Ebook Pricing Wisdom vs The Humble Bundle

Posted on October 19, 2012
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Periodically I have posted about ebook pricing, the most linked to and discussed post being the one where I analyzed JA Konrath’s sales data to determine optimum price to maximize revenue. The take home lesson I try to impress over and over is that the number I arrived at in that analysis is unimportant and not applicable to a general data set – it’s the method I used to arrive at the number that matters. I think anyone involved in the sale of digital goods should do the same kind of experimentation in order to determine their own optimum price.

I still see defenses of higher ebook prices. In practically every case, the person presenting the argument has some kind of investment in the way business has always been done. They have done their time in legacy paper publishing and present this experience as a reason why their opinion is informed. In reality, I think this mindset probably blinds them to realities and frames their thinking in ways that makes it difficult or impossible to think outside that frame. In other words, that lifetime of experience and all that hard won knowledge is probalby doing them harm, which is not something anyone wants to consider. “Hey, all that stuff you’ve learned your entire adult life, throw it out and start over.” I blame no one for having a hard time reframing their thoughts.

The first and most harmful bit of the frame is what I call the “Unit Price Fallacy.” The classic justification of ebook prices takes a unit, and breaks down the costs. Printing is $1-$2 per book, so the conclusion is that ebook prices should be a few dollars cheaper but not radically cheaper. I’ve argued against this many ways, but here is where I am at now: you don’t get to discuss unit prices and unit costs for units you don’t handle. Publishers effectively sell a single unit to Amazon, where black retailing magic occurs and then money is shuttled back the other way. There is no unit cost at all involved in any sell from the publisher end. Using the accounting methods derived from shipping boxes of books back and forth to B. Dalton’s does not apply in this situation.

The other giant portion of the frame that does harm is the “Inelastic Demand Fallacy.” The publishing world seems to feel that they are doing a holy mission by bringing out this literature, that they are a hedge against the darkness of ignorance. In a sense that is true. Coupled in all this is a belief that when a book comes out from an author, readers want *that book from that author* and will pay what it costs. That is undoubtedly true for very specific authorial brands in the bestseller category, but for the vast majority of books available to be purchased, that isn’t true. The books are a commodity. People want to find a book to read, and if book X looks interesting but is priced too high, they’ll move on to book Y which also looks interesting but is priced more reasonably. No author wants to think they spent a year or three writing a novel that is a replaceable commodity in the eyes of purchasers, but that’s exactly where we are at. Fighting the fact won’t change it, accepting it makes it something you can work with.

Recently long time agent Richard Curtis wrote a two part article on Digital Book World defending ebook prices – Part One and Part Two. In Part One he explained that it would cost approximately $1600 to get the final copyedited book into clean digital form. I hope he is talking about books from before, say 1990. My reaction to this was one of horror. “WTF? No one has a digital copy of the final text of the published book? This isn’t standard practice for every publisher?” This is one of the reasons publisher cost justifications are so unconvincing. They are full of costs that make any outsider scratch their head and say “Why would anyone do business like that?” His Part Two is absolutely full of the Inelastic Demand Fallacy. He compares how many copies it would take to recoup the fixed upfront costs but with no mention whatsoever of what that change in price does to the demand for the book.

Compare this to the recent experiences of the inaugural Humble Ebook Bundle. There were an initial six books being bundled, with two additional added on for above average contributions and then another five. You can purchase the bundle by naming your own price and even determine what fraction goes to the authors, the charities and to the Humble organization to keep the site running. At the time of this writing, just under $970,000 has been paid in by just over 70,000 purchasers paying an average of $13.76. Breaking these numbers down, if everyone left their division of money at default and we assume $1,000,000 in final amount (it will be higher but that makes the math clean) that would mean Humble brings in $150,000, the charities divide $200,000 and the books get $650,000 or $50,000 apiece. The per book price is ridiculously low – just over a dollar a book with each book clearing just over $0.65 per book per sale.

According to Richard Curtis and the unit price thinking, this is terrible. People should be paying more per book, because a dollar a book is too low. It is low, very low. However, despite being low each author is bringing home a $50,000 bucket of cash per book. Note that Kelly Link, Zach Weiner and the Penny Arcade guys have two books apiece in there. You could apply a unit price thinking and decide that this is a terrible deal, or you could look at it as $50,000 in sales that didn’t exist for these books a month ago. The latter mode is more productive. I’m not saying Humble scales to all writers, particularly self-published ones. It is its own thing with its own built-in publicity machine and branding. I’m using it as an example why unit price thinking is harmful. Think instead about the bucket of money that comes out the other end of any given decision and sales process of a digital good. Don’t think about it as if you had to pack each envelope and drive them to the mailbox because that doesn’t happen. Margins are abstract concepts, not some kind of money that is coming out of your pocket directly. You’ve already incurred all your costs by the time you deliver the book to the etailer, so it’s all 100% margin after that point.

I’m still working on my first novel, which I will self-publish electronically. (I’m writing this instead of proofing it, bad author!) My initial price will probably be $4.95 for an ~100,000 word book. I will also be experimenting to the extent I have possible with changing the price periodically and seeing what that does to sales. Writing this post notwithstanding, I’ve stopped being an evangelist for ebook pricing. I’m no longer much concerned with convincing anyone to change their business practices. In fact, I’ve come to believe that I don’t want them changed by the big publishers. When my book comes out, priced in the low single digits I’ll be competing with those novels from the big publishers. I will get the best looking cover and best written copy I can in the stores, and then I’ll be fighting for the same entertainment dollars from the same readers. Go ahead, price your ebooks at $14.99. Those ones from Stephen King will of course get sold for that. All the rest, when the readers say “Naaaaw” to them, my book will also be in the store, priced at 1/2 or 1/3 the cost and will also be a pleasant way to kill a rainy afternoon. I’m not bothered by writing a commodity novel, I’m quite fine with it.

And with that, I’m spending the rest of my lunch hour reading over Chapter 25 of my novel, Replaceable Commodity Entertainment You Could Easily Live Without But I Hope You Don’t *. By Dave Slusher.

* title subject to change

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