It seems like every year, Amazon comes up with something different, or they do something different, that affects authors. Unfortunately, this is something indie authors have to live with. We have to learn to evolve and grow with their changes, ready to adapt in order to overcome and succeed. If you don’t change quickly, you’ll constantly be playing catch-up because it seems every year brings something new. Amazon has tweaked algorithms and adapted things to their favor to keep ahead of authors who are getting wise to their ever-changing business models.
Amazon’s newest brain-child is Kindle Unlimited. Here is one of the questions I kept asking myself, and realized other authors were asking the ‘same’ question:
Why is Amazon having to keep adding money to the KDP Select Global Fund?
I have some thoughts on this matter, and they are just that, my thoughts. I don’t have inside contacts, just years of having been self-employed and having to think about bottom lines and how to improve upon them, which is what I think Amazon is trying to do themselves. I think they want to make sure how things are going with subscribers of Kindle Unlimited so they don't start the 'pot' out too high and authors make too much money for Amazon's liking. Amazon wants to get their numbers down and figure out about what it takes for each borrow to come in at 'a price point' that Amazon is willing to live with. For example, with Amazon Prime, Amazon tried to aim for payouts of $2 per borrow on average. Amazon isn't happy with that price point now because they are not limiting how many borrows a subscriber can make like they did with Amazon Prime (which was one a month). So they have readers getting 10 books at a time, some may read them the 10 a month or more, and others may not. Think of it this way.
Cost to Kindle Unlimited Subscriber $9.99
10 borrows x $1.39 (KOLL payout last month) $13.90
If a person borrows and reads 10 books a month, Amazon would be losing $3.91 a month for each subscriber who reads that many books. I’ve talked to some reviewers who have read hundreds of books a year. Amazon would actually lose even more on those reviewers as subscribers!
Not every person is going to read 10 or more books, and that is what Amazon is banking on. But when they roll out a new program, Amazon usually offers a trial period. A lot of people take advantage of this trial period, so it takes time for that trial period to run out so that the bean counters at Amazon can get a better idea of what to expect and how it will affect their bottom line. We saw Amazon continue to add money to the KDP Select Global Fund for months after they rolled out the promotion for Amazon Prime. Once the trial periods were over, Amazon was able to establish their base line because they knew on average how many Amazon Prime subscribers they retained on average, and each of them could only borrow 1 book a month. With Kindle Unlimited, Amazon is still trying to establish their baseline and it is a bit trickier because not only are they having to factor that into the equation, they have to determine average of borrows per subscriber and this is a wider variable.
Amazon knew they aimed to pay out $2 on average per borrow for Amazon Prime. I am sure they had a set number in mind of what they hoped for that to change to with Kindle Unlimited. They didn’t want to add too much money to the KDP Select Global Fund, lest they accidentally pay out more money for borrows than they really needed or wanted to. They also had to see where the price-point would come in before authors would show resistance. I think they saw enough squeaking from authors at $1.33 per borrow, that they realize that going lower than this will really upset authors and they will pull books priced over $2.99 out of KDP Select, so I am assuming this will most likely be our new baseline price that Amazon targets for borrows. But Amazon still has to wait and see, over a three month window as authors books are eligible to come out of KDP Select, to see what price of books are left in the program.
What do I think? I think Kindle Unlimited may very well end up becoming the new 99¢ book club and will be flooded with short stories to novella, mixed with a few books that authors are willing to let go for 99¢. However, if Amazon drops the payout for borrows to less than a dollar per borrow, they will find it hard to keep even these authors in KDP Select because authors can make as much as $.59 publishing a 99¢ book at other vendors through places like Draft2Digital. If authors don’t have more to gain for staying exclusive, they will opt for a wider market to reach more readers.