Some Thoughts on eBook Pricing

One of my primary sources of information about the book publishing industry is Publishers Lunch Deluxe. It is published every workday by PublishersMarketplace as part of its premium membership service. If you are an author, agent, or publisher, it is must reading.

Magnifying Glass Over a Price Tag - Photo courtesy of ©iStockphoto.com/alexsl, Image #6139533

Photo courtesy of ©iStockphoto.com/alexsl

Last week the New York Times published “E-Book Price Increase May Stir Readers’ Passions.” Michael Cader, the editor of Publishers Lunch Deluxe, took issue with the article, noting that “some people will automatically take it seriously, despite the anecdotal reporting and absence of any data.” He then exhorted,

[P]ublishing people who care about these pricing discussions need to get in the online forums and start issuing press releases and find other ways to address readers honestly about price. The price landscape, and shift to an agency model, is honestly baffling to most people and there are a lot of price myths out there.

In that spirit, I have taken eight of his “talking points” and provided my commentary.

  1. The eBook price of $9.99 was never the top price. In our own monitoring of Amazon’s Kindle products, we have seen that 30% of them are priced above $9.99. (Kobo’s research confirms this.) The bestseller lists regularly include commercial titles above the $9.99 price point. People are buying these eBooks. I have conducted a limited test myself on my own eBooks. Granted, they are highly specialized and my audience is limited. Nevertheless, I price-tested them at $9.99 and $19.97 and saw no difference in demand.
  2. Surveys show many people will pay more than $9.99 for eBooks. As demonstrated by their own behavior, many people are already paying more than $9.99. Some of those surveyed say they will wait for prices to go down, just as they do now while waiting for a hardcover book to be released in paperback. However, I have argued for years that people don’t buy a price point; they buy a solution (non-fiction) or entertainment (fiction). As long as the price is within a range of reason, it is a non-issue. Those in the industry make more of this than is warranted.
  3. Brand new eBooks sold at $9.99 are almost always sold at a loss by the e-tailer. As Publishers Lunch Deluxe said, “When a company with a $50 billion market cap [Amazon] can sell selected product at a loss and still make their biggest profits ever, you have to wonder about the bargain.” As publishers, Amazon is not our only customer. We want to ensure a more level playing field, so that smaller and local retailers have a fighting chance. We also want to ensure that our customers have a wide range of real bookstores and online eBookstores to choose from.
  4. The promise of cheap eBooks was made by companies who don’t have to produce the content. Amazon arrived at the $9.99 price point as a way for readers to justify their purchase of a Kindle. Sony followed suit to match Amazon. Then Wal-mart, Target, and others offered the physical editions of bestsellers through their online stores during the last holiday selling season. None of these companies has to acquire, develop, or package the content. None of them has to pay royalty advances to authors or invest in physical inventory or accounts receivable. These are not trivial investments, I assure you.
  5. People who can afford to buy an eReader can afford the proposed eBook prices. Whenever the owner of a $300 product says they “can’t afford” to pay $3.00 to $5.00 more for something, what they really mean is “I really prefer not to pay more.” In fact, they would probably prefer to pay nothing. As a consumer, I agree. The problem is that I, as a publisher, can’t find authors who will write for nothing. Neither can I find employees who will work for free. One of the thing I learned about consumer research a long time ago is that there is a fundamental difference between what people say they prefer and what they actually do. Too many publishers and booksellers are responding to consumer preferences rather than consumer behavior. In the process, they are leaving money on the table.
  6. Publishers are actually lowering their eBook prices. In reporting on eBook prices, many recent stories assert that publishers are raising prices. This is baloney. Contrary to this, all the publishers I know are lowering their retail ebook prices by 20–50 percent compared to the retail price of the physical book. Publishers understand that it costs less to deliver an eBook than a physical book. However, the cost is not zero, as some would suggest. Publishers have costs to recoup—acquisition, royalty, editorial development, formatting, marketing, and even digital delivery. We are charged by our shareholders to make a profit. While we can sell these books at less than the price we charge for physical books, we have a difficult time make a $9.99 business model work.
  7. The new “price ceiling” is going to be $12.99 more often than not. How do I know this? From talking with other publishers. This point is being lost, inside and outside the publishing industry, since no one is supposed to talk about their Apple deals in too much detail. But the fact is, the price differential is far less substantial that the press would like you to believe. I don’t know of a single publisher who is planning to charge the same amount for eBooks as they charge for physical books. As I stated above, most have either reduced—or plan to reduce—their eBook prices by 20–50%.
  8. The biggest obstacle for eBooks is still the price of the device. Honestly, I never hear anyone complaining about the price of eBooks. I hear lots and lots of people complaining about the price of eBook readers. This is the biggest barrier to the digital revolution. I have said from the beginning that Amazon should follow the razor blade model of marketing: give away the razor and charge for the blades. Granted an eBook reader costs more to produce than a razor. But I believe they should still sell the Kindle dirt cheap, even if they have to take a loss, and then sell the books at a profit. Make it easy for people to get started and then let them experience the convenience of eBooks.

Obviously, I am writing from the perspective of a publisher. I am not averse to change, as I have demonstrated repeatedly. I know the market is shifting. I believe digital publishing will change forever the way that we do business. However, that does not mean we have to “give away the farm”—or our content.

I am still a firm believer that people will pay for compelling content, provided big retailers don’t devalue it by artificially lowering the price to serve their own strategic interests at the expense of everyone else in the supply chain.

Note: After I wrote this, I discovered that Mike Shatzkin also wrote a post, based on the Publishers Lunch Deluxe article. He offers a different perspective, but well worth reading.

