Monday, August 11, 2014

Amazon and the Glorious Price of $9.99

I can't seem to stop writing about this...

Many, many people have dug into the cherry-picked Amazon statistic of the month, the fact that "For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99."

For the purposes of this discussion, I'm going to assume that:
1) Amazon does have a large enough dataset to make this claim with confidence
2) They really do mean that this is the case for every possible e-book, and not some more narrowly defined sub-set

As John Scalzi and others have said, there's a big excluded middle there: huge numbers of major trade fiction and non-fiction titles [1] are priced between $9.99 and $14.99. Actually, I believe that standard agency-model contracts require ebook price points in the low teens for hardcovers priced in the $25-$30 range.

Also, the self-published end of the business is almost entirely under $9.99, mostly in the $0.99 to $2.99 range and topping out in most cases at $4.99.

So Amazon did not pull $14.99 out of a hat; it deliberately chose a little-used price point higher than most similar books on its site to make the best possible case for its preferred price point of $9.99.

And, again, Amazon can price any ebook at $9.99, or even lower, right now. They're not an agency account; they can set their prices however they like. If a $9.99 ebook price maximizes revenue for that book, they can do that now. But, of course, they want a larger piece of that revenue, which is what they're currently fighting with Hachette about. (And, less disingenuously, they are likely paying more than $9.99 for those ebooks -- but they've been regularly selling below cost since the first Kindle, both hardware and software, to buy market share.)

As I've said before, Amazon's claim is entirely silent about the effects of a blanket $9.99 price on two categories of sales of that same book: sales of the print edition on Amazon, and sales of all editions of that book anywhere else. They clearly can't directly measure the latter, but we can expect that Amazon does not expect this policy to increase sales elsewhere; what they want to do is to maximize their own market share. And their trading partners do all want Amazon's sales to be healthy and preferably to grow every year -- but to grow by increasing the market, not by grabbing market share from other retailers. [2]

But Amazon also wants to shift sales to ebooks from print. Sure, they are wizards at logistics, and have an impressive network of warehouses. But they're even better at moving electrons around, the margins are better there, and that dovetails more closely with where they want to move their global business. If they can shift 10% of their current print book sales to ebooks, that's an immense savings in warehousing costs and labor. So my assumption is that Amazon's model explicitly shows that the .74 extra copies as a $9.99 ebook also means a definite reduction of hardcover sales, which they likely sell for around $16 (35% off a $24.99 list price).

We don't have all of the other numbers behind this, so we can't build a model. But Amazon is only claiming a 15% total increase (in this very best case) of ebook revenue, so it would not take much downward sales pressure on the hardcover to wipe that out entirely.

In sum, in case anyone is wondering why no major-publisher authors have taken Amazon's offer seriously, this is why: they know that any increase in sales as an Amazon ebook will be offset -- and probably much more than offset -- by reductions in sales as a print book everywhere, and likely as an ebook elsewhere as well. The single statistic Amazon has provided has very clear and obvious holes, and we can see through those holes to the likely dataset behind them. As it has done so often before, Amazon has picked one very shiny number and is trying to make it work much harder than it actually can.

[1] I personally work in an end of publishing that rarely dreams of putting out any product as low as $14.99; Amazon isn't even trying to talk to me and my colleagues here. But perhaps it behooves all of us to remember that the universe of publishing books is immensely larger than the tiny ground of low-priced trade fiction, and even more immensely larger than the sub-set of that ground that's made up of e-books.

[2] To put this more bluntly, since a lot of people don't seem to get it: Hachette absolutely wants to see sales of Hachette books increase at Amazon this year and every year -- increase in units and increase in revenue. But they also want to see sales of Hachette books increase at other accounts, and overall. Amazon, like any retailer, wants to crush their competition, see them driven before the heel of Bezos, and hear the lamentations of their women.

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