eBook Pricing

Rumors are flying about the possibility of a negotiated settlement to the EU and US Department of Justice antitrust investigations. In all the discussion, one point intrigues me: what is an eBook?

Where eBooks Come From

In case you've (fortunately) escaped the details, here's the story so far. To begin with, you have to know where eBooks -- and books -- come from. Typically, authors submit manuscripts (most often in Microsoft Word) to publishers. They go through edits and revisions. Eventually, the Word files are run through scripts that strip out editing notes and style indications (for headings, and so forth); the text and formatting is automatically moved into page layout software such as Quark or InDesign. From there, final changes are made, PDFs are produced, and the book is printed.

If an eBook is part of the picture, it is often the case that the PDF file is run through a converter out of which comes a file in the appropriate format for the eReader in question (generally it's a special format for Kindle and ePub or a variant for the others).

Where eBooks Can Also Come From

There's another scenario. In this case, the eBook is constructed much like an app. It's not longer paper (and PDF)-centric. Rather, it's put together like an app -- frequently with the interactivity of a game. There is a large number of tools for making the process easier; perhaps the most widely known is Apple's iBooks Author.

What the Pricing Models Do

There are two basic pricing models for eBooks: the wholesale model and the agency model. In the wholesale model, the publisher negotiates with the wholesale buyer (in this case it began with Amazon/Kindle). The wholesale buyer then resells the book at whatever price he wants. In some cases, the reseller sells the book below the wholesale price (a "loss leader" in retailing). Amazon has been criticized for selling eBooks too cheaply in order to build the market for Kindle.

Meanwhile some publishers (and authors) have pressed for the agency model in which the publisher (not the reseller) sets the price, and the reseller (in this case generally Apple) takes a percentage (30% for Apple). 

In general retail prices for books sold under the whole model are cheaper at this point than those sold under the agency model. Whether or not this situation will continue depends on the market and its players. At this point, Amazon appears happy to gain market share by lowering prices (nothing wrong with that!). In the future, things may change. No one knows.

The litigation from EU and Department of Justice addresses the issue that under the agency model, prices for consumers are higher (and there's also discussion about whether antitrust issues are involved, but we'll leave that aside for the moment).

What is an eBook and How Should It Be Priced?

Now, go back to the discussion of the two ways eBooks are produced:

  • As a byproduct of the traditional publishing process where the final PDF files are transformed into eBook files.
  • As an app that is built from scratch so that the PDF/page layout isn't the center of the process.

The agency model seems to be functioning well for the app marketplace. If it turns out that eBooks are sold under the wholesale model in the future, does that mean that for pricing we will be differentiating between eBooks-from-PDFs and eBooks-from-apps?

If so, it might mean that eBooks-from-apps are more expensive, but, that might not be a serious issue if they are really more than just the printed book on a device (that is, incorporating video, interactivity beyond just turning pages, and the like). Will it be more profitable to produce value-added books in part so that they can be sold under the wholesale model?

It's interesting food for thought.