Kindle Owners: You’re Being Conned, And That’s Why Digital Books Will Never Take Off
I don’t care if the Kindle has sold three million units.
Seth Godin’s latest book, Linchpin, is out now and available for $11.50 in hardback. The Kindle version, meanwhile, is priced at $14.09.
How on earth has Amazon managed to justify this, and, more importantly, why are Kindle owners accepting it? Here’s my theory: poor people don’t buy Kindles. Heck, average-earning folk don’t buy Kindles. It’s simply early adopters and others who have money to burn.
And if you don’t object to burning money, paying $14.09 for convenience for your fancy-new toy isn’t going to be that much of an issue. (After all – you’ve already spent $259 on it.) To you. Everybody else will rightly object.
Kindle owners might buy more books than the average person (if only to justify the initial expense), but the (incredibly) long tail is still in all those millions and millions of readers around the world who buy just one book a month, or only a few books each year.
The same reasoning behind MP3s applies to all electronic media. Once you’ve built one copy, you’ve essentially made a million. There is no warehouse holding thousands and thousands of unsold books. There is no risk. There’s just your one electronic version, which (bandwidth aside) takes up the same amount of space whether it’s downloaded once or a billion times, and is essentially all profit after the costs of making that download have been met. The author isn’t going to lose out, as the costs of making that book in that format are almost zero.
Godin’s book should be $2.99 on the Kindle. And until it is – and this goes for the iPad as well – they’re never going to tap into the broader (and hugely lucrative) real book-reader market.
Comments 26 Comments
It's in Amazon's interest to convert everybody to the electronic book format as their costs (shipping, admin, production etc) will decrease enormously. Are you saying that in a utopian future where all media was electronic you'd be happy to pay the same price for a download as you would the hard copy?
And don't even get me started on the version that is available on the Kindle app on the iPhone, which is also $14.09.
It's a scandal. And if Apple can figure out a way to down-price electronic books, much like they did with iTunes, they'll wipe the Kindle off the map.
As you say, there is no physical product, just a bundle of data not much heftier than a high quality photograph might use, that can be hosted for pennies, indefinitely, and downloaded infinitely. A million customers could be served with no production costs, no warehouse storage and no physical distribution infrastructure required.
Amazon and traditional publishing houses have learned nothing from the digital distribution experiences of the music industry and game industry. They should study iTunes and Steam with great care and formulate strategies that fit the media, instead of trying to work the same business model for digital products as for physical ones.
@John - making a book the old-fashioned way is, as you know, expensive. You have production, administration, storage, shipping and marketing. With a digital book, you really just have a little bit of admin and the marketing. I'm not sure how it accurately breaks down but you'll probably save, what, 80% of all costs, mostly from production alone? And none of that costing is profit - it's all drain. Strip all that out, and I'd imagine you have more than enough left to pay both the author and the distributor the amounts they are used to now. I don't see any artists complaining about their share from iTunes!
Bottom line: charging the same or more for electronic media as a hard copy is conning the public. And they shouldn't tolerate it.
I don't care that the Kindle has sold 3 million units, predominately to early adopters and gadget freaks, because that alone isn't enough to justify the meaty price tag for electronic media. The point here is that digital media should be a fraction of the price of a hard copy. Even if the Kindle sells 10, 20 or 50 million units, the pricing of the books is still all wrong.
Another thought: why can't you rent books on the Kindle, like from a library? Rent a book for 99c for a month. That might be one way around the pricing issue, and could really open up the e-reader market to the masses.
Suggesting that e-books are priced low is an insult to the amount of time put into writing it to begin with. It's ban enough that Amazon shoves out books at reduced prices as it is, without it being reduced even further because there's no paper involved!
And I know musicians take time writing music, but touring with a band is a far more communal experience and way of making additional revenue that touring with a book!
Maybe once Ian McEwan starts doing stadium tours reading an extract from his latest novel you'll convince me otherwise, but until then...
Few people listen to music just the once. I would imagine the investment in an album takes up at least the same amount of time as a book, and likely a lot more because of repeat plays. How many books are read more than once? VERY few. Certainly over a short period of time. People listen to their favourite music again and again.
Plenty of high-level authors tour with their books, reading excerpts in stores.
If you strip out all the production, shipping and admin costs then the e-book can be priced lower and not hurt the author or the distributor. Say a hardcopy book costs $15, and production, shipping and admin - i.e., everything that goes into making a real, tangible product - is $8, and marketing is $2. That means $5 is profit. So, if the e-book was charged at $7, then everybody still wins.
Currently, I think authors receive between 8-15% of a book's selling price, depending on the units sold and whether it's hard or softback. With an e-book model, you'd have to adjust this percentage because the selling price is mostly profit, as opposed to being mostly production as it is now.
If you continue to charge a high (or, in this case, higher) price for electronic media then it's just more profit for the distributor.
I very much doubt the author is seeing anything else. Be great if they were, but it wouldn't take anything away from how screwed up Amazon's pricing is. I'm certainly not trying to hurt the author, but if the future is electronic books then several things need to change, and one of them is how the huge profits from e-book sales (both in a total and percentage sense) need to be more fairly distributed to the writers.