Question: If you were a publisher, how would you price your content and why?
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  • http://www.digitalfishbowl.net Joseph

    Ebooks don't offer any way to purchase second hand content, and you can't lend/borrow an ebook like you can a physical one. That's where the big "price difference" is in my eyes.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      This is another reason that justifies a lower price. However, as a publisher, I like this aspect of digital publishing because it allows both the author and publisher to get paid for their content, something that the current second-hand book market doesn’t allow.

      • http://intensedebate.com/people/joannamuses joanna

        Perhaps the digital editions of older books need to be sold for much cheaper than the digital editions new books so that digital is still an attractive option when compared to buying the book second hand?
        My recent post The next Christian dance craze?

        • http://intensedebate.com/people/michaelhyatt Michael Hyatt

          I am sure we will see all kinds of models like this as we move into this era of publishing. Thanks.

      • http://www.lawrencewilson.com Lawrence W. Wilson

        Apple has allowed limited sharing of music content through iTunes–I believe a song can be loaded on up to five devices. Perhaps the publishers and distributors of e-books can arrive at a similar solution.
        My recent post Geek of the Year

        • http://intensedebate.com/people/Adam_S Adam_S

          This already is the case with Amazon. You can have up to six devices sharing one account. I have five kindles and will add a blackberry soon.
          My recent post Free Kindle Books and New Kindle for Blackberry App

      • http://ronlane.wordpress.com Ron L

        Michael, are you saying that the author and publisher should be paid again on second-hand book market? Do you mean book stores, or if I give away a book to someone?
        My recent post Well Read??????

        • http://intensedebate.com/people/michaelhyatt Michael Hyatt

          Not exactly. I am just stating the fact that neither authors nor publishers get paid in these transactions.

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  • http://www.austinklee.com austinklee

    I have a Sony reader and I have no issue with paying over $9.99 for an eBook. I would like to be able to read my ebooks on any device I choose.

    As new devices come out now on a regular basis I would like to be able to buy books at different retailers and read them on whichever device I happen to have.

    Is that something publishers can assist with?

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Yes, I hate DRM (digital rights management). I really don't think this is coming from the publishers side. I think it is coming from the hardware manufacturers (i.e., Amazon) who want to lock consumers into their device. I don't think eBooks are really going to take off until we get rid of DRM.

  • Paul

    As a publisher, I think my greatest concern (looking at the future) is that the content creators will find effective ways to bypass the whole 'publishing company' layer of the delivery system…or, that the publishing company model will be carved up into smaller, more efficient service businesses.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      That's definitely an option. I think that is why it is critical that publishers understand what value they add to the process. I personally don't think that will happen. I do, however, worry about retailers.

  • http://www.jodyfransch.com Jody T Fransch

    Thanks for your thoughts on this Mike. In this case I would have to agree with you on the razor blade model of marketing. They should make it easy for people to make the transition to ebooks by offering the consumers the ebook readers really cheap and make up for it with the cost of the ebooks. This is by far the best strategy. I also like the idea of authors and publishers being paid for their content. eBooks are the way forward!
    My recent post The 6 Changes Method

  • http://twitter.com/SaintDC David Cook

    What do you think would be a good price point for an eReader?
    My recent post SaintDC: @MichaelHyatt I look forward to reading about eBook Pricing!

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I'd love to see one at $99.00.

      The great thing about the iPad, is that it's not just an eBook reader. I can justify a higher price for something that does email, browsing, my calendar, etc.

      • http://intensedebate.com/people/Adam_S Adam_S

        Sony reported that their $299 reader is selling better than their basic reader that you can find for about $150, sometime less. I think people are willing to pay if the product provides what they want. And for ereaders, I think it is a device that works well, more than a device with lots of features. Lots of features detract from reading.
        My recent post Free Kindle Books and New Kindle for Blackberry App

  • http://intensedebate.com/people/joannamuses joanna

    As for the price of device issue, i think the answer is not so much to make specialized reading devices cheaper, but to make the reading experience a really good one on devices people already carry (iPhones, large screened mp3 players ect). People who aren't really serious about reading probably aren't going to spend money on and carry round another device might still buy ebooks if they could easily purchase and read them from their iPhones.
    My recent post The next Christian dance craze?

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I do occasionally read snippets of books on my iPhone. But the device itself is to small for my tastes. I already carry a Kindle in my bag, so I am fine with carry another device. With the iPad, I might also be able to give up my laptop, which is appealing to me.

      • http://www.facebook.com/TimothyFish Timothy Fish

        For people who only use a computer as a terminal to the Internet, that may be a posibility, but many of us use our laptops to do things that the iPad is simply too weak to handle.
        My recent post The Cost of the New CreateSpace

      • http://www.facebook.com/TimothyFish Timothy Fish

        For people who only use a computer as a terminal to the Internet, that may be a posibility, but many of us use our laptops to do things that the iPad is simply too weak to handle.
        My recent post The Cost of the New CreateSpace

  • http://www.volunteercentered.com James Higginbotham

    Thanks for the detailed post, Michael.

    Any thoughts on how self-published eBooks change the pricing landscape and how publishers might make it easier for individuals to utilize publishing companies to increase their distribution in exchange for a share of the revenue?
    My recent post Dealing With Doubt In Leadership

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I think it is too early to know how self-published eBooks will change the pricing landscape. My guess is, not much. Again, I don’t think people buy price. They buy content that they find compelling. I don’t think publishers will be inclined to distribute self-published eBooks in exchange for a share of the revenue any more than they do now for physical books. The problem is that they can only focus on so many titles and do them well.

