I'm not one of the (clearly many) people who automatically believes e-books should cost less than paperbacks. E-books are more useful to me than paper books, not less. Pricing and cost are unrelated except for sorghum and gypsum.
You see, the problem is that you are being reasonable. When browsing through consumer goods, people in general often do not reason out the value of the good. They feel it out. One of the major feelings that people have in this situation is justice. "Bits costs less than paper. Therefore bit-books should cost less than paper-books because otherwise they're ripping me off!" It's not reasonable or universal, but it is a big issue in pricing.
The term for this is "anchoring," and some of the most interesting work on it I've read is in Dan Ariely's book _Predictably Irrational_. He shows that a) no one actually knows how much they should pay for anything until b) they get some kind of reference for it, which becomes an anchor.
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.
Paper has a lot of advantages that I know and love. But, what I'm addressing is a narrow issue I see repeated in lots of areas beyond books. That is that the perceived cost of production has a big influence on the emotional reaction to the price of the good even though it has no tangible effect on the utility of that good.
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."
The manufacturing cost for an ebook clearly should be much less and near-zero per book. Bits are cheaper than paper. However that's just a portion of the cost; there are still distribution and royalty costs and I'd bet those make up the bulk of the price.
The manufacturing cost for a paper book is near-zero; a mass market paperback costs on the order of 50 cents to print.
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.
The fixed costs for creating a software title are identical whether you sell the product as a CD or as a download, but in neither case do those costs have anything to do with the price of the title. The title is priced based on perceived value (usually, as perceived by the most lucrative segment of the market it addresses).
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.
The actual model for book prices is a reverse-auction: prices start high, then drop over time.
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.
So, Charlie, let's stipulate that the current market for books does a lot of stupid things based on the historical entry costs for new publishers.
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?
What I'd like to see tried is to debut ebooks at $20. Then, every month, depreciate them by 5%, down to a floor of $5 or thereabouts. (Maybe even lower.)
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.
Personally, this would be just about perfect for me- it sort of emulates the way that I already buy books (i.e., a small number of hardcovers [usually bought at their time of release], a larger number of paperbacks, and an even larger number of used books).
I would encourage you to share even a back of the envelope explanation showing how the costs to distribute even 20,000 copies of an ebook would cost $10,000, given that publishers that are doing this are distributing their fixed costs of hardware and software over some large number of ebooks.
In a non-commodity market, price is determined by value, not cost. Cost is irrelevant.
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.
I think you are right, but my mind keeps wandering to the person who can drop 6000 USD on a Kindle title. I hope they get the value out of it they need.
Seriously, I look at this title and have no trouble at all imagining that it generates $6000 worth of value. Look at it, think about why you might need it, and then think about how much it would cost you to generate an alternative to it.
Why would a digital version NOT be better? This is a 1500 page book that comes with a cd full of data anyways. I guessing something like this would be used as more of a reference. Seems like the ability to search the text would make things a whole lot easier digitally.
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.
Having handled books from that series, I can assure you that a Kindle edition with proper search capabilities is definitely worth more than the physical version.
> In a non-commodity market, price is determined by value, not cost. Cost is irrelevant.
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.
That's not a single number, it's a distribution, and it's much more complicated than that since the distribution of prices people are willing to pay for any particular item depends on the prices of the other items in the store.
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.
My point was just that there is no simple "value" that determines the price point. One of the factors that determines the price of things is unit cost, commodity or no.
And the costs of producing the text haven't changed - you still need to pay editors, proofreaders, technical editors and reviewers when necessary, people to read the slush pile to decide what to commission next.
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.
Editors, proofreaders, and reviewers aren't really COGS, anyways, for the same reason that software development is accounted for in SG&A or R&D, and not "cost of sales": it's a sunk cost.
That's true, but in an all-ebook model you'd need to price your product to cover those costs too.
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.
This is a great critique of the publisher/author model, but it makes me sad that this writer also believes that his book price should have something to do with the cost of paper.
Bits are cheaper to manufacture than paper. However, their upkeep can be more. When I put a book on a shelf and ignore it for 20 years, and then try to use it, it works. When I put bits on a shelf and ignore them for 20 years, and then try to use them, it is much more of a crapshoot. It takes a lot more effort to keep my bits working for 20 years.
Offsetting that is the fact that bits can be hypertextual, can be marked up without damaging the book, weigh nothing, can be backed up over the short run, support full-text search, can automatically remember your place, can be downloaded instantly instead of shipped, and support skip-to-chapter.
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.
From another angle, if I read an e-book and I like it, I can't give it to my friend, because I don't technically own it (for that matter, I can't resell it or donate it to a library either). I just have a personal license for it.
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.
There is however an entire market of users like me that publishers could get if they were charging less.
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.
