value.jpgIt seems like every post is about value. Low-quality books have low price values. We all agree on that. The question unanswered, however, is what value does a book have regardless of its form? That is one tough question!

What brought this to mind was an article in The Economist titled “The Lowdown on Teardowns” (January 23, 2010, pp. 62-63), which was subtitled “Ripping apart smart-phones reveals their true cost.” I tried to rip apart a book to find its true cost but didn’t have any success. Unlike the smartphone, a book is primarily intangibles.

But the article is intriguing. Not because I haven’t read similar items before, but because it hadn’t dawned on me before how differently consumers value smartphones and books and clamor for pricing closer to cost in books but not in smartphones.The Economist gave this figure for the Apple iPhone 3GS 16GB smartphone: $170.07 for parts and $6.50 for assembly costs, a total of $176.57. But you can’t buy the phone for that price, not even for anything close to that price. The article goes on to say that there are other less tangible costs such as research, design, marketing, and patent fees, along with Apple’s profit. But to get the iPhone, you either have to pay a very high price or sign on for telco service at an inflated price.

Where is the hue and cry for a $250 unlocked iPhone that will work on any network? Where is the hue and cry for lower telco costs (after all, the network has already been built and paid for)? Isn’t Apple overcharging by hundreds of dollars for a device that will be outdated within a few years, that breaks easily, and can’t flush a toilet? What is it about Apple that legitimizes the huge spread between actual cost and sales price?

Compare this to the hue and cry over a $12.99 or $24.99 ebook. Supposedly the ebook will last forever, after all it is simply bits and bytes. The iPhone will be outdated in a few years. eBooks have DRM that restrict their use; the iPhone is locked into a specific network. The ebook has design, research, and marketing costs, just as the iPhone. Similarly, the ebook has manufacturing costs just as the iPhone does.

Yet, consumers willingly pay more than $2000 to own and use an iPhone but grumble about paying more than $9.99 for an ebook. The difference must be that authors have little value but Steve Jobs has great value, otherwise the market valuation is irrational.

The argument is that the iPhone can do so much more so it is worth more. Accepting that as true doesn’t validate the irrationality of being willing to pay the iPhone price but being unwilling to pay the ebook price. The disparity in price between an ebook and iPhone already recognizes the single-function utility of the ebook versus the multifunction utility of the iPhone. There is much more at work here.

There is more at work here than meets the eye. I think that ebooks are suffering from two problems. First, although ebookers tend to disparage print books, what they are really doing is comparing the ebook to the pbook in a more wistful way. The iPhone’s comparable was a less functional smartphone/cell phone; the pbook is as functional as the ebook — or is it? On a book-by-book basis it is, but an avid reader usually has multiple books at hand and ebooks are certainly more portable than pbooks. What ebookers are really saying is that there is no cachet in ebooks and thus no value. (Interestingly, consumers continue to spend the asked for price for the ebook reading device, taking their price rage out on the ebook itself, not on the device.)

Second, publishers have assumed that readers will see value in whatever the publisher thrusts on the market. Apple, on the other hand, recognizes that consumers need to be led by the nose and so creates a sense of value that the consumer can grasp. Publishers continue to fail to either demonstrate an ebook’s value or convince consumers that the ebook is at least as valuable as the pbook.

The conundrum is this: Publishers undercut their value argument when they print a paperback version that sells for one-third the price of the hardcover. How can publishers win the value argument when they undercut themselves? Publishers need to address this value perception problem.

Editor’s Note: Rich Adin is an editor and owner of Freelance Editorial Services, a provider of editorial and production services to publishers and authors. This is reprinted, with permission, from his An American Editor blog. PB


  1. People do seem almost uniquely to undervalue books. Part of it is the intangible thing. Even though we know a pair of designer jeans has the same materials costs as a cheap pair of store-brand, we don’t complain about paying extra for the design that makes the jeans fit our rear. I think part of the problem is that writers are supposed to be artists, doing it for the love, rather than craftsmen who deserve to make a living.

    You’re right, the whole hardback/paperback thing has tended to encourage people to think about words in the context of their package, forgetting that the hardback package has costs only a few pennies more than the paperback package or the eBook package. Giving up temporal pricing, though, would seriously impact our industry.