  • Tanya

    You point out that owners of e-readers can afford to pay a few extra dollars for their books. This may be true, but it defeats the logic behind buying the devices. My husband and I justified the cost of our Kindles because we recognized the lower price point for books. Considering the volume of books we read each year, we were willing to pay the higher price to save money in the long run on our books. We didn't buy the devices from an overflowing stash of cash. Now, we must re-figure our math to see if it's worth it, or if we should go back to traditionally bound books.

    And you're right — we wouldn't mind paying a few extra dollars for quality content. In fact, we probably will. But it kind of sucks that in some cases we pay more for e-books than we would for paperbacks. I can't share my e-books. In spite of what I've paid for them, they don't even belong to me, thanks to DRM. Just this week I noticed two titles that I purchased for my kindle at $9.99 each are currently sold in paperback for $6.95. How is that right?

    Aren't there differences in publisher costs based on the product? I have difficulty believing that it takes as much investment to transfer an existing manuscript to e-format as it does to bound paper. The packaging is different. The marketing is different. The benefits are different. Yet the prices are relatively the same.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      That's my exact point. The device makers sold you a premise (i.e., buy this expensive eReader and justify the price with cheaper content). The only problem is that they don’t produce said content and don’t have to make the investment necessary to generate it. It is a business model built on the backs of others.

  • http://www.facebook.com/TimothyFish Timothy Fish

    While price is a factor in books sales, I don't think it is a huge factor. Of all of my books, the two that are selling the best are the two that are the highest priced. While consumers always want lower prices so they can get more stuff, if they really want the book, they are going to pay for it anyway. I think the reason for this is that the biggest cost in books isn't how much the physical book or the digital file costs, but the time it takes to read the book and the time the additional knowledge saves the reader. If time is worth $25 per hour and it takes eight hours to read the book, the cost of reading the book is $200. If the reader finishes the book feeling that it was time well spent, then the $10 he spend on the book hardly matters. If he thinks he wasted his time, even $5 spent just adds insult to injury.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Amen. This is an important part of the argument. It also speaks to the fact that if a book is not compelling, a cheaper price doesn’t usually help.

  • Juan

    The digital revolution is coming – how much time do you spend in front of your computer/laptop? Mine is 60%.

    I usually spend about $100 in books monthly, and most of them thru Amazon, however I do not feel enticed yet to buy the e-reader; it is still too expensive, I am still waiting for a device that will be complete-designed. If Amazon gives them away to tis prime-customers – maybe a rather become a prime-customer to get if for "free".

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I read over the weekend that Amazon is considering this. I think it would be a brilliant move, especially if they included a coupon for a couple of free books. They need to help people get started and see how easy and convenient it is. Thanks.

      • http://www.daddytude.com Gary Walter

        Audible.com did that for me when I first signed up with them. They gave me an iPod, for the price of a subscription – 4-5 years later, I’m still buying audiobooks from them.

  • http://www.john-gallagher.blogspot.com John Gallagher

    I believe this industry is compelling from a cost structure standpoint. You make a GREAT point about Consumer 'behavior' vs. 'preferences'. Ultimately, the job of the producing company is to understand what the customer is willing to pay for and minimize everything else. Book publishers that will win will understand that. As far as the cost of the hardback and paperback versions, the publisher will need to eliminate waste associated with these processes so that they can provide even quicker service to the industry to reduce inventories and increase cash flow for investment in new technologies. If Dell can make computers on demand, why can't the book publishers make their books 'on demand'? Quite the paradigm on the manufacturing side…
    My recent post Pocket Change – Our Deepest Fear

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      The print-on-demand technology is improving rapidly. I have been through a couple of amazing proto-type factories that do exactly what you suggest. They can print physical books, including the binding and covers in seconds. It's coming.

  • Justin J

    People respond to price. However no two people are the same. Each has a different willingness and ability to pay. The publishing industry has done a great job in the past of using different product formats (hardback, paperback, mass market paperback) released in different time horizons to force people to reveal their willingness to pay. The motion picture industry has done the same with theatrical releases followed by a delayed release on video. They do not care how much you paid for the device you use to view their product.

    The publishing industry will determine what the willingness to pay is for people using ebook readers and price accordingly.

  • http://twitter.com/robwar0100 @robwar0100

    I find point No. 5 interesting. Consumers pay Amazon $300 for the Kindle, but want everyone else to offer discounts so they can fill it. Also, Amazon gets the $300 and wants everyone to lower their price for content so their $300 gadget will be remain popular. As a newspaper reporter, I figured out a long time ago we cannot give away for free on the Internet what we charge our print readers for. Unless Amazon wants to subsidize the producers of content, they should not be dictating price. I feel sorry for those publishers whose business models rely too heavily on Amazon for distribution into the marketplace.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      This is why I welcome the competition from Apple and others.

      I don't think consumers have yet spoken. Amazon has spoken in the name of consumers, but we have yet to hear from them directly. Granted, consumers may insist on paying less that $12.9 or $14.99. If demand decreases, publishers will adjust their models or go out of business. I have no problem with that, but let's find out what consumers will pay, not based on what they say but what they do.

  • Drew Graham

    Mike,

    I understand this is very new territory for publishers but price is ultimately set some where between supplier and consumer surpluses. Economists would forecast that price will be determined by demand regardless of this new technology. Your variable and sunk costs may change some since you no longer have to print a physical book, but your content costs still exist. Your pro-forma models should still be sound; however your sales projections will be in new territory.

