10 Thoughts on Amazon’s handicapping of $1 Kindle Books

Update: Added some data points from 2011 to better explain why the disappearance of $1 Kindle books from the Bestsellers List is so strange.

First, let’s look at how many $1 books there are in the Kindle Store Top 100 right now -

  1. The highest selling one is at #17.
  2. The second highest selling one is at #28.
  3. A cluster of three at #34, #36, #38. Including one by Paulo Coelho.
  4. One at #48. That’s 6 $1 books in the Top 50.
  5. Another at #68.
  6. One at #95.
  7. One at #98. That’s 9 $1 books in the Top 100.

The highest selling $1 book is only at #17. There are only 9 $1 books in the entire Top 100.

This is very interesting for a few reasons:

  1. In 2011 $1 books were beginning to really take over. We had lots of independent authors releasing books at $1 and hitting the Top 100. We had indie authors who at various times had one or two or three $1 books in the Top 10 (Amanda Hocking, John Locke).
  2. In 2012 this suddenly grind to a halt. Lots of indie authors have covered this and talked about a shift to ‘Top Grossing’ instead of ‘Best Selling’. I didn’t know what to make of it, or how to write about it. Still don’t. But it’s something more people should be aware of.
  3. The natural progression would have been – A few $1 books in the Top 100 in 2008 and 2009, 10 to 20 in 2011, 30 to 40 $1 books in the Top 100 in 2012. To see how natural and inevitable this is in a digital store environment, consider this – 36 of the Top 40 bestselling iPhone Apps of all time are priced at $1. In a very competitive market, prices go to $1 or $0. The Kindle Store is that rare infinitely competitive market which has seen prices go UP instead of down?

It’s all very strange.

For what $1 kindle books were doing in 2011 please see:

  1. The Inevitable Rise of $1.

And this is what the Top 10 looked like on March 15th 2011:

  1. Saving Rachel by John Locke at $1.
  2. Scrabble by EA at $1.
  3. Mahjong Solitaire by Mobigloo at $1.
  4. A Girl Like You by John Locke at $1.
  5. Water for Elephants by Sara Gruen at $6.39.
  6. Unbroken by Laura Hillenbrand at $12.99.
  7. Love You More by Lisa Gardner at $12.99.
  8. Wish List by John Locke at $1.
  9. EA Solitaire at $1.
  10. Lethal People by John Locke at $1.

Since March 15th, 2011 Amazon has sold a TON of $79 and $99 and $139 Kindles. It’s added lots of Kindle Fires and reached casual readers. That should suggest a FURTHER drop in prices and a rise in the number of $1 Kindle Books in the Top 100.

But it didn’t happen. We had 4 $1 books in the Top 10 in March 2011. In July 2012 the highest selling $1 book is only at #18. We had 23 books priced at $1 in the Top 100 and 11 apps priced at $1. Now we have just 9 books priced at $1 and no apps.

As Amazon is adding more and more cost-conscious customers and more and more casual readers, it’s somehow managed to reverse the decline in ebook prices. Really?

Here is what Roger Knights suggested in March 2011:

If this continues, and Amazon still wants to encourage books being priced at $3 or more, it might set up a separate best-seller list for books under that level. That would give more higher-priced books visibility.

Amazon didn’t have to. Magically, the main bestsellers list automatically somehow kicked out all the $1 books.