Marketing costs? unless it is a well known writer and a possible best sellr the publisher will spend close to 0+ on it. Bullshit.
And electronic books never run out of print if you want them to, for the average book that will not sell a lot, so their costs will ease on a very long period.
Sheamus is right: these expensive toys will not reach past the wealthy and fashion until:
books are cheaper
you actually own them
they have ONE system unified so you can buy from everywhere (sort of MP3 for music)
the damn machine gets cheaper and
battery time gets better
they have colored, nicer screens.
Wait and see.
Jc
Although, being specific on pricing is hard if we don't work on the book industry. (I understood, you were not specific, just proposed an average priced based on a hard copy's price, what makes sense!)
I've been working in the music industry for years and I know that what you are saying still applies for music downloads, however the costs with recording and artistically producing are so high that the extreme low price is fair only to the overall costs of high-selling mainstream bands. They sell millions, so the overall quantity of legal downloads should compensate for the low profit per copy (at least imagining a perfect world, no pirate downloads).
The somehow "low-prices" charged today on a electronic copy of music is calculated over the low demand, too. We have to deal with the reality that higher prices on mp3s would drive people away, as long as it's easy to download a pirate copy. For a small artist, albums are economically being slowly converted on a promotional piece for touring, cause even with all the technology and reduced costs compared to the past, a pro-album is still expensive enough to justify a price higher than what has to be charged now for a mp3.
Maybe that applies for a book too, although I don't think so.
Artist's revenue, company's revenues, marketing, all applies for both industries. However costs with music involves studio (still very high anyway on a professional level, unless it's 100% electronic music), extra equipments, specific instruments, hired musicians (many times this applies even for bands), producer...
Anyway, you took the right direction on pricing when you compared the prices of a electronic copy and a hardcopy. It makes no sense to charge the same or, worse, more - a true rip-off!
I'd just add that your example of 80% on production costs is maybe a little too much. In the case of music I'd say that the lowest percentage of costs is related to the physical product (but the desire for fast lucre might be a higher percentage, sadly).
It interests me that Kindle books do not seem to be heavily pirated, which is perhaps suggestive of a general lack of interest in the greater community. If an e-book reader (say, the iPad) does really take off, I'd imagine this will become increasingly common. Best to price it right now, before piracy gets a real hold, before it's too late.
I hate to think of a future where e-books are the norm and they're all priced at $14.99 or more. Have we not learnt anything from the success of the App Store? Because of volume, 99c is a winner. If all books are five dollars or less, they'll shift tons more to existing Kindle users, and sceptics like me will really, *really* think about buying a Kindle, too. As I said above, a more expensive device with VERY cheap books is a better solution than the other way around.
JC makes a very valid point about a unified system, too. Of course, the absence of that may be another reason why piracy is currently so slight.
I have to say, one thing that's really bugging me about Linchpin is Amazon UK has the paperback for a very reasonable £5.99, but it's out of stock! (http://bit.ly/alR1Sp)
I don't think they're desperate, I think they're using the Gillette approach to marketing: sell razors below cost and make all the profit on the razor blades. If that's a viable approach in this sector then giving (or selling very cheaply) Kindles to Amazon's best customers - the Amazon Prime subscribers (of which I'm one) and offering them books at reasonable prices makes a great deal of sense.
I wholeheartedly agree that digital books have to be below the cost of printed ones - but this is nothing to do with cost. Lesson 1 of any pricing training is that cost and price have nothing to do with one another: Cost is what it costs you to make/distribute the product or service, price what the customer will pay for it. If it's worth more to the customer than it costs you to make/distribute it then you can make a profit.
So making digital books cheaper than paper ones is sensible market positioning to encourage sales of digital rather than analogue books - and also to test the price elasticity of the products - if you drop the price will you sell more than enough to make up the difference? It's an affordable strategy because, as your thread clearly identifies, it costs less to make and distribute a digital book than a paper one.
Given the competition that Amazon are already encountering with other e-book formats and other readers, it needs to lock people into the Kindle as quickly as possible - so raising the barrier by premium pricing the reader doesn't make sense.
But this is the problem. Costs are only high for ebooks now because making the real, hold-in-your-hands book, which 99.99% of the market is still buying, is expensive. As I said, you have production, administration, storage, shipping and marketing, which all adds up. So, it makes absolute sense for the book publishers to convert everybody to electronic media, because then those costs reduce massively.
Hence, if Amazon took one on the chin for a few years (as they did with regular books when they first started) and sold all ebooks for $5 or less, possibly alongside a 'lite' version of the Kindle at $99 or thereabouts, they could probably convert a very healthy percentage of 'real' readers to electronic media readers. This would quickly help them to lock people into the Kindle.
Once they've got that market, they can then start to adopt a more realistic pricing system, but it should *never* be as high as it has been for 'real' books, because everybody will (eventually) be fully aware that Amazon are saving a boatload on costs.
