Why e-books?

[ratinox]

Originally Posted by darryl

Which assumes, incorrectly, that the whole of that 30% is attributable to the costs of keeping that book "in print".

Please elaborate.

[HarryT]

Originally Posted by ratinox

Please elaborate.

He means that the 30% isn't the cost to Apple or Amazon of keeping the book in their bookstore, but also includes an element of profit (the reason that the bookstore actually exists).

[darryl]

Originally Posted by HarryT

He means that the 30% isn't the cost to Apple or Amazon of keeping the book in their bookstore, but also includes an element of profit (the reason that the bookstore actually exists).

Thanks Harry.

[ratinox]

Originally Posted by HarryT

He means that the 30% isn't the cost to Apple or Amazon of keeping the book in their bookstore, but also includes an element of profit (the reason that the bookstore actually exists).

This is a given. What I meant was an elaboration on why anyone would think that all but a negligible amount of the retailer's take goes into that retailer's profits.

[darryl]

Originally Posted by ratinox

This is a given. What I meant was an elaboration on why anyone would think that all but a negligible amount of the retailer's take goes into that retailer's profits.

I note your shift in position. In Post @342 you wrote:

The complaint is that 30% of every sale (Apple's take) is being called "negligible".

By post #349 you are writing:

What I meant was an elaboration on why anyone would think that all but a negligible amount of the retailer's take goes into that retailer's profits.

As has been pointed out in this thread, Amazon spent a lot of time and money setting up its infrastructure. I would suggest that the costs of maintaining this system when split over the number of books on the system is in fact negligible. And the cost of adding and holding a new book in the system is so close to zero as not to matter. Once you buy your computer and software and set it up, there is no significant extra cost for each file you create. In fact, there is no direct cost at all. If you were to calculate the amount of electricity consumed whilst you created the file, and some amount for the wear and tear on your computer during this time, the "cost" of creating te file would still be negligible. Just what are these non-negligible costs that you say exist in storing an ebook?

[ratinox]

Originally Posted by darryl

Just what are these non-negligible costs that you say exist in storing an ebook?

Server admin salaries.

Programmer salaries.

Customer support salaries.

Data center power and cooling.

Property taxes.

Just to name a few.

[darryl]

Originally Posted by ratinox

Server admin salaries.

Programmer salaries.

Customer support salaries.

Data center power and cooling.

Property taxes.

Just to name a few.

They are all overheads of running a very big business. Even accepting that some part of these expenses are attributable to book storage and sales, divided by the huge number of books stored. or even by the lesser but still massive number of books sold? Almost certainly still negligible.

[Cinisajoy]

Originally Posted by darryl

They are all overheads of running a very big business. Even accepting that some part of these expenses are attributable to book storage and sales, divided by the huge number of books stored. or even by the lesser but still massive number of books sold? Almost certainly still negligible.

Amazon could charge 10 cents a month on each ebook, pay all of the things listed and still make a hefty profit.
As the system stands they make a lot more than that on some ebooks.

[Sydney's Mom]

Why ebooks? When I packed 10 paperbacks in my suitcase for a 2-week vacation, and decided that I didn't have what I really wanted to read. Honestly, my vacation reading was my only reason. Since then, I have found other reasons, and love ebooks to the extent I really don't like print books.

[ratinox]

Originally Posted by darryl

They are all overheads of running a very big business. Even accepting that some part of these expenses are attributable to book storage and sales, divided by the huge number of books stored. or even by the lesser but still massive number of books sold? Almost certainly still negligible.

Amazon sells about 1 million Kindle books each day. Amazon's "full price" tier, which accounts for roughly half of Kindle book sales, is a range of $2.99 to $5.99 per book. Call it $4.50. And assume that Amazon skims 30% (which is a very high-ball figure given that Amazon is well-known for selling at much lower margins) which is $1.35 revenue per book making Kindle revenue around $500M annually.

Amazon operates 38 data centers with between 50K and 80K servers per DC. Each data center is rated at 25-30MWh, or about 1045MWh world-wide.

According to a 2012 Morgan Stanley estimate (dated, I know, but it's what I can find), Kindle accounts for 11% of Amazon's total revenue but 23% of its operating profit. I'll split that and say 17% of Amazon's server capacity is dedicated to Kindle books. Hm. That seems high to me so cut that in about half and say that 10% of Amazon's total server capacity is dedicated to servicing Kindle sales.

Based on that estimate, 10% of Kindle server power draw is about 100MWh. At 25 cents/kWh for generation and delivery, Kindle's electric bill is about $220M annually.

If my math is correct and my estimates are even vaguely accurate then it costs Amazon roughly 50% of Kindle's revenues just to keep the servers running.