Ebooks may be more useful, but they are also much more ephemeral and fragile than a physical copy. They are subject to accidental deletion, file corruption and future obsolescence due to closed formats, DRM and technological innovation over time.
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?
For you, maybe they're not! Me, I value bits more than the artifacts that carry them. My MP3s are worth far more to me than the CDs I ripped them from; the CDs invariably got scratched or lost, and I was lugging around huge books full of them. Once iTMS came around, I virtually stopped buying them altogether.
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.
But irrational attachment to physical objects is a major factor in book pricing right now. Putting that aside because it favours your argument is like setting aside irrational attachment to designer labels when discussing the price of clothing.
Ebooks may be more useful, but they are also much more ephemeral and fragile than a physical copy.
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!
You can resize the text. Books offer that as well, but you have to buy an entirely new book for that. Larger type usually means larger books that aren't as easy to read comfortably for the people that need the larger type. I know this first hand, as my mother-in-law has to deal with this.
At the same time that person could search a digital textbook to avoid wasteful hours of page flipping. I think there are cases where it makes more sense to charge more. I could take a larger course load if the difficulty of finding the information in my textbooks were removed.
I was just coming here to say that myself. I'd much rather have a book on Kindle than paper. The DRM is the only reason I ever buy any book on paper at all, and that is limited to the rare one I think I will read multiple times.
In this case, the author is only telling you have the story. The kindle version IS cheaper than the currently available book. The paperback isn't available until March of 2011.
I think we've gotten so used to format shifts - beta/vhs/dvd/blueray - cassettes, albums, cds, mp3s - that trying to price for the long-haul of ebooks isn't going to be in anyone's plans. :(
It makes sense that ebooks can cost as much or more than the same print book. Publishers' current revenue model for ebooks is an extension of that for their print books. These are colossal organizations. At the Startup School today Reid Hoffman (founder LinkedIn) talked about the ability for organizations to pivot. Small startups can easily pivot, these large corporations take time and money to change direction. Publishers have not changed their production processes to respond to ebooks. They have just added another step in the process.
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.
Bits are cheaper to manufacture than paper, and presumably when you buy a digital version of a book you don't own it and cannot resell it after you've read it, as would be the case with paper. A resale value of zero should justify a significantly lower price.
I can't wait until book publishers do what indie music sellers do: buy a cd, get the mp3.
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.
I don't understand the assumption that ebooks should cost less than print books. At this point in time, Kindle/iPad owners tend to have more disposable income than the average book buyer. And the fact that they have an electronic reader indicates their willingness to pay a premium for convenience.
Print books require raw materials, physical distribution, and have to compete for shelf space (<100% of physical books are sold online). None of those costs applies to ebooks.
>At this point in time, Kindle/iPad owners tend to have more disposable income than the average book buyer.
Products aren't based on cost. They're based on value. If value is less than cost, they don't sell, and don't get made.
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.
And now "the market" is taking a hard look at where e-books should be valued at.
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.
This argument seems to be going around in circles. The fact that the vast majority of people think that ebooks should cost less than physical books means that they should, because people's perceptions of value are what makes up the market.
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.
"The fact that the vast majority of people think that ebooks should cost less than physical books means that they should, because people's perceptions of value are what makes up the market."
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.
>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.
We still live in a physical universe. Information is physical. Those digital books take up digital storage space. Server farms have displaced distribution centers and book shelves with digital lockers. On the bright side it saves us from hoarding books we've already read and which take up space in our homes.
So if I am relatively wealthy, I should be willing to pay more for something that costs less to sell to me? You don't get rich by being loose with your money.
Except in this case, the author presented an unfair price comparison: Between an ebook available now and a paperback book not available until March of 2011.
It would be nice if they were even half the cost but more went to the authors so that it would encourage people to take the time to write. The bad stuff will get weeded out by opinion sharing.
I tend to believe that's already the case. If someone truly wants to write, the cost of taking up the activity is fairly cheap. People don't write just for money, they also write because they have something that wants to get out.
Forget the shoulds, look at the reality. Publishers are going to create a piracy nightmare for themselves. Lightweight files, easy consumption through devices that get more and more popular.
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.
Does it bother anyone else that piracy would force an arbitrary low price point for books?
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.)
> Does it bother anyone else that piracy would force
> 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.
I don't know why you were down-voted, but I agree with what you seem to _mean_ even though your use of strong rhetoric distracts from your point.
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?
The author complains about the cost of an ebook out now when compared to a paperback that isn't being released until March of next year. Ignores shipping costs that make the book more expensive then the Kindle version.
This is one of the areas where government has distorted the market via regulations, namely around copyright, to benefit big publishers over authors. I'm not sure of the best solution to this, but if we had thousands of independant publishers or authors self-publishing, then there would be more competition, and pricing would be more in line with profitability.
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.
