Kindle Economics – Will lower priced Kindle Books pay You back Your $359?

The short answer is – No.  Don’t buy a Kindle hoping you’ll magically earn back the $359 in a year.

Truth is, you are never going to get back that $359. All the fancy projections you are hearing about how buying x books a month will get you your $395 back in a year are nonsense. I’ve spent a lot of time trying to figure out the ramifications the Kindle would have on user behaviour and the truth is that a lower book price point and the ability to make purchases so easily points towards you spending as much, if not more, than you spent on books earlier. That little mini-analysis too, is just conjecture. Any analysis is meaningless in the face of actual events and actual human behavior – as the current market crisis is so acutely pointing out.

In fact, the only analysis you should pay heed to, is this specially commissioned one -

Real Truth of Kindle BreakEven
Real Truth of Kindle Break Even

In the rest of this Kindle Economic De-Analysis post I’m going to do two things -

  1. Explain why justifying Kindle’s $359 price point based on lower book costs is a wrong line of thought.
  2. Walk you through an alternative way of looking at your current or prospective Kindle Purchase.

1. The Kindle is going to increase the book bang for the buck you get, and not save you any money.

Mr. Bezos himself said that Kindle owners make 2.6 times the number of purchases they used to -

He also said that Amazon has observed no decline in the number of traditional books purchased by Kindle customers after they got the device. In fact, Bezos said that Kindle customers now order 2.6 times as many total books — both print and electronic — as they did before purchasing the e-book reader.

Edit: Corrected this after persephone’s comment.

Even if you factor in that some of that increase is in lieu of books bought from Non-Amazon sources, and that Kindle books are usually half the price, that doesn’t point at great savings overall. You are not going to be spending less money on books. A big foundation of reckless consumer spending is the delusion that sales and deals save you money. Buying an item at 25% off still means you’re paying the 75% part that isn’t discounted. Market Research shows that people tend to spend much more during sales and when offered deals. There’s a reason that 75% of annual retail profits are made during Christmas shopping season – in the midst of Christmas, Thanksgiving, and New Year’s sales.

I’m sure no one wants to hear that they’re not going to make back their $359 – because you want to justify buying the Kindle based on imaginary future savings. Well, it’s not going to happen. For every one comment I hear from a Kindle owner about how they’re saving money with cheaper prices, I hear three about how they’ve been buying way more books.

An advertisement I love is Peyton Manning telling the viewer – ” Face it – unless you’re 21 or a professional football player, you’re probably never going to have washboard abs”. It’s time to face the fact that unless you’re buying the Kindle primarily to practice thrift or you have insane willpower you are probably not going to reduce your spending on books.

It takes a lot of willpower to have a Kindle and have all these books at your beck and call and cut your reading budget. Its doubly tough if you love books and at any level prescribe to this sort of thinking -

If I have a little money I buy books; and if any is left, I buy food and clothes. – Erasmus.

Having a Kindle with half priced books, instantly available – I find it hard to imagine anyone who loves books being able to reduce their spending on books in this situation. And the official word from Amazon seem to support this hypothesis.

2. Have the Right Expectations about what that $359 is buying you, and how to get the most out of the Kindle.

The good news is – Once you have your Kindle, you’ll probably spend the same or a little bit more, and get nearly twice the amount of books and reading. That’s really good value for money. Here are a few tips to help you get even more book bang for the buck -

  1. Have a monthly budget. At the minimum review your purchases.
  2. Use sites that provide free books for the Kindle – use my post on free kindle books. It’s the most popular post on this blog for a reason.
  3. If money is tight, read blogs for free, rather than paying for them. Tip #5 in this list of Kindle Reader Tips & Tricks gives you a variety of options to get blogs for free on the Kindle.
  4. Search around on forums (there are links on the top left of the page) for free books, and such. We even have a section on this blog updated with free book offers.
  5. Use much more of the browser and Wikipedia. There is a lot of good and fascinating material hidden in the pipes and tubes of the Internet.

