EBook Pricing Goes Outright Insane
mikecanex.wordpress.com
mikecanex.wordpress.com
He tells an entertaining story about running an experiment in some of his classes: he asks one group of classes how much they would pay to hear him read poetry and asks another how much they would pay to not hear him read poetry. Ariely notes that reading poetry is probably, how shall we say, not among his greatest strengths. The classes primed to pay pay; the ones primed not to, don't.
His experiments do, BTW, get more sophisticated than that, but I'm not at home right now.
People have "anchor" prices for books based on hardcover and softcover. Many don't realize that physical printing and distribution costs something like 10 – 15% of a book, and eBooks are not 0% by comparison. So you get lots of stuff like the OP.
This has a basis in the fact that high-cost goods do require high prices in order to have margins and that competition does push margins closer to costs. But, most people learn about these effects in the checkout line rather than econ classes. From those experiences, the explanation a lot of people have come up with is "If its cheaper to make, charging as much or more for it is mean."
Yes, that's why the ebook is $14 and the paper version is $16. Expecting ebooks to be radically cheaper is where people are going wrong.
On the other hand, as long as publishers insist on DRM, the cost of setup for the encryption software and serialization of a new encrypted file for download -- including payments to the company that produced the DRM server -- may exceed the cost of that paperback.
For contractual reasons book pricing is set on the basis of the current edition in print (royalty percentages aren't static but vary with the paper edition's binding, the number sold, the discount channel, and so on), and publishers are required to provide transparent accounting to authors if challenged. So their accounting workflow for shipping ebook units has to shadow the workflow for shipping SKUs. Hachette spent roughly 20M euros building a "digital warehouse" for ebook serialization and accounting a few years ago; I'm sure the other big six did likewise. They can't do anything else, unless they renegotiate their contract boilerplate with the authors.
Meanwhile, fixed costs for editing, typesetting, design, proofreading, and marketing are identical for paper books and ebooks.
This is the second comment here that brought up editing, typesetting, &c. Is it the view of people in the publishing industry that books should be priced at a % markup over total costs? Because that seems crazy.
However, thanks to the evolution of printing technology, the auction only hits a few (typically 2-3) price points, and they're geared against physical format -- hardcover, A format paperback, C format, and so on. So consumers confuse the reverse auction process with the cost of a physical product.
To make matters worse, between 45% and 75% of the cover price of a physical book in a bookstore goes to the distribution chain -- bookshops and wholesalers (not the publisher or author). The chains do deep discounting for commercial reasons of their own, e.g. price wars with each other, special promotions, need to get rid of old stock to make room for new, and so on.
Thus, the actual price the publisher and author get for a book may bear little or no relationship to the price the consumers are charged for it in the shops or from Amazon.
(EDIT) People in this thread are making the common mistake of assuming the publishing industry is structured this way for some reason. It isn't. Things just happen this way because they're the sum intersecting set of business practices that didn't result in someone going bust at some point in the past 200 years. And they're locked in by contracts, established processes, and custom. This isn't a modern industry like software development: it's an ancient set of practices that have evolved over time, and many of its patterns reflect obsolete constraints that no longer exist.
Putting that aside, in the brave new future where StrossCorp publishes all Stross-approved titles: do you envision pricing according to a small industrywide set of price points, and, in particular, adhering to a fixed "ebooks cost $9.99" price?
Unfortunately for a publisher to try this would require (a) all new contractual boilerplate (which will be a whole barrel of laughs as they try to get the authors and their agents to accept it) and (b) new accounting procedures to calculate royalties based not on the net volume of sales but on the time from publication date of those sales.
And even then, this is only going to work out if customers are willing to wait until the book meets their criteria for affordability rather than going in search of a pirate copy of the text.
There are e-books worth $100. Harris' _Trading and Exchanges_ is a great example (although it's stupidly priced at roughly half that). It is clearly worth more in Kindle format than it is in giant-ass hardcover format. And yet it costs them $0 marginal dollars to make a new copy.
http://www.amazon.com/2SO4-family-K3BiCl6-KH3F4-ebook/dp/B00...
Obviously paper books have their benefits. But some books are far better suited to be digital.
I'm thinking of the situation when you would buy something like this. I'm guessing most individuals would not buy one, and any corporation or other institution would have some kind of purchasing policy that would affect a purchase of this size.
