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10 years ago when I was in graduate school I was given the opportunity to assist in a research project for a company that studying the feasibility of offering textbooks in electronic format. First we had to set up the cost analysis for the traditional physical books and their distribution cost for comparative purposes. When we began to construct a cost analysis for the electronic format and its distribution we realized something that most people do not think about; both the Fixed and the Variable cost portion of each book almost disappear for the electronic format. When a physical book is sold there is fixed cost consisting of Factory overhead for printing, distribution and warehousing mostly. Then there is a variable cost associated with each book sold that includes the materials and labor for each book. At the end of the chain the retailer adds both types of cost also. For an electronic format and distribution book these cost are not associated. Almost all of the cost of the book is incurred at the beginning before the first book is sold. The entire printing and distribution chain is almost erased. The result is that after initial costs are recovered for the Author and Rights; every book sold is 99% + pure profit. In our study we realized that electronic text books could be sold at 1/4 of the price of a physical book and still exceed the profit margins of the physical book. The concern of the company was that in the distant future this could invite a wave of new competition. Without as many costs to recover for printing and distribution electronic publishers could spring up just about anywhere at any time flooding the market with competition and driving prices down for the consumer and profits for the company along with it. They also speculated that the availability of literature for those with electronic access would be 100 times what it is today.
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