by 'celebrity'. Commercial realities are forcing publishers to turn to people with a 'platform' to support sales. Celebrity book deals and the hefty advances that these entail is dominating industry headlines. It's impact on our literary culture ... that's a topic for another blog!
The indie renaissance
In spite of all the doom and gloom predictions of the end of the book, there is one sector that has proven it's resilience and ability to reinvent - indie bookshops.
As a bookseller recently pointed out in the very endearing documentary - The Booksellers - "at one stage all bookshops were indie bookshops!" Local, community focused, independent bookshops, run by people who loved books and the book trade.
Their first real disruption came between the 1960s to 1980s, when book chains entered the scene, bringing with them a highly corporatised model of bookselling with it's emphasis on big stores, big range and big discounts. Whilst indie bookshops shut up shop, the chains expanded (inspiring the plot of the infamous romantic comedy/tragedy, You've Got Mail).
However, the chains soon got their karma served to them by Amazon who also led with discounts, whilst offering choice and convenience. The book chains with their behemoth 'brick and mortar' stores and hence higher cost structure (and yield focus) were no match and even some of the most beloved ones have had to bite the dust.
If there is one lesson to be learnt here it's that competing on price isn't exactly a sustainable strategy ... there is bound to be someone cheaper around the block.
Whilst Amazon took up most of the share from book chains, it also created space for indies to fill some of the gap, especially with the segment of customers who still prefer to shop in-store and aren't focused on price.
Indies have never sought to compete on price; their knowledge, service and often specialty offering is what sets them apart.
Beyond this, indie bookshops tend to have a uniquely 'human touch' and are able to form deep and enduring relationships with their local communities.
This is something that book chains and Amazon have never been able to replicate and has been a source of enduring competitive advantage for the indies.
In markets such as the US and Australia, indie bookshops number in the thousands and collectively account for ~25-30% of the book sales. They are quietly staging a renaissance, with store numbers gradually rising and their offering becoming multi-channel (i.e. available in-store and online).
Indie bookstores in Australia have also faired better than their US counterparts. This was on the back of widespread collaboration at the onset of online retail, with most today having vibrant online and social media presence. Indie bookstores in the US and UK are catching up in this regard with some help from another startup making the news: bookshop.org
'Brick and mortar' continues to rule
Department stores and the last remaining book chains tend to be the largest 'brick and mortar' book retailers with a small number accounting for ~30% of book sales. These still tend to lead on price and cater to the price-conscious segment of the population that still prefer to buy instore.
Collectively, ‘brick and mortar’ stores (indies, chains, department stores and other retailers) remain the predominant channel for print book sales, accounting for ~60% of sales.
Even Amazon (the single largest bookseller at 40% market share) started opening physical stores in 2015 a bid to capture even more market share but it seems are struggling to forge the connection that indies have with their base.
The COVID effect: Through COVID lockdowns we have no doubt seen the 'channel-mix' reported above shift online. Seeing the extent of 'online fatigue' in the populace, this is likely to be a temporary phenomenon with sales reverting to stores once shops, towns, countries start opening up again. The coming Christmas retail period will be telling.
So what's selling?
Whilst political biographies and celebrity book deals tend to dominate literary news and best-seller lists (noting that these lists are often 'curated'), children’s books help keep the industry afloat. In the US they account for ~30% of sales whilst in Australia it’s almost half (46%).
The biggest success story in Australia over 2020 for example was Bluey, a picture book series based on the popular kids' TV show. The combined sales of the Bluey titles over an eight-month period in 2020 was 650,000 books. In comparison the next best-seller, The Barefoot Investor, sold 90,270 copies over the same period.
Adult non-fiction is the other major category with ~40% share of print book sales in the US. Popular subcategories include:
Memoir and biographies
Self-help
Religion and spirituality
Health, fitness and dieting
Business and money
Cookbooks, food and vine
Politics and Social Science
Adult fiction is the third major category, with ~20% share of print books. The highest grossing sub-genres includes:
Crime and mystery
Romance and erotica
Science fiction and fantasy
Thrillers and horror
The phoenix rising from the ashes
Books are arguably the most disrupted industry of our age. It's also one that over the last five decades has defied all morbid expectations of their imminent demise...
From everything I’ve seen, heard and read, books are not just ‘another commodity’, as once famously claimed by Jeff Bezos. Rather, they are a much loved and cherished part of cultures, societies and lives. Books, their makers and their sellers are very much here to stay.
After a period of turmoil and stagnation, the book industry is once again starting to show signs of growth and renewal. It may very well be at the cusp of turning a new page ...
