eBook Gold Rush

[Greg Anos]

I guess I'll have to come to Giggleton's aid. The issue at hand is how do you economically deal with the situation where the total cost of a product is the inital design, with no cost for production. Capitalism is based on the method of amortizing the design costs over a long production run causing them to become a very small portion of the product's cost. This is an inherent problem of the digital world. The cost of production is zero. There is no way to amortize the design costs with production. It is the Model T of the Star Trek "replicators"...

[astrodad]

Originally Posted by Ralph Sir Edward

I guess I'll have to come to Giggleton's aid. The issue at hand is how do you economically deal with the situation where the total cost of a product is the inital design, with no cost for production. Capitalism is based on the method of amortizing the design costs over a long production run causing them to become a very small portion of the product's cost. This is an inherent problem of the digital world. The cost of production is zero. There is no way to amortize the design costs with production. It is the Model T of the Star Trek "replicators"...

Who says there's no cost to production? Are all of these data centers, web servers, switches, internet backbones, monitors, keyboards, mice, and computers running on thought power?

[Elfwreck]

Originally Posted by jplumey

Who says there's no cost to production? Are all of these data centers, web servers, switches, internet backbones, monitors, keyboards, mice, and computers running on thought power?

Okay, cost of production per unit not zero, but is possibly less than a penny. Per-unit costs are so tiny that they have to be calculated in batch and lumped in with overhead costs.

It does cost to run an ebook store, host files, allow data transfers, use shopping cart software--but the cost per book is so tiny that all the relevant fees tend to be calculated in a different part of the business expenses. (How much does a company pay per month for bandwidth, and how much of that is used by a single .5 mb download?)

[astrodad]

Originally Posted by Elfwreck

Okay, cost of production per unit not zero, but is possibly less than a penny. Per-unit costs are so tiny that they have to be calculated in batch and lumped in with overhead costs.

It does cost to run an ebook store, host files, allow data transfers, use shopping cart software--but the cost per book is so tiny that all the relevant fees tend to be calculated in a different part of the business expenses. (How much does a company pay per month for bandwidth, and how much of that is used by a single .5 mb download?)

The point is that production costs for ebooks are not zero-not by a long shot. You're right that business plans for ebook shops would be based on large numbers of books, but that fact doesn't negate the reasoning that there are still costs associated with producing these ebooks. Even still, production costs alone don't dictate the cost of a thing-its value to the company's customers does.

[Greg Anos]

Originally Posted by jplumey

The point is that production costs for ebooks are not zero-not by a long shot. You're right that business plans for ebook shops would be based on large numbers of books, but that fact doesn't negate the reasoning that there are still costs associated with producing these ebooks. Even still, production costs alone don't dictate the cost of a thing-its value to the company's customers does.

I have a computer, it cost the same to play Solitare on it as it does to copy a file...The host, internet costs, ect. are no more expensive for adveritizng or spamming as for a file download. Non-zero? Agreed. Approaching zero as a limit - absolutely...

You still haven't addressed the issue. It may cost a million to write a book. The marginal cost of shipping out a million copies might be less than $10,000 (all up) in the digital world. Where's the ability to amortize?

I can charge anything I want...And if I charge too much, you get product substitution. And when the price of the product substitution approaches zero, so does the price I can charge and get customers.

The art of advertizing it to tell lies about the product in order to sucker people into paying more that they need to for a poduct...

[astrodad]

I guess I don't understand your point. I'm dense that way.

What does amortization have to do with this discussion?

Regardless of the price to make or distribute the product, its price is determined by its value, real or perceived. The value of the product, which I understand is a subjective thing and can be in influenced by the "advertizing" [sic], isn't determined by the cost to produce or distribute the product. If I make a product that is grossly overpriced compared to the value that my customers perceive in it, I will lose their business. They'll go somewhere else and either a) find a similar product that satisfies them at a lower price, or b) come back to my product because it's the product they want.

[TrineDaely]

So what was the actual topic again? Love the baby crocs, BTW.

[Greg Anos]

Originally Posted by jplumey

I guess I don't understand your point. I'm dense that way.

What does amortization have to do with this discussion?

Regardless of the price to make or distribute the product, its price is determined by its value, real or perceived. The value of the product, which I understand is a subjective thing and can be in influenced by the "advertizing" [sic], isn't determined by the cost to produce or distribute the product. If I make a product that is grossly overpriced compared to the value that my customers perceive in it, I will lose their business. They'll go somewhere else and either a) find a similar product that satisfies them at a lower price, or b) come back to my product because it's the product they want.

Let me put it in car terms. (We all know what a car is). It cost, say 500 million, to design and engineer a new model of a car (not unheard of). If, over the life span of the model being produced (say 7 years) I sell 1 million cars (that's 12,000 cars a month for 7 years) at $20,000 a car, the design cost, per car, is $500, or 2.5% of the cost of the car. If I sell 1,000 cars over 7 years, the design cost, per car, is $50,000. I make money at 1 million cars, I lose my shirt at $50,000.