There are a lot of other benefits that come about as a result of reading in general, and reading on the Kindle in particular -

  1. It’s easier on the eyes than TV and PCs. If you’re using a larger font size then its probably better for your eyes than physical books.
  2. You’re saving a lot of trees.
  3. You’ll probably be reading significantly more, and if you love reading, more is definitely better.
  4. You get back a lot of your time – waiting at the doctor’s, on the bus, in between other activities.
  5. As opposed to watching TV which dumbs you down, reading actually makes you smarter. My middle school library had a quote similar to this one (it also had the Erasmus quote – guess education is worth something after all) -

It is chiefly through books that we enjoy the intercourse with superior minds… In the best books, great men talk to us, give us their most precious thoughts, and pour their souls into ours. God be thanked for books.   – William Ellery Channing.

I’m hoping people can have a more realistic set of expectations about the Kindle, and that you can make a more well informed decision regarding buying the Kindle. Telling you you’ll save more than the cost of the Kindle in just a year or two, might tempt you into making a purchase today. However, the wrong expectations would actually take away from all the great value you can get from this device. More importantly, it might show you that perhaps the Kindle isn’t the device for you, or perhaps that now isn’t the right time.

13 Responses

  1. With all due respect, I find your logic to be flawed. The Kindle does, in fact, save you money on books. That some people spend more as a result of the savings is irrelevant.

    Say during a normal year I buy 10 hard cover books with an average cost of $25. This year I am a Kindle owner, so I buy those same ten for Amazon’s $9.99 a piece. This year I would spend $99.90 as opposed to my usual $250 budget. A savings of $150.10. Say I apply this money towards buying more books instead of putting it in my pocket. $150.10 will buy me 6 additional hard cover books at the average price, or 15 additional Kindle books at the $9.99 price tag.

    Mind you, that is 6 or 15 books I would not have been able to read with this budget before. That is more reading material, more value, more product for the same amount of money. I would have gained more books as a result of my Kindle usage. It is almost like getting 15 books for free as a non-kindle owner. If I were to buy those extra 15 books before I had the Kindle I would have spent an additional $375. More than the cost of the Kindle. In short, by spending the same amount of money as usual, the Kindle has already paid for itself.

    So whether I pocket the $150.10 or apply it to buy more books, I am still getting $150.10 of additional value out of my budget. In either case I am still saving. The only way I could not save is if I burned every book or deleted every Kindle file I purchased with that extra money. Your logic would state “you still spent that money, so you saved nothing,” but the reality is that I still saved. It’s just that my savings are coming in book form instead of cash. I’m getting more mileage out of my money. More product for the same cost is profit, not deficit.

    Human behavior does not negate the mathematics of the situation. Perhaps they will buy more books because of the lower price. But the key point here is that they CAN. They are gaining, not losing. They should be celebrating the extra books they’re gaining for the same money. I certainly know that if I bought the same amount of physical books as I do Kindle books I would be spending a LOT more than my normal budget, and I have not even entirely consumed my saved money on Kindle books yet, so I still have some monetary savings left over.

    The pessimistic view often seems like the more realistic one, but that does not make it so.

    • You didn’t factor in the cost of the Kindle itself. So instead of saving $150, you actually went over budget, which was one of the points of the article. Plus, Jeff Bezos knows you’ll spend more money on books than you did before because they’re so easy to get.

  2. i have kept very careful track of my purchases and savings this year since buying my kindle, and i hit the break-even point 6 months and 3 weeks after purchase. i define the break-even point as the point where the cost of the books purchased from amazone so far plus the cost of the kindle is lower than the cost of those books alone at retail.

    no matter how you slice it, that IS “the kindle paying for itself”… look at it like this… make two stacks. on the left, stack up all the books from retail. on the right, stack up all the receipts from the purchase of the same books in kindle format and put the kindle unit itself on top. BOTH those stacks would have cost the SAME amount for the SAME books. take away the books from both piles and youre left with… what? thats right, an effectively FREE kindle.