10 thoughts on the ‘handicapping’ of $1 Kindle Books

  1. There is, in my mind, no doubt whatsoever that Amazon is using some weighing algorithm to promote $3 and $10 books over $1. It’s disconcerting that there is no public mention of this. There have been a few people who have floated the ludicrous idea that users have stopped buying $1 books because of ‘quality’ issues. No, people buy what they can see/find. The #1 place for that is the bestseller lists and Amazon’s recommendations. Amazon can choose to promote $10 and $3 books over $1 books. Those 9 books in the Top 100 are there DESPITE the weighing algorithm being against them.
  2. Amazon should rename the list ‘Top Grossing’ instead of ‘Bestselling’. It’s disingenuous to call it Best Selling when $1 books from indie authors are ‘handicapped’ by a weighing algorithm that factors price into the equation. It might be too much to ask Amazon for a separate ‘Bestselling’ List that gives $1 books a fair chance. That would defeat the whole purpose of this weighing down of $1 books.
  3. Amazon wants to have its cake and eat it too. It wants to promote free books to get people to subscribe to Prime, it wants to use free books to get people to buy Kindles and Kindle Fires. And then it wants to turn around and promote $10 and $3 books over $1 and make money from books too. It’s rather strange – you can’t have a loss leader double up as a profit maker.
  4. The bestseller lists are way too powerful. While this is true in any digital store, it’s even more so in books because the number of options is higher than in every other store. When people are presented with too many options, they are overwhelmed and go to the safe bets i.e. The Top 100 and the Genre Top 100s.
  5. The situation is the same in genre lists. The Science Fiction Top 20 used to be mostly $1 books. Now there are ZERO $1 books in the Top 20. How could really good indie Science Fiction books that were Top 20 for years suddenly have stopped selling?
  6. In a way it’s good. It’s an attempt to bring back the value of books. However, you can’t put the genie back in the bottle. Amazon either didn’t think things through, or it didn’t realize what impact allowing every single aspiring author to self-publish would have on ebook prices. There is no value of books any more. The Agency Model is about to die a death and that will accelerate things.
  7. It’s unfair to indie authors. With $1 they could compete. At $3 it’s not the same because lots of established authors bring in backlist books at $3 and $5.
  8. It reduces the incentive for Publishers to go down below $9.99 for new releases. If they see everything going to $1 and $2 they will eventually be forced to release new releases at $5 and $7. On the other hand, if they see 50% of the Top 20 at $9.99 and $12.99, they will feel they can get away with $12.99.
  9. It’s not sustainable. There is no way Amazon can continue to pull this off. It’s a short-sighted way to fight the inevitable.
  10. Thankfully, there is competition. Amazon needs B&N and Kobo and Apple iBooks to counter whatever ludicrous strategies it comes up with. This whole weighing down of $1 books and ‘unlevelling the playing field for indie authors’ thing really bothers me. Do we really need to give Publishers who gouge us for $12.99 one more advantage?

Coming back to the power of $1.

There is no Escape from $1

There just isn’t.

You create a very competitive market where everyone can compete and eventually people start competing on price. And then it either goes to ZERO or to $1.

The only way you can make money off that is by making money on the device, or by selling something else that is LIMITED and CONTROLLED. Apple doesn’t try to make money from apps. It’s paid out developers something like $5.5 billion. Which means it earned something like $2.357 billion. Take out the costs of running the store and credit card charges and other costs and it’s probably less than $1 billion in profits. Apple makes money from the devices – $8.8 billion profits in the last quarter alone.

That’s the way to do it. Let the developers and authors devalue their work. You make your money from the devices or from some other product (the supply of which you keep limited and whose value you do not destroy). Let all the value from books and apps flow to the device and profit from that.

Amazon is stuck because it’s made both the device and the content loss leaders. Perhaps people aren’t buying very many kitchen sinks and it’s decided to try to turn books back into profit machines. Not going to happen. You blew up the entire book market. You’re sending out thousands of free books every month. You’ve created a ‘Free Lending Library’. You’re completely devaluing books. How on Earth do you expect to also make huge profits from books?

Eventually, someone is going to figure out how to give authors and indie authors 70% of the take from $1 and $2 books. That ebook store is going to win out.

  1. We have hundreds of thousands of authors desperate for their books to be read. Most will take whatever they can get for their books. Some will even pay for people to read their books.
  2. We have readers who are increasingly realizing that any ebook priced over $4.99 is unfair to readers. The savings in ‘produce once, sell to everyone’ are not being carried over.
  3. We have such large numbers of sales that even $1 books can make large profits for authors.
  4. We have indie authors getting better and better. Indie authors who don’t have to support Dinosaur Publishing Companies with their archaic methods. Indie authors that can be nimble and can just destroy the Publishing Houses by using quality $1 books.
  5. We have smarter and smarter readers who can get information from a thousand different sources. So they KNOW that ebooks should not be $12.99.

There’s just no way you can go back to $9.99 and $12.99 books. It’s a testament to the stubbornness of Publishers and Amazon that they’ve managed to keep things going in such an unnatural direction for so long.

But it’s just a temporary blip. eBook companies will rise that aren’t afraid to both embrace $1 and $2 books and also give authors 70% of the cut. And they will, sooner or later, get enough awareness amongst customers that customers start switching.

