Amazon, Authors, and Asymmetric Information

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.

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James M. Jackson authors the Seamus McCree series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

This blog was first published on Writers Who Kill.

Furthermore – When Readers Dictate Priorities

It started with my False Bottom (Seamus McCree #6) proofreaders. My ARC readers jumped in with two feet. When the local postmistress buttonholed my better half, Jan, I knew I had a strategic issue to address.

Each novel, novella, and short story in the Seamus McCree series has its own narrative arc, but the series itself has a larger arc. At the end of each tale, questions remain—not about the action in that one—about how something will affect Seamus and his family in the future. Some of the novels have a specific hook to a future book. I say future advisedly because the hook from Ant Farm (Seamus McCree #1), although it receives a nodding reference in Bad Policy (Seamus McCree #2), does not come to fruition until Empty Promises (Seamus McCree #5).

I’m not about to provide any spoilers, but it gives nothing away to confirm that at the end of False Bottom, the reader will recognize that I have left multiple issues for Seamus and his family to address. Perfect fodder for future books.

As I demonstrated with Ant Farm, I’m willing to let readers stew for a while before resolving open issues. My writing plan called for me to write a spin-off series featuring one of the secondary characters from an early Seamus McCree novel. Truth is, I’d like the experience of a big publisher contract and marketing, and that won’t happen with the Seamus McCree series (although many fans have suggested Seamus would make a great television series . . .I’m up for offers . . .).

So, once I finished False Bottom, my intent was to work on the second draft of the first novel in the new series. And, if False Bottom gained enough readers and reviews to make me think another novel was worth my time, I had an idea for it: I’d return Seamus to his camp in Michigan’s Upper Peninsula and have the story revolve around his granddaughter, Megan.

Perfect until the proofreaders asked, “Who is she?” And they—and the ARC readers—predicted (without consulting me or despite consulting me) that the next novel would answer the question. Well, I had other plans that required them to wait for their answer.

Until Linda, my postmistress, told Jan she read False Bottom over the weekend and wanted to know who she was. When, she asked, was Jim coming out with the next one to answer that question?

2021 was not an acceptable answer.

As readers posted reviews on Amazon and Goodreads and contacted me by email, it became clear that if I waited two years to provide answers, I would piss off not only my rabid readers, but even folks who had read only False Bottom.

I thought my priorities were the new series and bringing Seamus back to his U.P camp. But they were not lining up well with my readers’ wish to find out who she is.

I caved. I will answer (Well, maybe. You never can be sure—this is me, after all.) my readers’ pressing question by writing a novella. It’s current working title is Furthermore. It takes place three weeks after False Bottom ends. Set in Boston, it will address both the complication hinted at in the last chapter of False Bottom and the burning question—Who is she?

I mentioned my decision to one proofreader, and she wanted to know when she would get it to proofread. When I demurred, she suggested she could set up a writing schedule for me. Talk about motivated. I expect to finish the first draft next week.

What do you think? Am I wise to accede to my readers, or should I have ignored the hubbub and worked on the spinoff?

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James M. Jackson authors the Seamus McCree series. False Bottom, the sixth novel in the series—this one set in the Boston area—was first available in May. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com/index.html.

This blog was originally published on the Writers Who Kill blog 6/16/19.

Fishy Business

Earlier this spring, Fishy Business, the 5^th Guppy Chapter anthology was released by Wildside Press. Linda Rodriquez edited the anthology, and my story “Power of Attorney” is the final of the twenty-two stories chosen by a panel of three independent judges.

I don’t write many short stories because they need to laser focus on one specific issue and my preference is to interweave multiple story lines into a satisfactory tale. I wrote this story because even after writing Cabin Fever (Seamus McCree #3), which has at its heart a financial crime directed against seniors, my concern about these kinds of crimes remains.

Statistics under-report those crimes because seniors often don’t realize they have been cheated, or if they do, they’re too embarrassed to admit it or scared their children or a court will decide they are incompetent.

Much of the information directed at seniors relates to credit card scams, phone scams, and such committed by boiler room operations. I don’t want to diminish the size of that problem, but the issue I am more interested in is the exploitation of seniors by those they trust: their children, their financial or legal advisor, their caregivers, their friends—especially, new best friends.

“Power of Attorney” features Seamus McCree and a secondary character from one of the earlier Seamus McCree novels. The title contains a play on words: On one level it refers to the name of a particular legal document; on another level, it recognizes that attorneys’ specialized knowledge that laypersons do not have gives them a special power over us.

I’ll allow you the pleasure of reading the story without spoilers from me. I’m pleased with the way it came out and delighted to be included in the anthology. You can order copies of the anthology from the publisher, your favorite physical or online bookstore, or from Amazon. I hope you enjoy.

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James M. Jackson authors the Seamus McCree series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com. 

Financial Risk for Individuals

Most people don't have a good concept about how to consider financial risk when it applies to them as individuals. Here's a start:

Another word for risk is uncertainty. Financial folks often talk about “risky assets.” By that they mean assets that do not come with a guaranteed return. Investment textbooks contain formulae to measure risk based on volatility of returns, standard deviation of returns, variance of returns, ratios of those statistics relative to expected return and so on and so forth. Lots of measures but they all have to do with how uncertain the return is.

All the mathematical equations in the world miss a very large point about real risk as applied to individuals. You are only one person, and you only get one result, not an array of possible results.

A Simple Illustrates Individual Risk

You have an opportunity to invest in a stock that after one year will be worth either nothing or earn 1,000 times the original investment. Each result has a 50/50 chance. To make this bet, you must put up everything you own up to $10 million. A math guy would tell you that your expected earnings are 500 times your investment—a very positive result. We'd all like a piece of that investment opportunity.

Except . . .

I don’t know about you, but I’m not worth $10 million. This deal requires me to invest everything I have. I’m retired and if I lose it all, I will be in very deep trouble. You could change the 1,000 multiplier to 10,000 or even 1,000,000 and I still could not afford to take the gamble. It is too risky for me because losing wipes me out, and I do not have a viable way to recover any semblance of a decent standard of living.

Bill Gates, however, could hop on this investment with little thought (other than to make sure the deal is as represented.) While he wouldn’t want to lose $10 million, the loss is less than .01% of his reported 100 billion of assets¹ — a drop in the bucket. If you are rich enough that you can easily afford a $10 million loss, this is a great deal.

If I were 23 years-old again with most of my working years remaining, I’d make that bet in a heartbeat. Sure, I only had a net worth of a few thousand bucks, but at that age I’d risk all of it (say $5,000) to earn $5 million.

When we look at financial risk as an individual, we can’t just look at it as a financial wonk would and based our decision on averages or "expected values." We must consider what it means to us if the investment pays off and what happens if it doesn’t.

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James M. Jackson authors the Seamus McCree mystery series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

¹ Bloomberg Billionaires Index

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James M. Jackson authors the Seamus McCree mystery series. Full of mystery and suspense, these thrillers explore financial crimes, family relationships, and what happens when they mix. False Bottom, the sixth novel in the series—this one set in the Boston area—is now available. You can sign up for his newsletter and find more information about Jim and his books at https://jamesmjackson.com.

¹ Bloomberg Billionaires Index