    I would contend that retailers will find a way to drive it up once they enter the market and establish position. I agree with your razor and blade assessment model for the Kindle and other products; that is how they will make money in the long run. The problem is, how does one survive long enough for the dust to settle and understand this new competitive landscape. I would focus on consumer price elasticity of demand and price each product appropriately. Good luck to the publishers department; I am rooting for you guys in this fight.

  • http://intensedebate.com/people/success2you John Richardson

    I think the market for e-books will be very similar to audio books. Since they are digital, manufacturing and shipping costs for media are eliminated. Currently most audio books can be downloaded from iTunes and Audible from $10 on the low end to about $24 on the high end for in demand fiction. Audio books have an extra performance cost since somebody has to read them, but many plans exist to offer substantial discounts.

    I currently pay Audible $9.95 a year and get a 30% discount on all books that I purchase. Personally I think the iPad will really open the market up with additional video and audio features that will make their e-books come alive. What would you want… a B&W Kindle version with just text for $9.95 or a full color version with video scenes, author interviews, audio enhancement and a complete audio book for $14.95.

    Like you say, Mike, price is secondary. E-media is on the verge of a major revolution. I can't wait to see what creative minds come up with! And I'm certainly willing to pay more than $9.95 for an amazing interactive experience!
    My recent post Creating A Success Checklist

  • http://ronlane.wordpress.com Ron L

    Very good article Michael. You have presented some very good facts to this. While I like the $9.99 price for eBooks, I would have to agree that it is not the only price that I would pay. I have bought some that were less than that and some that were at that price. (I have yet to buy a book for more.) That being said, price has not been a factor for me purchasing an eBook. It is the title and author and content that makes me want to buy the book. The same factors that I previously used when buying hard back and paper back books in a store.

    I really agree with you on the pricing of the eReaders. To further expand on this, take a look at the fact that for both Amazon and Barnes and Noble, you can download for free the eReader for your PC/Mac and for the iPhone/iPod Touch. Seems that if they can do that, surely they can continue to lower the price of the Kindle and Nook.

    My recent post Well Read??????

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      They didn’t ask me, but I think they should get out of the hardware business altogether. The should focus on creating the eReader software and then do what they do best: deliver content.

  • http://twitter.com/davidmcgraw @davidmcgraw

    Thanks for the well framed discussion. Books have a cost to produce and distribute beyond the cost of an ebook. eBooks cannot currently be shared. eBooks should be discounted to reflect this cost or provide some tangible add-on to warrant the a similar cost as a real book. Today, these add-ons do not exist. Other than current releases, most of the 70+ books I purchased last year from Amazon were purchased for a price around $11. I understand the disruptive potential eBooks have for traditional publishers. I would suggest traditional publishers abandon the traditional methods for pay authors and marketing and distributing their products. Your companies foray into the self-publishing world is a good framework for publishing in general.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      This is why I pointed out in the article that I don't know of any publishers who expect to paid the same amount for an eBook as a traditional paper book. Beyond that, publishers need to exploit the unique multi-media opportunities that digital devices offer. I think this will happen as a natural part of competition.

  • Moultrie Creek

    I read e-books on my iPod Touch and will soon upgrade that to an iPad. I won't buy a single-function device especially when I can have a multi-function one for just a bit more. I will pay a premium price for newly-released hard-cover books that have caught my interest, but I don't see paying a higher price for the e-book that its paperback edition – especially when the e-book is poorly formatted and full of garbage text. Consumers have a growing number of options and choose the ones that offer them the best value.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I agree. The content has to be formatted to fit the device. I have read some really awful eBooks, where the format was a huge distraction.

  • Todd

    What do you think about a “rental” model such as that used by NetFlix? I currently check out a lot of books from the library and I have thought about getting an eBook reader but have held off so far. If there was a plan where I could buy a reader, such as the Kindle, and then pay a monthly fee, say under $20, which would allow me to have 2 or 3 books “checked out” to the reader at one time, I would most certainly buy a reader sooner than later!

    Is there any talk among publishers with regards to this “rental” type model that NetFlix has made successful for movies?

    Thanks for your article and insight!

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I think that model has promise, especially for fiction. We'll just have to see.

  • http://speckleofdirt.blogspot.com Speckle

    This is a difficult issue! On Friday I was visiting with friends and we were talking about buying Beth Moore's new book, "So Long Insecurity, You've Been a Bad Friend." We decided we could go to the bookstore and get it for around $15. One friend saw it at another store for around $19. I checked my Amazon iphone app, and saw that I could get it for $14.61 with free shipping. I thought I would take a crack at looking to see if this book could be purchased for kindle. Lo and behold, my Amazon Kindle app for iphone told me I could get it for $9.99, so I downloaded it right there. And that is what we do as consumers…

    And, oh by the way…I would write for your establishment for free!

    My recent post Dark Days Challenge: Roasted Veg

  • http://nichollsleadershipinstitute.com Kathy Nicholls

    I use my Kindle for convenience and got it at a time when I was living overseas and found it much easier to get books for it and carry back and forth than to haul an entire suitcase full of books every time I came to the States. There weren't a lot of bookstores where I was living. And yes, the idea of getting a book for $9.99 was appealing. Still, when I purchase a book, I'm looking for content and value. If that comes at a higher price and I really want the information, then I get it. As I am now in the process of writing the second edition of my own book, I am more keenly aware of the price points for things in publishing, which may change some of my views. Still, I think it's about good content and what the consumer is looking for. Like anyone else, I would, of course, always prefer to pay less, but I won't not buy a book because it's over that price if it's relevant to what I want at the time.
    My recent post Leadership: G is for Growth

  • http://intensedebate.com/people/michaelhyatt Michael Hyatt

    If I could only get Beth Moore to write for free!

