Dear Macmillan, You Don't Embrace The New By Trying To Protect The Old
from the that's-not-how-it-works dept
Lots of people have been sending over the blog post by the CEO of book publisher Macmillian, John Sargent, trying to explain the company's ebook plans, following all the hubbub over its fight with Amazon. I was going to write up a long blog post about how backwards-facing Sargent's viewpoint is, but frankly, Mathew Ingram, over at GigaOm, already wrote up the post I would have written (eerily, almost word for word). Go read that post.In addition to Mathew's points, however, I'd add that Sargent seems to think that pricing is done by producers, rather than the market -- and historically when companies in competitive markets think that way, they end up being in line for a very rude awakening. Economic forces don't work the way they do because someone wants them to work one way -- they work because that's how markets function. And if you price something too high, the market lets you know. But Sargent doesn't seem to get that. Instead, he's trying to set up totally artificial and made up pricing -- which becomes really evident in his idea that "hardcover" ebooks will get one price, while "paperback" ebooks will get another. It's not difficult to understand Sargent's thinking here. He's still thinking in terms of protecting the traditional windows and the traditional profit margins, and that means high-priced hardcover books for a year or so, then lower cost paperbacks later, in an attempt to segment the market. But with ebooks, that's going to lead to frustration and confusion. As someone named CM Harrington noted in a comment on Sargent's own blog post:
So how much more expensive is hardcover e-ink over paperback e-ink?One of the reasons why economic forces work the way that they do, and the reason why infinite goods with zero marginal cost get pushed in price towards zero, is that buyers implicitly understand the difference between scarce goods and abundant goods. They implicitly recognize the marginal cost of making another good, and they mentally price products accordingly. Pretending that consumers don't do that is assuming that consumers are stupid. And that's an even bigger mistake than looking backwards instead of forward.
Your model is doomed.
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Filed Under: ebooks, economics, john sargent, pricing, publishing
Companies: macmillan
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Oh come on now.
You can spend hundreds or thousands of dollars on a license for a software program, which has zero marginal cost. Nobody bats an eyelash, including, I imagine, readers of techdirt.
Also, it's not "made up" pricing. Guys like Sargent have at their fingertips all kinds of marketing research, where they survey people and ask them (for example) how much are you willing to spend on an ebook?
I haven't seen the data myself, but it's clear that you don't have any data at all.
Also, maybe you ought to take a basic economics class.
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Re: Oh come on now.
Sure, if there's artificial scarcity that's what happens. But artificial scarcity is a temporary market feature that is unlikely to last. If you can get away with it, more power to you. But it's not sustainable.
Also, it's not "made up" pricing. Guys like Sargent have at their fingertips all kinds of marketing research, where they survey people and ask them (for example) how much are you willing to spend on an ebook?
Heh. It clearly is made up pricing, rather than market pricing. I used to do market research for a living. All the data in the world doesn't change the fact that you make a guess at the end. But what he's doing here is not just making up pricing, he's trying to have the producer set the pricing rather than the market. It's a recipe for failure.
I haven't seen the data myself, but it's clear that you don't have any data at all.
Actually, we've seen plenty of research -- some of which we've published here. Just saw another study that I'll be posting about later this week. They all show the same thing: price your ebooks at $0 -- increase your overall sales of physical books.
So, yes, I do have the data. Thanks for assuming wrong, though. Very credible.
Also, maybe you ought to take a basic economics class.
Heh. Thanks. I did quite well in economics (well beyond basic level). Also taught it at the college level, but again, you want to make assumptions, go ahead.
In your basic level econ, did they teach you what marginal costs mean? Did they teach you how to read a supply and demand curve? Or did they teach you just to look at demand? Because your statement above is only looking at the demand curve, which, again, is a recipe for failure.
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Re: Oh come on now.
Correct, however that cost will also include support, access to a comunity and other benefits that are not at zero marginal cost.
This model does not apply to novels.
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Re: Oh come on now.
and for that money you expect support when things go wrong.
Software differs from books in that it does something.
Proponents of proprietary s/w will constantly remind you that it is support that you are paying for.
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Re: Oh come on now.
There are people out there pirating software just like music and not paying for it. Batting an eyelash, yeah piracy of software shows me someone is. and I hear people bitch an moan about Adobe and other high dollar software all the time. There are free versions out there of most software programs, take Gimp instead of Photoshop. Yeah you don't get quite the robust functionality, but hell it does almost the same thing for free.
The market spoke and someone answered it.
And you also have to realize those $1000 programs have 100's of programmers working on it, not like the one author that wrote the book. They want to be payed for their work too, but there are more ways to split up that check!
As you said you haven't seen the data yourself, that is so evident.
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Re: Oh come on now.
In the old days, your statement was true. Nowadays, it would be an exceptional circumstance that would cause me to spend anywhere near that much for a software license. And I would certainly bat an eyelash (and have a bit of a fit.)
Thank you, FOSS, you make my business more productive on many, many levels.
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Re: Oh come on now.
ha ha she's right techdirt, you all whine about the price of music and then spend all your money on software. that's ironclad evidence that you're all anti-intellectual hypocrites who hate books.
open source? what's on earth is that?
Also, it's not "made up" pricing. Guys like Sargent have at their fingertips all kinds of marketing research, where they survey people and ask them (for example) how much are you willing to spend on an ebook?
I haven't seen the data myself, but it's clear that you don't have any data at all.
ooh, another zinger. the logic is bullet-proof: sargent is a CEO, so clearly he knows everything. none of you techdirties are CEOs, so clearly you know nothing.
that's it techdirt: you just lost the game. close your browsers and go buy some CD's.
Also, maybe you ought to take a basic economics class.
