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Second Hand Book Pricing Models

The pricing model that most publishers use for books and eBooks today was received second hand from the previous generation of publishers. That pricing model and its underlying assumptions are being challenged by compound pricing models for eBooks, such as: reading device plus eBook cost, reader device plus subscription, reader device plus free download, paid download without dedicated device, and free. At the same time, paper book pricing models are breaking apart for bestsellers, as retail outlets cut cover prices to the point that the very concept of a cover price may become obsolete. Making the situation even more complicated are the pricing models for second hand eBooks and books, in those cases where eBooks can be legally and physically resold. The bizarre mathematics behind second hand paperback pricing models only has to work for the seller, but pricing for pre-owned eBooks and new books of all formats has to work for the publisher and author as well.

How is it that the publishing industry has survived with second hand book sales for as long as there have been books, but is threatened by second hand eBook sales? Two of the strongest reasons are that eBooks don’t wear out and that the Internet is a super efficient zero-cost mechanism for delivering “used” eBooks. If user-friendly eBooks are sold without Digital Rights Management (DRM) or license agreements that prevent the buyer from reselling the eBook, there’s nothing illegal in somebody establishing an eBook library or second hand eBook store, which might quickly become the first stop for eBook readers. Remember, the effectiveness of the DRM isn’t the issue since breaking the DRM is a violation of the Digital Millennium Copyright Act (DMCA) which gives the publisher a strong legal lever for preventing resale and recovering legal costs.

You might argue that book buyers buy new books to support the author and publisher and would do the same thing with eBooks. But buyers of new books buy them to get a new book, not a used book, and to get that book when they want it, rather than having to wait for a second hand copy to become available. If you believe that the Internet is a super efficient mechanism for selling used paperbacks, you’re forgetting about shipping costs. A couple dollars change hands every time a penny book is sold online. And you’re forget ing that paperback books break apart, lose their covers, and turn yellow with time. An eBook that transfers ownership without the device (laptop, reader, iPhone) it's stored on literally becomes brand new in the transfer process. If no DRM is used, resale can occur immediately with the original owner retaining a copy to read at a later date. And some enterprising readers may decide they have the right to sell as many copies as they choose, however they came by the first copy.

Let’s look at an example of how used book sales used to work. I purchased two second hand Conrad novels last week for my flight to Israel and received another one through a library discard gift. As it turned out, the cabin lights in plane decided not to work for the 10 hour flight, which means I would have been better off purchasing a USB reading lamp and one new copy of Conrad on bright white paper. In any case, it took visits to several second hand book shops to find the two used books I purchased, and the selling price turned out to be double or triple the new price when the books were printed. Over the years, I’ve paid from two to five dollars for plenty of worn out paperbacks in second hand book shops in the U.S. and in Israel that were originally priced at 25 or 35 cents. Does that mean paperback books should be the next hot investment area, maybe with their own ETF (Exchange Traded Fund)?

The pricing model for used paperbacks is structured around the overhead costs of the seller. The Conrad novel (Nostromo) that came free as a library discard was never even in the collection – they accept used books from patrons to fill out the discard rack. Current pricing for Nostromo as a Kindle eBook also starts at free, but you can pay several dollars for pricier Kindle editions. Nostromo is also available as a second hand book from Amazon where the price varies from a penny to many dollars, depending on the edition. The penny sellers make their thin margins on the shipping. Free eBooks versions of thess out-of-copyright books are available in numerous formats. Kindle sales are new sales by definition, and for out of copyright books, the republisher is the one who makes money.

While there are obvious problems with the old pricing models based on the pre-Internet world of selling returnable books to people browsing physical shelves, that’s no reason for the publishing industry to commit collective suicide by adopting a pricing model that doesn’t pay the bills. Structural change that will lower the overhead for publishers has been underway for some time. Ironically, the Internet is the technology that has made massive outsourcing of design and editorial work possible. The challenge going forward is finding a model that will allow professional authors to earn a living, while allowing publishers to make a profit publishing books. So far, the pricing model we inherited from the pre-Internet generation does a better job of this than new models that are based on wishful thinking. If you read between the lines of many suggested solutions to the pricing challenge, they make the basic assumption that authors and publishers don’t really deserve to get paid for books, and that we should all go on the public speaking tour and work as entertainers.