  • http://intensedebate.com/people/michaelhyatt Michael Hyatt

    I love the convenience aspect, too. I went to Africa last year. I had my Kindle. My wife, Gail, lugged around five or so books. I loved it!

  • http://twitter.com/awordsmith @awordsmith

    I also purchased my Kindle for convenience and while price is a factor for a book purchase, it's not the only one for me. I'd definitely pay more for an ebook released at the same time as the hardcover, but not the same price. I believe in paying fair price for content, but like others I can't wrap my mind around paying the same price for an electronic book that I don't actually own that I would for a DTB that I can lend, sell, share, etc.

    I will also say that I am tired of getting poorly formatted books full of typos and spelling errors, which leads me to believe not a lot of editing and proofreading goes into the electronic version of the books, but a quick transfer from a PDF file or something like that. A poorly made product doesn't support asking the consumer higher price IMO.

  • Andy

    Certainly it costs money to format a manuscript into the digital format necessary to be read on an e-reader. However, unlike a producing a paper book, this is largely a one-time cost. Then there is the DRM issue: one could argue that the books on my Kindle don't necessarily even belong to me.

    I think part of the problem is that publishers have an antiquated business model with regard to bookstore sales in that the stores get to send back books (or even just the book covers) and get their money back. I'm sure that cuts into profits, but e-book customers are not sending their books back–they can't even loan them to someone else.

    I'm not arguing that there is nothing to fix, but I think the whole system has to be examined carefully and the entire business model need to be more realistic.

  • http://dropshipping.co.za/ Arianna Scm

    Other versions of your ebook could be in HTML, auto responder and downloadable text format. Arianna Scm

  • http://intensedebate.com/people/michaelhyatt Michael Hyatt

    I don't disagree. I am simply trying to engage in the conversation. Like any kind of win-win relationship, everyone has to win or ultimately no one wins. Thanks for your input.

  • http://intensedebate.com/people/michaelhyatt Michael Hyatt

    As I said in the post, I don't know of many publishers asking the same price for the eBook. To me that's a non-issue. The question is how much less it should be. That's where the conversation needs to be.

    I am intolerant of the errors in the text, too. That will straighten out over time or those companies will be out of business!

  • Donald

    I do really appreciate the conversation, Michael, and your participating so vigorously. From the financial side of the business, as a publisher, I believe margins are your biggest concern – that your pricing model is sufficient to cover all your costs. Moving to digital content means less overhead, so if publishers can keep the costs as high as print editions the profit margins will higher. I think the market will tolerate that for a while but probably not too long. I believe that will be further accentuated once the market gets inundated with independent publishers and free or cheap self-publishing apps for the iPad and other devices.

    As for Amazon, I believe they simply tried to follow Apple’s original iTunes Store model when the times have changed and, in fact, Apple abandoned that model once the market and related intricate relationships were established. Simply put, they’re trying to sell a $300 razor.

    In the end, I believe publishers like you need to keep focusing on providing great content at the most affordable prices. I believe doing so will draw customers and authors to you and deepen your business in so many ways. And one other item that I think will bring enormous goodwill is bringing older books in your catalogue into the digital marketplace. So much of what’s been published, especially from your presses, is timeless.

    Again, thanks for the intriguing article and opportunity to interact!

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Thanks, Donald. I think you are right: our biggest challenge as publishers is to produce content people are willing to pay for.

  • http://intensedebate.com/people/productivepinoy productivepinoy

    From a consumer point of view, I think in the future ebooks will be priced based on the quality of the content instead of "industry" prices. The hardest part for the author or publisher though will be how to convince their readers to buy the ebooks at profitable prices.
    My recent post THE EASIEST WAY TO MAKE MONEY ON-LINE

  • Rusty

    I totally agree with you. I thinks it's a mentality that we have fostered in this country that speaks a lot more about our priorities than about what I can economically afford.

    I mean, what rock can anyone throw when half of us will stand in a Starbucks line and pay $5 for a coffee. C'Mon, I ain't buying it.

    Don't get me wrong, I'm all about a value, and I don't want to pay more for something than it's worth (i.e. – overpriced coffee) but I have to understand it's a business and it won't just show up for free . . nor should it.

    At least if I wrote it, it wouldn't!

  • http://forrest-long.blogspot.com Forrest Long

    Thanks for the post. The information is good to have. I am an author with two ebooks on Amazon for kindle reader and they are both priced over $9.95. They are selling, but slowly and I haven't done much promotion yet. But I am thinking on lowering the price to below $10. I think for alot of people $9.95 is still a psychological point for buying something that they don't get an actual physical copy of. Time will tell how all this will level out in the marketplace.
    My recent post THE PATH TO TRUE SPIRITUAL WISDOM

  • http://godtoldmetosaythat.blogspot.com/ AimeeLS

    You haven’t addressed the fact that there are no ‘returns’ on the ebook products. A huge saving to both the publisher and the writer, surely?

    Your thoughts on the e-readers are valid, but I would also note that the roles are reversed in that case – you don’t have to put the infrastructure or investment in behind the product to make that call.

    It seems to me that Amazon, etc, are serving themselves by making their profit upfront – then cutting the publisher’s lunch (no pun intended) by undercutting profits there.

    You suggest they should instead cut their own lunch and make profits for you (the publisher).

    One of these days people are going to realize that business is only sustainable when it doesn’t hurt anyone.

