The Infinite Loop Of Algorithmic Pricing On Amazon... Or How A Book On Flies Cost $23,698,655.93

from the do-they-have-a-kindle-version? dept

Glyn Moody points us to an amusing story by biologist Michael Eisen, about two Amazon book sellers who (it appears) each used algorithmic pricing to set their own prices on books off of what the other one was pricing it at, leading to an ever escalating price on this particular book about flies. It started with someone looking up a copy of the book The Making of a Fly on Amazon to order a copy for Eisen's research lab at Berkeley and noticing the odd pricing on a couple of used books: And while everyone at first assumed a typo or some other mistake, they soon discovered it was likely something else:

Amazingly, when I reloaded the page the next day, both priced had gone UP! Each was now nearly $2.8 million. And whereas previously the prices were $400,000 apart, they were now within $5,000 of each other. Now I was intrigued, and I started to follow the page incessantly. By the end of the day the higher priced copy had gone up again. This time to $3,536,675.57. And now a pattern was emerging.

On the day we discovered the million dollar prices, the copy offered by bordeebook was1.270589 times the price of the copy offered by profnath. And now the bordeebook copy was 1.270589 times profnath again. So clearly at least one of the sellers was setting their price algorithmically in response to changes in the other’s price. I continued to watch carefully and the full pattern emerged.

Once a day profnath set their price to be 0.9983 times bordeebook's price. The prices would remain close for several hours, until bordeebook "noticed" profnath's change and elevated their price to 1.270589 times profnath's higher price. The pattern continued perfectly for the next week.

In other words, by basing the price on a specific multiple of each other's price, they created something of an infinite loop of automated pricing. Of course, since it only seemed to check once a day, the loop didn't spiral totally out of control (well, depending on your opinion of the value of a book on flies). Apparently, the escalation in price went on for another week and a half or so before someone finally noticed... but not before the book got all the way up to $23,698,655.93: The book is apparently now available at a much cheaper "bargain" price, though you may want to pick up your copy for resale in the future if the "value" keeps appreciating.

Filed Under: algorithms, pricing

'Economics In One Lesson' Apparently Doesn't Include Pricing; Kindle Version Most Expensive

from the let's-try-that-again dept

Copycense, who has done a really bangup job in pointing out some ironic ebook pricing decisions, has another one. The book "Economics in One Lesson," by Henry Hazilitt is available new from Amazon in paperback for $7.95... or at $9.99 for the Kindle. Apparently, "Economics In One Lesson" either doesn't include a section on pricing... or whoever did the pricing on the book didn't read that section...

Filed Under: books, ebooks, economics, pricing

Cheap eBook Authors Realize Even Cheaper Is Even Better

from the do-the-math dept

We've been covering how more indie authors are discovering that just releasing their works as incredibly cheap ebooks can be amazingly profitable. But just how cheap? Kevin Kelly highlights how JA Konrath, who is the leading experimenter in this arena, has just discovered that $2.99 might have been too high. As an experiment, he dropped the price on one book that was $2.99 down to $0.99... and saw sales leap from 40 per day to 620 per day. As Kelly notes (his original math was wrong, but now there's updated math and more, including Amazon's cut:

Do the math:

2.99 x 40 = 11.96

.99 x 620 = 613.8

Amazon pays out 35% for ebooks priced below $1.99, and 70% for ebooks that are $1.99 and up. So the math is:

2.99 x 40 = 119.60; x .70 = $83.72


.99 x 620 = 613.80; x .35 = $214.83

I don't think publishers are ready for how low book prices will go. It seems insane, dangerous, life threatening, but inevitable.

It's not even that publishers aren't ready for how low book prices will go... it's that they still don't even realize that the prices are going to go down at all. Instead, many of them are still looking to make the prices go up, not realizing the umbrella they're creating for disruptors.