Fiction Publishers Need Book Buyers, Not eBook Addicts

Everybody involved in publishing spends some time discussing the future of books and eBooks with their colleagues. A lot of passion goes into these discussions; passion for books, passion for being right, passion for making a living. I derive around 20% of my gross sales from eBooks, unlike most publishers who haven’t gotten to 1% but talk about 50% being around the corner. I’m skeptical that the current crop of eBook reader devices will benefit any of the existing business models, and that’s coming from a guy who wrote what may have been the first apocalyptic eBook reader story back in 1993.

The following is an edited version of my side of the correspondence with a colleague from last week. The discussion focused on the discount eBook model, and it turned out we agree that established trade publishers are better off staying away from competing on price, albeit for different reasons. We also argued about the recent Publisher’s Weekly viral issue.

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I don’t think all of the large trade publishing executives are as stupid as the ones who run around to media outlets talking about how half their sales will be eBooks in a couple years. Some established fiction publishers will figure out that losing money on every sale isn’t a business model and keep their prices higher to achieve the same margins they net on paper sales, as many already do with nonfiction. If fiction publishers are going to net 75% less on their books, they need to sell 4 times as many, and I don't see it happening. Talking about zero manufacturing cost is dumb when they are paying six figure advances. The problem for established trade publishers isn’t obscurity, it’s making a profit, and the main profit centers for years have been bestsellers and backlist. It can only hurt them to lower those prices.

Aggressive discount eBook publishing isn’t a viable long-term model for large fiction publishers. The only way to sign up name authors would be to grant deals even better than the 50/50 some superstar authors already get for print, with rights sweeteners thrown in and big advances. Successful authors have no reason to work for free, even if their publishers are that dumb. The surviving fiction houses will be the ones with smart managers who don't blow all the income from their backlists running up debt trying to make ridiculous business models work. All they have to do is play it cool and hold the line on pricing and they'll survive the next wash-out. Then they'll be the only ones left with deep enough pockets and pedigree to attract authors.

I don't agree that the current system creates scarcity. There is incredible selection in fiction and always has been, through all manner of channels, with and without gatekeepers. The problem isn't scarcity, it's human nature. The Long Tail head (80/20) turns out to be an underestimate for fiction. The more selection you offer, the more the commercially viable sales clump at the very top, because the second tier authors never get the momentum required to support anybody. If the penny eBook model wins, which I don't believe it will, all but a handful of bestselling writers will be retired hobbyists or people living Social Security disability because nobody else will be able to afford being a writer. Don't expect a new Eden peopled by independent fiction authors who stay free of “the system.” Any new authors that do break through will be wooed and won by the big trades, or at least, the big agents, because they don't really want to sit in out-of-the-way places working on an Internet connection and making a fair wage. They want to be BIG, and FAMOUS.

Wisdom is having a sustainable business model. Giving things away and hoping for the best is not a sustainable business model. If you were a stockholder in a publisher with hundreds of millions or even billions in sales, you'd be right to sue if they started giving away all their books in hopes of gaining market share. They should dig in their heels and stick with selling hardcover fiction and trade paperbacks based on their current lists, and if it means losing some sales over the next few years, so be it. Their option is to follow the path of the newspapers which turned themselves into permanent money pits by rushing into web publishing without a sustainable business model. The big trades will definitely have to focus on print, but they can do eBooks as well, they'll just do them at a premium and if people don't want to pay it, they can read free stuff. Just like the Internet.

The whole concept of underselling is irrelevant to fiction, it’s only making noise in self publishing circles at the moment because there’s a limited number of penny titles available for multi-hundred dollar eBook devices. The fiction market doesn't compete on price and there's no reason to suspect it will. Starting free and raising prices works for introducing products that people use and replace on a regular basis, not for products that they use once, or in the free Kindle downloads case, products that they look at once and never use. Judging by the hundreds of thousands of authors who are paying to get books printed every year, there will be essentially infinite input stock for free and penny books on Kindle when the idea catches on - if Amazon continues to allow it. Just wait for the first success story and then it will be all over. These new futures are all funny one time only.

Most viral book marketing is about tricking people into showing brief interest in something they wouldn't have bothered with otherwise. Works once for each genre, then it's dead. Free and dirt cheap eBooks for proprietary readers as a way to break through the noise fall into this category, because nearly everybody will try it. It’s all great fun for little publishers and unknown authors who are just trying to get noticed, but it would kill the large trade fiction business model if enough people owned eBook readers. Free eBooks are a good promotion model for the first few unknown fiction writers who get discovered that way, but as soon as the market floods, nobody will rise above the noise without a promotion campaign that would have worked regardless of price. Free eBooks in and of themselves are neither new nor compelling.

