Lots of people have been sending over the blog post by the CEO of book publisher Macmillian, John Sargent, trying to explain the company’s ebook plans, following all the hubbub over its fight with Amazon. I was going to write up a long blog post about how backwards-facing Sargent’s viewpoint is, but frankly, Mathew Ingram, over at GigaOm, already wrote up the post I would have written (eerily, almost word for word). Go read that post.
In addition to Mathew’s points, however, I’d add that Sargent seems to think that pricing is done by producers, rather than the market — and historically when companies in competitive markets think that way, they end up being in line for a very rude awakening. Economic forces don’t work the way they do because someone wants them to work one way — they work because that’s how markets function. And if you price something too high, the market lets you know. But Sargent doesn’t seem to get that. Instead, he’s trying to set up totally artificial and made up pricing — which becomes really evident in his idea that “hardcover” ebooks will get one price, while “paperback” ebooks will get another. It’s not difficult to understand Sargent’s thinking here. He’s still thinking in terms of protecting the traditional windows and the traditional profit margins, and that means high-priced hardcover books for a year or so, then lower cost paperbacks later, in an attempt to segment the market. But with ebooks, that’s going to lead to frustration and confusion. As someone named CM Harrington noted in a comment on Sargent’s own blog post:
So how much more expensive is hardcover e-ink over paperback e-ink?Your model is doomed.
One of the reasons why economic forces work the way that they do, and the reason why infinite goods with zero marginal cost get pushed in price towards zero, is that buyers implicitly understand the difference between scarce goods and abundant goods. They implicitly recognize the marginal cost of making another good, and they mentally price products accordingly. Pretending that consumers don’t do that is assuming that consumers are stupid. And that’s an even bigger mistake than looking backwards instead of forward.
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