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.
Comments on “Still Debating The Cost Of Ebooks”
So what happens when you have a pretty high total cost and a pretty low marginal cost? Do you publish or not the book?
Re: Re:
You set the price low enough that it is attractive to buyers but enough over the marginal cost that you will be making money. Hopefully you will make enough to cover the total cost and from there you’ll look at how to reduce the total cost on the next book.
Re: Re:
So what happens when you have a pretty high total cost and a pretty low marginal cost? Do you publish or not the book?
You come up with a better business model. 🙂
You are confusing value and cost
“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.”
What does the marginal cost of a book have to do with its value (i.e., market-clearing price)?
Re: You are confusing value and cost
INFINITE GOODS
Re: You are confusing value and cost
it doesn’t really. The question is really how many books can you sell at said price? And what does that do for your profit?
the money you make on each book is simply Price – Cost to Produce. So if Cost to Produce is small then Price can also be small while making money. Balance that fact with the idea of price vs demand (supply vs demand is more commonly discussed, but since supply >> demand the seller just sets the price) with demand likely decreasing rapidly as price increases. The end result is that there will be a price that provides maximum profit and many people consider that price to be much lower than ebooks are currently sold at.
Re: Re: You are confusing value and cost
The end result is that there will be a price that provides maximum profit and many people consider that price to be much lower than ebooks are currently sold at.
This has always been my argument against paying for e-books. If I buy a real book, when I’m done with it, I can resell it, rip it up and use the pages for toilet paper, donate it to the Goodwill or shelve the book in my living room bookcases so that everyone can see how smart I am.
With an e-book, the publishers want the consumer to pay (on average) 50-75% of the retail hardcover price, but they also want to tell me how and where I can use the e-book, and when I’m done with it, I can’t resell it to anyone else. I’ll check the damned book out from the library before I’ll ever pay full retail price for an e-book.
Re: Re: Re: You are confusing value and cost
personally, I’d check it out of the library before I’d pay for it at all anyway. [chronologically speaking, not decision making tree speaking :D]
yeah, yeah, i know, not the point…
eBook Costs
The cost of making an eBook is a one time cost; that of converting the primary electronic form into one of the various formats. But, once the book is in that format, it is never again changed. So, the recovery of that cost is a function of the number of units sold. Even at a price of a buck each, selling a relative small number of copies will recover the initial cost. And, keeping the price low will probably generate a fair number of sales (presuming the book is worth reading in the first place).
A hard copy book has the initial cost of setting up the printing process parts (typesetting, press format, etc.) and then the additional costs of press run, ink, paper, warehousing, distribution, etc. Even if ink and paper are relatively low cost, there is physical real estate, vehicle, personnel, etc. costs that need to be paid for from the sales of the books. None of those exist for an eBook.
They're doing it wrong
Let me get this straight…
I can go home right now and import almost any type of text document into the FREE Stanza ereader software, and using some simple settings, adjust that document, then export it to create an ebook in epub or several other formats. I can also do this with the freely available Calibre software. I can, for instance, turn a PDF of the public domain Great Expectations into a format that can be read by all of the major ebook readers (except one glaring exception), and can read it on my iPhone, in Stanza, in less than 5 minutes. But it takes the publishers a long time and a lot of money? They must be using union typesetters still. I don’t think it’s accurate to refer to these people as “publishers” anymore. The publishers are now you and me, and unless the guys with the fancy imprints on the spines of books get it together, people like Cory Doctorow are going to make them obsolete. Or are they already?
Re: They're doing it wrong
I don’t get it either. If anything, creating ebook-ready docs is less difficult than getting them printready which is very complicated (especially with good design). How hard is it to make a txt file or an rtf? Are these ‘publishers’ paying people to re-type them in for each format?
I published on smashwords.com in about 4 hours but it only took that long because I was trying to emulate some of the layout of my lulu.com pdf… (I mostly failed by the way)
Re: Re: They're doing it wrong
“How hard is it to make a txt file or an rtf? Are these ‘publishers’ paying people to re-type them in for each format?”
Not re-type, but reformat. People who’ve never done prepress don’t appreciate that.
“I published on smashwords.com in about 4 hours but it only took that long because I was trying to emulate some of the layout of my lulu.com pdf…”
I take that back, some apparently do.