The reason the majority of viral promotion these days is happening on Facebook and Twitter is because it's painless to try. There’s no cost (other than time) and no real rejection since it’s not really face to face. It might work for one in ten thousand goes, but it’s not going to be a business model for anybody other than the gurus and consultants who promote it and charge for advice. It's just more "new economy" speak that will turn into "what we're we thinking?" If you count on the Internet to run popularity contests for new fiction talent, it will be worse than the teenage vampire stuff that dominates today. It will be teenage dominatrix vampire stuff, and only the top two authors will earn a dime.

I don’t accept the notion that normal people want to buy cheap eBooks just to have them on a device in case they feel like looking at them. There may indeed be a small percentage of the population willing to shell out small amounts of money to have a lot of titles loaded on a device because they feel insecure about running out, but that's not how most readers live. People buy fiction books with the expectation of being entertained for a fixed period of time, and that’s why they prefer above all buying thick new books from bestselling authors they have read in the past who write with some reliable formula and won't let them down. I'm guilty of the same thing, though instead of bestsellers, I read books from the 1800's that were popular enough with somebody to survive on the shelves in collected editions. I stopped reading contemporary fiction fifteen or twenty years ago, despite the fact it was a short walk to the library, because I hate sitting down with a book for the evening, struggling not to give up, and finally laying it aside in disgust. The cost isn't dollars and cents, it's in time, just like Chris Anderson preached in Free. Does anybody walk through the supermarket and take one green bean and one pea in the organic section because it doesn't really cost anything and it doesn't matter that they aren’t a meal because you're just going to throw them away? Normal people are not going to spend money downloading eBooks just to check them out. Not people that I know. And reading a few pages is no big investment? I value my time more than that.

There has always been a subculture of people involved in computers who invest tremendous time and effort into downloading “free” software and fooling around with it. There was freeware even before the PC was invented, before Microsoft and Apple existed, and some of it was very good. But most people don't want to spend their time rummaging through random collections of software, and the same is true for books. That’s why bestsellers exist, why name authors exist, why Hollywood stars command premium salaries and why people go to see aging rock stars in football stadiums. People place great value on their leisure time and are willing to pay a premium for reliable entertainment. Readers are much more willing to take a chance with nonfiction, when they are searching for answers or professional help.

I’ve spent some time looking at the rankings of Kindle books on Amazon, and I’ve seen a number of publishers experimenting with “spare change” pricing for both original and classic fiction. Some of those books are downloaded in huge numbers. But when I look up the print editions of the same books from the same publishers, they aren’t selling at all. The only Kindle bestsellers I’ve seen paralleled by print bestsellers are instances where the print version would have been a bestseller on its own. The one thing the free Kindle version earns the publisher is a place on a conference panel for one of the employees who can claim involvement in the “success.”

Networking In The Virtual Hallway @TOC Online Conference

Last Thursday I attended the O’Reilly Tools of Change for Publishing Online Conference – An Emphasis on Ebooks, on a media pass. That’s my FTC blogger disclaimer. Travel was through arrangement with my feet and I slept in my own bed, which are two important votes for the concept of an online conference. Of course, an online conference isn’t much of a perk for employees who actually like traveling and were hoping to take in a Broadway show at the stockholders expense, but the real value of any conference that doesn’t include classes for professional certification is in the hallways and on the display floor. There were no vendors at TOC Online, something I hope they consider in the future, but there was a virtual hallway, though the bandwidth was limited by a single shared chat box. As Jon Reed writes, interactivity is the killer app of online conferences.

My purpose in attending the conference was to write this blog post about the online networking environment, so I tossed aside my normal ethos of keeping my mouth when on a free pass and did my best to seed conversations in the chat box. Eventually, it developed that a lot of the people hanging out in the hallway were interested in eTextBooks. Now I have to point out that those of us reading the scrolling chat box can’t be paying much more attention to the audio feed than idiots who text while driving, but that’s par for the course at most conferences. While it’s possible to use @ signs in a shared chat to let people know that a response is targeted for a particular individual, everything goes by so quickly that it’s very difficult to carry on a meaningful conversation. And of course, it’s all public.

So I offered to talk to a few people after the conference if they’d give me contact information. My thought was we could do a conference call on the phone and quickly find out if we had anything in common to talk about, but the “please add me” messages piled up so fast that I got tired of searching back through the continuous chat for their e-mail addresses and set up a Yahoo! Group to park them instead. In the end, I counted 43 people asking to be added to the eTextBook discussion, about 15% of the peak attendance, which means most of them simply saw it as a conference attraction, like heading for the booth with the biggest crowd. I contacted O’Reilly during this process and they agreed to host the group as soon as they could get it set up, which will hopefully happen today.

