Some thoughts on ebook pricing models..


This post was written by Ulhas Anand

A million dollar question, quite literally. Ebooks that are out there now, are priced anywhere from a couple of dollars to a few thousands, the most common price point being $9.99 of the Amazon Kindle. Amazon, in its model, allows publishers to set a selling price and reconciles 30% of that amount, irrespective of the selling price being at $9.99. Having more or less taken up a loss-leader position in this for all popular titles,  their model focuses on gaining market share.  They do charge higher for the less popular and niche books. They are making sure that people get habituated to buying and reading ebooks, though their reconciliation to the publisher may be higher than the selling price of the book – at least in some cases (http://www.teleread.org/2009/05/13/amazon-losing-money-on-999-e-books/).

One other interesting case study to look at would be that of O’Reilly, probably one of the most innovative and early-adopting publisher in the market today. They offer a deeply discounted model of selling most books in DRM-free ePub and PDF versions at $4.99. They have experimented constantly and arrived at a model that covers the marginal cost of an electronic version. The fixed costs still remain in getting a book out. The marginal cost of going from print to electronic is what O’Reilly is focusing on. They are, as always, experimenting with different models and trying to figure out the expectations of the market. In fact, today they sell more ebooks than print books from their own site! (http://radar.oreilly.com/2009/02/state-of-the-computer-book-mar-24.html)

The recent boycott of books on the Kindle, priced over $9.99, provides an interesting comparison on how much the market expects an electronic edition of a book to be priced at.

  • Are people right in demanding that all books be sold at the same price, irrespective of the nature of the book?
  • Can a different model be explored that offers better choice than a high priced ebook?

“I’d charge fifty cents for an online rental. It would immediately hammer the rental stores (which is fine with Hollywood) and DVD replicators (also fine with Hollywood) but would instantly teach people a new habit. Then, once the new habit is set and you’ve earned permission, sure, charge more for new movies and for blockbusters. 300 million movie theatres, all selling tickets every single night–you don’t need to charge $10 a seat when you have access to everyone.

It’s important to charge something, because the act of paying fundamentally changes the dynamics of the relationship. The question is this: at the start, is your goal to maximize profit or to build a platform that scales? The fact is that the market is too small right now for the price to matter. What matters is whether you can build an audience that is in the habit of paying you, an audience that wants to hear from you, an audience that you can build a business on.

At fifty cents a rental, all desire for piracy goes out the window, replaced by convenience, ease of use and a clear conscience. More important, entire new services show up, habits are built and the studios end up with a direct relationship with consumers who want to hear from them. If they don’t get greedy at the start.”

(http://sethgodin.typepad.com/seths_blog/2008/01/how-much-for-di.html)

This was written almost 17 months ago by Seth Godin when he was pondering over on how much movie studios should be charging for digital downloads. Probably, the answers lie in Seth’s quote above. Micro-payments and micro-subscriptions, broadly put as rentals, is one model that has rarely been explored in electronic books.

  • Can publishers look at a market segment that is willing to pay a small price for a limited time access to content?

But isn’t this very similar to our real-world or electronic libraries?” - one might ask. It is, to some extent. Yet, it is not a membership-based cover fee to access multiple titles. That particular model already exists for electronic book sales to institutions.

For single users, though, one can look at a model where access is limited to a particular title of choice, for a restricted period of time and has a small attached fee. This model will also be easier to reconcile in terms of royalties, compared to electronic library models, as the payments are for specific titles. A sale can be easily broken down into the royalty percentages and reconciled with authors and content creators.

The market segment that we are talking about here, would probably not buy the print book at all. They are on the fringe. They are consumers, but not buyers, of the print book. This segment of the market is price sensitive and will not buy beyond a price point. However, they will buy in great numbers - if the price is right. There seems to be a good elasticity at lower prices for ebooks. The consumer wants access to read, if it is legal and within their expected price-point - they will go for it. Otherwise, they will look at alternatives. If the price is too high for them, they will explore an alternative Wiki text or risk pirated sources of access on torrents or YouTube-like user uploaded websites for books. We are talking about:

  • Students who refrain from buying that ‘important, but non-prescribed book’ needed for their examination.
  • Researchers who would rather refer at a library than buy books required to prepare a report.
  • Professionals who would not buy all the books that cover a topic.
  • Readers who want to check out the book by an author before making the buy decision.