An institution would probably not want a non-shareable Kindle copy - rather than buy each individual a Kindle copy, they would buy the hardcopy and stick it on the shelf.
Institutions that I am familiar with, anyway.
http://www.amazon.com/review/R1WUN3F61QZD5Y/ref=cm_cr_dp_per...
What is the "value" you're talking about here? Certainly not fair market value, when DRM and device lock-in leave little semblance of a free market. Or maybe you mean utility to the purchaser, but that varies wildly.
Your last sentence is an instance of price points. Yes, price points are part of what goes into perceived value. If you want to break out of a price point, you have many opportunities to change packaging, promotion, or pricing models to do that.
Clearly, for example, textbooks don't honor book store price points. Neither do magazines or serialized books. Neither do standards documents or technical books (as graphically illustrated upthread by the $6,000 metals book). Neither do graphic novels.
The 250-page bound novel is also an artifact of the book store distribution channel. It may indeed be that to command a $20 price instead of a $9.99 Kindle standard price, authors will need to break out of the straightjacket of 250 page bound novels.
That's all beside the point that utility determines price, not cost, although I'm not sure that's strictly true: I think that the perception of utility determines price. Because the perceived utility of an ebook is less for many people, party for practical reasons and partly because they perceive that the cost is less, they perceive that the price should be lower.
It's a beguiling idea. Even realising that production costs for ebooks aren't any lower, I still baulk at ebook pricing.
My point was that those costs don't change, but they're frequently not considered when consumers are thinking about the 'cost' of what they're buying and the perceived cost impacts on people's perceived value for some items.
Arguing that pricing your product based on its cost is mad doesn't really change that consumers feel that digital downloads should be priced less than physical media versions, even if the digital download has greater utility.
There clearly are ways in which bits are less valuable than ink, but my gut sense is that for most people, that's more than made up for by the ways bits are more valuable.
It might be more convenient from a storage perspective, but it turns out you aren't actually buying a 'thing' when you buy an e-book, you are buying a license to a 'thing'.
My automatic assumption was that the crappy paperback version and the ebook version should be about the same price, but thinking about it from a perspective of what I own, the ebook should be significantly less.
The quality of not taking up space and needing to be physically discarded when they are obsolete is indeed worth something!
Right now all my purchased books are used, the publisher and author get nothing for them and I buy them because they are 4-7 dollars (mass market-hard cover) at my local bookstore.
My bookstore is however 30 minutes away and if I were to find an ebook version for 4 dollars you can bet your ass I'm buying that copy, but right now my kindle is a project gutenberg ereader. I did buy two books on my kindle when I first got it, but about a month after my kindle gift the publishers decided that 5.99-7.99 for older books and 9.99 for new books was too little and I went back to used.
Edit: Also right now the pirate market for books is growing at an amazing rate because a large amount of users can't justify the 15-20 dollars for some ebooks but still want to use their ereaders.
Those bits you paid for, they are rotting. The flash memory that stores them is leaking electrons and decaying. 5-10 years from now, your purchase may well evaporate into entropy unless you take great pains to move it from media to media. That is, if this is even allowed by your locked-down hardware.
How is something so ephemeral actually worth more than a physical artifact?
I'm not going to argue that there aren't people who value archival formats. There clearly are.
However, it's not the job of a pricing scheme to ensure that everyone buys your product. Almost the sole job of a pricing scheme is to maximize the revenue stream commanded by the product. Literally the first step in designing a pricing scheme is to study the market, segment it by perceived value, and then price the product to attract the largest (Buyer x Price).
So, I humbly suggest: irrational attachment to physical objects as carriers of bits aside, for most people (not you, but most), the value of pure digital forms dwarfs the archival value of ink.
I just convert the ones I want to keep to ePub and put them into Dropbox. Then they are backed up and instantly available to all my machines as well as being backed up by my computer's normal backup mechanism.
Thing is, most people just read them. They don't need to search through them or even highlight. It's entertainment. It's only when we enter the realm of non-fiction -- and specialized non-fiction, at that -- can you make some sort of case for that argument. But even then, try arguing with someone that a pop star biography should be priced higher than other pop fiction books because they can "search" in it and be met with blank stares. Which I would agree with!
They automatically remember your place.
You can get a new one by clicking a button.
Those are bigger advantages than the CD had over casette tapes.
In a lot of ways, many of them relevant to my mom, paper books suck compared to e-books.
