Pricing for Value Falls Apart in ebooks

ebook_IconI have written at length on pricing as a customer driven strategy, as a share of value created  and the factors that bring down the value. The methods and levers I described work if you have control over pricing in your value chain and if you have direct connection to your customers.

In eBook publishing, especially for independent authors, the readers are not your customers but are owned by the platform (the channels like Amazon). You depend on the channel to get access to its customer base and when you do that you yield pricing control to the channel. Out goes all the principled value based pricing. Now the pricing is set by the channel’s goal to maximize profits and not yours.

When you sell your ebook through Amazon Kindle you get to set the price but within the small range carved out for you that is unrelated to value of your content. Your content is treated as substitutable commodity and not measured on unique value created for the readers.

Take a look at this chart on Amazon Kindle pricing

amazon-ebook-pricing

You have the option of two royalty rates that come with their own pricing restrictions. If you are attracted to higher percentage of 70% your  amount is limited to $7. If you are attracted to the highest possible royalty amount of $70 and set a price of $200 you are limited by the volume at that price point.

With these price fences you are most likely to price the book between $0.99 and $9.99.

  1. There is no point in pricing it between $9.99 and $20 as you only increase the price to customers (and revenue to Amazon) with no upside and possibly downside volume. 35% royalty on $10-$19.99 is less than or equal to 70% royalty on $9.99.
  2. Beyond $20 most sales volumes fall as the reference price for even hardcover books is set around $20.
  3. If you price it at $200 your volumes are going to be so small that you are better off building your own marketing and sales channel than depend on Amazon for distribution. And you get to keep more than $70 of the $200 price.

Is there a way to set price differently in this case? Break your book into multiple parts and price them in the $2.99-$9.99 range. If it indeed adds unique value and not substitutable fiction you will get better pricing control.But that is still a simplistic solution. There really is no better way or value based pricing in ebooks.

Now you know how I priced my Groupon book.

 

Should Publishers Allow Kindle Text-To-Speech

With Amazon Kindle there is a feature that has not been available before, Text-To-Speech. Publishers are not happy about this feature.One of the Kindle eBook publisher, Random House, has turned off Text-To-Speech for all its eBooks. Opinions on this are divided. Kindle readers are most likely to think that they had already paid for the book and hence they should get the Text-To-Speech feature. Amazon would like this as well as a value added feature for its $300 device. Should Kindle Text-To-Speech be allowed? Are publishers just being unreasonable? For these we should look at what we pay for a book.

Suppose you bought a hardcover book from a local bookstore. You pay just the price of the book and  read it when and where you want and as many times as you want. You can annotate, bookmark, refer back or even tear off pages you like and archive it.

It just happened you were not able to read it yourself, so you hire someone to read it to you. (Hold on to your question “why did this person not buy audio book?”).Everyday for an hour this person comes to your place and reads the book until it is done.When something was not clear or you wanted to listen again you ask them to go back and re-read the those sections. Anytime you like a section you ask them to bookmark it and also add a Post-It note with your comments on it. You also ask them to flip back to previous chapters and selectively re-read. When this person is done they leave the book with you, which you can thumb through to refer bookmarked sections. You pay about  $X/hour for this service.

One day this person says she cannot come in person to read for next few sessions but can read it over phone to you. You get all the benefits of the previous case except that you do not have the book with you, have to take your own notes and it is done over phone. You would expect to pay less than $X/hour for telephone reading.

Sometime later the same person says that they cannot make the appointed time but will record their reading and send it to you. You can tell this person beforehand your specific needs, reading speed, annotations etc. You lose many of the benefits of previous cases but gain the convenience of hearing it anytime and anywhere you want.

On the other hand you simply can buy the audio book, that is mass produced and lose personalization and customizations you had with your own reader. But you do not pay a separate fee for someone else to read the book, you pay one price for the audio format.

This brings us to what I call the three C’s of  what you pay for the book:

Price of a book  = Content   + Consumption  + Convenience

Content: Is the information content of the book, be it ideas or the story. These days even the most popular books are discounted heavily. Unless you are buying an esoteric topic or a college text book, the price paid for content is almost the same and negligible for most books.

Consumption: This is how you consume the book and what you pay for the method of consumption. This is determined by the formats the book is sold, for example, printed book, eBook, audio book. The price component for consumption varies by the format.

Convenience: This is the trade-offs between benefits and deficiencies of the different methods of consumption. With each format you gain some and lose some.

You can see that Consumption and Convenience are interrelated and we can simply call these two as Convenience.

Since content is all normalized  we can say that what you pay for a book is  for convenience.That is each format has a different value proposition and it is different for each customer segment. If all  a reader pays for is convenience then the publisher should be able to charge you separately for each method of consumption. This is the reason you see hardcovers, soft covers, eBooks and audio books all sold separately.

Coming back to Kindle’s Text-To-Speech, this offers the ability to add a new method of consumption that offers some of the benefits of the new method but without paying  it.  This is the root of the conflict between Amazon and publishers. To me it makes perfect business sense that the publishers do not like what they see as value destruction (by giving it away for free). Actually the additional value is all captured by Amazon in the price of the device.

A better reslolution for this argument is that this Text-To-Speech feature must be unbundled and  priced separately so that the publishers can capture some of the value they add. Amazon can either pass on this additional charge to its customers or decide to eat the cost since they capture considerable value by selling the device.

Should Barnes & Noble Go After Kindle?

With Borders shutting down stores and facing declining profits, Barnes & Noble remains the only strong brick and mortar bookstore. While it faces strong competition from discounters like Amazon, WalMart and Costco, its new threat comes from the change in consumer preference from  paper books to eBooks. While there were other eBook formats and readers, the threat was not credible until Amazon entered the market with its own Kindle eBook reader.

The real threat is not from the device but from Amazon’s strategy to own the distribution through its Kindle store. Amazon is more than a bookseller, it is a Platform company (Mr. Jeff Bezos once described Amazon as the Ideas company). It has the wherewithal to develop a home grown distribution platform, build an ecosystem around it and quickly gain control of the ecosystem. But B&N does not have the technology and a strong R&D team.

Clearly B&N knows this weakness and sees the threat posed by Amazon’s Kindle store. It however can acquire the technology to fast-track its eBook strategy and it did exactly that. B&N is  set to answer Amazon with its own eBook store with its acquisition of FictionWise an eBook retailer.

Stated in the same report is that B&N is going to develop its own eBook reader, a competitor to Kindle if you will. This is not the right strategy for B&N. As I stated in my previous article the Kindle device is not the main focus of Amazon and it will gladly give that market to control the distribution value chain. B&N should not be distracted by the success of Kindle device. The war is about the control of distribution platform not handheld devices. It cannot dilute its scare resources by focusing on both the eBook distribution platform market and the devices market as this would only enable Amazon strengthen its platform leadership position.

Strategy is about making choices and allocating limited resources and not straddling. So forget going after Kindle device, it is a  red herring. B&N’s strategy should be to become another platform option for publishers and authors who would not want to see just one strong player in the eBook market.