The thing is, it isn't just Amazon. TechCrunch just wrote a piece about Kobo, who are also charging more for best-selling ebooks than Amazon charges for the paperback.
http://eu.techcrunch.com/2010/02/23/kobo-books-launches-in-the-uk-to-put-the-heat-on-the-kindle/
It makes me a little angry, to be honest. How can it possibly be justified?
I suspect that all of this is moot, as I'm fairly confident that Jobs will undercut all of these competitors when the iPad launches in a few weeks. But even then I doubt we'll see fair pricing because there's something of an inevitability about all of this, and that's that we're going to be royally screwed over. The bottom line is that once ebooks become the 'norm', so will ebook piracy. And the circle will be complete.
It's cheaper to buy books on Amazon and pay 3 quid per book to have them imported than it is to buy from Aussie shops and it's even cheaper to just buy an e-book. Depending on where you are in the world $17 or $18 for an e-book is bloody good value.
It doesn't help there's no Amazon Oz, as you say, which seems a bit of an oversight. There's a market there just waiting for a competitor to reap the rewards. Perhaps the ebook market will give Australia the kick in the arse it obviously needs.
It seems the issue is justifying a higher price on ebooks now because 'real' books are still with us (in abundance) and until they're gone completely the costs of making them will always be a factor. As well as an excuse.
There's clearly an equilibrium point to work towards here - how much of overall sales will digital books have to account for before publishers start to ignore and phase out the costs and production of creating books as we know them now? 50%? 75%? 99.99%?
The fact that someone has established as Anne Rice can make a statement like "None of us know what books cost" says so much about the industry. My concern is that artificially high ebook prices will be with us for so long that when they've become the norm and publishers are in a position to drastically cut prices because 'real' book sales are so low, they won't, and nobody will be any the wiser.
Of course bookshops as we know them are in trouble. Much the same way record shops have all but been eliminated. With Blockbuster et al to follow suit as first-rate home media becomes more freely available. And cinemas after that. That's unfortunate, but that's the way commerce works. It's not and never should be reason alone to continue to milk the public.
http://write-and-wrong.posterous.com/whats-a-fair-price-for-an-ebook-poll
Copy editing, typesetting and proof reading are a one-time deal. Even if you factor in new editions and that kind of event (which again is significantly easier once all the words are stored electronically), it's work that starts and finishes, and once the ebook is made, the millions downloaded thereafter require no additional work on the part of the publisher. As I've said, once you've made one, you've made a million. This is *very* different to how it has been in the past.
Even staff and offices will ultimately be downsized, as a lot of that IS to do with production and storage.
Finally, nobody has said they want digital books to be free. Just sold at a fair price. There is absolutely no way that one can justify pricing a piece of electronic media at the same price (or more) as the tangible product.
The market will be forced to meet this reality for one simple reason - piracy. Once electronic books and book-readers become the norm, pirating ebooks will also become the norm, and only the very wealthy will be happy to pay $14.99 for something that has already been downloaded millions of times at almost no additional cost to the publisher.
Your point regarding the the one off cost of copy editing and so is an interesting one. On the face of it, of course, you are right. However, those costs are not recuperated with the sale of a single copy. Far from it. Publishers have to make very, very precise decisions regarding the amount of copies of a book they expect to sell, which, coupled with the production costs associated across all platforms, informs the price (the RRP, mind, before the huge discounts that apply across the industry) that a consumer will pay. Now, e-book sales have to be accounted for in that equation. At some stage, the costs associated in the first instance are (all being well) recuperated and at that point it would be much easier to be flexible with e-book pricing. Although it is worth remembering that the publishing industry does not operate on a book by book basis - overheads are still overheads five years down the line.
Another thing: 'millions and millions' of downloads might well apply to the music industry, but figures like that are way off the mark in terms of worldwide book sales. It's not all Harry Potter and the Magic Fish out there. Massive economies of scaled very rarely apply to book publishing (it's important here to consider the different varieties of publishing - fiction, trade, academic, etc.) so costs have a habit of remaining squarely important.
I do agree that e-book pricing will have to yield to market conditions and demand. But I just don't agree that the issue is as simple as it is sometimes made out. The music industry, as we all know, has got itself into a terrible state over downloads, piracy and so on. You have rightly indicated that this situation gives us some idea of what could happen in the publishing industry if the right decisions are not taken. I've said to people before that if the same level of piracy did hit the book trade, a significant proportion of it (publishers, booksellers - the lot) would be wiped out almost immediately. There aren't many publishing houses sitting on the same kind of reserves as your average EMI. So you are 100% correct on this point.
Speaking from experience, I can tell you that the publishing industry is taking the issue very seriously (if you can find the programme of seminars and talks from the recent London Book Fair, it would be worth a look). The industry is less stuffy than people might imagine, and a great deal of work is going into developing e-book platforms that are sustainable and fair – for all. Give it time. I'd hope people would be heartened by the fact that one thing is guiding this work and these decisions more than anything else: Quality.
Thanks for providing the forum for this type of non-hot-headed discussion.
T