Ten Predictions for the Next Ten Years

I didn't do so well in 2000 when I made predictions for the coming year; a year later, I determined that only one of my seven predictions came true.

I'm ten years older and wiser, and I guarantee, triple your money back, that at least 3 of this years predictions will come true. In 2000 I didn't have Twitter to try my first draft on.

1. The number of public libraries in 2020 will be less than half today's number. Addendum: the number of public library locations will be 50% more in 2020 than today.
   
   I will write a full post about this, but I believe the driving force for this will be e-books and book digitization, and the result will be consolidation, outsourcing and shuttering of public libraries. Update: I've written a full post.
   


2. By the end of 2014, the world's largest aggregation of bibliographic metadata will not be WorldCat. By 2020, no one will care which aggregation is largest.
   
   Currently, the growth curve for LibraryThing makes it look like it will pass WorldCat in a few years. SerialsSolutions' Summon is definitely in the running. Google can't be discounted. But by the middle of the decade, the size question will seem silly, sort of like "What's the largest computer chip in the word?" or "Who has the most powerful nuclear bomb?" In 2010, we don't care about these questions. In 2020, data quality and currency will be much more important than data completeness. Also, see my article on "When are you collecting too much data?".
   
   Thanks, @DataG for the comments!
   
   
3. In 2020, general purpose quantum computers will not be useful for any purpose.
   
   If there's one thing I learned from doing physics, it's there ain't no such thing as a free lunch. If you spend a billion dollars on quantum computing, you might be able to factor an unfactorable integer or two by 2020.
   
   
4. Open Linked Data will hockey-stick in 2012 on standardization of of quad (named graphs?) transport.
   
   I've been meaning to write more about quad transport, but if you read my article on Pat Hayes' Surfaces, Leigh Dodds' article on Named Graphs, and the DERI proposal on N-quads, you'll know more than I do.
   
   
5. In 2020, the search engine era will be ending. Search engines will give way to less centralized "knowledge fabrics".
   
   Search engines have a specific topology: spiders pull in data from millions of distributed sites and add it to one big pile that can be searched on. This topology works great if what you want to do is search, but have you ever noticed that Google can't count? Understanding the connections in rapidly changing data will require new topologies and new business models. In 2020, we'll know what they are.
   
   
6. In 2020, China will be seen as having a more modern, sensible, and practical copyright regime than the US.
   
   In 2010, China has a poor reputation enforcement of Copyright. China will certainly mature in this respect, but to expect it to adopt the regime currently prevailing internationally is to ignore the best interests of China. I think that China will look to the original intent of the US Constitution and invent a copyright regime optimized "To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries."
   
   
7. In 2020, more than half of the book industry's revenue will be facilitated by a Book Rights Registry.
   
   The Book Rights Registry that would be created by the Google Books Settlement Agreement is too good of an idea to be tied to the settlement agreement. It will happen whether the settlement is approved or not. People will complain about it... all the way to the bank. Note that my prediction uses the indefinite article. There may be more than one book rights registry!
   
   
8. In 2020, the New York Times will be profitable, and will not have gone bankrupt.
   
   It's easy to predict that the newspaper industry will contract- it's already happening! But the New York Times is uniquely positioned to take advantage of the market gaps that will open when local newspapers fail. Because they do expensive original reporting, they will have little competition. Because they're family-controlled, like Ford, they won't fall victim to the stupidities of the equity markets.
   
   
9. In 2020, Twitter will be a distant memory; Facebook will still be with us.
   
   Facebook has demonstrated ability to purposefully evolve and extend. Twitter seems not to understand itself. While my neighbor David Carr thinks that Twitter Will Endure, his argument applies to the idea, not the company. Twitter the company will be squeezed between multipurpose networks like Facebook on the high end and non-proprietary protocols on on the low end.
   
   Thanks, @CodyBrown for the comments!
   
   
10. On January 1, 2020, when I review this list of predictions, I will use a Mac to do it.
    
    It's been almost 25 years that I've been using a Mac. Do you really think that the mythical Apple tablet of 2020 will not be a Mac?
    