    AMAZON: Figure out ALL your costs for making an e-reader and charge the purchaser 10% more.

    PUBLISHERS: Figure out ALL your costs for ebooks and charge the purchaser 10% more.

    I’m well aware that is a very simplistic way to view the problem (and that figuring out actual costs is a huge undertaking), but you guys are some of the smartest people in the business world. I think you could figure it out.

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      Actually, I am not suggesting that Amazon cut their own lunch. I am suggesting that they can afford to sell the reader at cost or a reduced price in exchange for making money on the content itself. (Hence, the razor, razor blade model.) Publishers, on the other hand, have nothing they can make money on other than the content itself.

      I totally agree on the win-win paradigm. If we don't all win, eventually no one wins.

  • http://intensedebate.com/people/blogan Brent Logan

    It's not the eBook sellers that have set my expectations as to what a book should cost; it's the brick and mortar stores selling physical books. I can buy pulpy paperbacks for $6-7 and the higher quality (nicer paper and print quality) paperbacks for $10. Certainly, an eBook that doesn't have the per-unit costs associated with printing, inventory, shipping, stocking, etc., should sell for less.

    Talking in terms of value pricing instead of cost-plus is a mixed bag. Sure, an eBook might be more easily carried, but it's less easily read, carried (much more $$ at risk), and impossible to share.

    I admit I'm not an eBook reader. The cost of entry is too rich for my blood. The iPad might change this, though, being a viable eReader that's comes virtually free with a portable tablet computer.
    My recent post Virtual Touring

    • http://intensedebate.com/people/gwalter Gary Walter

      But don't the "early adopters" (ie; hardcover readers) help to fund the "late adopter" (ie; paperback readers)?


      My recent post Derailed Financials

      • http://intensedebate.com/people/michaelhyatt Michael Hyatt

        The short answer is “yes.” It's not about the physical cost of manufacturing. That’s fairly trivial in the whole scheme of things.

        • http://intensedebate.com/people/blogan Brent Logan

          I don't understand a pricing structure where you lose money with each sale. Wouldn't that be a business to leave?

          And I'd agree that the physical cost of manufacturing could be trivial. It doesn't make sense to me that all the other costs associated with selling through a brick and mortar bookstore would be. Just like authors, booksellers don't want to work for free. Isn't there substantial costs associated with a building, employees, and carrying all that inventory (or is inventory a cost carried by someone else?).

          I think as a publisher (to try to answer your question), book prices should be structured so sales result in income, not just volume.

          I'd love to hear your perspective on this whole Amazon kerfuffle. The relationship between publishers, distributors, and sellers is one I don't understand.
          My recent post Virtual Touring

          • http://intensedebate.com/people/michaelhyatt Michael Hyatt

            Loss-leader pricing structures are common. You sell a single item at some crazy, ridiculous discount in order to drive traffic into your store. In this case, Amazon is doing it to make Kindle as ubiquitous as possible, so they can lock up market share. It is a strategic play. They are willing to lose a little know in order to clean up later—and, as their Q4 financial report demonstrated—they aren’t doing too badly in the short term either.

            The problem is that loss-leaders are generally narrowly targeted and temporary. This affects an entire product line and was headed toward permanence. Then Apple entered the market with their iPad announcement.

            Don’t try too hard to understand it. A lot of it doesn’t make sense to me yet either. ;-)

          • http://intensedebate.com/people/blogan Brent Logan

            Thanks for the reply!

            I guess I should have been more clear. I understand why retailers would do loss leaders. What I don't understand is how Amazon doing loss leaders affects a publisher's income. Doesn't the publisher set the price to the distributor or distributor/retailer (whoever's next in line)?

            And good luck to Amazon with Kindle. I think the iPad will eat the Kindle's eReader lunch, and leave Amazon with losing money on each eBook sale.

            As a parent of multiple college students, I think (hope) there's a real market for eTextbooks. Right now, we play the game buying online and used and then reselling it back to the same site. In effect, we're renting the textbooks and the publisher and author only makes money on the initial sale. I guess that's why there are so many new editions… ;-) I think an iPad type device with electronic delivery, DRM so the book can't be resold, and a reasonable first price (closer to the "rental" price we're already paying) could be a winner. The publisher makes money from each student, the student gets to keep the book but not resell it, all the student's textbooks fit in a relatively small, light device. I would have loved it in college!
            My recent post Virtual Touring

          • http://intensedebate.com/people/michaelhyatt Michael Hyatt

            Thanks for the clarification. As a publisher, our concern is that Amazon is permanently altering consumer perception of what a book is worth. In a typical loss-leader program, you know it is a special deal. You don't expect to get the same deal next week. But with Amazon's approach, they are affecting the value perception. It's only a matter of time before they come back to the publishers and say, we can't continue to pay you what we were paying you. You're going to have to figure out how to sell us the same content at a dramatically lower price.

  • http://twitter.com/MarkYoungBooks @MarkYoungBooks

    As a publisher (which I'm not), I'dd follow age-old marketing strategy and price my content at fair market value–what it pays to produce and distribute, and what the market will bear. The e-book, however, needs to be priced less than the book on the shelf. Consumers (like myself) are still eying the cost of the reader and waiting to see what happens in the market place. Consumers understand that publishers can not give away the product and still remain in business. They also don't want to buy a product that be snatched back from them at any time. The future is changing, and technology will change our way of doing business in the publishing industry just like everything else. So, as a consumer, I'll stand on the sidelines to see how the game plays out.
    My recent post Angela Hunt

  • William

    I see nothing (or little) in the post/comments related to the actual cost of producing the product determining the price. Most product pricing is based on a material, production, delivery, and advertisement type model. It is my understanding that the author generally gets a forward and then a precentage of sales, so that seems like a fixed or predictable (to some degree) cost. The rest is on the publishing side mainly.

