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eBook eConomics

eBooks should cost the same as paper books, says MacMillan CEO John Sargent – SAI:

John Sargent, CEO of publisher Macmillan, has taken out a full-page ad to explain why he is insisting that Amazon raise prices on its ebooks to $15 in some cases.

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First, to clarify what is happening here, you are already getting your money: You are selling ebooks to Amazon at whatever price you set ($10-$15), and Amazon is turning around and selling them at a loss, sometimes for $9.99. We’re not against your charging what you want to for your books. We’re against your telling Amazon what it has to charge for them.

Also, we don’t want to pay $15 for ebooks, and we don’t think we should have to. The marginal cost of an incremental ebook is pretty much zero. So why on earth should we pay $15 for it?

Its not quite so one sided as portrayed here – Amazon threatened at one stage to remove all MacMillan books, electronic and paper, from its listings. Amazon will now acquiesce, however – as the NYT notes. One wonders what it will do to the volumes sold?

Sigh – The Blodgett’s views on economics always have to be handled with care (as many found out in dotcom days to their cost), but one does expect better of a physical media CEO who has observed this argument fail in music, journalism and now video. A little lesson in production microeconomics then. Consider the diagram above – a simplifies media value chain. There are 4 main cost buckets in producing a book:

(1) Content Creation – thats what it costs the creator (the author etc) to create he work
(2) Aggregation – the costs of agents, editors, advertising. legal fees etc etc
(3) Production – the cost of making the product, whether its digital or physical. However, physical production costs are significantly higher than
(4) Distribution – the costs of moving the product from producer to consumer – again, digits over the internet cost a fraction of the trucks, sheds and shops needed for books

Now, on to the cost of production.

(1) Cost of creation is the same, irrespective of the media
(2) Cost of aggregation is similar

So, assuming the market volume is the same. The costs are roughly the same, so the cost per unit will be similar. These are the costs in blue, above.

(3) Cost of Production – orders of magnitude lower
(4) Cost of Distribution – ditto

These are the red sections, and represent the difference in cost of production between a book and e-Book. I’ve drawn the 4 elements as roughly equal in size – in fact the cost of creation is fairly small, aggregation fairly large – but production and distribution are very material – at least 30% in nearly every case. That is a non trivial saving.

Now just to deal with Mr Blodgett quickly – the “marginal cost” is indeed near-zero once the full costs of the creation and aggregation have been met – but only when they have been met. That is true of both paper and e-books. Until then, they cost!

There is actually another cost, that of the consumer equipment required to read the media, but that comes after the cost to produce it and is not directly germane to the price. However, it is germane to the total cost of ownership. And shelling out several hundred dollars for an e-Reader is another factor arguing against equal pricing of book and e-book.

(Update – just reading some of the other articles, I think they are missing the fundamental point this shows – in other words there is a disruptive economic arbitrage between books and ebooks that will restructure the industry, whether it is wanted, fair, right etc etc is moot)

One thing does concern me though, and that is the potential lock in and DRM lock out that all these various proprietary eBook readers get.

Apple Fanbois are not happy that Other People do not love the iPad sufficiently, and at first reading I thought Fraser Speirs was going down this line:

one can’t help being struck by the volume and vehemence of apparently technologically sophisticated people inveighing against the iPad.

Some are trying to dismiss these ravings by comparing them to certain comments made after the launch of the iPod in 2001: “No wireless. Les space than a Nomad. Lame.”. I fear this January-26th thinking misses the point.

What you’re seeing in the industry’s reaction to the iPad is nothing less than future shock.

But after reading the whole article, I come to praise, not to bury – his argument is essentially around reducing the level of difficulty in using new technology. He notes that:

The tech industry will be in paroxysms of future shock for some time to come. Many will cling to their January-26th notions of what it takes to get “real work” done; cling to the idea that the computer-based part of it is the “real work”.

It’s not. The Real Work is not formatting the margins, installing the printer driver, uploading the document, finishing the PowerPoint slides, running the software update or reinstalling the OS.

The Real Work is teaching the child, healing the patient, selling the house, logging the road defects, fixing the car at the roadside, capturing the table’s order, designing the house and organising the party.

Think of the millions of hours of human effort spent on preventing and recovering from the problems caused by completely open computer systems. Think of the lengths that people have gone to in order to acquire skills that are orthogonal to their core interests and their job, just so they can get their job done.