ZING! we all know economics is about making money, not aggregate outputs, or the efficient allocation of scarce resources. no one here wants anyone to make money so clearly you don't know anything about economics.
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no, YOU come on
# of people who use autocad
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no, YOU come on
I hate to break it to you, but:
# of people who use autocad is wayyyy less than # of people who read books
My understanding is quite basic, but I do remember those supply and demand curves from econ.
And, as a second point, there is no physical software out there that has more actual worth, but costs the same. I mean, I can start painting instead of using photoshop, but what happens when I want to change something thats already digital?
Words are only worth the words, words+paper are worth the price of the words + the price of the paper. In the Ebook model, I've already spent $200 on state of the art paper, so I shouldnt have to pay for the paper twice.
If they did poll people and do market research, as you claim, I think they polled the wrong people. Maybe they did the poll a year ago, and they only polled people with ebook readers. The people who will spend lots of money on a brand new electronic device are people who have money to spare, and probably have a higher price limit than the rest of us.
Or perhaps the people who were polled just weren't thinking. Maybe they hadn't bought a book in a while and thought, oh, well, that price sounds okay.
Or perhaps some of the people were not technically inclined, and really dont think about the cost of the physical object.
Or perhaps they were (or were asked to) name a price relative to a brand new hardback. If the alternative is spending $40 on the new stephen king book, $25 sure *sounds* reasonable.
Those are just off the top of my head.
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"paperback_book.txt" 5300bytes, last modified 1/1/2010. $50.
err .. yeah I'll buy the more expensive one. right.
Like a hard-cover book vs paperback, the only real difference is the weight and volume of the book. Digitally, there's no equivalent - unless you include the book jacket in the book or something.
I don't use ebooks, so I am somewhat curious. What is the difference between a hardcover ebook and a softcover ? If the only difference is waiting, I reckon I can wait a year to save whatever the difference is.
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$50
-$20
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$30
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$30 + 12-18 months.
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A Premium on Impatience
I go into more detail about this in a TeleRead post scheduled to go up at 8:15 a.m. Central Time (in which I link this post, too), but bear in mind the difference between the cost of printing a paperback and printing a hardcover is only a buck or two—but hardcovers cost three times paperback price.
It's a premium on impatience. People who absolutely have to have the book right now will be willing to pay that extra cash. People who aren't, won't.
It's the same way with Baen's E-ARCs. Nobody seems to feel that they're somehow trying to pull a fast one by selling these less-proofed electronic advance reader copies for $15 three months before the final e-book comes out for $6. If people are impatient enough to want to pay that much for a draft version, they can. If not, nobody's forcing them to.
I don't see Macmillan's variable pricing plan as being substantially different in principle than that. Just on a longer time scale.
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One second now...
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The more these industries fight the inevitable, instead of meeting the future with adaptive, forward-looking strategies, the sooner they fall by the wayside.
I hope printed books never die, but I'm not hopeful that the publishing industry won't kill physical books in an effort to coddle their outdated business model. So far this year I've bought eight books: four PDFs direct from authors, four second-hand paperbacks.
It's not a pretty sight, but these visionless companies are the slower, weaker animals that are inexorably taken down by predators. It's how nature works and it's how markets work too.
There's a certain beauty to it, really. The laughable part comes when the ignorant cry for protection, often in the name of "capitalism," when healthy competition is exactly what they're afraid of.
So go ahead Macmillan, knock yourself out. Overprice your product, spend your money on lobbyists and hand-wringing. You can delay things a bit, maybe let a couple more execs bail out comfortably. But you're limping. The lions are watching.
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This is my favorite comment ....
Record Cartel Suit #2: "Raise prices again to cover the difference."
Really funny because its true ....
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oops forgot the link ....
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Let them die
The only scary thing is when politicians give us the old "too big to fail" speech on the publishers in trouble and bail them out as well.
The auto industry is facing this problem right now. They went out there keeping prices high and not paying attention, while these new guys came in from overseas and underpriced them and almost wiped them out.
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This might be true for most goods, but for university textbooks the market is seriously broken in that the people choosing the books are not the people paying for them.
Professors get free copies of the books and often barely look at the price when picking a text. Publishers even send out sales reps to sell professors on the educational advantages of their textbooks.
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Perhaps in a few years, they’ll be answering to their Board of Directors why they didn’t at least investigate a profitable effective business model for ebooks?
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Re: Baen
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Re: (Storysmith's post)
Gosh, maybe Macmillan should try that!
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i just finished reading the macmillan blog and some of the commenters mentioned reading this nyt piece to get a more appropriate view on the entire book selling industry. suffice it to say i didn't learn anything new because i work at a bookstore. everything at the store is very fluid. if your things don't sell we ask the customers why and we hear out their advice and criticism. if we need to lower the price of the books we do that, by relaying customers comments to the publishers. if the publishers say no then we just return the books to them and incur the loss. sometimes we lowered the price of the books ourselves to get them off the shelves and in the hands of paying customers, and if they authors came in the store and happened to get mad at us, we would explain the problems to them and often they get on board or they insult us and the publisher gets involved. in a bookstore our main concern is selling products to customers. the rest we don't really care about. if your product is over priced or if you don't have a realistic view of what people are willing to pay for your products then you probably shouldn't be at that cushy job as a publisher seperated from the actual customers who help pay your salary. we're all in the business of making money. if customers think something is valued to low we raise the price and the customers pay that price happily. if we didn't listen to the customers who walk in our doors and the people we do business with, then our bookstore which is one of the best in a big city, would not exist. sometimes we also have to take risks and build and burn bridges with the publishers, other retailers, sellers who are sending us products to sell. if we can't move your products we don't want them, but if we're incurring a loss on our end then it's a guarantee the publishers are as well. we need big ideas and forward thinkers in the publishing industry.
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That really suks
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