The real problem here seems to be the tiny and fragmented market. Almost everyone can read a book. I’d have to do some googling to see if I can read any given DRMed book scheme on my phone. (Which should tip you off to the fact that I’ve never bothered to do so.)
Re: They're doing it wrong
This was what I was going to reply, but you summed it up way better than I could have. Calibre + Stanza = Book heaven on iPhone.
Re: They're doing it wrong
EXCELLENT!
Right on target with this comment!
Penny Martin
Freelance Writer/Editor in Dallas
http://www.martinpenny.com
Distribution?
The cost of paper and ink is negligible, eh? What about distribution? What about paying people to box those books up and ship them off? What about convincing retailers to carry the books (and having them take their cut)?
Yeah, eBooks are sooooooo expensive to produce… /roll-eyes
I wanted to clarify
The actualt text books hardbooks would have cost maybe a few dollars more plus shipping, But I would have gotten to keep them.
The 2 e-books were priced maybe a few dollars under and had an exp date, plus you had to download some stupid software and get this ~ there were 5 different software companies~ so if i bought 5 different e-books my hardrive would have been bloated with useless software that Id only be using for 180 days.
Where are my rights as a consumer? If i bought a damn book why cant i just freakin read it the way i want to? If someone wants to pirate your book they will, If you can make it they can break it. No matter what you do to try and prevent it.
I need these e-books “Unix unbounded” and system analysis design 7th edition- these books are both on amazon in hard cover format, but i want it in a PDF format. If someone out there can get it to me please. But im not paying 169.99 + tax for an expiring E-book.
If people give into this crap, this could be the future of how media is distributed- Expiring like bad food or something. DRM has gone to far.
I prefer a real book over an e-book anyways.
Buy cheap, sell high
The secret for making money in business has been the same since the first caveman sold another caveman a rock: Buy cheap, sell high!
This applies whether you are a 5 year old selling lemonade in front of his house or a mult-million dollar business selling e-books on-line.
I think some business people need to re-learn this lesson.
Re: Buy cheap, sell high
Why? When we actually possess the technology to create something which can positively effect not only the knowledge base of humanity AND make a positive impact on the environment by reducing wasteful resource management, wouldn’t you think it was in all of our own best interest (ie – the human race’s) to make all of this not only affordable but, for instance, in the case of education, free?
.
If this hypothetical “5 year old selling lemonade in front of his house” of yours is being taught anything, it’s how to abuse his neighbor in his own best self-interest by selling them water, sugar and a packet of yellow-colored flavoring for 10x the amount per glass that he paid for it. Business people don’t need to relearn this, they just need to have you reinforce the idea that this is intolerable behavior by NOT purchasing their overpriced junk.
Expiry isn’t a stupid concept, it is a very smart one. It allows the company to keep the ebooks that are in use as up to date as possible, and avoids resale, because the purchase isn’t a purchase, it is a 180 day rental.
By eliminting a resale market that might hurt future sales (and by basically making it harder to hack and share the digital content), they are able to sell the original content for less.
It’s a great business model, one that I think more people should look at.
Re: Re:
By eliminting a resale market that might hurt future sales (and by basically making it harder to hack and share the digital content), they are able to sell the original content for less.
Um, except the price is almost identical to the physical book — suggesting they’re not selling it for less at all.
Besides, as we’ve pointed out before, studies have shown that an active resale market actually helps INCREASE the price people are willing to pay for books, since they know they can sell it later.
So, you are wrong.
Re: Re:
Consider this:
textbook A: in print version: $165(+shipping)
– You get to keep it for all eternity,
– you can use it for reference later,
– you can resell it.
textbook A: ebook version: $165
– It expires after 180 days,
– so you can’t use it for reference later,
– let alone resell.
Now what would be my incentive to get the digital version? Other than that it might save a few trees, and that it’s slightly cheaper in costs (but not in value)
Re: Re:
No thanks
You may also want to look at the latest blog post by Charles Stross, also on the topic of e-books. He touches on different issues.
http://www.antipope.org/charlie/blog-static/2009/10/news_from_the_ebook_dimension.html
Why is digital printing so expensive?
