3 Things to Know About Amazon.com and the Kindle Unlimited Plan

Amazon's new service has yet to come out, but already has implications for its partners and competitors.

Jul 17, 2014 at 9:30AM

Subscription services have taken over every imaginable good: music, movies, groceries, shaving razors, and even local coffee. For a business, it means a steady, predictable flow of revenue from customers that must make an effort to cancel a subscription. For a consumer, it means the convenience of one less regular purchase, and depending on the good, a wide range of options and flexibility of usage.

Amazon.com (NASDAQ:AMZN) already runs a few subscription-type services. For $99 per year, you can get a subscription to Amazon Prime. Or, you can subscribe to order certain items on a regular interval -- say an economy-size box of diapers each month placed at your doorstep.

But Amazon has just leaked another subscription service it might offer. On a product website quickly removed from Amazon, it appears Amazon is readying a subscription service, Kindle Unlimited, allowing Kindle users to access 60,000 books and thousands of audiobooks for $10 per month.


Screenshot of removed page announcing Kindle Unlimited. Source: Google cache.

What should you know about Amazon's Kindle Unlimited?

1. It will be another fight with publishers
Lately, Amazon and publisher Hachette have been in a negotiation battle. Amazon has delayed delivery of Hachette titles, and even wrote a note to Hachette authors stating that while the dispute lasts, the authors should receive 100% of e-book sales while both companies would forego any cut. Hachette declined.

For Amazon, lowering the price of books is necessary in order to compete with other forms of entertainment that occupy customer's lives. As Russell Grandinetti, the senior vice president of Kindle, told The New York Times:

You have to draw the box big. Books don't just compete against books. Books compete against Candy Crush, Twitter, Facebook, streaming movies, newspapers you can read for free. It's a new world. It's so important not to simply build a moat around the industry the way it is now.

Publishers disagree, and will likely disagree with Amazon about the royalties it proposes for an unlimited rental program at $10 per month. However, publishers like Hachette may not have a choice in the long run, as 60% of Hachette's sales occur through Amazon.

2. It will change what it means to be an author
The dynamics between Amazon, publishers, and authors continues to change as Amazon tweaks its services and structure. Amazon offers authors an immediate audience to customers, and with its Kindle Direct Publishing, offers royalties between 35% to 70%. Traditional publishers offer 25% royalties to authors for e-book sales. The publishers argue that higher prices, but lower royalties would mean more total earnings for an author. In addition, publishers provide editing and promotion. On the other hand, Amazon wants to push volume, and thinks a lower price with higher royalties will leave authors with more earnings.

Amazon keeps pushing new payment schemes to authors. For the Kindle Owner's Lending Library, which allows Amazon Prime members to loan a book once a month, each borrow counts as a share in a global fund, which is then distributed each month.

If Amazon wants to cap prices, authors could turn to much shorter serials, as many Kindle Direct authors currently write. Like any system, incentives will guide action, and if a long story is made more lucrative as a series of short stories, authors will conform.

3. Others will follow
Amazon isn't the first to create a subscription for books, and won't be the last, especially as tech conglomerates must compete in every sphere to remain competitive. Both Apple's (NASDAQ:AAPL) iBooks and Google's Play Store offer e-books to read. Both also have a larger stake in the tablet market than Amazon. Apple's tablet market share is 33%, while Samsung and Asus, which both run Google's Android operating system, combined have 27% share, and Amazon lags far behind at 2%.

Apple, which just paid $400 million to settle an e-book price fixing case, will need to repair its relationship with consumers around e-books. It's also an important business for the company, as last year Apple claimed it had 20% of the e-book market, though others usually give the company 10% market share. With the e-book industry estimated at $5.7 billion this year, keeping up with Amazon will be a priority for Apple with serious revenue implications.

Google has more wiggle room, with less market share. But, if it wants to offer the convenience of competitors, it might have to offer a similar solution.

Changing the story arc
Amazon is in clear control of the book industry and will leverage this control to achieve its long term goals, which will change the life of authors and publishers. Additionally, Kindle Unlimited puts another feature in Amazon's favor, and competitors will have to respond to remain relevant. Another subscription service will be another consistent source of revenue for Amazon.

Leaked: Apple's next smart device (warning, it may shock you)
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!

Dan Newman owns shares of Apple. The Motley Fool recommends Amazon.com, Apple, Google (A shares), and Google (C shares). The Motley Fool owns shares of Amazon.com, Apple, Google (A shares), and Google (C shares). Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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