Filed Under: business models, ebooks, pricing, sales

Maybe Super Cheap Video Games Are Helping, Not Destroying, The Video Game Industry

from the hello-price-elasticity dept

One of the early economics lessons you learn in any competent intro econ class is the concept of elasticity. The basic concept is how much does demand increase for a product if you lower the price. If a product is highly elastic, decreasing the price can often earn you more money. A simplified version of this: I have a widget that I want to sell for $100 dollars, but only one person is willing to pay that price. With that pricing, I'd make $100 (gross) on the widget. However, if I were to drop the price to $1, let's say 1,000 people are willing to buy at that price. Then, I'd make $1,000 (gross) on the widget. So, even though producers often fear lowering the price, if there's strong elasticity, lowering the price can often make you much more money (and, yes, the marginal cost matters here as well).

We've seen over and over again that video games appear to have very high price elasticity of demand. Two years ago, we wrote about some experiments by Valve, where it tried lowering prices of games by 10%, 25%, 50% and 75% -- and saw the increase in sales at a stupendous rate. While the 10% decrease only resulted in 35% higher gross revenue (already pretty good!), at a 75% discount, the gross revenue shot up by 1470%. Think about that, for a second. Basically, dropping the price by 75% increased revenue by almost a factor of 15. Not bad.

Last year, we saw a similar experiment that also had great results. An online video game store in Sweden tried dropping its prices by 75% and saw an increase in sales of 5500% (in unit sales). When looking at the gross revenue, it appears that it came out approximately to a similar 1300% increase.

And now we have some more examples. Capitalist Lion Tamer points us to an article that looks at some super popular iOS (iPhone/iPad) apps that drastically cut their price, but saw their gross revenue shoot way up because of it.

Street Fighter IV for iOS recently slashed its price by a breathtaking 90% overnight, from £5.99 to 59p. Within 48 hours its position in the overall Top-Grossing chart (that's the list of all apps, not just games) instantly rocketed from 116 to 2. Coincidence or magic? You decide. But that's not all.

And just to reiterate -- we're monitoring the Top-Grossing chart, ie the one measuring money made, NOT the ordinary numer-of-sales one, where SFIV currently sits comfortably on top of everything else. What that means is that the game's sales have increased by dramatically more than 1,000% (because it would have had to sell 10 times as many just to hold the No.116 position at the new price, never mind climb 114 places).

And yet, time and time again we hear how execs at big entertainment companies feel the need to keep raising prices. Hell, we just mentioned how Nintendo's President Reggie Fils-Aime was complaining that cheap games might kill the industry. Apparently, they don't teach basic economics to folks who become president of Nintendo.

Filed Under: business models, economics, price elasticity, pricing, video games

Nintendo President: The Free Market Is Not A Game We Like To Play

from the no-cheat-codes-in-the-real-world dept

Nintendo President Reggie Fils-Aime really has a way about trying to suggest that perfectly reasonable and consumer-friendly market developments portend the end of video gaming. Two years ago, we wrote about his attempt to convince people that used video games were bad for consumers (yes, he said that) and his latest, via Slashdot, is to claim that cheap games are a risk to the entire video game industry.

His main concern, it appears, are games for mobile phones that run a dollar or two. He's complaining that these games:

Create a mentality for the consumer that a piece of gaming content should only be $2

Darn those consumers for actually going where the market goes, when Nintendo apparently would prefer to keep things priced at what the market doesn't like. Welcome to the modern world, Reggie, where prices change, and businesses adapt. I'm sure the last laptop you bought cost a lot less than the one you bought a decade ago, but that didn't herald the end of laptops. It's a digital age: prices get cheaper, and the only companies that are really at risk are those who don't adapt and don't learn to be more efficient. Oh, wait... perhaps he's telling us something about his employer...

Filed Under: business models, competition, pricing, reggie fils-aime
Companies: nintendo

Irony: Ebook About Clueless Media Moguls Costs Many Times Brand New Hardcover Version

from the pricing dept

A little while ago, we pointed out that the ebook for the book Appetite for Self-Destruction -- all about the recording industry's clueless strategic moves -- was amusingly priced higher than the physical copies of the book. It seemed rather ironic that a book about how the recording industry couldn't deal with digital would show such clueless pricing. However, apparently this is not the only such case. Copycense, which pointed us to that pricing conundrum, has been highlighting a bunch of other ebooks that are more expensive than hardcopy books, and has found one that's perhaps even more ridiculous: a book about clueless media bosses. The book is actually called The Curse of the Mogul: What's Wrong with the World's Leading Media Companies, and as of this posting, the pricing certainly suggests what's wrong with the world's leading publishing companies.