So was the virtual hallway at TOC online a success? It worked in the sense that a public chat was available and people started using it for something other than complaining about the audio quality or sending questions to the moderators. But it could have been much better and added real value to the conference. One of the downsides of running a single track online conference is that there’s nowhere for the beginners to go when the presenters are talking over their heads, and nowhere for the professionals to hide when the presenters have less experience in a particular area than they do themselves. At the brick-and-mortar TOC in NYC with four or five concurrent tracks, a display floor packed with vendors and equipment, and ample hallway space for networking, there are endless opportunities for birds of a feather to flock. The highlight for me at the last TOC was meeting some publishers I had previously known only through e-mail, and being able to sit down with a couple, show them website analytics, and talk dollars and sense about specific business activities.

So here are my suggestions for O’Reilly or anybody else running an online conference to provide support for networking. First, a single streaming chat with no private communications (other than to panelists) isn’t going to cut it. Ideally, the software should support multiple tabs which would be set aside for “conference”, “hallway” and “vendors.” The conference tab would give access to one or more tracks of the scheduled presentations, along with their slide shows and an open chat for questions. The hallway tab would give access to person-to-person chat, ideally with useful options like being able to expand a chat to full screen so that typed lines would extend all the way across and scrolling would be much slower.

One possibility would be to have volunteers manning four or six chat rooms with general titles, like “Text Books”, “Romance”, “DRM (Digital Rights Management), Pricing, etc, so that attendees could quickly find the discussion they were interested in. It would be important for those volunteers to be prepared to answer very basic questions, because a large percentage of the attendees to any open conference will have no experience in the field. I'd volunteer for this, and I think it's important that the conference find volunteers who don't sell services, so it doesn't turn into a marketing ploy.

Another possibility would be to have four or six empty rooms the attendees themselves could title on the fly, like “Talk About Kindle,” or “Are ISBN’s Really Necessary?” and the conversations would flow or not. I think there’s something to be said for limiting the total number of chat rooms available, even if there are multiple tabs for chat at a large online conference, because the “thrown together” aspect is usually a benefit. But private chat should always be available by directly addressing an individual. It might also be desirable for individuals to be able to filter out other individuals who they have heard enough of or simply consider obnoxious.

A vendor booths tab is also a must. It’s not that I’m enthusiastic about having people trying to sell me things, and the online aspect means no free hats or pens, but it’s good idea to see what other people thought was important enough that they built a business around it and rented booth space to try to sell it. I remember the founder of the company that developed the Rocket reader grabbing me outside a conference hall around nine years ago and enthusiastically demonstrating the eBook device that was a decade before its time. Vendor booths could easily include embedded videos (let YouTube do the hosting) to demonstrate products like the Espresso 2.0 or the Kirtas Scanner.

Best of all would be conference software integrated with Skype or with built in audio capability, so people engaged in chats could switch to audio if they get frustrated with typing. At that point, there would only be two important things missing from the online conference: free food and body language. I can live without the free food (especially if you have to pay a couple thousand dollars to get it), but the eye contact and body language are essential time savers. I’ve spent hours on the phone or weeks in correspondence with people in publishing before we ran into dead-ends that would have been apparent in two minutes if we were standing face to face.

When I meet somebody in a conference hallway, pretty much the first thing I ask is, “So, what do you do?” That provides the context for the rest of the conversation, if it continues, and I think I can spot baloney pretty quickly if somebody starts talking in generalities because they have no specific business experience. By the same token, if somebody at an eBook conference asks me what I do, I’m going to tell them in the first sentence that I’m selling around $1500/month in eBooks, I experiment with them but it’s not my main business, and I’ve written a couple dozen blog posts on the subject. Make that a couple dozen and one.

You Aren't Seth Godin And Neither Am I

Blogging is perhaps the least efficient marketing platform known to man. So why are blogs so popular with authors and publishers? A lot of it has to do with the high profile attained by marketing superstars, who deliver high energy inspirational talks on the new publishing paradigms and suggest that everybody is just a blog post away from becoming an online Oprah. What these gurus don’t explain is that the odds of your blog ever moving into their neighborhood are worse than a million-to-one. You have a better chance of writing a NYT bestseller than you do of becoming famous through blogging.

