I just read (actually the computer read it to me) a Business Insider interview with Jeff Bezos in which he talks about book pricing. Specifically, the conversation seems to be about eBooks, but the conversation seems to cover books in general—as a medium.

The most important thing to observe is that books don’t just compete against books. Books compete against people reading blogs and news articles and playing video games and watching TV and going to see movies. Books are the competitive set for leisure time. It takes many hours to read a book. It’s a big commitment. If you narrow your field of view and only think about books competing against books, you make really bad decisions. What we really have to do, if we want a healthy culture of long-form reading, is to make books more accessible.

Part of that is making them less expensive. Books, in my view, are too expensive. Thirty dollars for a book is too expensive. If I’m only competing against other $30 books, then you don’t get there. If you realize that you’re really competing against Candy Crush and everything else, then you start to say, “Gosh, maybe we should really work on reducing friction on long-form reading.” –J.B.

Good point. I never thought of it this way. Books, taken down from their high-horse position as the vehicle of intellectual thought, are forced to deliver the same entertainment-per-dollar value to the consumer.

But that’s a very mechanistic and anti-intellectual way of looking at things, don’t you think? Who said books are for entertainment? Who said delivering the feeling of “information buzz,” commonly associated with news articles and feed-based apps, is the universal goal of all media?

Aren’t books valuable precisely because they are different from the torrent of superficial-level information that is the Internet. Isn’t the main point of a book to summarize and distill information (which is plentiful and free) into a high-value package that earns the reader’s attention, not for it’s entertainment value, but for its quality of insight?

If you ask me, we should optimize for value-per-page (or value-per-unit-of-attention if you prefer) not compete on price with other media. The price of a book should be proportional to the value it brings to the reader. The Internet is an amazing tool that allows anyone to access gigabytes of information on any subject in the click of a button. This abundance of information is actually a problem for readers, as they have to separate the wheat from the chaff. This is where knowledgeable authors come in, whose curation and distillation of ideas brings order to the chaos. When we buy books, we don’t buy ideas, we buy the synthesis of ideas.

In the internet era, almost all of the tools for reading have been reducing the friction of short-form reading. The internet is perfect for delivering three paragraphs to your smartphone. The Kindle is trying to reduce friction for reading a whole book. It’s working. […] We’re making books easier to get, more affordable, more accessible. You are getting more reading. Mostly things have gotten better, and we live in a world where I hope things continue to get better. Surely making reading more affordable is not going to make authors less money. Making reading more affordable is going to make authors more money. –J.B.

Hm. That’s a big step in terms of logic. Bezos’ claim is that lower prices will lead to more readers, which in turn will lead to more revenue for authors. It’s a question of two rates: if the authors’ margins decrease at a rate higher than the rate at which their readership increases, the new publishing paradigm will be a net loss for authors’ bottom line.

Overall, I will qualify the Interview as an advanced-level PR effort to dismiss this summer’s battle between Amazon and Hachette over contol of book pricing, which in turn is tied to the existence of non-amazon sales channels. Amazon’s CEO used this interview as a platform to reiterate the same talking points—that Amazon is out, fighting for better prices on behalf of readers. This is a convenient position when you’re in the business of competing on distribution through economies of scale, and your business model is based on offering the lowest price based on the distributor discount offered by manufacturers and publishers. It’s a neat business model, which attracts customers in troves. It works. Good job. But pretending amazon is doing all this on behalf of the customer is a bit intellectually dishonest. The price on amazon is 10–15% cheaper than anywhere else so that Amazon can maintain and increase its market share, and not some sort of act of robynhoodism.

I had a meeting with a business mentor last week (a McGill professor who has started dozens of companies). He helped me realize the most important thing for the company right now is growth—not margins. The success of Minireference Co. depends on how many students read the book by the end of this year, and by the end of the next. We’ll work on the margins once we have scale.

Below are some observations about book pricing for optimal growth.

Amazon technique

Since I listed the book on amazon.com/.ca/.co.uk/.de/.fr, all the print book sales have gone to them (mostly .com but a bit of .co.uk). Why would you buy the book from lulu.com for \$29 when you can get it from amazon for \$25? People are not stupid, even though I link to lulu.com from the main site, they all go to amazon to check if it’s available and order from there.

To be honest, I think the print quality of the books from lulu.com is superior to the book produced by amazon CreateSpace and IngramSpark. I think lulu.com has been in the “print on demand” business for the longest of the three companies, so they know what they’re doing. The print quality of lulu books is very uniform and crisp, unlike the CreateSpace version which had some pages in darker ink and some in lighter. The main reason why I like lulu.com is because their paper is thinner, which makes the 445pp book actually look much more approachable; we’re talking about a difference of 3-4 mm in overall thickness, but the psychological effects are important.

How can I communicate this difference to my readers? Maybe something like “I recommend you purchase the book through lulu.com, because of the higher print quality and thinner paper” could do. Though is this better print quality worth the \$4 extra, which is really \$10 extra when combined with the shipping. I guess I should tell my readers the facts, and let them decide for themselves.

Ingram channel

The other new channel I’ve been working on is the “serious” distribution to bookstores via Ingram. Printing through IngramSpark makes the book available through all kinds of online distributors (e.g. barnesandnoble.com) and also makes the book available to order from the Ingram catalog, which is how most physical bookstores order their books.

The list price is \$29, and the printing cost are \$6.7, which means there is \$22.3 of “value” to split between me, Ingram, and the bookstore. There are two options for the wholesale discount I can offer 55% wholesale discount (bookstore margin: 35%-40%) or offer 40% wholesale discount (bookstore margin: 20%–30%).

If I provide a wholesale discount of 40% (a.k.a short discount or academic discount), the wholesale price is 17.40, which leaves me with 17.40-6.7 = \$10.7 of profit per book sold.

If instead I offer 55% (industry standard, a.k.a trade discount), the wholesale price will drop to \$13.05, which leaves me with 13.05-6.7 = \$6.35 gains per book sold.

After yesterday’s conversation with my mentor, I’m switching to the 55% discount. Give everyone a cut. We’ll jack-up the prices when everyone is hooked on the knowledge buzz that learning mathematics provides 😉 .

eBook pricing

In parallel to the print book distribution, there is the question of eBook pricing. Both the print book and the eBook version have been \$29. Historically, eBook sales have been very good to me, but ever since the book has appeared on the amazons, the eBook sales have slowed to a trickle. Why would you buy a eBook for \$29 if you can get the print book for \$25?

I’m thinking of dropping the eBook price to \$19. Hopefully this will make more sense for potential customers. Surely the years of effort invested to write the best calculus book there could be is worth a twenty…

Devaluating the book

The other consideration to keep in mind in the face of these price deviations from the old price of \$29 is the psychological effects of “perceived value” of the book. How could this be a good book if it’s just \$25? Mainstream university-level math and physics textbooks cost hundreds of dollars. Specifically, \$190 for precalculus, \$209 for calculus, and \$192 for physics. How can your book cost only a fraction of that and be of comparable quality? No way, I don’t believe it!

I had picked the price \$29 to be as low as possible (looking out for the student’s interest) while still making the book business profitable for me. As the price is dropping below \$29 due to discounts, the situation with the “this book looks suspiciously cheap” problem is getting worse. I might think about bringing the price up to \$39 for the 6th edition, to better communicate the value.

Take home message

There is a general lesson to learn here, which is advice I’ve heard from several successful entrepreneurs, but I never took seriously until now. Price your products for growth not profit. You might lose some money at first, but reaching a wider audience is worth much more than short term profits.