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Kindle book cost analysis from Kindle 2 Review
May 22, 2009 | 12:15 pm
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By Paul Biba
This is the second part of an excellent series by the Kindle 2 review. Having sat through innumerable cost analyses in my corporate life, I can say that the approach taken by the author is a good one. I have no way of judging his numbers though. This post, and the earlier one, come under the heading of “required reading”. Here’s a short excerpt:
The Cost of Physical Book Publishing post was the first step in figuring out what kindle edition books really cost and whether the magical $9.99 figure is justified. This is the second.We’ll look at –
1. The costs of kindle edition publishing. For books that are only kindle editions and for books that have already been published physically.
2. How the costs compare with a $9.99 price.Hopefully we can develop a good understanding of what a fair price for kindle edition books is.
Important Note: Although publishers would want only a model where ‘efficient kindle edition books subsidize inefficient physical books’ we will NOT be looking at that model in this post. That’s for a later post in this series. …
The crux of my argument is that with Kindle books we’ve cut a sigificant part of book publishing costs PLUS a lot of the cost of ’successes subsidizing failures’ and all of the cost of ’book returns’. In addition, thanks to Kindle purchase information and New Publishing, the risk for both Publishers and Retailers goes down significantly.
1. Publishing physical books is a mix of curation, distribution and risk taking.
2. Ebooks reduce the cost of distribution tremendously, reduce the risks, and we’re a few algorithms away from great semi-automated curation.
3. Expecting prices that are 40%-50% of existing prices is perfectly reasonable. Amazon’s $9.99 guideline price is almost perfect.
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Comments:
One thing that caught my eye in his analysis was this:
Distributor – 5-10%.
Warehouser – 5-10%.
Retailers – 35-40%.
I’ve seen lots of commenters around the web slamming Amazon for taking a 60-70% cut of Kindle offerings.
Since Amazon is acting as the distributor, warehouser, and retailer perhaps their cut is not so far off the mark eh!
All these “analyses” of what an ebook costs or should cost are pretty meaningless. Ultimately the market will sort all this out and an ebook will sell for what it sells for.
Perhaps authors/publishers should look at what is going on in the iTunes App Store. There are quite a few success stories of folks who write a neat little app that sells for a buck or two and end up making a nice chunk of money.
If you look at a comparison with app pricing for other PDA’s/Smartphones at vendors such as Handango (from which I bought a lot of stuff over the years for my previous PDA’s) a quick look at gaming pricing shows most games in the 15-20 buck range.
Apple has clearly shown that LOTS of people will drop a buck or so on a game or other app. Not so many people are quick to drop 15-20 times that amount to take the chance that the game sucks, they don’t like it, whatever.
It seems that the majority of iTunes App Store publishers seem to take the “we’ll make it up in volume” approach to pricing.
I don’t have any idea what an ebook “should” cost. All I know is that it will be a rare ebook indeed that I will pay more than 50% less than the street price of a paper copy. However, if publishers persist in releasing ebooks with DRM, restrictions on text-to-speech, clipping limits, etc. they shouldn’t be surprised if the market ends up setting a price point well below $9.99.
Thanks to the “iReader Review” blog for its careful cost analysis. However, the costs are presented using a per-ebook methodology and that reinforces conceptual obstacles. Ebooks are easily and inexpensively replicated and that fact should not be ignored. Major publishers should think more creatively about pricing ebooks. The realm of digital goods is very different than the realm of physical goods, and the entire economic relationship between consumers and producers should be reconsidered.
The digital music market is moving in the right direction. Napster recently announced a hybrid subscription offer that allows unrestricted streaming from a catalog of over 7 million songs for $5 per month. In addition subscribers may download five DRM-free MP3 downloads per month.
A major book publisher could make an analogous offer. For a small monthly fee subscribers would be allowed online reading access to an entire vast catalog. Also subscribers would be able to download several DRM-free ebooks to add to their permanent collection each month.
Microsoft offers another variant subscription model with its Zune pass for $14.95 a month. Subscribers can download an unlimited number of DRM-restricted songs from a multi-million song catalog. The DRM causes access to each of these songs to expire when a subscription is terminated. However, subscribers are also allowed to download ten DRM-free songs each month to add to their permanent collections. This type of service is better for portability to places where streaming is impossible. Napster offers another plan that is similar.
If ebook publishers insist on using DRM then they should allow access to their entire catalog. They should also offer DRM-free items that provide a greater guarantee of permanence. Individual authors should be able to join together with one another and with publisher’s offerings. Payments would be based on frequency of access. Publishers should examine digital music plans and the possibility of offering access to joint catalogs, or at least single large catalogs.
These music subscription services have millions of customers but they have arguably not been as successful as the ITunes store. The reasons are complex: DRM is still clumsy and undependable, online streaming can be unreliable, music piracy is already rampant. But ebooks are different. Online access with caching is easier to implement and it consumes much less bandwidth. Downloads can be accomplished very smoothly, e.g., with Amazon’s Whispernet.
Access to ebooks should not be strangled by misguided policies based on antiquated systems grounded in physical books.
We, the e-book buyers, are not concerned with how the e-books are priced, rather what we want to pay. Publishers need to focus innovative business model to deliver e-books at prices the readers willing to pay. It’s not the other way around in this digital age. Once they have controlled the pricing as the means of producing a physical books were out of reach of the readers. That’s not the case now-day-days with e-books.
I would expect to break even the high price of the device after 50 books maximum.
So, for an average book of $10 price in its paper version, I would expect to pay $500 in total for the Kindle and a stock of 50 books.
In my view, a book should be sold for no more than $5, and a Kindle for no more than $250, to make them attractive to me.
I read an average of one book per month.
This assumes a break even versus paper books in a period of over four years.
I think that I am generous towards the e-book industry ..