$1 ebooks might be 9 out of the Top 100 right now. However, within a few years they will be at least 40% and probably 80% of the Top 100. Additionally, if the authors of those ebooks are self-published indie authors, then they will be making out like bandits. In most cases they will be making more than they would have from contracts with Publishers. If Rovio (Angry Birds) can make $100 million in a year selling $1 and $3 games, then it’s a given that there will be authors who will make tens of millions of dollars a year from $1 and $3 books.

One million ebooks sold in one year at $1 with a 70% cut translates to $700,000 a year. There are hundreds of authors who can hit that milestone. There are already 10+ indie authors who are on-track to sell a million ebooks in 2012. Despite all the obstacles (natural and man-made) in their path.

We just have to wait for one of the big stores to realize that $1 ebooks are inevitable, that $1 ebooks are a big, huge competitive differentiator (if you embrace them first), and that readers want $1 ebooks.

46 Responses

  1. Great article. Right on the money, pun intended. Thanks.

  2. Love the article. I stay away from e-books from indie authors that are over $5 and hate that publishers set the prices so high on some of their books.

  3. A nice article; however, there is one fundamental misunderstanding underlying the argument. The handicapping is taking place in the POPULARITY lists, not the BESTSELLING lists.

    I was among the first indie authors to discover and document the price bias. What my colleagues and I found was that all else being equal, lower-priced books (99c – $2.99) appeared further down those popularity lists than their counterparts selling at $3.99 and above.

    The bestseller lists do not have that price bias. They likely have a bit of historical sales weight figured in them, which keeps perennial bestsellers afloat in those lists, but otherwise, the bestseller lists are exactly what they claim on the tin: books selling best during the hour the servers make their sweep of numbers sold. It doesn’t matter whether books are priced 99c or $9.99, they will appear in those lists based on a comparison of raw sales numbers, not price.

    May I ask which list you used to derive your sales numbers at the beginning of the post? That might provide insight into the validity of the rest of the arguments posed here.

    • No, there is a fundamental misunderstanding in your reading of this post.

      I am talking ONLY about the Bestselling List. I don’t even know what the popularity list is.
      I’ve been following the bestseller lists and prices since 2008. So you can rest assured that any misunderstandings I might have are limited to –

      1) Not understanding where the $1 books disappeared to.
      2) Not understanding how $1 indie authors got replaced by $3 indie and published authors.

      It’s statistically very unlikely that we go BACKWARDS in price. But that’s what’s happening.

      • The way I understand it, it’s because the $1 books aren’t high up on the popularity lists that they lose sales and therefore, aren’t as likely to make the best-seller lists. A $1 book and a $4 book could have the exact same number of sales on a given day and be next to each other on the bestseller lists, but the $1 book will be farther down the popularity lists, so its sales will deteriorate and soon the $4 book is selling more books simply because it has more visibility. Is that what you both are saying (only coming at it from different angles.) ?

      • Thank You! That’s the most intelligent way to put it.

        Amazon controls recommendations and lists.

        My argument is that it’s using those to determine the outcome of the bestselling lists and thus handicapping $1 kindle books. Which in turn reduces the ability of indie authors to compete and lowers the chances of Publishers ever going to reasonable prices (because they can still sell at ridiculous prices).

        Saying ‘Oh Amazon doesn’t do anything to bestseller lists’ is not the right way to think of it. We probably have no idea of all the levers and knobs it has at its disposal. So if it does Actions X, Y, and Z – which results in an impact to the Bestseller Lists. Then it really is influencing the bestseller lists and book sales.

      • Amazon has always advocated the $2.99 – 9.99 prices. Its royalty structure biases authors to price their books in that range. Its discounting via the wholesale model was an attempt to shepherd the Big 6 into pricing in that range. That resulted in the agency pricing model that is since being deconstructed. Amazon is not against low pricing, just not for full-length works. Look at how it encourages authors it taps for its Kindle Singles works to keep their prices at 99c and 1.99 (and for which Amazon pays a 70% royalty, btw).

        Amazon goes where the data leads. It advocates free for its prime books because it knows that drives sales. It encourages and participates in 99c sales because limited-time pricing encourages sales.