    

Do Libraries Have a Role in the Coming e-Book Economy?

You've probably heard it said that in Chinese, the word for "crisis" is composed from the words for "danger" and "opportunity". In the same presentation, you probably heard that there's no "I" in "TEAM". If you were skeptical of these attempts to extract wisdom from way language is written, you had good reason. The story about the Chinese word for crisis is not true. And even if it was true, it would be about as meaningful as the fact that the English word "SLAUGHTER" contains the word "LAUGHTER".

During my brief time working in "middle management", I was required to do "SWOT Analysis". SWOT stands for "Strengths, Weaknesses, Opportunities, Threats". As a planning exercise, it was quite useful, but it became comical when used as a management tool. Everyone understood the fake Chinese crisis wisdom, and we all made sure that our threats were the same as our opportunities, and our weaknesses were also our strengths.

On this last day of the "0"s, I've been reading a lot of prognostication about the next ten years. It's very relevant to this blog, as I've been using it to help me think about what to do next. Some things are not too hard to imagine: the current newspaper industry will shrink to maybe 10% its current size; the book publishing will reshuffle during the transition to e-books; Google will become middle-aged. The SWOT analysis for these will be easy.

The SWOT analysis that I have trouble with is the one for libraries. What threats to libraries will arise? Will Libraries as we know them even exist in 10 years?

I've heard publishers say they believe that there will be no role at all for libraries in the developing e-book ecosystem. If that's not a threat, I don't know what is! On the other hand, there's the example of the Barnes and Noble e-book reader, the Nook, that has the intriguing feature of being able to read books without buying them while you're in the bookstore! If there's a role for brick and mortar bookstores in the e-book ecosystem, then surely there's a role for libraries.

In thinking about what roles libraries will play when all books are e-books, I keep coming back to a conclusion that sounds odd at first: the prospective role of libraries will be entwined with that of piracy in the e-book ecosystem.

While there are fundamental differences between e-book libraries and e-book pirates, there are important similarities. As I noted in my article on copyright enforcement for e-books, libraries have traditionally played an important role in providing free access to print books; e-book pirates have as their mission the provision of free access to e-books. For this reason, libraries and pirates would occupy the same "market space" in an e-book ecosystem. This is not to say that libraries and pirates would be direct competitors; it's hard to imagine pirate sites appealing to many of the people who patronize libraries.

So where is the "threat" to libraries? Think about how book publishers will need to respond to the threat of e-book piracy. I've argued that publishers should do everything they can to reward e-book purchases, but that addresses only the high price segment of the market. Public libraries address the low-price segment of the market, providing books to people with a low willingness or ability to pay for access, while still providing a revenue stream for the publishers. To keep pirates from capturing this market in the e-book economy, publishers will need to facilitate the creation of services targeted at this market.

An analogy from the video business is appropriate here. DVDs can only satisfy part of the digital video market. Though it's taken a while for the studios to realize it, in order to effectively compete with video pirates, the movie studios need to have digital offerings like hulu.com that offer movies for free.

What will the free e-book services look like? Perhaps they'll be advertising sponsored services like Google Books. Perhaps they'll be publisher- or genre-specific subscription services that provide people a "free book" experience at a fixed monthly price. Unfortunately, it seems a bit unnatural that publishers would turn to libraries to create the sort of services that could replicate the role of the library in the e-book ecosystem- libraries just aren't entrepreneurial in that way.

Somehow I don't think that book publishers will warm to a "Napster for e-Books", even if it was labeled "e-Book Inter-Library Loan".

Still, I'm optimistic. Some horrific mashup of Open Library, Google Books, LibraryThing, WorldCat, BookShare, Facebook, Freebase, RapidShare and the Mechanical Turk is going to just the thing to save both libraries and publishers. You heard it here first. And if you find it scary- don't forget that you can't spell e-Book without BOO!