    So – what percent of pricing is raw materials, actual manufaction process of book, handling, storage and delivery. Seems to me, you take those components uniquely related to the physical book out of the price equation and you have the ideal ebook price. Or, is that too simple?

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      I don't know of too many companies who arrive at a price based on production costs. The better model is to base it on perceived value. In other words, what is it worth to the people who buy it. You can manufacture a computer chip for pennies. But it's not the silicon that creates the value; it's the intellectual property embedded in it.

      Having said that, the actual cost of manufacturing a hardcover book is usually $1.15 to $2.00 each. But that's like the silicon. Until you create content that people want to read, you just have a dead tree. Finding content worth publishing, developing or curating it, packaging it, paying the author, and getting the word out are far more significant costs.

      • William

        Thanks for correcting the oversight,…I guess my mind was on what's the minimum price to recoup costs, then mark-up or value proposition. The $1.15 to $2.00 is a cost I think important to communicate to the public! For me it really illustrates the case for a $18 ebook price on a normally $20 book. Granted many other concerns like sharing the book, etc. others have raised have to be addressed but from a pure apples to apples on the supply side it telling…to me, at least.

  • William

    Manufaction? Did I invent a new word? Sorry…should read "manufacturing process."

  • Chrystal

    just my 2 cents – as a consumer and work-from-home mom of a busy toddler it's all about convenience for me. I agree with your point that as long as the price is in a reasonable range people will willingly pay it. Or, at least this person will. The fewer things I have to carry the better. I invested in an iphone, much for this reason. It has everything I need when I'm away from my computer all in one device. I do agree that it is a bit small when reading a book but the convenience is sooo worth it. I've even purchased ebooks when I already own a hard copy and have it sitting on my bookshelf. I probably would not, however, invest in a Kindle or iPad (though they are super cool) just because it would be one more thing to carry – and it would have grubby two-year old hands on it all the time. But, I can definitely see the benefits for someone who isn't always traveling with toddler in tow. For this consumer, price is definitely not the deciding factor and I will gladly pay for the convenience of an ebook!
    My recent post Nothing Like a Clean Closet…

  • http://robmoll.com Rob Moll

    Thanks for fighting the good fight for us authors, Michael!
    My recent post No Estate Tax Means–More Taxes?

    • http://intensedebate.com/people/michaelhyatt Michael Hyatt

      You are welcome. We're all in this together!

  • http://intensedebate.com/people/patriciazell patriciazell

    I imagine there are a lot of people (some of who are readers) who will never buy a Kindle or any other electronic reader. There are so many other electronic devices to compete with those and a limited supply of money. Realistically, if a person had to choose between a Wii, a plasma tv, and an electronic reader, what do you think most people would choose?

    All this to-do reminds me of the time when people were talking about every student having his or her own computer. That hasn't happened yet because of the costs of the actual computers and of the technicians needed to keep everything running at least somewhat smoothly. Most students are still limited to their media centers or computer labs for access.

    I think Christians publishers will benefit from all of us praying that God will make good out of all of this confusion and that He will provide strong content–content that will move God's love throughout our world. Let's keep God's love our focus and everything else will work out.
    My recent post #30 BECOMING A SON OF GOD: THE BAPTISM OF THE HOLY SPIRIT (2)

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  • http://terrycordingley.blogspot.com Terry Cordingley

    Personally, I don’t see much difference between the ITunes store selling music and Amazon.com selling eBooks. The only difference is the form of media being sold. Apple has found a way of selling music at a price most people are willing to pay which can be played on devices with a range of retail prices. I thing that eventually eBooks will be no different. People will pay more than $9.99 for an eBook if they perceive there is value in what they are purchasing, just like they will pay for a download of a music album or movie that they really want.

  • http://sammahlstadt.com Sam Mahlstadt

    I have put off purchasing a Kindle because of the price point, and now with the iPad out, I won’t ever purchase the Kindle. Too bad for Amazon, because it would have become the #1 way I purchase books. I simply couldn’t (and still can’t quite yet) justify spending a few hundred dollars for a bit more convenience.
    You are right, though, if the Kindle was cheaper, I would have snatched one up and purchased almost exclusively ebooks.
    Also, as an aspiring writer, I don’t want to see the perceived value –> price point of books dropping! :)

  • http://twitter.com/nmabry @nmabry

    I understand that a publisher is responsible to their authors and other stakeholders. However, if they want to see a business model succeed, they need to view things through the eyes of the consumer. How can we make things mutually beneficial?

    I own a Kindle, which I use mostly for reading fiction. The downside is that I can get non-new releases in mass paperback or through a used bookstore (or maybe even the library) for less than the cost of the eBook. These latter 2 options will not benefit the publisher or author.

    An eBook should be lower than any other form of medium. EBooks, unlike physical media, are not given away when used and do not enter the used book market. The author/publisher need to take these benefits into account when coming to a price point.

  • http://twitter.com/nmabry @nmabry

    Here's an idea: build a social element into the mix. If I've purchased a book and liked it, give me the opportunity to recommend it to a few others (only texts that I've actually paid for). Since I can't give or loan them the text (ruling out the Nook), they could take advantage of a discount through my recommendation. Furthermore, build a points system into it that I can build for my recommendations and ultimately redeem them for additional content.

  • Robert Treskillard

    Thanks, Mike, for clarifying these e-wildering times.