        The recent algorithm change to the popularity lists favors books in the price range Amazon would like to see all ebooks at. My theory is that the timing of the algo changes in May was not coincidental with the DOJ’s announcements regarding its injunctions for future agency pricing and the push back to wholesale pricing. Since Amazon will be allowed to discount again — and it will — that discounting hit to a book’s margin will need to be made up in quantity. Amazon is protecting its pricing model at the same time it’s preparing to offer its customers the steep discounts it was offering them prior to the agency model going into effect.

        It’s about customer pricing. It’s about competition. It’s about margins and profit. Indies are collateral damage in this. Going to a 70% royalty on 99c books cuts into Amazon’s margins. If the profit on indie books were substantial enough to outweigh the profit on trad books with the 35% royalty in place, Amazon’s algorithms would reflect that. They don’t. Reducing that margin even further makes indies even less lucrative.

        And if the market changes and new competitors make a legitimate run at Amazon, then no doubt Amazon’s algorithms will change yet again to accommodate the new market conditions.

      • Thank you for your excellent comment.

        1) Excellent insight that the timing coincides with the DOJ announcements.

        2) Also, my main concern is what you point out – Indies are collateral damage in this.

        Finally, we really do need new competitors so that the move to a 70% cut for books at any price happens.

        *****

        If things stay as they are, then the barrier for NEW authors to established themselves becomes TOO HIGH.

        We’ll have Publishers published books at $3 to $10. We’ll have established indie authors at $3.

        And new indie authors who try to come in at $1 will –

        a) Be given very little visibility.
        b) Be given pathetically low money from the sales they make (in terms of percentage).

  4. I doubt that the popular list is biased by price. If they (Amazon, K&B, Kobo, etc,) can tell us the most highlighted sentence, they know which books are actually being read and which are completed. I suggest that the best data point to capture popularity is read completely. If they want to provide the best shopping/reading experience, actual reading would be the best factor to weight.

    • Agreed that they should use more intelligent metrics like books read.

      I do think the Best selling list is biased by price. All the trends are reversed. How is it possible that as more and more people buying $79 and $99 Kindles start buying ebooks, that $1 books would fall out of the lists???

      Doesn’t make sense, no?

      • The popular list is presented by default. The results there will filter over to the best sellers list, but it’s effect is indirect. Amazon is a very data driven company. They want to offer want you’re most likely to buy.
        Also, Smashwords has published data showing that low prices do not result in greatest total dollars for the author. Coker has been saying this for a while, but now has data to back it up.

      • I’m not sure if it’s the same everyone, but my default search is sorted by ‘relevance’ not popularity. Like switch, I had no clue what these popularity lists were until a few months ago. Once I figured it out, I realized I had seen them before when searching, but usually it was to pass over it to get to the “price low to high” or “price high to low” sorting option.

      • There’s a difference between ‘greatst total dollars for the author’ and the bestsellers list.

        I’m not saying – $1 is the best strategy for authors.

        I’m saying – It’s inevitable that $1 books will take up the Top 100 list. Not the top grossing list. Not the ‘what authors wish would sell’ list. Just the ‘Top 100 Bestselling books counted by number of books sold’ list.

        At that point – Amazon can either shift over to a Top Grossing List. Or it can make its levers stronger and try to hide $1 books even more. This is trying to create an artifical ecosystem. That doesn’t work. This (the revolution in books and publishing) is a living, breathing monster. You can’t keep it in a cage for very long.

      • Mary, the default search is “relevance”; the default browse is “popularity”,

      • >>”Mary, the default search is “relevance”; the default browse is “popularity”,”<< Ah! That makes sense. I guess I tend to do searches rather than browse when I'm looking for books.

      • The bestseller list isn’t biased by price.

        The popularity list is. And the popularity list is right up there in importance with the bestseller list. If a $1 can’t hold rank on the popularity list, it has fewer sales; if it has fewer sales, it loses rank on the bestseller list (depressing sales even further). A $1 has to sell several times more copies to hold the same position on the popularity list as a book selling for $10. And lots of $10 are still able to sell lots of copies, pushing $1 books down the popularity list. No popularity list visibility at $1, no sales; no sales, no $1 books on the bestseller lists.

        $1 might be inevitable in a “natural” environment, where all else being equal, it’s a competitive advantage over everything priced higher. But Amazon isn’t a natural environment. Amazon is Amazon. They have changed their system to discourage the inevitability of $1 through two major moves:

        1) Using the 70% royalty to encourage authors to price between $3-10

        2) Rewarding books that can sell at high prices with increased visibility

        For now, it’s working pretty well.