    the simple truth is, i would not have purchased a kindle had i not been certain it was possible to reach that break-even point in a year or less. before i bought the kindle, i actually went through the kindle store and put into a spreadsheet books i was wanting to buy, their retail cost, and the kindle format cost… if i hadnt been able to list enough books to hit the break even, or if it had required more books than i could have reasonably read in a year (120), then i wouldnt have bought it. (yeah, i know. both my parents are accountants. i cant help it.) i bought mine when it was still $400, and i had no trouble at all hitting that break-even point.

    were it not for the large selection of books in the kindle store, combined with the often very good discounted prices, i wouldnt be a kindle owner today.

  3. Caion – we’re saying the same thing.
    We both agree that you get more books for the same price.

    I’m just pointing out that people who think they’re going to spend less on books, and make up the Kindle’s $359 price are being misled.

    Are you going to get more bok value for your money – Yes.
    Are you going to spend less – Almost certinaly not.

    Radio_Babylon,
    What you actually should do is compare the cost of the Kindle and books you bought in 6.75 months since Kindle purchase against book purchases you made in the 6.75 months BEFORE you bought the kindle.
    let me know which figure is higher. In fact, subtract the cost of the Kindle and compare and let me know which figure is higher.

    *** We’re arguing different things here.
    I’m saying that you should look at total expenses – period.

  4. The Kindle is a great alternative to large print books, especially if
    you’re looking to save money. The average large print paperback is
    about $30. On my Kindle, they’re obviously at least a third of the
    price. Switching from large print books, it will eventually pay itself
    off.

  5. @switch:

    thats easy… i spent almost the same amount (within $30) in the 7 months preceeding the kindle on books alone as i did in the 7 months after purchasing the kindle INCLUDING the cost of the kindle. (and yes, i do keep track. yay for ms money and online banking :) ). the kindle really DID pay for itself in a little under 7 months. i read at a steady rate (almost always 120 books a year, +/- 5 or so books), and im currently right on track for that target for the 12 months after buying the kindle… except i will have spent less (a LOT less as it turns out) buying kindle books pver that 12 months even including the cost of the unit itself.

    its very simple: there is a REAL, calculable set of book purchases whereby if you summed the cost of those books in kindle format (CBK) and add the cost of the kindle reader (CKR), the amount is EQUAL to the summed cost of those SAME books at retail (CBR). in other words:

    CBK + CKR = CBR

    since the books in this equation are the SAME, you can cancel them out (you purchased and read the exact same set of books under either option) so what youre left with in the equation is:

    CKR = 0

    in other words, the cost of the kindle reader was: zero. free. gratis.

    this is EXACTLY the same, in economic, practical, and mathematical terms, as the “book club” discount cards some retailers sell and how you determine their break-even point.

    for the purposes of simplification, lets say the barnes and nobel card costs $50 and it gives you a flat 10% discount across the board on book purchases. (i know that isnt how it works, this is just for easy math’s sake.) the card has a break-even point, whereby at that point you are indifferent to having the card or not, in other words you will have spent EXACTLY the same amount for EXACTLY the same merchandise, with or without the card.

    in the example case, that amount is $500 pre-discount worth of books. at that point, with the card your cost is $450 + $50 for the card, versus $500 for the same books without the card. if you buy less than $500 worth, you wasted your money. if you buy more than that, you make money off the deal. at $500, the card was, in effect, free. it paid for itself. after that point, it is BETTER than free, as it actively saves/makes you money. (this ignores the utility value of that $50 over the period of time it takes to buy $500 worth of merch. its an issue, but it complicates things somewhat, and isnt germaine to the arguement.)

    in this respect, the kindle reader is IDENTICAL to a (very) expensive book club card. one that carries a highly variable discount, which makes it harder to calculate when it has paid for itself. but it IS possible to calculate, and it IS effectively free at that point, and it DOES effectively make/save you money past that point. period.

