Still Debating The Cost Of Ebooks

from the marginal-cost-people... dept

A few weeks ago, we wrote about why it didn't make sense that ebooks were often so expensive given that the marginal cost of an ebook is much, much, much lower than a physical book. ChurchHatesTucker points us to a recent argument against that claim by Andrew Wheeler:

Creating an individual ebook format -- one of the current suite of them -- costs roughly as much as creating a print-on-paper edition; the costs of the actual paper and ink are vanishingly small in this equation. Some ebook formats, such as the currently fashionable one, have a baroque process of creation that involves multiple transformations and iterations of quality control, which drives up costs further. And the cost per unit is massively higher for ebooks than for printed books -- infinitely so in some cases, since there are plenty of ebook editions that have never sold a single copy.

Now, the issue here, of course, is a fundamental misunderstanding the difference between total cost (or average cost) and marginal cost. This happens a lot -- especially among non-economists. But it misses the point. Total cost is important in figuring out an overall business model, because obviously you want to be able to make more than it cost overall, but it's a terrible way of picking a price. That's because the driving force in pricing is the marginal cost. Meanwhile, CHT also points us to a good rebuttal to Wheeler from Paul Raven, where Raven basically says that Wheeler is doing things wrong:

I'm not going to refute the claim that ebooks currently cost a lot of money to make. I am, however, going to say that they shouldn't cost a lot of money to make, that they don't have to, and that the longer they do, the smaller the chances of them ever becoming a viable industry in their own right...

He goes on to note that part of the problem is with the publishers themselves, and their inability to come to terms on a standard (and open) format.

But there are other problems in the ebook publishing world as well -- where it appears that some publishers are less focused on figuring out how to use the technology to improve the experience for readers, and more about how to screw them over. Charlotte Payan-Salcedo discusses her her recent attempt to buy some ebooks, where she discovers that the ebooks she bought require special software to read, including DRM that limits where the books can be read... and then discovers that the books "expire" after 180 days. She doesn't say it, but I'm guessing these are actually textbooks (both from the price -- $180 for two ebooks) and from the claim that they expire. When textbook companies first started offering ebooks, many of them were designed to "expire" after the course was over. I hadn't looked at the etextbook market in a while, and had sorta expected (hoped?) this silly concept was gone -- but apparently not. It looks like in this case, the publishers have figured out how to provide none of the benefits of ebooks, but added all sorts of additional negatives.

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Lame: Apple Charging $0.30 Per Song To Ditch DRM

from the do-it-yourself dept

In the initial news about Apple going DRM-free, I saw it reported that Apple would let you convert your existing files to DRM-free. However, what was left out of the reports I saw (though, people in our comments pointed it out) was that Apple wants to charge you $0.30 for the privilege of getting rid of the DRM. Of course, you can just get rid of the DRM yourself if you don't mind going through the conversion process (though, even that's a bit of a pain). Either way, it's pretty lame to charge people to get rid of DRM. Why even offer that as an option? Are people really going to pay more?

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Much Ado About Nothing In Accusations Over Text Message Pricing

from the focus,-people,-focus dept

I'm hardly a mobile operator apologist, but the NY Times' Randall Stross is trying to make a pretty tiny molehill into a mountain by picking up on that old, dead story suggesting that mobile operators are somehow ripping users off with SMS text messaging pricing. As was noted when Senator Herb Kohl first tried to make an issue out of this, per message pricing is fairly meaningless, since most users of text messaging subscribe to bulk plans or even unlimited plans. Besides, if pricing really were a problem, then people wouldn't be text messaging so much. The fact that they're using it so much, suggests there really isn't that much of a problem with the pricing. Stross tries to focus on the actual "cost" to the carriers for sending a text message, which is tiny, but that, again, is rather meaningless. A year ago, Tom Lee pointed out just how silly such an argument is for text messaging. As mobile phones grow more and more sophisticated, if SMS pricing really is a problem, alternatives (such as mobile instant messaging) will grow as well, and SMS providers will need to adjust their pricing. If, however, consumers don't have a problem with the current system (and all indications are that they don't), then why is the NY Times even bothering?