Copyright Enforcement for eBooks: Cultural Life Preserver or Orwellian Nightmare?

I'm a 7 MPH speeder. When I'm on an empty highway with a 65 MPH speed limit, I drive 72. This puts my car in roughly the 70th percentile of car speed. But when some idiot comes zooming past at 85, I cheer when I see him stopped by the cops 5 minutes later.

Last time I was in England, I was appalled to find that cameras had been installed along some of the motorways that would send you a speeding ticket automatically if you averaged more than the speed limit. I told the limo driver that Americans would elect a black president long before we'd tolerate speed cameras on the freeway. I was right.

I'm no legal theorist, but I know better than to think that human behavior is determined by laws- laws only work as far as they reflect a social consensus. It's true for driving and it's also true for reading, listening to music, and watching videos. As behaviors change due to the introduction of technology, society is forced to modify social norms for behavior.

The book publishing industry is at the beginning of a technology driven change in the way that people read books, and the shape of the consensus that emerges will determine how creative production is sustained. (Same for news, but that's another story entirely!)

Social consensus has a lot of inertia because if people and institutions don't have to change, they won't. Think about how social consensus evolved when music became digital. It used to be that people expected to be able to listen for free, via radio, and expected to pay to "keep" the music. Once paid for, people expected to be able to share their records with friends in a variety of ways.

When music became digital with the advent of the compact disk, very little changed, at least for a while. The addition of internet distribution, however, allowed Napster to stretch the "sharing" behavior so as to cover free listening and threaten the buy-to-own behavior. The music industry responded with legal action, but its failure to provide convenient, authorized activities to cover accustomed behaviors gave Napster an effective monopoly on digitally distributed music. If not for the social habit of paying-to-keep music, the music industry may well have collapsed. With the takedown of Napster and the rise of authorized services like iTunes, Pandora and Spotify, the music industry has begun to successfully reshape user behavior forged by easy unauthorized file sharing, but its mistakes have clearly hurt.

The movie industry has had more luck with the onset of digital distribution. People still expect to watch TV for free, and to pay for premium entertainment at the movies. The internet bandwidth needed to easily move video files has become available at about the same time as distribution sites such as Hulu and Netflix, so pirates have never had much of a monopoly on digital movie distribution. YouTube offers a flood of free video content, and it works with rightsholders to identify and remove unauthorized uses of their work. Large amounts of unauthorized distribution has occurred, but the movie industry has responded with both the carrot and the stick, by providing enhanced in-theater experience, inexpensive secondary distribution channels, making deals with YouTube and providing specialized DVD content while pursuing takedowns and ostentatiously prosecuting copyright infringements. Certainly the movie industry has made some missteps, but a blockbuster movie can still gross a billion dollars.

People have always expected to pay to own books, but once bought, the books could be freely borrowed from friends or libraries, and a vibrant used-books market makes older works available at very low cost. The biggest change brought about by digital distribution is the flood of free material available on a huge variety of websites, from blogs to wikis to traditional news.

It's not clear how book (including ebook) sales will be impacted by unauthorized distribution of digital copies. Although I've noted that it's relatively easy to find and identify unauthorized copies of works like Harry Potter and the Deathly Hallows, it's not likely that people will change their book buying behavior unless they have to. That's why I find it surprising that J. K. Rowling and her publishers are giving the pirates a near monopoly on the digital version of that particular book.

I've heard publishers say that they've learned from the example of the music industry that the threat of piracy makes DRM (digital rights management) a necessity for distribution of ebook content. In fact, almost the opposite is true. Publishers have been distributing books for hundreds of years without DRM. A potential pirate doesn't need to crack any encryption; they need only buy a single copy of the book and scan it. I wrote about the advent of cheap book scanners in October; Wired has a recent article.

Pirating a book is somewhat more difficult than pirating a song, but comparable to pirating a movie. The first step is to acquire a digital copy. Popular books are easy to obtain and a professional pirate would likely remove the binding with a saw and feed the pages into a high-speed copier/scanner. (Until the DVD comes out, a pirate typically sits in a theater and films the movie; the DRM on DVD's is trivial to crack.)

