On the subject of e-books and pricing, whereas last night I hit the high end, Mike Shatzkin has come out with a blog post addressing the low end. He points to a story on CNet about it, and Slashdot links a couple of stories (on J.A. Konrath’s blog and The Technium) too. Essentially, self-publishing writers are starting to discover the loss-leader advantage in one of those magic-number prices.

Amazon and Barnes & Noble’s self-publishing system gives authors a much bigger chunk of the retail price (70%) at $2.99 and up than at 99 cents (35%). But Joe Konrath reports that he went from selling 40 copies of an e-book per day at $2.99 to selling 620 copies of it per day at 99 cents. That works out to a change from $83.72/day of royalties at the higher price to $214.83/day—over 2 1/2 times as much—at the lower price.

And Shatzkin points to the marketing lessons learned by author Christopher Smith, as explained in the CNet article. Smith prices his e-books at 99 cents for long enough for the greater sales to shoot them up into the high ranks of Amazon’s best-seller lists, then raises the price back to $2.99 and takes in greater per-sale royalties until they fall back off the list. Then he lowers the price to 99 cents again. Lather, rinse, repeat.

Shatzkin notes that, ironically enough, one of Smith’s biggest fans is Stephen King, who experimented early on with e-book self-publishing (his biggest “failure” only netted him about $464,000, which just goes to show how differently bestselling authors gauge success and failure than the rest of us mere mortals). King gave Smith a blurb recommendation that proved very helpful.

Might Smith return the favor for King by teaching him the revenue-maximization techniques he’s developed so King can get back into the self-publishing experimentation game? I think that possibility encapsulates the major publishers’ biggest nightmare. Publishers are going to have a devil of a time defending their 25% royalty rate into the future, which just feels intuitively unfair to authors. They can get away with it for the time being because print sales still matter. But they won’t for long and if publishers don’t use their scale to do a better job managing dynamic pricing to extract the maximum revenue from ebook sales than an author might do on his or her own, the challenge of retaining their top talent will become even more difficult.

He’s talking about the same publishers who imposed agency pricing because they thought $9.99 wasn’t a high enough price for their e-books. My predictions of impending doom made in last night’s post still hold.