A reader of this blog sent me a link to a Seth Godin video the other day and asked my opinion. I’d seen Godin’s name before on Matt Cutt’s blog (the only blog I check on a somewhat regular basis), but I didn’t know anything about him or his web marketing. So the first thing I did after listening to the video was to check his blog on Quantcast:



It turns out that Godin has “Quantified” his blog, meaning the traffic report shown above isn’t an estimate, it’s based on actual visitors. So are 147,000 U.S. visitors a month a strong showing for a blog? If you have any favorite blogging gurus check them out on Quantcast, and chances are they won’t even have enough visitors to show up at all, because most popular blogs depend on subscribers taking (and not reading) feeds. I checked a few sources that report on the popularity of blogs, and if we go with Technorati, Godin is the most popular individual blogger in the world. The stress is on “individual blogger”, there were 15 blogs ranked higher than him, but they were all collaborative efforts. So, if you think you have the potential to become the most popular blogger in the world and share the conference circuit with internet publishing prophets like Chris Anderson and Tim O’Reilly, blogging and tweeting may be the way to go. But what if you’re just another author like me who writes and publishes books for a living?

Seth Godin and I have something in common in that we both talk about marketing books by giving away free content, and it turns out that we both get around the same number of U.S. web visitors. Godin’s traffic is growing at a much faster rate than mine, but as a blog, two thirds of his visitors are repeaters, either regulars or “addicts.” Less than 20% of his blog visitors arrive from search, if we go by the Alexa estimate and double it to calibrate with my benchmarks. My fonerbooks website gets around 80% of its visitors from search, and barely over 10% from returning visitors, both by design. In the course of a year, over 1.5 million U.S. visitors will arrive on my site from search, and not because they are searching for “Morris Rosenthal”. If we estimate from the adjusted Alexa percentage, perhaps 300,000 U.S. visitors a year will find Seth’s blog through search, and I’m willing to bet Godin lunch if we’re ever at the same conference that most of his popular search phrases include “Seth Godin” in them.

All of this isn’t to say that Godin is doing anything wrong. In fact, I would say that’s he’s done pretty much everything right. He’s a bestselling author of 10 books, writes the most popular blog in the world according to Technorati, he's a recognizable name in marketing and a sought after speaker. I assume Godin hears from corporate executives seeking help with launching and marketing new products at the same rate I hear from college kids hoping to trick me into doing their homework. The problem is that I don’t see his success as a model that will help the average working author. A top blogger may end up with over 100,000 subscribers, but we can’t all be top bloggers unless every one of us subscribes to over 100,000 blogs. People may follow thousands of Twitter feeds, but they have to use filters and make endless heart-wrenching decisions over whether or not to actually read 140 characters. After all, who has the time? It’s true that niche success is somewhat easier to achieve, but blogging is probably the hardest way to get there.

Godin’s blog has eight times as many pages as my website and almost a hundred times as many incoming links. So why doesn’t it dwarf my search traffic? It’s not a technical problem, though the blogging structure does have “issues”, it’s that blog content tends to be heavy on repeated opinions and commentary which do poorly in search. If you are an author, you already have the prime ingredient for a website in your niche. It’s the book you’ve written and any intelligent research notes, updates, or additional material that didn’t make the final edit. You don’t have to put your whole book online, you can use excerpts, chapters, or any approach that makes you comfortable. A blog with occasional updates will help with repuatation, but it's only required if your goal involves becoming a public figure. The important thing is that you provide enough resource content so that visitors will find your website useful without having to buy the book, and that you don’t break it up into a hundred blog posts. If all you provide is a teaser, it may be more effective in terms of sell through, but you’ll never get the links and increased traffic to put your website on the map because you’ve created an advertisement rather than a resource. Drawing visitors from search is about informing the general public, not preaching to the converted. Dave Taylor has had tremendous success simply answering topical questions, and his traffic (primarily from search)makes Godin and I look like losers:



Famous authors can sell books through their websites simply by announcing that a new book is coming out and “allowing” fans to sign-up for the first copies. I’m not a famous author and you probably aren’t a famous author either so it won’t work for us. Nobody will buy my books because I’m a cool guy, a compelling speaker, or offering a path to success through some clever insight that fits into a book title or a tweet. I would argue with some of Godin’s conclusions, especially the souvenir thesis as a model for the publishing industry, but he sells a lot more books than me and he sits at a higher table. Just remember that he sells those books by being Seth Godin and choosing to write on marketing subjects with large potential audiences. And I’d like to see Seth do the following with one of his hard covers:-)