The digital file would then either be seeded onto a peer-to-peer network or uploaded to a file distribution or streaming site similar to rapidshare. Studies by Arbor, Cisco, and Sandvine suggest that P2P networks are declining in popularity compared to the file distribution sites, especially in countries with high broadband penetration.

In a peer to peer network such as those using the BitTorrent protocol, the work is divided between tracker sites and the peers which provide the actual files. The use of many peers allows high-volume distribution without needing a high bandwidth internet connection. Since the RIAA and others began filing lawsuits against people thought to be involved in providing files, the remaining networks have adopted social-networking and encryption to make sure that they can no longer be easily monitored.

File distribution sites are being used more and more as broadband connections become widespread. These sites have many legitimate uses, and will respond to takedown notices when illicit content is identified on their sites (although the in some countries, the takedowns are processed with the underwhelming speed of a bank's electronic funds transfer.) The links and metadata for the illicit files mostly appear on third party sites, which complicates any enforcement action. Ironically, sites such as Rapidshare have become so popular that to use it easily you really have to purchase a premium subscription!

Still, digital book piracy has already begun to appear in significant amounts. According to Brad Beautlich, Sales Director at DtecNet, text books, including law and medical textbooks, are now frequently appearing on the content distribution sites and torrent indexes favored by copyright infringers. These tend to be expensive items sold in cost-sensitive markets, which increases the incentives for unauthorized use. The sites appear to have very few books that have been cracked from digital versions; most of the book content currently available is clearly derived from scanned print.

The lack of pirated e-reader files (such as kindle or epub files) is consistent with the profile of e-reader early adopters, who tend to be to be older and not particularly price sensitive. I assume it's because older users tend to have bad eyes and full shelves. They're unwilling to install P2P client software or be attracted by the sort of advertising found on file index sites. Readers in developing countries may be in different situations.

DtecNet is a company that has been providing detection services to media companies. They offer to seek out, document and help to take down unauthorized content from web sites and file sharing networks. Their task can be difficult, as they need to scan and monitor indexing sites that may cloak the identity of a file ("NITM2" instead of Night in the Museum 2) and figure out from user comments in multiple languages whether a file is genuine or not.

Beautlich suggests that although monitoring from his company would be expensive ($4000-5000/month for a Harry Potterish project), an early investment in copyright enforcement by the book industry might more effective than a strategy of waiting for a larger threat to arrive.

Another strategy to modify user behavior is being pursued by Audible Magic. Audible Magic has a rather different business model from DtecNet. Instead of working for rightsholders, Audible Magic provides content identification services to ISPs, educational institutions, and content distribution services, helping them minimize their liability for copyright infringement. In the US, the Higher Education Opportunity Act (HEOA) of 2008 requires colleges and universities to have "A plan to 'effectively combat' copyright abuse on the campus network using 'a variety of technology-based deterrents'."

Audible Magic provides an appliance that attaches to a router or gateway within the client's network. The appliance "listens" to network traffic, and when is recognizes copyrighted content being transferred in ways that connote unauthorized use, it either logs a report or attempts an intervention. According to Jay Friedman, Audible Magic's Vice President for Marketing, over 100 University campuses are using their systems. Pricing depends on the amount of bandwidth used by the university and can be as little as a few thousand dallars a year.

Interventions are positioned in a "graduated response" model. For example, a user's next webpage download might be replaced by a page suggesting that unauthorized activity may have occurred, along with a reminder of an institution's usage policies. Continued infractions might result in the user being put in a "timeout", followed by a human mediated intervention.

If you find it big-brotherish to have an "appliance" looking over your shoulder so see whether your infringing copyrights, you wouldn't be alone. The Electronic Frontier Foundation has warned that Audible Magic's service offering is "no magic bullet", and is concerned that this type content monitoring would be a threat to individual privacy rights. It's one thing for a universities and corporations to be proactive in avoiding copyright infringement liability, but imagine what it would be like if this sort of monitoring were a legal requirement! Public Knowledge has published an excellent overview of the issues surrounding this sort of network monitoring.