The Kindle ebook version is a whopping $18.99. Yet, if you actually want to kill some trees, the Hardcover is $10.51. The paperback is $11.56. And that's just if you order from Amazon directly. If you order from an Amazon partner, you can actually get the hardcover for $2.96 new or $2.49 used. And someone thinks it makes sense to price this book (of all books) at $18.99 as an ebook? It's as if the publishing industry has learned absolutely nothing from the difficulties other industries have had in adjusting to digital goods.

Filed Under: business models, ebooks, pricing, publishing

Irony: Book About Recording Industry's Mishandling Of Digital Priced Higher As Ebook Than Physical Book

from the that's-saying-something dept

A few weeks back, we noted that book publishers apparently simply did not learn from the mistakes of the recording industry -- specifically pointing to DRM and (more importantly) the fact that they've started pricing ebooks higher than physical books. Now, in a moment of supreme irony, Copycense (who has been highlighting various ebooks priced over corresponding physical books) is noting that Steve Knopper's excellent book Appetite for Self-Destruction (subtitled "The Spectacular Crash of the Record Industry in the Digital Age") is one of those books. Indeed, Amazon shows the ebook priced at $17.99, while the paperback is $11.53 from Amazon (and available new from others at $7.50 or used at $4.42).

If you go to the ebook page itself, Amazon clearly states, "This price was set by the publisher" (a clear response to complaints about the rapidly rising price of ebooks lately). It kinda makes you wonder if the decision makers at Simon and Schuster even read the book they're pricing? They might want to crack open a used copy of the paperback (it's cheaper) to learn why not understanding digital, and therefore thinking you can price digital things super high, is not the smartest move...

Filed Under: business models, digital, ebooks, economics, pricing

Asthmatic Kitty Clarifies: It Never Meant To 'Guilt' Fans Into Avoiding Amazon

from the words-are-futile-devices dept

A few weeks back, we had written about the small indie label Asthmatic Kitty, who earlier this year, had impressed us with a really forward-looking attitude, when it came to the music industry, saying (in part):

I operate under the conviction that people buy records because they want to own them, not because they want to hear them. It is too easy these days to hear a record without having to buy it. I don't resent that fact, rather I feel we at Asthmatic Kitty embrace it through streaming albums and offering several free mp3s (even whole free albums). And why do they want to own it? They want it to illustrate to others their taste and identify who they are as a person. I also believe they want to be part of something bigger than themselves, they want to belong.

Our job is no longer to sell folks things they want to hear. They want an experience and to identify themselves as part of a community. Ownership then becomes a way of them supporting your community through investing in that community. Fostering that in an honest, transparent and "non-gross" way takes a combination of gracefulness, creativity and not taking oneself too seriously, while still taking art and music seriously.

So, we were disappointed last month when the label appeared to have sent out an email concerning the release of the band's biggest act, Sufjan Stevens, suggesting that Amazon's promotion of the album for $3.99 was somehow devaluing the music, telling fans:

We also feel like the work that our artists produce is worth more than a cost of a latte. We value the skill, love, and time they've put into making their records. And we feel that our work too, in promotion and distribution, is also valuable and worthwhile.

This seemed like a bit of an about-face, and we were also confused as to why the label would allow Amazon to promote its album if they didn't like the price. I also wondered if such promotional discounts even impacted the label's bottom line, as everything I'd heard suggest the labels still got the same cut on such discounted albums as they normally would.

John Beeler, who works for Asthmatic Kitty, now points us to an interview with the label's A&R guy, Michael Kaufmann, where he more or less admits that the label goofed in how it presented the email, and that it was never intended as a guilt trip or to suggest there was anything bad about the Amazon promotion. In fact, he now claims, they were actually excited about the Amazon promotion:

Unfortunately we poorly communicated this point. As Sufjan sings, "words are futile devices." When we first heard about the potential Amazon deal we were very excited to participate. For a small label like our own this was a great opportunity for essentially free marketing. It is a great program, Amazon is doing this as a loss leader, and therefore we still make the same amount of money we would have made at the regular sale price.

