As the downward pressure on e-book prices continues to increase, publishers should pause long enough to realize that there is no need to have a race to the bottom, to the free e-book. Publishers themselves really are the ones to blame for the emerging pricing situation, as they continue to treat e-books like digital replicas of print books, doing quick text-to-digital conversions, which typically don’t even offer the same capabilities as the print versions—try sharing your latest great e-book with a friend. It’s no wonder the consumer value perception of e-books is in question.
Publishers will likely be stuck in this low-price world until they wake up and start leveraging the medium on which the content is delivered, increasing the real value as well as the value perception for readers. This means providing richer content but not adding content for content’s sake: the additional elements need to be well thought out and enhance the reader’s experience in a logical way. The work done to create The Elements app illustrates this point nicely. In a 2010 interview with the blog “O’Reilly’s Radar,” Theodore Gray, author of The Elements, said: “Just adding something that rattles around on the page does not mean you have enhanced the reading experience or added to the user’s understanding of the subject. The interactivity in The Elements is very minimalist, and this is one of its strengths. There were a whole lot of ideas for interactivity that we didn’t put in because they didn’t pass the test of actually making the book better.”
Some industry members believe the free e-book is inevitable, but even if this comes to pass, it doesn’t mean it should be the entire pricing model. Those who argue, for instance, that books can be free if we offset costs with in–e-book advertising haven’t been paying attention to other media experiences. One need look no further than the newspaper industry to see how well a business model based on practically giving away a product funded by advertising revenue is working out. And in many cases, newspapers’ online content actually is free. As advertising revenues continue to dry up, newspapers are having to backpedal and try to sell this content readers have become accustomed to getting for free. There’s an important lesson here: people are already accustomed to paying for books. It has to be easier to keep customers paying than to convince them to pay for something they expect to get for free, especially if the content delivers quality. Amazon already is testing the advertising revenue model on its Kindle devices, and it likely won’t be long before it ventures into ad-subsidized e-books in order to offer consumers cheaper, or $0, pricing on e-books. But in the long term, this sort of model isn’t likely to be sustainable.
One of the most crucial elements to the future of e-book pricing is the consumer value perception, in which publishers need to realize they have a hand. The loss-leader model might be a good way to get a consumer in the door, but it’s not an intuitive or sustainable model for books, which are often one-off purchases. More importantly, what does using a loss-leader model do to the worth of books? O’Reilly general manager and publisher Joe Wikert recently took a look at a related topic and noted the big-picture issue: “Think of the premium products you’ve bought or admired. Oftentimes their prices are higher than most of the competition’s. What would happen if those prices were suddenly significantly reduced? Would those products retain the full value of their premium brand? Highly unlikely.” Dropping e-book prices to zero tells consumers the value of those products is exactly that.
The e-book pricing conundrum comes down to what consumers will pay for, and the psychology behind consumer shopping decisions may be instructive in the struggle to establish a sustainable e-book retail arena.
In 2008, behavioral economist Dan Ariely presented a pricing example from an Economist subscription offer to illustrate the principle of irrational buying behavior. The offer included three choices: a one-year Economist online subscription for $59, a one-year print subscription for $125, and a combined one-year print and online subscription for $125. Ariely presented the offer to 100 MIT students: 84% wanted the combo deal, 16% wanted online only, and no one wanted print only. He then prepared another version of the offer without the print-only option—removing the option nobody wanted—and presented it to another 100 MIT students. Now 32% chose the combo deal and 68% chose the online-only option. Ariely explained: “What was happening is the option that was useless in the sense that nobody wanted it, but it wasn’t useless in the sense that it helped people figure out what they wanted. In fact, relative to the print-only option, the print plus Web option looked like a fantastic deal, and as a consequence, people chose it.”
Similarly, Derek Thompson at the Atlantic recently took a look at consumer buying behavior and, citing an example from a new study, presented this scenario: “You walk into a Starbucks and see two deals for a cup of coffee. The first deal offers 33% extra coffee. The second takes 33% off the regular price. What’s the better deal?” The majority of respondents in the study decided the offers were about equal. Thompson broke it down, highlighting the psychology behind the phenomenon: “The deals appear to be equivalent, but in fact, a 33% discount is the same as 50% increase in quantity. Math time: let’s say the standard coffee is $1 for 3 quarts ($0.33 per quart). The first deal gets you 4 quarts for $1 ($0.25 per quart), and the second gets you 3 quarts for 66 cents ($0.22 per quart). The upshot: getting something extra ‘for free’ feels better than getting the same for less.”
The lesson here for publishers? If offering options nobody wants can succeed in making the up-sell look like a great deal, and consumers psychologically prefer to get extras “for free” as opposed to a straight discount or a cheaper price, maybe the solution to the e-book pricing dilemma is to leverage the concept of “premium.” Kevin Kelly, senior maverick at Wired magazine, talked about this at TOC 2011 in his keynote address, “Better than Free: How Value Is Generated in a Free Copy World.” In his talk, Kelly argued: “In a world where everything is moving to the free, we have to have a different attitude.... The only things that become valuable are the things that cannot be copied ... Let me give you one example: immediacy.... So, you’re not paying for the copy, you’re paying for immediacy—if you can eventually get anything you want for free if you wait long enough, but if you want it as soon as the creator has created it, the artist has made it, you’re willing to pay for the immediacy of it.”
So, readers will pay for the experience, the intangible “extras” that create value: the speed of delivery, enhanced content “extras,” personalization, quality of the brand and of the customer service, for example. For the goal of controlling and maximizing the quality of the consumer experience, it becomes more important than ever for publishers to consider direct sales channels as well. Forbes contributor Nick Morgan recently made some predictions about the future of publishing, and his second point hit the nail on the head: “Traditional publishers have one chance left: form a relationship with readers.” If anyone doubts the importance of establishing this relationship, just take a look at Amazon’s personalized consumer strategies and how they’re working out.
As the industry navigates the new digital terrain, there are many e-book pricing models and new publishing business models emerging—selling content subscriptions, selling content in chunks, and even crowdsourcing content revenue, just to name a few. And more models, perhaps along the lines of what Kevin Kelly predicts, are sure to come. The important thing is not to rush into a model that may appear appealing to consumers in the short term, but is actually unsustainable and detrimental to consumer perception of the value of the products we make.
Jenn Webb is the TOC/O’Reilly Radar editor.