  6. to sum up the “kindle equation” for all the TL;DR folks:

    B1 = some set of books
    B2 = some set of books
    K = amazon kindle

    break-even point is:

    cost in kindle store (B1) + cost (K) = cost in retail (B2);
    B1 = B2; (the set is identical)
    it follows that:
    cost (K) = 0;

    if that makes more sense.

  7. radio, that’s impressive. it really is.

    you’re obviously not one of the kindle owners who’s buying 2.6 times the books they were earlier.

    I wonder what percentage of kindle owners spend less on books after buying a Kindle, what percentage spend the same, and what percentage spend more.

  8. well, firstly, it would be really difficult for me to read MORE than 120 books a year. if i wanted to hold down a job, anyway :)

    but even if someone is reading 2.6 times more than they did, whether you realize it or not, they ARE saving money, and the kindle IS effectively free for them once they hit the break-even point, even if theyre spending more now than they used to.

    the fact theyre reading more (and thus, spending more) doesnt change that fact. its the same as the discount card i discussed. suppose someone normally only bought $200 worth of books a year. they then get pitched for the discount card (the hypothetical $50/20% card) and decide to get one, and as a result, instead of just hitting the bookstore now and then, they make it part of their routine and start shopping there every week. at the end of the next year, theyve bought $600 worth of books, 3 times what they did before… but that is irrelevant, the card was STILL effectively free the moment they crossed the $500 mark.

    reading more or less than they did before is immaterial when determining whether or not the kindle has paid for itself… the only thing that matters is, did they save as much as the purchase price of the kindle over the retail cost of the books they DID buy. if the answer is “yes” then the kindle WAS free. the fact they may have read 2.6 times more than before, and thus spent more, is a completely different issue that has nothing to do with the break-even cost of the kindle itself.

  9. To expand on the large print books, a friend who buys only large print books, hopefully from the used book store at half price but usually at full price bought a Kindle even though she doesn’t have a computer. Her first book, not available in large print but from her favorite author, cost $6.40 for the Kindle. Her second, third and fourth books cost zero, thus so far saving her 4×30-6.40 if she had bought all new or 4×15-6.40 if she had bought used.In any event, if she keeps this up she is going to eventually be able to all the Kindle free. This doesn’t even consider that she has difficulty holding up a large print book at all, especially in bed. Since she does not read any more or any faster than before, and has the rest of her life or the life of the Kindle, whichever is shorter to amortize the Kindle, one can see that she is going to eventually surpass the breakeven point, and if she dies before that of old age (she is pushing 80), then she really will not care.

  10. The logic is flawed here. Just because kindle owners buy 2.7 times as many books as non-owners does NOT mean that people buy more books after buying a kindle!! Perhaps the people that buy kindles are avid readers who already bought 2.7 times as many books as the “average” amazon book purchaser. Kindle owners are still a small population compared to the vast numbers of non-kindle owning Amazon book purchasers. When Bezos gives an average number for non-Kindle owners, he’s got to include casual readers who buy a couple books a year (possibly non-readers who buy books from others’ Amazon wishlists only as gifts, even).

    For the above statement to have ANY merit, we’d need to compare the number of books that KINDLE OWNERS purchased before owning a kindle to the number of books that KINDLE OWNERS purchased after owning a kindle.

    It’s called correlation, not causation.

  11. @persephone
    actually Bezos said they make 2.6 times the number of purchases that they used to (including print and electronic). i’m editing the actual post since i got that wrong.

    i’m saying that the facts indicate that there is a higher probability that kindle owners are spending as much or more on books, than they are spending less.
    Yes, they are getting more value for their money – however, their expenses due to books are not going down.

  12. Switch
    Ahhh, well then that does make sense now that it’s edited! (Sorry, I’m a lawyer and I get into nitpicking things like that ;). Thank you and I do agree with what you said.

    At least those people who choose to can lower their costs by consuming the same amount of books that they used to. I personally am all for getting more value for my money, and this post inched me a bit closer to getting a kindle. I’m an avid reader, but I have arm pain due to a neck injury, and I think the kindle is much more ergonomic! Also, I love the idea of instant gratification :)

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