Prices of eBooks

The eBook reader market is on the rise. I have just got a brand new Sony Reader 600, and the Nook from Barnes & Noble, due in November, also looks fantastic. The prices of eBooks however, are still way to high, and for no apparent reason. After all, conventional logic shows that if you do not have to print, ship and store the book, it should make it much cheaper for the publishers. You can sell any amount of books and never run out of stock. You also don't take the risk of getting stuck with shelves of unsold books nobody wants. You do not need to rent a store, pay the cleaning lady and the clerk and the driver and the supervisor. Doesn't all this amount to something?

In order to understand why the prices are so high, I had to undertake a little investigation (read few blogs and do few searches). I have found several "logical" explanations why an eBook should cost 9.90 (as they mostly do) and why not printing the book does not really affect the cost too much. Some of the authors go to great length and provide some interesting numbers.

This guy, for example, shows a detailed breakdown of a book cost. He argues that this shows that printing is actually a minor part of expenses. And he is not alone. Here is another guy who is wrong and another. Let's take a look at this and see what is wrong with this picture.

"Based on a list price of $27.95

$3.55 - Pre-production - This amount covers editors, graphic designers, and the like
$2.83 - Printing - Ink, glue, paper, etc
$2.00 - Marketing - Book tour, NYT Book Review ad, printing and shipping galleys to journalists
$2.80 - Wholesaler - The take of the middlemen who handle distribution for publishers
$4.19 - Author Royalties - A bestseller like (John) Grisham will net about 15% in royalties, lesser known authors get less. Also the author will be paying a slice of this pie piece to his agent, publicist, etc.

This leaves $12.58, Money magazine calls this the profit margin for the retailer, however, when was the last time you saw a bestselling novel sold at its cover price."

He then suggests to count the costs from zero up, and suggesting that pre production, marketing and author fees are essentially the same, 9.90 is actually pretty cheap even for an electronic edition.

Everybody got that? Now let's see why this should clearly not be the case. In order to illustrate the point I will take Malcolm Gladwell as an author, and his three books, "The Tipping Point", "Blink" and "Outliers", last one published in 2009 and has a list price on Amazon of 27.99

First let's take a look at marketing. I first saw Malcolm at TED for free. Cause you see, where I live, there are no book tours, no New York Times and no New Yorker. So all that money spent on that advertising, for me, is money wasted. Now let's note, that Malcolm Gladwells first book sold about 2.5 million copies, which according to the above breakdown should amount to 5 million bucks in ads alone.

If this sounds strange, check this out. According to the above logic of breaking the book cost down to it's components, the cover editors and graphic designers of the above book earned little under 9 million dollars. Wow, I must be in the wrong business. Not to mention the author, who (once again according to the above calculation) got 10 million dollars in royalties.

All this leads me to the conclusion that the above breakdown, is a little bit problematic. The costs of producing, storing and selling books online, are close to nothing, taking into consideration the advantages of online distribution such as:

• Instant access to any book (30 seconds from seeing Malcolm on TED to buying his book on Amazon).
• No need to wait for delivery, start reading immediately.
• No forests are hurt in the process
• Availability of recommendation engines save marketing costs.
  
• Vast worldwide markets, not covered by paper book distribution.
  

So to conclude, since there are almost no necessary costs, save for author royalties, a fair price for an average eBook is 1.99$ US. What should be understood that in a modern networked world there should be an author and a reader and everything in between is irrelevant and not interesting. Period.