Seriously, it’s digital. Conversion software shouldn’t be that difficult to work with, unless you’re fighting with XML schemas.
When I wrote my ebook, I used LaTeX to convert it to PDF. However, I can also export it to HTML, DOC, RTF, etc. With the tools available from other places, e.g. Stanza, it’s nothing to convert most formats to one of the “ebook standards”. (Why we need so many ebook standards when PDF should be fine, I don’t know).
So, it sounds like the publishing industry is artificially making things difficult for themselves, or they are just incompetent. Granted, I’m not in the industry and don’t know the details but I do know computers and programming. From what I know, it shouldn’t be as difficult as they make it out to be.
Re: Why is digital printing so expensive?
Sorry. I was thinking of how I read ebooks on my computer. The vast majority of them are PDF, which is just fine for large screens.
For the pocket sized ereaders, e.g. Kindle, iPhone, etc, I realize that a different format than PDF is better. But still, digital conversion shouldn’t be that difficult.
Pick a standard and go with it.
My Calculus ebook is a serious pain. It expires is only available online, and only lets you view/print one page at a time. Fortunately, someone in the class wrote a script that converted each page into a PDF file, and then merged the PDFs. Not the perfect solution, but certainly better than nothing, and I’ll be able to keep a copy of the book when I’m done.
Conversion costs
I created the conversion process & partnership at Sony for the BBEB format. (please note i was not a fan of BBEB and am happy to see Sony move to ePub…even if it still has DRM)
I cannot share what the costs of a trade book conversion were then…but it’s hard for me to imagine it being more than $35/ebook + $10 for additional format conversions at this time. Possibly much less.
That’s assuming you have the ebook in PDF or Quark. (which most of the major publishers do) If you have it in ePub then the costs are much, much lower.
If you need to scan a physical book, then the costs are higher…but probably not that bad given that automated machines for this process have existed for years.
So we are talking about a few hundred dollars at the absolutely worst for a given trade ebook format that has any kind of a market.
Now trade books are the simplest because they have very few images and they are single column. The costs go up from there.
However, you cannot tell me that “print run” physical books cost less than a few hundred dollars. Ridiculous.
Also, many publishers are adopting ePub as their preferred storage unit to my knowledge. So I think this problem fades over time just like it did in the music business.
Clint Brauer
General Manager
http://www.cyberread.com
Incremental costs
The incremental cost for a publisher to create an ebook is practically nil, especially if they incorporate a sensible workflow into their production process, and, as Clint notes above, adopt an open industry format such as EPUB.
If publishers abandon DRM, it will further reduces the incremental book production expense to publishers, because the DRM providers are often paid for their digital chastity belts.
I blogged about the Ebook pricing issue earlier this week, where I argued it’s time for publishers to offer a $4.00 book format for select books, and that format is the ebook:
Huffington Post: Why We Need $4.00 Books
I should also note there are many free tools to automate ebook conversion, including our own Meatgrinder at Smashwords. At MobileRead, they have an impressive list of free conversion options at http://wiki.mobileread.com/wiki/E-book_conversion
Mark Coker
Founder
Smashwords
Re: Incremental costs
Just wanted to say that your site is almost exactly what I have been looking for to publish my ebook. It’s simple, easy, and free. I’m looking forward to uploading my book (and future writings) to your site.
As of right now, I prefer real books to ebooks.
ebooks
Must be just textbooks. I don’t know what you are all talking about! I can download “Jane Eyre” for $2.99,and most other classics. Brand new books are about $9.99,STILL much lower than real books.SO,it’s the same old story. Publishers charge an unholy amount for school textbooks,much more than they should.I saw that first-hand.
Etextbooks
If publishers of Etextbooks are going to charge to buy the etextbook, thay should allow unlimited length of time to the buyer of the etextbook. Not all textbooks are necessarily trash bait at the end of the semester. Textbooks that go along with you major often get saved and put of bookshelves. If an etextbook “expires” after 180 days, then publishers should charge a rent fee and not a purchase fee. Etextbooks for purchase should be able to be downloaded and kept as long as you want to keep it and transferrable for mobility.
I bought an etextbook earlier and was surprised to find out that it expired after 180 days. Publishers are ripping customers off for having etextbooks expire. If I wanted limited access to the book, I would have rented it.