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Verizon Wireless Massively Raises Rates For Text Messaging Services

from the margins?--you-have-no-margins? dept

It's no surprise that some things may be getting more expensive these days, especially as companies start dealing with the fallout from the financial crisis -- but it appears that some are going a bit overboard. There's a bit of an uproar among some, as Verizon Wireless is slapping a surprising 3-cents-per-text-message fee on top of every mobile terminated text message. That basically affects any company that provides some sort of SMS notification system or content service, massively increasing prices. As some have noted, most of those services bought text messages in bulk, where it cost around 1 cent per message. That means the cost of sending text messages just quadrupled. If you're already worried about the economy and working on tight margins, that could certainly put some companies out of business entirely.

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The True Cost Of SMS Won't Matter Much As Mobile Devices Advance

from the it-will-work-itself-out dept

Last week, Slashdot linked to an entertaining analysis of the cost of SMS messages. Noting that many carriers are raising their SMS prices despite increasing demand for the service — demand which should be spurring competition — the author of the post figures out the number of bits in a text message and concludes that transmitting data by SMS is about 15 million times more expensive than doing so over a commodity internet connection.

But of course this isn't really a fair comparison. A commodity internet connection doesn't afford the ubiquity that a cellular network does. Comparing the data rate and price of voice traffic is probably more instructive (although the two types of messages are admittedly not transmitted in the same manner across the network). Taking AT&T's overage charge of $0.45 cents/minute and 13kbps as a plausible bitrate for a GSM call, my calculator says that SMS data is a mere 316% more expensive than voice traffic.

That's still not great, though. And there's no question that SMS prices are going up even farther — in the past year or so the Consumerist blog has been full of posts encouraging various carriers' users to escape their contracts thanks to those contracts' newly-increased SMS fees. It's an unfortunate situation: very few consumers select a carrier on the basis of its SMS offerings, and few will leave their carrier over them, either, blunting the consumer response to price increases. Plus, as the technology has gained popularity the mobile operators have lost the need to encourage its adoption through cheap rates. It's not very surprising to see them conclude that the most profitable price point for SMS is higher than the one they had been offering.

Fortunately for the rest of us, this state of affairs doesn't seem likely to last much longer. Although there's little reason to have faith in the mobile market's ability to bend the carriers to consumers' will, new technologies are going to inevitably dry up the SMS bonanza. We're on the verge of the iPhone SDK's release, and Google's Android seems likely to find its way into many cheaper handsets. These and other technologies mean that the average customer will have access to bulk data services on their handset soon if they don't already. And once bulk data can be consumed, so many options for short message communication become available that SMS's specialized role will disappear almost immediately. Between web interfaces, widgets, IM clients and email apps, there are a vast number of ways to send short strings of text. Services like Twitter that offer a variety of input modalities will no doubt help to stitch together this looming surplus of communication options.

Given how few bits are required to transmit those messages (and the generic nature of those bits), there'll be no way for the carriers to keep short message transmission as expensive as it currently is — not without without pricing web browsing, email and other mobile data services into oblivion. I wouldn't expect SMS to disappear, but it seems safe to assume it'll start getting cheaper soon.

Tom Lee is an expert at the Insight Community. To get insight and analysis from Tom Lee and other experts on challenges your company faces, click here.

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RIAA Told To Hand Over Data On Cost Per Download

from the constitutionality-questions dept

Earlier this year, a court agreed to examine whether or not the fines the RIAA is asking for in its lawsuits against people accused of file sharing is constitutional (that whole "cruel and unusual" bit). The RIAA, in response, has fought hard to keep from revealing any information about how much a download really costs, but a judge isn't having any of that and has ordered the RIAA in the UMG v. Lindor case to turn over the data.

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