In fact, international treaties and legislation requiring ISPs to adopt "three strikes" graduated response policies culminating in loss of internet connection is being considered in Europe and other parts of the world. While many book publishers would be horrified to buy into these sorts of copyright enforcement regimes, at the same time they are aghast at the prospect of having their content pirated and their livelihoods destroyed.

Think about the speed limit monitor in the accompanying photo. Based on my observation it is very effective at modifying the behavior of drivers. 7-MPH speeders like myself become 1-MPH speeders. I don't think anyone minds being monitored by this sign- there is confidence that it's not doing anything other than measuring and displaying our speed. In contrast, hidden speed traps seem evil- they don't slow people down unless they own radar detectors; the egregious speeders are not the ones who get caught! Copyright enforcement for ebooks should be as much like that as possible. As Princeton's Ed Felten has observed, the ideal copyright enforcement system exhibits maximal compliance and minimum prosecution. Especially for books, monitoring systems should be as open as possible and visible to users to maximize compliance and to create confidence they are not also snooping on reading habits.

It's interesting to read about the experiences of a university that implemented monitoring of P2P networks to comply with HEOA. Illinois State's Digital Citizen Project's summary of "Escalated Response System Testing Utilizing Audible Magic Copysense" (pdf, 1.5 MB) is valuable reading. While it's hard to be sure that Illinois' program was effective (you can't measure events that have evaded detection), I found it interesting that Illinois State students expressed minimum complaints or concern about the program.

A company with content identification technologies similar to those of Audible Magic is Nexicon. Both companies have agreements in place to work with YouTube to help to identify copyrighted material in uploaded videos, but Nexicon's business model aligns them with enforcement-oriented rightsholders. Here's how Nexicon President Sam Glines describes their flagship services:

Through our GetAmnesty and PayArtists solutions, we share with the rights holders settlements collected via the DMCA notices sent to infringers. The copyright holder sets the dollar amount per infringement - in the case of PayArtists and for Frank Zappa, the settlement amount is $10 per infringement. Nexicon’s MARC platform is capable of sending 95 million DMCA notices each day. Nexicon’s MARC platform monitors billions of illegal downloads of copyrighted material on a daily basis.

Nexicon has recently been involved in controversial takedown notices which Prof. Mike Freedman of Princeton's Center for Information Technolgy Policy describes as "inaccurate enforcement". In addition to defending Frank Zappa's copyright interests, Nexicon, a public company, boasts about fighting child pornography. At the same time, it appears to be associated with a New Jersey company that represents pornography publishers in their battle against copyright pirates. It can be hard for a technology company to control how their customers employ technology, but I would like to see more clear and coherent explanations of what happened to Freedman than Nexicon has provided to date.

Identification of ebooks is rather a different endeavor than identification of video or audio files. Copyrighted content in audio and video files can be identified in a number of ways, including watermarking, hashing and fingerprinting. As its name implies, Audible Magic's roots are in the audio fingerprinting area, and its huge library of 7 million song fingerprints is a significant asset, but they increasingly need to use textual clues such as those required for eBook identificationand are interested in further developing book-related identification techniques. As I've written previously, textual fingerprints are surprisingly effective at identifying books, even using a single sentence.

Book publishers preparing to fight piracy need to first and foremost have their content ready to be identified. While metadata, epub files and the like will be useful in locating and identifying pirated content that includes OCRed text, scanned images of books are also likely to be useful for the development of content recognition systems. If book publishers don't at least have scan files of every book they own, now is the time to start for them to start scanning!

Enforcement is only one weapon in the fight against book piracy, and it is the one weapon that most quickly loses effectiveness, as the techniques of copyright evaders evolve. One potential weapon that should be avoided is the dirty trick. If book publishers are unable to learn from the Sony rootkit fiasco, they will get all the ill will and lawsuits they deserve.