If the iPad and its successor devices free these people to focus on what they do best, it will dramatically change people’s perceptions of computing from something to fear to something to engage enthusiastically with. I find it hard to believe that the loss of background processing isn’t a price worth paying to have a computer that isn’t frightening anymore.

Amen to that – and its a powerful business model, as Apple sadly is able to keep on proving over and over again in various sectors, to the discomfit of the crusty incumbents in them. There is an interesting argument that Apple is able to this as it has near – dictatorial design authority. But future shock? I think that could just be a linkbait headline playing to the present hypefest – as is mine

(Our initial thoughts on the iPad are over here)

OK, the obligatory iPad post…………

The tech Apple fanboi press has been hyped to the gills, the tech journosphere has been shown wanting, the jokes have abounded – but what is the iPad’s likely future – is it possible to predict? Is it “the most important thing Apple has ever done”?

No, of course not – technically it is using a lot of the technology already in the iPod and iPhone, in many ways its a fairly linear evolution (“gimme something like an iPod Touch but with a bigger screen”). Not only that, it doesn’t define a new market – tablets have been dreamed of since PC’s first emerged (and before).

But it is standard Apple strategy – take a confused market (eReaders, crap tablet PCs, Netbooks) and drive an iconic device complete with its own end to end content supply chain into it. and as a Cat among Pigeons play its rather good.

We worked on one of the next generation e-Readers (Plastic Logic’s) 2 years ago, and research done at the time convinced me that there is a demand for a device that allows you to read and interact with media on a slim A4 style tablet with great print graphics.

By pushing the spec Apple has challenged the e-Reader market – why buy a pure e-Reader when you can get a device with some more interactivity (see the comparisons here). Its also says to the the Netbook and tablet PC market that there is a sort of boned down, lowest common denominator tablet design now in contention.

Is there enough market there to justify a new market, or will it bomb like the Newton? Our take is that 10 years later there is a bigger market to go after (e-Reader, Netbook, tablet) but its still not huge. But given that its an offshoot of existing technology (so low R&D costs) the business case makes sense, and it disrupts some potential competitors (who’d buy a Kindle, now?). So why not?

The one strategic weakness I see is that compared to other tablets this is low cost, that’s not Apple’s usual schtick – they tend to have smaller production (ie higher costs) of devices that can sell at a higher premium to certain sectors of the market who happen not to be price conscious.

But this device is priced low for a tablet, they may find that margins here aren’t like they are elsewhere in the Appleverse, as competitors will (I am sure) come out quite fast now as happened with Netbooks. And this doesn’t quite have the same lock-in as a phone.

So – nice play as an extension product, reasonable market to go after, but will be hit by increasing competition far sooner than in Apple’s other recent forays. However, by integrating iPod and iPhone I’m sure it can insulate itself from the competition, for a year or so anyway.

Update – I see Dave Terrar has some interesting thoughts, and Google’s Eric Schmidt agrees with us – eventually

new menu and frontpage for my website thaup.com. an ex. of how i want it to look would be gnc.com.

need a menu and front page to look like gnc.com.

My notes from Mashup Events “What Your (Mobile) Apps Strategy” session:

First up was Jon Moore of the Guardian

Guardian app is £3.59p, it gives you content you can’t see for free on the Web. My colleague Paul lancefield (writer of our first iPhone app) is impressed with it. His key lessons are:

Lesson 1 have ambitious objectives
Lesson 2 know your audience for App and test
Lesson 3 Delight your audience the Apps store is the thing you have to influence -would one put this on their home screen

Biggest problem he sees going forward – too much crap on iStore

Then Charles Weir Penrillion looked at the various options

iPhone – Only viable market today, but this is a tough market – expensive and difficult to market apps (huge number, very few are making money – string power law)
Symbian big market, but OS is cr*p at apps
Android – operators love it as it breaks Apple monoploy but still nothing really there
Blackberry – Corporates and low end youth smartphone Market – could be promising
Others – small beer

Mobile applications re still bedevilled by the problem of interoperability on different platforms – Its a big cost to port to all the platforms as there is no single language to write it in – so some functions are only available on certain devices. iPhone is the most promising market but deployment is an issue with so many apps on it, its impossible to find one App without a lot of marketing effort. There needs to be a way of finding good apps. However, he believes the iPhone model is how Apps will be sold in 3 years

