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By Roger Sperberg, New York Editor for TeleRead

A story today in The New York Times talks about the decline of the educational-software market, whose producers acted as though electronicity meant they had discovered a new way to transmute gold. Now, their gold mine seems to have played out (one manufacturer now includes flash cards with its program — you know, the physical printed cards that computer versions were supposed to wipe out).

I think their failure was to recognize the effect of the Law of Computer Entropy on sales. That’s the law that states:

The market for your computer product tends towards zero over time.

You probably know this law expressed in the reverse form — Every year, when you buy software or hardware you either get more for your money or the same features or equipment for less money. As with gravity, we have learned this law from personal experience.

For twenty-five years, since we could each have our own personal computer, we’ve all experienced this law first-hand, but it has been in effect since the 1960′s and the first great transistorized computer, the IBM 360. The hardware side is related to Moore’s Law; why this is true with software I think is because of the way the cost of additional electronic copies tends towards zero. It even manifests itself on websites.

But I’m interested in this law as it affects producers, not consumers, so I state it this way — If you don’t add features every year, you subtract customers. For the educational-software producers, the law went this way: If you don’t give people bigger and better programs every year, you lose your market. Completely. They didn’t realize how being electronic changed the requirements of their product. They didn’t offer free upgrades with better graphics. They didn’t add new levels to their learning games and lower the price. They didn’t focus on adding “must-have” features to obsolete their last version. They never thought that publishers were subject to the Law of Consumer Entropy and how that law changes consumer’s expections.

Consumers — people! — know that it doesn’t cost you anything to make the thousandth or ten thousandth or millionth copy of some electronic file, whether you call it a program, a song, a movie, a game. Or a book. They know your costs are all up-front. You think they balk at rigid DRM out of idealism? It’s all economics underneath — they know when they’re being held up, and DRM only exists to steal people’s money, from an economic perspective. They want their additional features — it’s the Law, after all — and they’ve been taking them. That’s why you read about the biggest music downloaders also being the biggest purchasers. They buy more so psychically they’re entitled to more. They’re taking what’s due them in terms of extra product.

Publishers are only vaguely aware that their purchasers’ expectation of their product is about to switch from the Colgate-Palmolive type to the mp3 type, the type wherein additional features means more of the product. They have been blinded by the download side effect — My god, they can steal our books! We’re doomed! — as though all these people are going to start selling the books on street corners. They haven’t looked at the cause. But they’d better get ready to give these people, their customers, more, somehow.

Publishers could deal with this shift in expectations in any number of ways. They could act like Disneyland or a pay library: Pay once, go on any ride — er, read any book — free all day (all week/month/year). Or let libraries be libraries and meter their readers’ access to books: Up to ten thousand reads of Half-Blood Prince before renewing your license. (Next year, the price stays the same and the library gets eleven thousand reads.) Or use the bonus approach: Buy this book — and get your choice of these additional backlist books free. A publisher like Bantam churns through so many hundred books a year they wouldn’t really lose any money with a deal like this, if they picked the right titles. And of course they’d end up building the audience for those free-book authors.

It doesn’t really matter which of these the book industry prefers if the model chosen meets that one simple criteria: you can give the customer something for nothing when you have to. This shouldn’t be hard for publishers to grasp, since so much of their product has always had a rapid decline to zero worth. Sure, focus on the books that keep their value. But respect the Law.

Twenty years ago, the typesetting industry looked at PostScript and laughed at the notion that it would impact them. In the next decade more than ninety percent of those companies went out of business. The only survivors were those that changed their business model to accommodate electronic typesetting, specifically PostScript. Technology is no respecter of market position or even of industry. The consequence of becoming electronic is submitting to the Law of Computer Entropy. And only those publishers who change their business model to account for it will survive.

 
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