References:
http://authorearnings.com/report/feb...rnings-report/
http://datacenterfrontier.com/inside...nfrastructure/

[darryl]

@ratinox. I'm impressed that you have gone to so much trouble. But the data to make a calculation such as you have attempted is simply not available to us. Your methodology is flawed and the assumptions you have used are problematic to say the least. I'm not sufficiently interested in this to spend much time on it, but make the following comments:

You estimate Amazon's share of revenue from the sale of ebooks is about $500M annually, based on ebooks sales of 1M per day at an average price you estimated at $4.50. Your starting point, 1 million ebooks per day, is presumably taken from the February Author Earnings Repot which you link to. However, that report also contains a far more suitable basis for the calculation you attempted. That is, ebook sales revenue per day of $5,755,000. Adopting this as the basis for a similar calculation results in Amazon's share being in round figures $700M per annum.

Your estimate of Amazon's electricity usage based on rated capacity? I will simply say that it is very crude and leaves a lot to be desired. For example, are all operating at full capacity? Assuming thay all operate at full capacity, what is the mix of 25 and 30 capacity Data Centres?

Your next step is even more dicey. You concede the report is somewhat outdated. However, what on earth makes you think you can estimate server usage based on an indefensible split half way between percentage of Kindle contributions to Gross Revenue and to Net Profit. A figure which you yourself think is too high and reduce to an arbitrary 10%. Amazon's servers run all its infrastructure and businesses, including all retail sales, all marketplace sales and, of course, its cloud computer business, which logically would seem to be far more demanding of server capacity than storage and sale of ebooks. Percentage of Sales, gross or net, is a very poor indication of server capacity used.

And what on earth makes you think that Amazon would be paying $US0.25 per kilowatt hour for its electricity? Particularly if it is using so much of it?

Unfortunately, your estimates are not even vaguely accurate. This does not mean that your position has been totally disproved. Simply that your calculations are of no assistance whatsoever in resolving the issue one way or the other. However, your position is, in my eyes at least, totally counter-intuitive. My position, at least until is is disproved, is that overhead costs ot the type you refer to, whilst they do exist, are negligible so far as they relate to the cost of storing and selling Kindle books.

[pwalker8]

Originally Posted by darryl

Which assumes, incorrectly, that the whole of that 30% is attributable to the costs of keeping that book "in print".

His argument is absurd on it's face. The middle man always takes a cut. It's not a cost. The only time someone gets 100% of what the end consumer is charged is when they sell directly to the end consumer. Some authors do sale directly to the end consumer. For most who do, it's part of their web site. The actual cost of adding a store onto a website is small, and once you spread it out over the number of books sold is pennies a book.

[kacir]

Originally Posted by ratinox

Amazon operates 38 data centers with between 50K and 80K servers per DC. Each data center is rated at 25-30MWh, or about 1045MWh world-wide.

According to a 2012 Morgan Stanley estimate (dated, I know, but it's what I can find), Kindle accounts for 11% of Amazon's total revenue but 23% of its operating profit. I'll split that and say 17% of Amazon's server capacity is dedicated to Kindle books. Hm. That seems high to me so cut that in about half and say that 10% of Amazon's total server capacity is dedicated to servicing Kindle sales.

Have a look at the AWS.
Amazon Web Services.
Amazon is one of biggest providers of on-line data/computing/network services. You can rent a [virtual] server and and host a web site of any size, or run a huge database application or build a supercomputer "in the cloud" and crunch massive amount of data. And you only pay for the processing power and bandwidth you need to use at the moment.
Many big and small companies outsource their server services. At this moment this is bigger business for Amazon than e-books.
Even you personally can rent their server as a backup media for your e-book and photo collection for a very reasonable $0.007(**) per GB / month. And this is different level of reliability than Dropbox or similar services.

They have developed their data centers for internal use - providing media, running the biggest web store ... And now they sell it.
https://www.cnet.com/news/amazon-say...lion-business/
http://time.com/4084897/amazon-amzn-aws/

So, only a very small fraction of their servers is used to host Kindle ebooks.

(**) this price has many caveats. Study their pricing and conditions carefully.

[ratinox]

Originally Posted by darryl

Unfortunately, your estimates are not even vaguely accurate. This does not mean that your position has been totally disproved. Simply that your calculations are of no assistance whatsoever in resolving the issue one way or the other. However, your position is, in my eyes at least, totally counter-intuitive. My position, at least until is is disproved, is that overhead costs ot the type you refer to, whilst they do exist, are negligible so far as they relate to the cost of storing and selling Kindle books.

That's not how an argument works. It's not up to me to disprove your position; it's up to you to prove yours, as I have attempted to prove mine. You disagree with my methodology and claim that it is flawed. Fine. Prove it. That's on you.

[darryl]

Originally Posted by pwalker8

His argument is absurd on it's face. The middle man always takes a cut. It's not a cost. The only time someone gets 100% of what the end consumer is charged is when they sell directly to the end consumer. Some authors do sale directly to the end consumer. For most who do, it's part of their web site. The actual cost of adding a store onto a website is small, and once you spread it out over the number of books sold is pennies a book.

Thanks. I totally agree. We better be careful. This is getting to be a habit!