Would I pay more for an ebook than a print book? probably not. Most ebooks available have less features than a print book. Ebooks are portable, cant get wet, font can be resized, etc... Print books dont expire or change formats, I can share it with my buddy, and I can scribble in it. Unless the ebook costs less I probably wont get it.
Does an ebook have to cost less than a print book? of course not. There are a lot of cool features an online text could have. Searching the book is just the beginning. Integrated audio, video, games could bring new life to stories. The author can continually update the text and interact with readers. The problem is ebooks dont have any of this stuff right now.
Whether any of the large publishers innovates, or new companies rise, the future of publishing is through adding value to the digital texts. By adding value to the texts, the publishers can embrace open content allowing sharing and remixing of text. As the book marketplace moved online, barriers to publishing will also be removed. This will enable authors to receive a greater share for their work.
I will pay extra money for hardcover books that come with an ebook: I have a nice looking version for in my bookcase to casually peruse, and a spaceless, weightless copy I can read on any of the devices I tend to already have with me.
>At this point in time, Kindle/iPad owners tend to have more disposable income than the average book buyer.
Uh, so what?
What it cost is irrelevant. What the market will bear is what matters. Only when we achieve low barriers to entry and high competition do prices converge to cost.
I think those whose interest is to keep e-book prices artificially high need to come up with a better explanation: it seems to the average person (and I include myself here) completely illogical that if you have a book in a file, it somehow "costs less" (or even anywhere near the same) to print that file into a book and then transport it somewhere, involving probably dozens of people, than it does to just copy the file.
Now, personally I refuse to pay anything more than $0 for ebooks, since I can easily fill up my Nook with all the out-of-copyright reading material I could ever want. If I'm going to pay actual money for a book, I want it on paper so I have a guarantee that it'll still be readable in thirty years time (natural disasters notwithstanding), and because I happen to think that shelves full of books are a pretty nice thing to have.
That's oversimplifying. What people think things should cost and what they are willing to actually pay may be entirely different things.
Furthermore, as demonstrated by your own comment, people's ideas of what ebooks should cost varies wildly. In this situation, publishers are segmenting their customers.
If you haven't read it, I highly recommend Joel's Camels and Rubber Duckies: http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...
>I don't understand the assumption that ebooks should cost less than print books.
Typically, if I want to buy the contents of a book, due to what I said in my above comment, it seems to me that the one with less costs to the seller should be cheaper.
Once you've met the minimum price at which the producer can make a profit, producer costs don't have much direct influence on market pricing.
So money has less marginal utility to them. Is this some kind of trick question?
Don't know about that one. Newspapers and the big 3 auto makers did potent things to themselves to put themselves out of business.
iTunes proves you have to compete with piracy. Make it easy and fairly priced and you can move a bunch of volume in digital content. $7 is the no brainer pricepoint for books. The first publisher to optimize for that is going to be king of the Kindles.
Books are actually a great example of this problem.
Authorship is much less of a lifestyle decision than musicianship (commercial musicians have to practice and gig, for instance). That means authors don't have to commit themselves to a career of writing; they have more of an option to write or not write.
Meanwhile, books are a notoriously bad deal for authors, most of whom apparently earn sustenance wages for their efforts. So there's already little incentive to create them.
Search back through the archives of HN for the comments asking 'patio11 to write up his marketing-engineering insights, and pay close attention to his "are you nuts why would I waste my time doing that" responses for a vivid example of this.
Piracy is preventing the market from establishing a real clearing price for books; it's creating whole categories of books that simply can't be sold effectively, because once priced correctly, the incentive to steal the book is too high.
(Meanwhile, Neko Case is going to keep putting albums out whether they're pirated or not, because she's pot-committed to being a musician.)
> an arbitrary low price point for books?
> ...
> Piracy is preventing the market from establishing a real
> clearing price for books;
In the above question about being bothered by sharing, it seems you are forgetting your previous arguments about value, particularly in the sense of limiting the idea of value to fit your argument. To give an example, the time you spend reading this email might be a completely wasted effort, or even a mostly wasted effort, but with some degree of luck and skill, I might manage to make the time you spend worthwhile. Essentially, the words I'm writing might have value to you.
In a world where writing something is extremely easy, the overwhelming majority of written text has little or no value. The invention of text editors, desktop publishing, printers, and all associated technology has vastly increased the volume of written text, but at the same time it has decreased the value of written text. It's a signal to noise problem, since when any idiot can write, many do (myself included).
