Cost of Doing Nothing Different - ebooks

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I read an article this morning in the NY Times about the true cost of e-books. It is a great example of the process of estimating costs in a DMAIC project.

They start with the premise that a hardback book costs around $26 with an author getting about 15% royalty or around $3.90. The publisher usually gets paid 50% of a book retail price. By the way, this is what you sell a book to Amazon if you want them to sell it.

It costs around $3.25 to print, store, ship… a book. Typesetting, marketing, copy editing and such costs around $1.80. These costs drop per book if you have a best seller that prints very high numbers.

With all of that, the publisher has around $4.05 to pay for their overhead and staff. What is left is profit.

Now for an E-book, what changes. This is an example of a DMAIC project that you want to estimate the new process costs with a new process.

For the Apple book store, the books will cost around $12.99. From this, the publisher will get around $9.09 to pay royalties, overhead, marketing….. This is a drop of $4 from the $13 of a hard back book. In this case there is no printing or storing (saves $3.25) and the typesetting and marketing drop to around $1.28 (saves $.52) The royalties for these books is not standardized and can run from $2.27 to $3.25. (a reduction to the author of $.70 to $1.70 which is a big deal to the author)

This leaves the publisher between $4.56 to $5.54 per book to pay for overhead and staff. (an increase of $.50 to $1.50)

Now this part is easy to assess. The publisher makes more, the author a bit less, and the consumer pays 50% less for the book. You can see why publishers are not against this shift, but authors are holding back. But what else is there in the calculation.

The e-book model has not money for the Barnes and Nobles of this world. Even Amazon.com takes a big hit. These are some of the biggest customers of the publishers, why would they take this path and hurt their primary customer for their books. The publishers sell to book sellers, not people.

But e-books need to have hardware to view them. You may be using a laptop, a Kindle or other e-reader, a smartphone, or possible the i-pad. This would transfer $ from the book sellers to hardware sellers. But it is a one time cost rather than a per book charge. These expenses are sometimes easier to accept than a higher per book charge and a free reader (sort of like cell phones are subsidized now)

Now for the authors, they get a bit more per book. Yes. But they have a piracy risk that is a lot higher for e-books. What revenue will they loose when people share e-books. Yes, people share real books too, and they are in libraries. The ease of sharing a file rather than a physical book is so different. I can share one e-book with 100 friends at one time. I can only give a real book to one person at a time.

So what is the true $ benefits to using e-books rather than paper books. It is not a simple calculation to get the entire picture. But for a DMAIC project, we want to start with the hard savings, which the NY Times spells out. The downstream impacts are difficult to estimate. We generally tell a belt to list them with out estimating the $. Figure these changes after you have real data. Do not guess.

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