    All that said, I believe in making books affordable and in paying authors fair royalties. It’s not an easy position to hold.

    Rob Preece

  2. Neither a book nor a smartphone is the sum of its physical parts’ cost. Both require some form of research and development, years of training to be able to develop the product, business costs, partnerships for development and delivery, etc., etc., etc.

    Books have always been underpriced in comparison to other manufactured items with such a low profit margin that publishers have been fighting a death spiral for years, many without success.

    The average mark up for a piece of furniture is 1000% of its manufacturing cost. The average mark up for a book is much, much lower. I don’t have those figures, but most publishers say they have a 3-5% profit margin.

    In comparison to other product creators, publishing has always been crippled because of the cheap price of books. Until the middle to late 20th Century, a book wasn’t considered a manufactured good; it was a precious piece of culture that must be priced cheaply so anyone could buy it. The publishers were rich, cultured folks like the Simons who published books they believed needed publishing, and they weren’t in it for the all mighty buck or for stockholders.

    When the conglomerates took over publishing, they didn’t care about the books, they cared about the profit, but they were trapped by the expectations of buyers for low-priced books.

    The conglomerates began to cut the cost of creation by lowering the cost of authors– authors now make smaller royalties and advances than they ever have– and by cutting the cost of editing by paying editors less and making them do more and more.

    With such a perceived low value on the cost of a book that has little to do with the reality of the costs, the publishers and authors are trapped in yet another type of death spiral.

    Personally, I believe a movie or an album is a better analogy to a book than a smartphone. The same people who complain about paying $10 for a book think nothing of paying much more for one ticket to AVATAR and say that ereader hardware is too costly while they toss down much, much more for an iPod.

    Undervaluing the book seems to be the standard mindset for most people.

  3. I think this is a false comparison, akin to comparing an autombile with a watermelon. A device like a smartphone, regular cell phone, computer, or even an ereader is likely to be used day after day for years. The value perceived is related to its usefulness in daily life. To make any kind of comparison between something read one time for entertainment and something used daily for years makes no sense.

    Apple, on the other hand, recognizes that consumers need to be led by the nose and so creates a sense of value that the consumer can grasp.

    That’s just marketing and spin, which may work for legions of Apple zombies. I already have a good grasp of the value a paperback or an ebook has for me. Publishers can tell me it’s better than sliced bread but I won’t be drinking that Kool-Aid. Until I can lend it freely to one person at a time, know that I can read it in the future even if a hardware platform and its associated DRM has vanished, and sell it or donate it when I decide I probably won’t want to read it again, it will never have the value of a dead tree book.

    Oh, and it would be nice if, like a DTB, if I could use my ebook to prop up a wobbly dining room table leg if the book turns out to be a stinker; at least then I would get some use out of an otherwise wasted purchase.

  4. For your argument to have even a shred of validity you’d need to show that the all, or even a majority, of people who kvetch about paying $15 for an e-book have all happily spent $2000 on a smartphone, rather than just taking that as a given.

  5. For most people most books are “disposable” – something they will read once and set aside.

    For most cell phone users the phone/service is something they can’t seem to live without on a daily basis. It has greater utility than your normal book.

    Is an ordinary book therefore less valuable than a cell phone. I think most people and the marketplace itself say yes in that far more people spend far more money per month on their cellphone/service than they do on books.

    Is an ebook less valuable than a pbook. Given the DRM laden aspects of most ebooks I think most people would say yes.

    I don’t really think the “parts cost” of books or smartphones (or any manufactured item really) is particularly relevant to the value equation. Ultimately consumers decide what something is worth. And they either buy it or they don’t. And those decisions are frequently based on intangibles that are hard to ascribe a dollar cost to.

    In this whole debate we continue to see the attitude that somehow authors “deserve” to make a living at their “craft”. Baloney. The simple fact is that the vast majority of books (what were the numbers I read last year – that of the 200,000 plus books published in the US in 2008 less than 10 percent sold more than 1000 copies – if I remember correctly) never will sell enough copies of a title to afford most authors much of a chance of surviving by writing full-time.

    While I am sure it is every writers dream that they become successful (find an audience large enough) enough that they can earn a comfortable living from writing full-time I think the vast majority of writers recognize reality. And that reality really has very little to do with the pricing of books a few dollars more, or a few dollars less than they currently are.