With digital items, there's no $20,000 cost of production to use to amortize the design costs over a long production run, like the car above. Not when I can make a copy for less than 1 cent.

This is a basic fact of the current digital reality. Like it or not. It isn't going to change.

[Ken Maltby]

The point has been made in the past, that it costs just as much to make one ebook as
it costs to make one pbook. In fact, in an effort to justify similar pricing for both,
it has been claimed that the cost per/book of the manufacturing, warehousing and
distribution of the pbook is a insignificant factor in the cost of the pbook.
(Sir Eddy's Amortization)

While I doubt the validity of these claims, there are certianly enough initial costs that the
pricing of the ebook must take them into account, in establishing a minimum return for
the effort involved. The whole calculation rests an expected number of unit sales. (One
advantage for the ebook is that the costs associated with a mis-sized printing run are
avoided.) That is all just to figure the break even point.

The tricky part is establishing a reasonable estimate of the demand for the product, it is
true for all marketable goods and services but is both particularly difficult and critical for
Intellectual Properties. (In my opinion this is made even more critical by the current,
idiotic "one shot" initial release marketing practices. Ebook could break out of that as
they need never be "out of print". )

But - there is no need or advantage to amortizing costs that you don't incur.
(Hollywood Accounting excepted, of course.)

Luck;
Ken

[astrodad]

I understand the problem, just not its relevancy to this discussion. Are you saying the publishers should price the product based on the design cost alone? That they shouldn't sell their product based on it's value to their customers? That they should sacrifice their profits because it costs them so little to distribute their product?

[Greg Anos]

Originally Posted by jplumey

I understand the problem, just not its relevancy to this discussion. Are you saying the publishers should price the product based on the design cost alone? That they shouldn't sell their product based on it's value to their customers? That they should sacrifice their profits because it costs them so little to distribute their product?

You're assuming I have answers. I don't. I just trying to accurately describe the problem.

The fact that a file copy can be make for less than a cent and transmitted (or mailed, or handed personally) for less than a cent sets a limit to what you can price successfully at.

The people in the article understand this. They're working 40 hours or more a week building a business. The business just happens to be writing. And they charge a low price, and they market the <bleep> out of what they have. No writing the story, put it on a board and just expect it to sell millions of copies.

This does not permit the paying of drones....

(and they won't come back to you product and buy it at your price. They'll just get a copy illicitly for less than a cent...)

[Giggleton]

Originally Posted by Ralph Sir Edward

The people in the article understand this. They're working 40 hours or more a week building a business. The business just happens to be writing. And they charge a low price, and they market the <bleep> out of what they have. No writing the story, put it on a board and just expect it to sell millions of copies.

This does not permit the paying of drones....

(and they won't come back to you product and buy it at your price. They'll just get a copy illicitly for less than a cent...)

Maybe business is the problem?

[HansTWN]

Originally Posted by Giggleton

But what if those mechanisms don't work? Should we continue to use them? If I had to pay monies for all the books I read, I probably wouldn't be able to pay for my internet connection or I'd have to cut back on food or something.

Do you think the ISP's are greedy? Would you be in favor of an internet tax? and distribution of this tax to those creators whose work is most popular?

That is the point -- basically the mechanisms are working, they are just not giving you everything for free. Sure, there are some problems (ebooks often being more expensive than paperbacks) but the market will work its magic here soon enough.

In many countries ISP's are indeed greedy. Americans pay through their noses for slow services and unlimited isn't really unlimited. We only pay around USD $25.- a month for truly unlimited service, over fibre optics cables. And no need to bundle, or similar nonsense.

And you could start to read classics, if you don't want to pay. Why do you think it is always your right to have what you want (especially for free)? I would like someone to gift me that new Tesla roadster, too. But I will do just fine without it. And so would you if you took less of what isn't yours to take, there is plenty of legally free stuff around to read.

And seriously, didn't you say you would pay the authors through donations after you have read their books? Apparently that isn't quite true, according to your above statements you couldn't afford to donate the money after you have read the books and found them worthy, either. Or were you planning to donate 50 cents for a book that now costs $10?

[HansTWN]

Originally Posted by Giggleton

Maybe business is the problem?

The problem is that even authors have to eat. And that you don't expect someone to fix your toilet for free, but you expect someone to write for your pleasure for free.

[Andrew H.]

Originally Posted by jplumey

I understand the problem, just not its relevancy to this discussion. Are you saying the publishers should price the product based on the design cost alone? That they shouldn't sell their product based on it's value to their customers? That they should sacrifice their profits because it costs them so little to distribute their product?

+1

This is the key point.

We don't live in a medieval society where the "just price" for a product is its cost of production plus 10%. (Or whatever percent you choose). We haven't lived in this world for at least 500 years.

The value of a product is what a customer will pay for it; the cost of production is only relevant inasmuch as it is a floor that the price can't go below...on average, anyway.