The shaping of societal behavior is a hopeless endeavor if the stick is wielded without a corresponding carrot. Any psychologist will tell you that most powerful tool in modifiying human behavior is positive reinforcement. If ebooks are to succeed commercially, publishers must use every means possible to reward people who purchase ebooks. I hope to write more about this soon, but I believe that positive reinforcement is the best lens to look at DRM with. DRM will fail unless its users believe it is rewarding them with convenience and ease of use, and with sufficient reward, it is also unnecessary - that is the lesson of iTunes.

As the era of digital books dawns, book publishers should expect that business models will change. Their mission, if they choose to accept it, is not only to deal with unauthorized use, but also to lead users to a social consensus that benefits everyone.

Update: In this post, I managed to overlook Attributor. Here's a post about them.

Links

Copyright Enforcement/Monitoring Companies

• Attributor
• Audible Magic
  
• Civolution
  
• DtecNet
  
• Nexicon
  
• Red Lambda
  
• SafeMedia
  
• Vobile
  

Privacy Organizations

• Center for Information Technology Policy
  
• Electronic Frontier Foundation
  
• Public Knowledge
  

Content Industry Organizations

• MPAA
  
• RIAA
  
• SIAA

Holiday Product Management and the Hardcover Ebook

The product development team responsible for Christmas should get an award. I can imagine the brainstorming sessions: "Let's have a holiday where travelers get stranded and get to sleep with smelly animals!"

"No, that won't work. How about a holiday where poor people visit maternity wards in hospitals?"

"Crackpot. Wait...I've got it... How about if everyone gets PRESENTS!"

Positive reinforcement can go a long way towards creating success. E-books these days are sort of like the current state of my Christmas tree. Beautiful, smells good, but no decorations or presents. In my previous article discussing copyright enforcement, I stressed that if publishers really want to fight off piracy they need to find ways to positively reinforce the ebook purchase experience. In other words, decorate your Christmas ebook and put lots of presents under it.

Step one. It should be completely painless and hassle-free to buy and use a piece of content. Duh. Amazon has figured this out. Apple has figured it out with iTunes. If it comes to a choice between secure DRM (which will get cracked anyway) and making it easy for customers, always do what the users sending you money want you to do.

Step two. Decorate! When someone gets an ebook, it should be customized with the purchaser's name and a pretty frontispiece that says "this book is being lovingly read and cared for by PURCHASERS NAME HERE", and every ebook file would have a unique serial number. For gifts, of course the message would be different. If the e-reader marketers and developers were really attuned to the publishing ecosystem, they would hardwire a cryptographic signature reader into their devices that would be able to tell a "genuine" ebook frontispiece from a fake one. It's not technically hard.

Step three. Give out presents! The wonderful thing about ebooks is that the reproduction cost is zero. You can afford to give your customers free stuff! Once they register their unique ebook serial number, send them a "personalized" thank you note from the author. Give them a free book from an unknown author that they would never, ever have bought on their own.

Step four. Give out more presents! If you want to reward genuine ebook purchases in places like China, turn ebook registration into a raffle. Put a golden ticket in every millionth ebook, and a silver ticket in every thousandth. Give something to everyone who registers, even if it's just a virtual badge, or "frequent-reader" points. People may start buying ebooks just for a chance at a payout. Other people will try to register fake serial numbers, and for free, you will get both marketing and pirate tracking data.

Step five. Regifting! If someone has paid you good money for an ebook, let them give it to a friend after six months or so (as long as they've registered it!) If they're a platinum-level frequent buyer, let them keep their own registered copy, too.

If ebook publishers get really good at adding value to their products, they could consider rolling out the "Hardcover Ebook". Current practice in the print book industry for "trade" books is to initially offer only a hardcover version. A year later, the same book is released as a softcover at a substantially lower price. The effect of this is to partition the market and capture revenue from more potential purchasers. Consumers accept this partitioning partly because they assign some value to the hard cover- they assume the hard cover is more expensive to produce.

