It’s time to take another look at The Race to Zero and the possibility that ebooks end up at prices that are -
- Unsustainable for Publishers.
- Unsustainable for all authors outside the Top 1% of authors.
- Harmful to the quality of books and to readers’ reading experience.
First, a little context.
What is the Race to Zero?
It’s the assumption that, as markets free up and restrictions go down, book prices will go down drastically.
In a perfectly open market, when there is more supply than demand, prices go to zero.
In a perfectly open market, prices go to zero even when supply does not outstrip demand because of the lottery effect, i.e. the products at the top of the sales charts make a lot of money even if they are priced low (due to the extremely high volume of sales seen at the top of the charts). Every producer/creator/writer/developer assumes/hopes that hitting a top spot is a feasible and likely outcome for her product and prices her product accordingly.
In a market like the iPhone App Store or the Kindle Book Store (or, for that matter, even the Internet) there is a very big reward attached to being #1 or #2 (or even being in the Top 100). Products in these slots generate huge amounts of revenue even if they are priced quite low.
While there are very few such slots, the slots seem within reach to everyone. Every single author out of the millions of authors writing books see those 100 spots and thinks getting a spot is a possibility. Why not me?
It’s a valid question. What causes the problem is the sheer number of people asking the question.
Most product creators/producers start pricing their product as if it is guaranteed to hit the Top 10 - they will make up in volume what they are missing out on in terms of per-sale profit. The net result is that prices plummet – often to unsustainable levels.
The Kindle Store has partially avoided The Race to Zero
In the Kindle Store, you see a few factors that are propping up prices -
- Publishers control most of the ‘proven’ authors. To add to that they are snapping up some of the indie authors that are finding independent success.
- Amazon has a $1 price limit which puts a floor on prices.
- Amazon offers 70% (as opposed to 35%) if you price your book over $2.99.
As more and more quality authors self-publish, the first limitation will disappear. The second might never disappear – However, the fact that there is a Top 100 Free Bestsellers list, and the fact that 100+ free books are offered every month, suggests that this price floor is being circumvented to an extent. As more and more competitors arise (new Publishing Platforms and new bookseller sites), the third will disappear – Keep in mind that until Apple entered the market Amazon used to give indie authors 35% and Publishers 50% to 65%.
Basically, the three main factors that have prevented The Race to Zero in the Kindle Store are all artificial and being whittled away.
Where the Kindle Store currently stands
Top 100 – In a stark departure from a few months ago, 18 out of the Top 20 items are above $5 in price. However, the picture isn’t as pretty for the overall Top 100. 46 out of the Top 100 items are at or below $5. An astounding 31 out of the Top 100 items are at $1.
That last number is interesting – How many Publishing Houses could survive in a world of $1 books?
Please note that this is in addition to the Top 100 Free Books List – which is listed right alongside the Top 100 Paid Books List.
Combine those two lists and you get another scary factoid - At least 130 out of the Top 200 bestselling items in the Kindle Store are at $1 or below.
The Race to Zero is well underway. In 2008, there used to be 3 to 4 free books and 2 to 3 $1 books in the Top 100. Today, on May 15th 2011, 130 out of the Top 200 bestselling books are $1 or $0.
How Might the Race to Zero Progress?
The best case scenario is that there is a complete reversal and the strange pattern in the Top 20 ripples throughout the Kindle Store – 50% of items over $10, 90% of items over $5, and 10% of items below $5.
John Locke was taking up lots of spots and has faded a bit. Amanda Hocking was taking up spots and Publishers snapped her up. So, it seems as if Publishers have righted the ship.
However, what if this is a temporary respite.
The worst case scenario is that the Kindle Store continues The Race to Zero (instead of reversing it) and ends up like the iTunes store -
- 9 out of the Top 10 Apps at $1.
- 41 out of the Top 50 Apps at $1.
- 81 out of the Top 100 Apps at $1.
If the thought of having 81 $1 books in the Kindle Store Top 100 seems improbable, consider the jump from 2008 to 2011 -
- 2008: 3 free books in the Top 100, 6 total books below $5 in the Top 100. Approximate numbers – you might get a little variance based on what stretch of 2008 you pick.
- 2011: A separate bestsellers list for free books, 46 total items below $5 in the Top 100.
It’s quite possible that in another 3 years books below $5 will capture 80% of the Top 100 paid spots. In fact, there’s nothing stopping $1 books from increasing their share of the Top 100 from 31% to 70% or more.
What Happens to Authors & Publishers if The Race to Zero take over?
Quite frankly, it’ll be hard for any company to survive on $1 books. Just the overhead of electricity and office rent will eat up most of the money $1 ebooks would generate. Unless a company can scale up massively without increasing employee numbers (like Craigslist), or can sell readers something in addition to ebooks (like Amazon), there will be very little profit in producing/publishing books.
It’s different for the platform since it is making money from every single book sale. Platforms can prosper because they get a 30% cut on every ebook sold.
Amazon and B&N are well placed because they make money from every ebook sale, they make money from device sales, and they make money from sales of things other than ebooks – For them selling $1 books becomes customer acquisition (remarkably cheap and remarkably effective customer acquisition).
For a Publishing company that makes bets on books – It becomes almost unsustainable to keep producing books. Your very big hits just won’t make enough money to sustain the failures and the inefficient business practices.
For published authors it’s a nightmare – they have reached the comfort zone of making a living from writing (in some cases even fortunes). That will gradually change. Those making tens of millions of dollars will make millions, those making millions will only make enough for a somewhat comfortable life, those making a healthy living will have to find other jobs, and everyone else will have nothing.
For independent authors, it’s a big opportunity to take up some of the Top 1,000 spots. The Top 100 spots will be the prize, and the Top 100 spots in the genre lists will be the consolation prize. Those writers will make a good living. The Top 100 might even get rich.
Below the Top 1,000 it’s going to be very, very difficult. There won’t be enough money for existing Publishers to survive and newer Publishers won’t have the money or resources to take care of all the things authors hate to do – marketing and customer service and cover design and talking to people and planning and book-keeping.
What happens to readers if The Race to Zero takes over?
The good – lower prices.
The bad – lower quality, authors producing fewer books.
If you read mostly bestsellers, then it’s not an issue – There neither the quality nor the quantity of books published will suffer. There will still be enough money for authors who can reach the Top 100 and stay there.
If you read anything else, you will see a massive drop-off in quality and probably a sharp drop in quantity of good books published. Authors will not have as much time to write because they won’t be able to depend on writing for a living. Publishing Companies that survive, and the new ones that rise up, won’t have enough resources and money - they won’t be able to devote as much attention to quality.
The current problems with indie books will become the status quo – poor editing, awkward covers, all sorts of mistakes, lack of finish. We might even get the additional bonus of advertisements in books. These will generate enough money to make their way into books - but not enough to improve the quality of books.
Prices between $5 and $10 are sustainable – for authors, for book quality, and for companies in Publishing. Prices below $5 are probably not. The bad news is that book prices are definitely going below $5 and might fall all the way to the $1 to $3 range.
Readers are going to find out that while printing and shipping and paper might not be a mere 10% of the cost of making books - it definitely isn’t 90%. If $0.99 becomes the new standard, and replaces $9.99, we are going to be quite painfully reminded (with every book we read) that the $9 difference wasn’t all Publisher inefficiency and greed.
Filed under: publishing