So I am sure many folks are thinking, "What in the world is our problem?" What gave us pause was that we were also offering the album at a higher price and we wanted to make sure our customers knew that it would be available for half that price on street date through Amazon. We wanted to be honest and transparent about the coming deal so that folks who preordered at a higher price didn't feel like they have been misinformed, or had a lack of information to make an informed choice.

We never wanted to impose any sort of guilt on our consumers. To me this is in large part of what the record industry has been doing wrong: criminalizing music lovers. However, the message when taken away from the intended audience and often taken out of context read as if we were guilting people into buying direct from us. This was certainly not our intention, and if we had known this was how it was going to be perceived, we certainly would not have sent the email.

What we wanted to do was provide choices. And in the process we thought it would be an interesting opportunity to give food for thought on the perceived worth (or value) of an album. But that discussion should have taken place in a different context. The intent was certainly not to criticize of Amazon's approach. Rather, we hoped to spark conversation and examination of our methods of doing business real time with our customers. We didn't realize this spark was going to blow something up in our faces. Again, what we intended as a cursory thought of the email became the main focus of its criticism.

That makes a lot of sense, and I apologize for contributing to blowing the story out of proportion, and apparently not providing the proper context, which I was unaware of at the time. I'm still a little confused about the claims in the original email about the "value" of music, but I understand that's a different discussion. In the meantime, the label seems back to recognizing that it's important to connect with fans in whatever manner possible, rather than guilting them:

We want them to have the opportunity to hear our releases. We want them to have the opportunity to listen. We want them to take active part in deciding what it is worth to them to own our music by deciding how they purchase. The last thing we want to do is dictate price or guilt someone into a particular point of sale. That is pretentious for us to think we even can. It is a complex mechanism that involves supply, demand and all the other facets that make a market economy. We have our opinion, but that isn't meant to be an authoritative statement.

We do want to encourage folks to support us, and they are supporting us whether they buy it from Amazon, iTunes, eMusic, Bandcamp or from their local record store. So ultimately their decision of where they buy and how much they pay is trivial, because they chose to support us in an age where it is so easy to just download for free.

Filed Under: music, pricing, sufjan stevens, value
Companies: asthmatic kitty

Former Music Industry Exec Says Album Prices Should Be Drastically Lower

from the he's-onto-something... dept

Robert Katz was the first of a whole lot of you (really, this may be the story with the most submissions ever) to pass along the news that former Warner Music UK boss Rob Dickins is suggesting that the record labels lower the price of albums all the way down to £1 -- about $1.60. He points out that, at a price like that, it becomes much easier for people to buy. With the prices today, he says there's simply too much of a mental transaction cost to determine if people are willing to pay the much higher amounts. Not surprisingly, others in the industry complained about his suggestion, first mocking him for presiding over Warner when the prices were so high (true, but that has nothing to do with what he thinks now) and then someone else tossing out the obligatory misunderstanding of the difference between price and value:

"A piece of music is a valuable form of art. If you want the person to respect it and value it, it's got to cost them not a huge sum of money but a significant sum of money."

Yeah, so that's not how value works, actually. And the problem, which Dickins appears to have figured out, but Jonathan Shalit who made the quote above has not, is that whether you like it or not (and whether it is legal or not), music today is already competing with free music online. So, it's not a question of "value," but of market prices.

Dickins seems to recognize the actual economics at play here, noting that by making albums so cheap, the number of sales would shoot way up, offsetting some of the price decline when it came to revenue and getting more people more interested in more acts, leading to greater revenue from alternative sources like concerts and merchandise. Of course, plenty of folks have been suggesting this same thing for years, but it's nice to see an "insider" get it, even if he's mocked by those who are still confused about these things.

Filed Under: albums, music industry, pricing, rob dickins