  6. You can do a lot more with an iPhone, or any other smartphone, than you can with a book–not physically, but virtually. Of course, that doesn’t mean they’re not overpriced as well which is a big reason why I don’t own one to this day. Not exactly hue and cry on my part, but I feel that not buying into the scam and then matter-of-factly talking to people why I’m not is a better strategy than yelling from the mountaintops.

    Books hold about the same value as movies and music to me, which means they are very valuable, but not worth much more than 5 or 6 bucks a piece. Maybe a college textbook would be more…how ’bout 10-15 bucks? Anything more starts to tilt the scales in favor of 1) piracy or 2) doing without. I do pay to go to the movie theater, but haven’t paid more than $5 for the experience for quite a while. The only reason I’m willing to do so is that the experience cannot be duplicated. If I had the means to build a personal theater, I wouldn’t go to the movies.

    Economies of scale and usefulness is what its all about. Do I believe the various kinds of authors should get paid for their work? Yes. But, I think certain members of each artistic community (if we can call them that) get paid way too much already, including some of the content creators themselves. Creators/publishers/etc. should be trying to sell more copies for less worldwide…end of story. If they did, I’d probably buy textbooks on all sorts of subjects for myself even if I’m not taking a class, and I think there’s enough people like me out there that the publishers would make up lost sales, and in many cases, gain from this strategy.

  7. I think Rich’s analogy is a good one. Most of the complaints about eBook pricing have to do with the medium–an eBook is just a computer file, for which distribution/duplication costs are practically zero, so why aren’t eBooks any cheaper? Cellphone costs could follow the same logic–as he mentions, the network is already built–but nobody seems to be complaining about paying $30/month and up to use their cellphone despite the similar lack of costs to distribute the “product.”

  8. Adin is comparing apples and apple trees. He’s comparing the word and the word processor.

    Think of this in terms of cost-per-entertainment-hour. Most books I only read once (and can be resold or given away). Most movies I only watch once. The typical hardcover novel has an outrageous cost compared to music and movies. Even a “budget” movie sells tickets at one one-millionth the cost of making it.

    Avatar was budgeted at a quarter-billion dollars. How much will the DVD eventually cost? Twenty, thirty bucks?

    I can spend $8.00 (national average) to see a two-hour movie at a theater, or can wait and watch it for $2.00 or less via Netflix or HBO. This cost curve is highly predictable. Purely in supply/demand terms, movies achieve much wider distribution by finding a price point agreeable to practically every consumer, ending with advertising-supported “free.”

    I believe a similar “windowing” model would work for books if publishers consistently applied it so that readers could make informed purchasing decisions based on similar pricing expectations.

  9. I think Rich’s article is interesting, but some things are missing and the comparisons do seem to be a bit lacking. The publishers have been saying that hardback materials aren’t a huge part of the cost. All right I will take their word for it. But none of the comments from publishers address the cost of distribution, and also taking returns. I also don’t agree with the publishers trying to claim that the cost of maintaining a network to distribute digital materials even remotely approaches the cost of printed materials. It also allows for sale of old materials for as long as they have the rights and thus continue to profit from their properties for a much longer period even if the tail thins out greatly over time. Another good point is the amount of usage an object sees. An Iphone is used constantly, while a book may be re-read but usually not every day. Another missing piece are the used book store and libraries. I don’t think the publishers bother to track the second hand sales at all since they get nothing from those markets. Since DRM prevents any effective resale, they would now be able to net some of those markets profits for themselves. So most of the arguments from publishers talks about what they are losing without any notice of what they are gaining from the ebook format.

  10. I think much of the acrimony surrounding this issue comes from the way the book publishing has marketed their ware for the last several decades. If they put out a brand new book in hardback, they charge a lot more for it than a brand new book in mass market paperback. Some publishers don’t publish new books in paperback but a lot do. This created the idea that the book’s price is tied to its format. Now, publishers may well have a way to keep costs lower with paperbacks, and possibly they expect to sell more of them, but the book buying public knows only that the HB books on the shelf cost more than the MMPB books. Is it any wonder they would expect ebooks to be radically cheaper?

    Almost the first thing they teach in economics is that price has no relation to cost. It is driven pretty much entirely by what people will pay.

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