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Amazon Kindle Unlimited: How Much Can You Give Away Before There’s Nothing Left?

Fascination with feeding consumer desires to get ever more for ever less is dangerous.

Amazon has a new ebook deal: all you can read subscriptions for $10 a month. Take your choice of a claimed 600,000 titles and switch between text and audiobook versions. Choose from shorter pieces that are less than 100 pages. Use one of Amazon's devices or software on an Apple or Amazon device.

It sounds like a great deal and will likely further consolidate book industry power in the hands of Amazon. But there are some big dangers with freemium business models. Amazon is unlikely to run into them. Why should it when the suppliers of its content could instead?

And that's bad news not just in publishing, but in many developing areas of business where startups depend on the existence of platforms. It's easy to understand the allure. There's access to an existing market once you've found something customers want that the platform owner doesn't provide.

But you can get clobbered. A number of startups were left reeling after Apple's developers conference in June. The big dog was undercutting their niches.

That has always been the case in tech. Eventually the platform owner decides that it needs more features to keep people paying for its product, and so it cannibalizes members of the associated ecosystem. Right now Amazon says that it will pay royalties on ebooks when people read more than 10 percent of the book. But will the royalty levels be as high as they are now, given that multiple authors will vie for chunks of those monthly payments? In its dealings with Hachette, it's been clear that Amazon is willing to twist arms to get its way in negotiations.

Perhaps you've got an idea that seems too good to pass up, but it depends on someone else's platform. Fine, go ahead and do it, but include plans for a speedy exit if unexpectedly required.

Getting on the wrong side of giving away services can trip up even venture-backed companies with serious cash on hand. Box had to secure another $150 million in funding to safely put off its IPO as it had burnt through a lot of cash in its drive to grow and satisfy the investors. What if you wanted to build a service on the back of Box? One thing riskier than running a freemium business of your own is for your business to depend on someone else's model that depends on giveaways. Just ask the publishers and authors who might fund Amazon's new subscription venture.

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IMAGE: Courtesy Company
Last updated: Jul 18, 2014

ERIK SHERMAN | Columnist

Erik Sherman's work has appeared in such publications as The Wall Street Journal, The New York Times Magazine, and Fortune. He also blogs for CBS MoneyWatch.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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