If you look at it closely, everyone benefits from this ‘fringe market’ sale; from the publishers to the authors and more importantly the readers. Will this model work for all segments in publishing? Maybe not. Will it work for popular paperbacks? Again, maybe not. However some early experiments by Harper Collins and Random House indicates that giving easy access to books in the electronic format does have a positive effect on people buying the print edition. (http://www.idpf.org/events/presentations/digitalbook08/lHulse08.pdf

The micro-subscription models will encourage people to explore more books and may result in driving more print sales. What it does warrant though, is experimenting. With technology and tools available now to actively experiment, it is just a question of trying.

Some more links on this topic..

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19 Responses to “Some thoughts on ebook pricing models..”

  1. Kevin von Gillern Says:

    This is an interesting dilemma. Although I can’t speak for the trade industry, I can say in all likelihood, that this micro payment model will never fly in the textbook market. That being said, I do believe there is a pricing threshold that will drive eBook sales vs. print and ultimately vs. piracy. The piracy issue comes down to both pricing and ease of access, though and that is a whole other topic.

    Not unlike trade publishers, the educational publishers are held by their shareholders or owners to a specific OI at the end of the day and have to meet that. What is different for educational publishers is the constant battle against the used book market, ultimately driving frequent revisions and higher prices. Unless they are willing to cannabalize print and take a loss on OI or revenue for a couple of years in order to change the model, they will not go down this path.

    Frankly, the format of the eBook is also something to consider when thinking about micro payments for “rentals”. If you consider an online model, or even an offline with DRM, you have to understand that these are already rentals. There is no way the publisher, or the distributor (Amazon or any other that offers eBooks with DRM for that matter) can support a specific platform in perpetuity. I don’t know that this issue has been addressed yet or not, but consider changing technology, dying models, etc. Once the technology or models are gone, the book is gone in many cases.

    Educational publishers only allow access to eBooks for a given period of time in most cases. They are subscription models, which is part of the reason for their current pricing model of generally 50% of net.

    I do believe print is here to stay. When someone buys a print book, they have it for as long as they want to keep it…I don’t believe that to be true for eBooks.

  2. Nyte Says:

    I agree wholeheartedly with the micro-rental scenario. The big hurdle that has to be cleared is finding an actual method to do it. How do you ensure time based rental contracts without building in the kind of digital copywrite prevention that ruins our ability to consume this media at our lesiure and not the publishers. How can we insure that the rental process doesn’t interfere with my ability to read on a Kindle, iPhone, Mac, Windows, or Linux based platform. Not to mention the several different cell phone platforms. That’s the key. If I’m going to buy or rent the material I want it on my terms. Otherwise I will stick with the library.

  3. Ulhas Anand Says:

    Kevin,

    Thanks for your comment. You have shared some very interesting observations.

    I totally agree that pricing, ease of access and value additions is what a publisher needs to experiment with to be relevant vs piracy or alternative content. Ebooks and electronic delivery channels provide interesting opportunities for publishers to do so.

    Textbooks are indeed in a chicken and egg dilemma. The prices go up as there is a seconds market that brings about a need for revisions and the seconds market exists due to the higher prices. This cycle will continue till it is not sustainable, unless someone experiments on what else will work and breaks out of it.

    On ebooks cannibalizing print sales, Oreilly’s experiments have proven that it does not - at least for their titles. Experimenting with a single or select titles may prove worthwhile as an effort to explore new business models.

    While a title priced at $100 in the US can give a certain yield, the same title sold at say $10 as an ebook can increase elasticity in demand in markets like India or result in fringe markets that were not explored earlier.

    An example may be: Textbooks of other publishers that are non-prescribed for a course, but may be interesting for cramming during exams or for the way the non-prescribed title handles a particular concept, can create such a fringe market where students may be willing to pay a small fee for a limited time access to the book during exams.

    As you may have noticed, the use cases and usage behavior of how a book is read varies when it is in print or in electronic. This should also be considered when we talk electronic versions. While a print book is nice to own for reasons of longevity, it does not lend well for emergency searching for a topic during exams.

    I certainly do not think that ebooks are meant as purchase for longevity reasons. I have personally gone out and bought books that I like in the electronic version as a print copy for exactly the same reasons. We have been trained over the years with different outdated software versions and licenses that are constantly renewed or re-purchased. Not to mention the hardware. This ephemeral nature of anything electronic is what lends micro-subscriptions to be possibly a wiser and viable choice in case of ebooks.

  4. Ulhas Anand Says:

    Nyte,

    Thanks for your comment.

    ePub has definitely been a way forward and is probably the closest one can get right now in terms of portable content. PDF had done this earlier to a great extent and is still the format of choice for perfect copies.

    Portability comes at the cost of DRM, as these formats tend to be open. Access rights can be enforced if all readers talk the same language or abide by the same rules. Till then, one has to choose between formats or take the trouble to access content through an online/offline experience on certain devices.

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