Gerd Leonhardt – Futurist

Some soundbites:

- It’s not about technology it’s about emerging practices – that’s where the money is
- IPad – the way we interact with it will define what it does
- With Apps, it’s about packaging
- Social Media is not the thing, the key to its value is what it actually does for you

There are no clear answers in current Market, but feels that Mobile + Social = money . Also, loads of mobiles on low cost data plans will change the way mobiles are used

Panel – chaired by Vicky Chowney, it had the above speakers also and two more people on it:

Taron Maberry, BT
Mark Curtis, Flirtomatic

Panel Questions

Is mobile app same as net?

- Fragmentation is back thanks to all the players
- Android firmware always changes, Apple then Blackberry priority

How do you make money?

- Freemium will dominate in early days where ads don’t work – but challenge is conversion
- Added value of community is valuable
- If you want to monetize today it’s Apple as the only ooption
- Ad market moving to mobile/social but still ~ 1%
- If you have nothing on the edge you can’t do freemium (Leonhardt – not sure what he means)
- Customer Acquisition have to get customers into the door not anything else, upselling is a % game
- Mobile allowed Guardian to access new Market (Ovum comment from floor – the real story is that you can’t get people to pay for Guardian online but they will pay on mobile)

iPad?
- based on iPod technology, see it as a market extension of existing technology
- IPad won’t work as a scaled up iPhone

Sustainability ?

A chap from Natwest noted they launched an iPhone app, and in weeks a fake Natwest app on Android was launched

Role of App Store?

- At the moment it’s near useless – too many apps, too hard to find
- Today, the Twitter/Social media audience has close correlation to Apple demographic Algorithm drives early marketing success when app hits appstore
- GetJar is a good alternative approach
- There is a risk that iStore will get games by “Disposable Apps” ie Appstore becomes like 2nd Life, where Coporates have to prove they are “Groovy”

How do we build engagement?

- What is it for your audience/Market ?
- Does it fit your aims?

My Conclusions are:

1. Planet Mobile still suffers from the fundamental problem of too many sub-scale platforms. Nothing has changed in 10 years. The iPhone is the best bet, but is still subscale (as Charles Weir showed, even the biggest selling apps are not making the sort of money that can sustain an industry (for consumers anyway – we think SOHO/SME may be different as there is revenue from other sources in the value chain – more on this later).

2. The iStore model falls over at the moment as once too many applications get on it, its very hard to find (i) what you want, and (ii) which is the best option. This is because the meta-services we see elsewhere on teh Web (comparison sites etc) have not yet emerged. This seems to be a useful area for growth.

3. The market is still in massive flux, smartphones are only just getting smart enough to do more than browse the web, form and function are being experimented with still (iPad, multiple .

4. At the moment, the best way to ensure an application works across all platforms is still web access.

Planet Mobile – the more things change, the more they stay the same………

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El Reg:

Viviane Reding, European Commissioner for Information Society and Media, has promised tough new laws to curb privacy-breaching technology like body scanners and has also warned the social networking industry that it needs to do more to protect children using its services.

………..

She said there needed to be clarity as to how key principles like consent and transparency work in practice.

That data was safe no matter where the data controller was located.

There should be promotion of ‘privacy by design’.

There should be stronger enforcement.

The basic principles of data protection should cover all areas of European life including police and judicial and dealings with countries outside the EU.

Reding named Facebook, MySpace and Twitter and warned that children’s profiles on such sites should be private by default. She will report back on progress working with companies on 9 February.

2010 is definitely shaping up to be the biggest year for privacy issues. I have come to the empirical observation that for technology, its about 3 years from when the early adopter suss out what the issues are to when it starts to hit mainstream.

View series to date here. Updated archive soon.

Ruby-on-Rails supports more database management systems than just MySQL these days. This five-part series will take a look at the other systems and tell you what you need to know to choose which one to use and help you manage whichever one you choose . It is excerpted from chapter four of the book em Advanced Rails em written by Brad Ediger O Reilly ISBN 59651 322 .Copyright 2 8 O Reilly Media Inc. All rights reserved. Used with permission from the publisher. Available from booksellers or direct from O Reilly Media….

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