By James M. Jackson
Asymmetric information occurs any time two parties to
a transaction have different levels of knowledge about a situation.
Sometimes that’s a very good thing: When I go to the doctor
with bothersome symptoms, I expect her to know a lot more than I do about diagnosing
the problem and how to treat the underlying issue.
Sometimes it is not a good thing: for example, when you buy
a used car from a stranger, the seller knows much more about the car than the
buyer does. The seller knows whether the car had all its routine maintenance, whether
the son red-lined the engine drag racing with friends, whether it sat for a
week in a flooded garage. Unless you are a mechanic, or hire one to inspect the
car, you will suffer from asymmetric information.
Let’s Focus on a self-published author’s relationship
with Amazon when using KDP (Kindle Direct Publishing).
What does Amazon provide to self-published authors who use
KDP (Amazon’s publishing platform)?
You know your royalty rate depending on choices you make
about pricing your book and what markets you want Amazon to sell into. There
are no hidden costs.
They provide information about your sales—it’s not always
100% accurate, but it’s reliable, and it’s current (at least reasonably so) to
within a day.
If you enroll your books in Kindle Unlimited, you can
determine the number of pages members read, again daily, with good accuracy.
Amazon provides these data sooner than what an author
receives from traditional publishers.
Where does Amazon use its Asymmetric Information to its
advantage?
Book Rankings: No one knows exactly how Amazon
determines book rank. Sales have something to do with it: we’re sure of that. But
sales over what period? What effect does sales momentum have? Sales memory
(past sales)? Pages read by members enrolled in Kindle Unlimited also count
toward a book’s ranking, but we don’t know how. Does your book share a level
playing field with big publishers? How about with Amazon’s own imprints? (i.e. How
level is the playing field level?)
One example of a non-level playing field is this: If you
give your book away, Amazon assigns a separate ranking for free books. However,
free downloads of Amazon Imprint books included in their “First Reads”
promotion count the same as sales and are not segregated into a separate class,
meaning these books can (and do) obtain the coveted #1 status in their
categories.
Search Results: When you search for a book on
Amazon, how does Amazon determine which books to show? Do they favor Amazon
imprints? To what extent do they favor those who advertise? Do they look to
maximize possible Amazon profit on a book sale?
For example, does Amazon use an algorithm that calculates their
revenue for a book purchase, multiplied times the probability someone will
purchase the book after seeing an ad + the profit earned from the ad itself?
Amazon does “manipulate” results to reflect its interests: recently
some authors have entered their book’s name in Amazon’s search box and discovered
the first page of results did not include any of their books. Most people don’t
click past the first page, which means when that happens the affected author’s
books become nearly invisible, even to people who specifically searched for the
author.
Amazon tells authors to choose seven useful keywords to
categorize their books to help readers find them when they search. Yet only Amazon
knows how they use this information and what they combine it with when they
deliver search results.
Amazon usually shows “Also Boughts” relative to each book.
How are these determined? Is it a level playing field (i.e. do Amazon imprints
get included more often as also boughts that other books?) Do books with ads automatically
get different treatment?
When authors advertise on Amazon, the asymmetry becomes
worse.
Only Amazon knows how it determines how much to charge for a
click.
Only Amazon knows how it determines which ads it presents
and where.
Amazon knows exactly who clicked on your book’s link—you don’t.
Similarly, Amazon knows which book everyone bought—you have
no idea who buys your books.
What’s an author to do?
Knowledge and boycott are the primary tactics to counter
asymmetric information. If you choose to self-publish, Amazon is too big a
marketplace to boycott, leaving knowledge as your only choice. Knowledge takes
two forms: First one should understand where asymmetric information exits (and
hopefully this blog helped). Then, to the extent possible, learn strategies to
counterbalance Amazon’s advantages.
It’s not just authors . . . readers, too!
Amazon’s asymmetric information advantage also affects us as
readers. It knows what we read (if we use a Kindle or Kindle App, it even knows
when we read). It knows what books you’ve searched for, what ads you click on,
and which ad placements attract your attention.
Not that I want you to become paranoid about asymmetric
information, but based on your purchases, Amazon might even know if you are
naughty or nice–oh wait, that’s Santa Claus—and besides, you already know that
about yourself.
Chainsaw Jim signing off |
And now it's time to say goodbye to all our family . . .
No, not the Mickey Mouse club . . . This is my final post for Writers Who Kill for the foreseeable future. I've loved being here, but focusing my writing efforts on new projects means I must give something up. However, my alternate Sunday slot will be more than ably filled by Kaye George who I have been friends with for more than a decade. I'm sure you'll be well served.
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