Logo concept by Todd Goldstein.
We don’t know how much Amazon has offered to acquire Goodreads but it probably was not a huge sum. In Silicon Valley, an exit valley between $10 million and $50 million is barely worth mentioning (Facebook bought no-revenue Instagram for $1 billion and most start-up acquisitions are now measured against that yard stick). Goodreads raised a modest (but respectable) $2.7 million over its life (the company is over 6 years old), so the investors probably did all right, but this was not an auction. There was not much competition to purchase Goodreads as far as we know and VCs were not lining up to invest tens of millions into the company (as they were willing to do in the case of Instagram). The purchase probably also included some “earn-out” targets, i.e. milestones the company’s team has to meet post acquisition to be eligible for some of the windfall and this is likely to shape the future of Goodreads under Amazon.
Why did Amazon buy Goodreads?
Well probably *not* for its referral revenue (i.e. affiliate links). This is probably peanuts to Amazon and denying other retailers that affiliate traffic (rivals Barnes & Noble and Kobo, for instance) is probably not a motivation for Amazon either, so they will stay in place for a while, though they may wither and die due to neglect.
Preventing a competitor (Google, Apple) to buy Goodreads and deny them the rich data trove of Goodreads was probably a major strategic reason for Amazon. Amazon CEO Jeff Bezos has always been very, very strategic and log-term in his thinking.
More important thought are probably the reviews and the social network (including identity, authority and trust) that Goodreads has built. Reviews have always been extremely important to Amazon as they attract customers to the site and help massively in converting browsers to buyers. Amazon has recently suffered issues (sock puppet reviews, etc.) and the Goodreads site and its talent will be of great befit to the e-commerce giant.
However, above all, book recommendations are social and Amazon has been weak in social. Goodreads dramatically strengthens the Kindle ecosystem and raises the barriers to entry yet further. The Amazon Kindle fortress has just become even more impenetrable. Amazon is even less likely to suffer the fate of MySpace and be displaced by the next plucky start-up.
Thus, what can we expect:
1. Kindle integration. The first thing we may see is Kindle previews (online and offline) deeply integrated throughout the Goodreads experience. This will make for a much more seamless discovery experience. This is great for users, but Kindle previews on Goodreads will also help pull many more readers into the Kindle ecosystem and/or deepen the relationship between Amazon and existing Kindle owners (Kindle just got more awesome).
2. Social. Deep integration of the Goodreads social and review elements into Amazon and Kindle. When you buy a book (or finish reading on Kindle) you may now be encouraged to join Goodreads and write a Goodreads review there rather than an Amazon review. Amazon will monitor conversion rates and if it can entice more readers to write a review by sending them to Goodreads, then it will do so. Data trumps everything at Amazon. Expect the last page of all Kindle editions in the future to be a prompt to review the book on Goodreads and participate in the conversation around the book (as we do at jellybooks.com, by the way).
3. API. Amazon may also seek to try getting more people to use the Goodreads API for posting and sharing Goodreads reviews as well as posting to Goodreads book shelves from third-party sites. All this will be hugely beneficial to the Kindle and Amazon ecosystems and a strategic asset in differentiating the Kindle ecosystem from the strengthening Android and Google Play ecosystem (it’s almost to embarrassing to mention Apple’s Ping or the poor discovery experience on iBooks).
4. Internationalization. Goodreads has been very U.S.-centric (its affiliate links are definitely U.S.-centric). Expect it to become more international with links to Amazon’s international stores in prime position (if your IP address is British, then the top link will be amazon.co.uk). Also expect localization (i.e. translation of Goodreads into foreign languages). Spanish, French, German, Portuguese, Italian and Japanese are probably all high on the agenda.
5. New Business Model. Goodreads will no longer be under pressure to monetize through affiliate links, advertising, etc. Its biggest value is to support Kindle and Amazon sales. This will lead to changes. One such change is whether helping authors find an audience is still quite the same priority. Will they allocate fewer resources to this? After all, Amazon is much more focused on the consumer and far less focused the content supplier and the press release emphasizes “we will do what is best for the consumer” — no mention of authors there.
Other effects:
– If Amazon is the only company buying publishing start-ups then that is not good for start-up exit values, which means VCs will not consider start-ups in the sector to be attractive investments, which means less investment will fund new ideas in publishing. That can’t be good for the ecosystem.
– Publishers want to be perceived as being vendor neutral. A major resource for posting channel-neutral reviews and links has just been taken off the market. Not good for publishers. Some will pat themselves on the back and say, “great, we started Bookish,” but one wonders if it would not have been better for publishers to buy Goodreads rather than start Bookish from scratch (see, for example, what happened to Anobii). (Disclosure: it is probably good news for us at Jellybooks, though we mourn the independence of Goodreads greatly.)
– Goodreads was a major tool for some self-publishers to find an audience. Will this still be the case in the future given that Amazon does not place much emphasis on assisting content providers in finding an audience? Amazon cares most about the depth of its catalog and having the lowest prices. It cares little *what* its customers actually buy (title A or title B), only basket value matters.
In summary: the acquisition of Goodreads by Amazon is in line with some well-established trends, such as the Kindle ecosystem strengthening even more, Amazon getting yet more dominant and publishers, who often think very tactically, further marginalized.