  • http://www.shannondittemore.com Shannon Dittemore

    Thank you for clarifying the muddle of information out there. As a young and still pre-published author, the e-book phenomenon is a bit frightening. As a child I never dreamed about seeing my book on a screen. I dreamed about seeing it on a shelf! Like you, I am not opposed to change, but the idea of publishers and authors losing money to the world of technology is sad. In any case, I'm glad to hear that steps are being taken to ensure profit–large or small–and I appreciate hearing an educated opinion on the whole thing.
    My recent post The End

  • http://www.freebiejeebiesgadgets.com Tom

    Looks like the iPad will also be an eBook reader – as in it will read them to you out loud – nice!
    My recent post Free iPad

  • http://www.freebiejeebiesgadgets.com Tom

    Looks like the iPad will also be an eBook reader – as in it will read them to you out loud – nice!
    My recent post Free iPad

  • Lisa Dore

    I'm certainly interested in the new technology that's coming our way concerning book publishing (digital books, E-Books, etc.). Thanks for you valuable information. I'm intrigued!

    I am a Christian writer. For the past 30 years or so, I've diligently explored an area that many Christian writers and schalors have longed to answer concerning the Trinity. I'm presently in the process of completing this nonfiction, Biblical work. I'd lovean opportunity to share the contents, introduction and first chapter with you through Thomas Nelson Publishers. Michael, what do you suggest? Lisa

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  • Kathryn

    5. Well, I read e books through my blackberry, so the cost of the reader is nil, I'd still have to have a phone with business apps. So the reader unit cost pointr is moot for many.

  • Scott_ellsworth

    I have over 3000 paper books on my shelves, and I dearly love my nine month old ipad as a reading device. I expect to buy more than half my new books next year in electronic form. Based on my own experience, the following things seem true.

    Our family buys a couple hundred books a year.

    * I prefer the Apple iBooks reader app to the kindle, b&n, or borders apps. I know people who prefer the kindle app. We should be able to use any reader we want, including free or opes source readers on minority platforms. DRM gets in the paying customer’s way.

    * Bestsellers are worth about $15 to me. Most are not sold that cheaply, so I am not going to see many bestsellers next year. I did get a great deal on the last Harry Potter book the day it came out, but that is unusual.

    * Mass market books are worth $7-$8 to me. When they cost more than that, I wait for a sale.

    * eBooks should cost about 10-15% less than corresponding mass market books. An ebook for $5 is a no-brainer.

    * I would pay a small amount more if authors got it as a royalty. For example, if Baen offerred to let me pay, say, $6 instead of $5 for an ebook, and promised the extra dollar to the author, I would pay it in every case. If they offered to let my pay $7 with the extra $2 spilt between the editor/proofreader/layout/artist and the author, I would likely pay it. If they charged the same $8, again, I am not sure whether I would.

    * Baen is a wonderful publisher from a customer perspective, as is OReilly – they trust us, they do not apply DRM, and they provide the books in formats for every device and reader app. I give them the majority of my eBook buying dollars for now. If you want some of that money, do as they do. In the last month, we have bought over twenty Baen eBooks.

    * kobo books are poorly formatted. Even after removing the DRM, they do not work well in iBooks, my preferred reader. I only pay cash to Borders for them so that the author and publisher get fair compensation for their work.

    * DRM hurts the author and the publisher. People find a way to remove it, and for kobo books, at least, I am going to have a better experience, with better cover art and better tables of contents, from a pirated book found on the internet than a legally purchased one. Think about that – in order to give you the money you deserve for creating a book I like, I have to jump through hoops. It would be easier, cheaper, and I would have a better product if I just stole the books. Instead, I jump through hoops – this is not a way to grow an industry.

    In conclusion, eBooks are looking like the future of publishing. Customers know what they want – publishers must find a way to give them the books they want, without needless DRM, and with sustainable pricing that fairly compensates authors, editors, artists, publishers, and sellers. Ticking off the customer is not a great way to make that happen.

    Scott

  • http://twitter.com/jwinske John Winske

    But here is the big question why is an ebook more expensive than a paperback. As a for instance Martha Raddatz book today published in 2008 is $6 in paperback and $12.99 in ebook this to me appears ridiculous.

    • http://michaelhyatt.com Michael Hyatt

      I have no idea. That does sound stupid.

  • Jason

    I don’t mind paying the same price for an e-book as the physical book, but most of the titles I find have the e-book at $9.99, or I can get the paperback for $6.99.

    $3.00 isn’t that much, but at a book a week that’s $156 a year over physical book prices. That adds up. I like reading on my Kindle, but I’m finding a lack of content that’s affordable or available.

  • Jason

    One other thought. I would love to see publishers go the route of movie studios. I would gladly buy a hardcover over a paperback if it came with a digital copy of the same media!

    That would be awesome!

  • Doug Wilkerson

     The only problem I have is paying *more* for the Kindle edition.  When both the paperback and hardcover are available at the same price (or less), then it seems like the publishers taking advantage of the consumers.  I don’t think price ceilings are necessary.  If a hardcover is selling for 19.99, I’m happy to pay 15.99 for the same book–you save money, I save money, we both win.  I might even be willing to pay the same price as a mass market paperback, figuring YOU save money, and I get a little convenience.  But more?  For a digital copy?  

  • http://www.123ebookdownload.com/category/Information-Systems-Ebooks-Download/ TRX

    That said, I love print books but read mostly ebooks on my Torch for many of the reasons listed: easily portable, have lots of selection at hand, can read in the dark easily. LDAP