Please don't fall into the trap of believing "reviews" (or karma for that matter) will be an adequate filter. There will always be a risk/reward ratio for time invested in reading, and for something to be ranked poorly, someone had to waste their time reading it.
There are really only two primary motivations for writing, fame and fortune. The minor motivations such as sharing and contributing thoughts or efforts are often entangled with the primary motivations. This goes back to the pessimistic view of, "There's no such thing as a selfless act," but rationally, it is applicable.
For the sake of argument, imagine the end of copyright, and hence the end of books as we know them. More accurately, we're looking at the end of the financial motivations to write, edit, and publish books in any form. With fortune now missing from the rather short list of primary motivations, all we have left is fame. Since one can profit from fame, financial motivations have not been completely removed.
When you boil it down, no matter how "useful" written content may be, it is still a form of advertising.
When you want to hire someone for a programming position, you look at their advertisements, such as open source contributions.
When you want to be entertained, ...
When you want to be informed, ...
Assuming you've read a book (advertisement) by J.K. Rowling, and enjoyed it, would you be willing to pay to see her read/tell a new story to an audience?
Assuming you've read a book (advertisement) by Lawrence (Larry) Harris on "Trading & Exchanges," and found it useful/enjoyable, would you be willing to pay to attend one of his classes or lectures? (note: he's a prof at USC, and hence, actually teaching/lecturing as well as maintaining his employment by advertising his mastery of a subject).
Similar could be said for everything covered by unjust and corrupt imaginary property laws, but the more important question is very simple; Have you fallen for the typical "Price Anchoring" [1] and are responding in a "Predictably Irrational" [2] manner by purchasing advertisements?
The time and effort invested by a 'user' to evaluate a work has value, regardless if the user determines the work to be worthwhile. Additionally, a user admiring a work has value for the creator of the work, regardless if the work itself is purchased.
Go look at your karma score and think about the non-obvious ways you have financially or otherwise profited from "freely" contributing your words to HN.
[1] http://news.ycombinator.com/item?id=1244967 [2] http://www.ted.com/talks/dan_ariely_asks_are_we_in_control_o...
The trouble is one can define "institutionalized theft" as either widespread "illegal" sharing (as you do), or as "unjust" laws preventing sharing, but not both. More accurately, the former is the masses breaking the laws, so only the latter actually qualifies as institutionalized. Though "institutionalized" was a poor choice of words, I see no merit in rehashing the tired debate over the term "theft" versus the more legally correct "copyright infringement." --Either way, I still get what you mean.
Both of us value good work and believe the worker should be rewarded.
A functional marketplace can be simply defined as paying someone else to do something you are unable or unwilling to do yourself. There is usually a level where it makes more sense to pay someone else to provide for a particular need. Those who specialize in providing for a particular type of need, gain advantages (expertise, resources, tooling, scale, ...), and can therefore sell for far less than it would normally cost others who don't have the advantage of specialization.
The most important thing to realize is both "theft" and "monopoly" are deterrents to a fair and functional marketplace. Yes, I intentionally put "monopoly" in quotes because it is admittedly equally strong rhetoric as "theft" but I simply could not think of an better word.
When one gets to the point of being able to admit both theft and monopoly are bad for markets, the very nature of the discussion changes dramatically; The question becomes, "How do we reward good work?"
I'll be the first to admit any attempt to address the root cause will be exceedingly difficult. Additionally, we will most likely fail at completely eradicating theft and completely eradicating monopoly, but one needs to maintain an overly-optimistic view order to find a better solution to an unsolvable problem.
I think you're a bright person and level headed, but if you'd rather not discuss this issue publicly, I completely understand. Like myself, I'd bet you have close friends or partners with vested interests in the status quo, and any public mention of change will undoubtedly piss them off. I like to think I'm very lucky in that my friends trust me to be fair minded even when the don't like me questioning the most difficult things. --maybe off-list?
I see no reason to let the inevitable outcome of economic realities bother me.
Nothing to see here.
EG: It is more profitable to produce and sell and ebook than a paperback, because paperback production is expensive. Therefore, the author would likely price the ebook lower and still make more profits on each sale. Further, he'd get more sales because the price was lower.
I think publishers don't quite understand he market here and are afraid to make a mistake, and so they are pricing ebooks defensively.