As for nonfiction, we’ve gone through this discussion before. I’d hate to see all nonfiction writers at the mercy of universities, foundations, etc., when they were seeking advances.

I continue to be obstinately in favor of mixed business models. In some cases, yes, great works will happen just because people feel compelled to write them. But it is dangerous to stake the whole future of the book industry–which produces plumbing manuals, not just Genius Works or reprints of public domain works–on “free.”

OK. Keep at it, whether you were ironic or not. Debates like this are a good part of the reason why the TeleBlog exists.

Thanks,
David

Yes, please, let prices be. We’ve shed the shackles of communism in most of the world; please lets not bring it back, no matter how liberal you are.

Looking at Britannica’s history you see that their success was made through door to door (amongst many other) sales efforts that emphasized the educational value and prestige of owning the world’s greatest encyclopedia. What middle and upper middle class parent would turn down such a resource for their kids – especially one that looked so wonderful on thier living room bookshelves? Britannica’s ear for a sales angle was pitch-perfect by marrying education and “classy” furniture.

In the era of electronic media, Britannica was able to offer far, far more content – in a variety of forms (audio, video, etc) and deliver that content in a smaller, neater, and more compact form – the CD-Rom. Who could argue with the notion that the value of the product was enhanced by the CD-Rom’s capabilities and therefore pricing should logically follow the print price – if not higher. As what happened is well documented – Microsoft releases Encarta at $200 and gives away a version to Office buyers. Britannica’s effort to sell based on prestige and the educational value of the product sets them into a tailspin – and their troubles are only starting. Now Wikipedia comes to the market and not only delivers a magnitude more in entries, it further proves that consumers simply didn’t value Britannica primarily for its content. Free and somewhat unreliable content has clearly won the day over what Britannica offered.

So applying this lesson to ebooks, I believe that it’s the inherent value of the content that will drive pricing, not the package. If it means anything to have the Oxford imprimatur on a reference book or scholarly monograph, then it will drive the value. If it turns out that libraries and consumers have been buying these books for years because we have done such an excellent job of selling and packaging our products then our e prices will fall dramatically. The reality is that a combination of brand, content, and author pool has driven our product value and nothing should change as a result of the change from p to e.

Going back to Britannica for a moment – they are now trying to compete with free content. The value of their content was never as great as they imagined when the CD-Rom era began and now they must compete with a free product and how do they do it? They go back to basics and start pointing out the value of their content, authors, and vetting process. They cannot compete in the business of content scope, nor can they derive value from their packaging or sales pitch. They must slog it out in the value of content game – and its tough going against the ubiquity of Wikipedia.

The lesson for me is that Britannica learned the hard way that one cannot lose sight of the true value of the content. If the world finds the content you are selling to be unique and of great value then the world will pay accordingly. Pricing e-content is just the same as pricing p-content – value based. Artificial scarcity doesn’t drive prices in books, content value does.

The rationale outlined above for setting prices appears to rest on a reasonable heuristic, but it is severely flawed in my opinion. Contrasting a new product to existing products and attempting to assess comparative value is a good first step. However, consider the experience of the publisher of Encyclopedia Britannica. Since an encyclopedia is a reference work one might argue based on the reasoning above that the electronic version on CD-ROM or DVD should be sold at a significantly higher price-point than the multi-volume paper version.

Unfortunately, the Britannica publisher suffered an enormous economic shock because it was unprepared for the transition to electronic references. Britannica charged from $1,500 to $2,200 for the paper version of the encyclopedia in the 1980s. In the 1990s Britannica released a CD-ROM version for $995. By 1996 the price of the CD-ROM was $200. (Price information is from Wikipedia.) Electronic encyclopedias are now sold at a small fraction of the price that multi-volume paper editions once obtained. One reason for the downward price pressure was probably the creation of an encyclopedia called Encarta by Microsoft that was sold at a much lower price than traditional prestige encyclopedias. In recent years Wikipedia presents another challenge to companies that are trying to sell encyclopedias. Note that I am not asserting that Britannica, Encarta, and Wikipedia are of equivalent quality/coverage and completely substitutable. Indeed I do not believe that is true, but I do believe that a market environment forces a price interconnection/linkage.

A product such as e-books interlocks with several fast-changing technologies, e.g., communication networks, digital memory, computers and LCD screens. In the technological sphere price setting is often a very different exercise. Imagine a company like Intel attempting to set a price for a new chip that runs twice as fast as the previous model. Since the new chip is twice as fast and fits in the same space one might argue based on a “value approach” that the price should be double plus a premium. But the corporate chiefs at Intel know that price pressure acts relentlessly downward on computer chips. They know that they must continuously improve the price-performance ratio.

Now imagine a company that sells hard-drive memory units and suppose that the new model has double the memory capacity and is able to access data more quickly. The company executives know that the price will be rapidly discounted from double the price of the old model. Similar pressures confront communication companies since the bandwidth of communication channels continues to grow. In summary, the “comparative value approach” to setting prices does not work cross-temporarily in the technological sphere.

Can e-book prices really fall dramatically? Can the value provided by e-book publishers and authors really grow substantially? Yes, it can because the current e-book market is based on an ill-considered and impoverishing notion of artificial scarcity. Consider a book that is sold to ten-thousand people for $10 each. The same amount of money would be raised if the book is available to one-million people who each pay one dime. Indeed the same money would be raised from one-billion people who each pay one-hundredth of a cent. Publishers and authors should strive for ultra-wide e-book availability in my opinion by constructing very large libraries and charging low access fees. See the comments on the article entitled E vs. P prices: How heavily to discount e-books? for some ideas concerning alternative approaches to the current e-book market.