Recently, there's been much discussion about publishers holding back titles from the ebook market to protect hardcover sales. An ebook with enhanced value comparable to a hard cover print book could be offered on the intitial release date at a higher price so as to prevent pirates from having a monopoly on the ebook.

Is there a Grinch preventing the ebook Christmas party? As long as ebook publishing is captive to distribution platforms, innovations in ebook value may be difficult to implement. Amazon's interests do not always align with those of publishers. In particular, ebook serial numbers that register with publishers a not going to be high on the Kindle development queue.

Even the Grinch learned what Christmas is really about. You won't get hardcover ebook in your stocking this year, but have a great Holiday anyway!

When Amazon and Kindle Win

Last week, I went to a talk given by Mike Shatzkin, who has been doing a good job preparing book publishers for their future. One of his points was that the growing market power of Amazon.com has the potential to disrupt the way that book publishers do business.

After the talk, I was inspired to go home and do a tiny bit of math. It occurred to me that it should be possible to write an equation to describe the point at which authors would find it to their advantage to sell directly through Amazon and Kindle rather than working through publishers. After filling up a spreadsheet, I boiled everything down to one equation that defines the moment that Amazon wins, and the Big 6 publishing houses (Hachette, HarperCollins, Macmillan, Penguin, Random House, and Simon & Schuster) would lose.

Let k be the Kindle's maximum market share for a book's market. In other words, if Going Rogue: An American Life sells a million copies, and 200,000 of those could be Kindle e-books, then k=20%.

Let d be the fraction of the list price that Amazon has to pay publishers for the right to sell a Kindle version. This number is currently 50%. For front-list titles, Amazon is currently subsidizing the Kindle pricing. That means that Amazon pays the publisher $15 to be able to offer a book with a retail price of $30 for $10 on the Kindle. (for Going Rogue the Kindle edition has a pre-order pricing of $8, and the publisher will get $14)

Let r be the author's gross royalty rate from a publisher. In other words, if Going Rogue lists at $28, sells a million, and Sarah gets $2.8 million, the r=10%. It's not uncommon for authors to receive net royalties of 5-10% on print and 25% on e-books; the corresponding gross royalties would be 2.5-5% for print and 12.5% on ebooks, if you assume a 50% wholesale discount.

Finally, let f be the percentage of the book's list price that goes to production cost. For blockbuster books, f can be quite small, because fixed cost are amortized over a very large number of books. It goes without saying that reproduction costs for the Kindle are close to zero.

When

d*k > r+f,

then it is advantageous for Amazon and Sarah to deal directly, cutting out the publisher completely.

I should note that this ignores the possible profit Amazon might be able to derive from print versions. Do you think they have the logistics expertise to do that?

Its also worth considering the effect of fixed costs. Publishers who specialize in producing many titles that sell only moderately well (i.e. f is large) are probably less at risk of Amazonian disintermediation than those who rely on blockbuster books.

Upon sharing this with a group of people with more experience in the book publishing world, I got the following reactions:

• Sarah Palin would never go direct with Amazon because what she really wants is a big media campaign.
  Is there a law that prevents Amazon from doing a big media campaign?
  
  
• What about advances? How would authors manage without advances?
  
  If you put some private equity together with unemployed publishers and bankers, the advances problem might have a solution.
  
  
• Amazon woud never want to become a publisher. Think of the headaches of handling idiosyncratic authors.
  Author agents may play a useful role in easing Amazon's difficulties here. And agents will have lots of fun playing off Amazon against Apple and Google.
  
  
• Amazon might be able to win authors that are already their own brand, but how will new authors be discovered and developed?
  Oprah, I have a business idea for you!
  

As if to prove my point, it came out yesterday that Steven Covey, author of The 7 Habits of Highly Effective People, is moving his electronic rights to Amazon, which is going to heavily promote his books.

Give me a few more days and I'll have the differential equation. It won't look linear.