      • Thanks for your comment. What you wrote – that’s REALITY. Something a LOT of people are trying to ignore.

        I’m just hoping more people realize this is going on. Because it’s taking away a major way for indie authors to challenge publishers and established authors.

  5. Possibly we need to consider both sides of the supply and demand model. The market clears when sellers are willing to supply at the price buyers are willing to pay, and vice versa.

    We define “wants” as something that buyers are aware of lacking. Books satify wants.

    Possibly sellers of what buyers want are not willing to supply the goods at $1 and buyers seek the higher priced goods because they are not confident that lower priced goods will satisfy their wants.

    An interesting research question would be whether or not authors selling higher priced books are moving up from selling $1 books. If so, the $1 books would be the initial probationary price until the author has proved that his/her goods merit the higher price.

    There may be another factor: the time value of the reader. The price of the book does not represent the full cost of the reading experience, the cost of satifying a want. There is the opportunity cost of NOT reading something else.

    If I spend a few hours reading a book by Robert Ludlum, I cannot use the same time to read a book by Walter Mosely. I would pay the full regular price of a Walter Mosely book and never read a book by Ludlum even if the price were zero.

    Opportunity cost is a big factor in reading.

    • Excellent point on opportunity cost of reading.

      If the only factor in choosing a book is economic, no Kindle user would ever buy a book. In terms of sheer number of words to read, there are plenty of free books, between public domain and freebies. So something else is going on that prompts people to buy, whether it’s $1 or $12.

      Another factor in the decline of $1 books on the bestseller lists is that there has been an explosion of self-published books. More $1 books makes it more likely that market is being split and less likely for any individual $1 book to make the bestseller lists.

      I’m also wondering if library books are hurting $1 sales, bleeding off some of the “I need something to read, and it’s only a buck” readers. I’m not sure, since it also would hurt the $9.99+ set. But the people willing to pay $9.99 often do so because they do want to own the book, or they don’t want to wait for possible-but-not-guaranteed library availability, so maybe are more motivated to buy anyway.

      “We have readers who are increasingly realizing that any ebook priced over $4.99 is unfair to readers. The savings in ‘produce once, sell to everyone’ are not being carried over.”

      Eh. I don’t know why $4.99 is a magic number of fairness. I’ve gotten wonderful books for $9.99, and it hasn’t felt unfair to me. (Don’t get me wrong, I’ve liked MORE getting wonderful books for $1.99, but that’s just not always going to be available.) I got a book for $12.99 because I absolutely couldn’t wait to read it, and it was worth it to me.

      Again, there are a lot of intangibles in buying decisions that go beyond price — time, reading experience, author loyalty, etc.

    • \”An interesting research question would be whether or not authors selling higher priced books are moving up from selling $1 books. If so, the $1 books would be the initial probationary price until the author has proved that his/her goods merit the higher price.\”

      THIS! As an author who is about to release three books in a series at the same time (done on purpose to take advantage of market forces) I absolutely plan on offering the first book at a reduced rate (or free) to get people involved in the series. The other two books will be priced higher. Once I see where sales shake out, the prices will be adjusted accordingly. One excellent example of this strategy is Angelfall by Susan Ee. She started this book out at 99 cents – I know – that\’s when I bought it. But it\’s been priced at $2.99 for some time now based on the popularity of the title.

      • Julie, authors are also, unfortunately, limited by what other authors price their books at. Especially what NEW HUNGRY authors price their books at.

        I’ve seen a LOT of indie authors try to go with $2.99. Perhaps this time will be different. However, in general, that’s the best way to short circuit your sales ranking (Note: I say sales ranking, not earnings). So it’s a trade off each author has to decide on themselves.

        All I’m saying is that the winners of the ‘Sales Rankings Race’ will be authors who go with $1. For indie authors there isn’t really any other option to compete with established Publishers.

        An author who has already ‘made it’ starts going into the ranks of Established Authors and she can obviously take pricing liberties to an extent.

    • You make some great points. In my experience, virtually every $1 e-book at Amazon falls into the “genre fiction” category. (There are exceptions, of course). This is even more true of the self-published stuff.

      I mention this because most of these books are fungible, which, please note, is not the same thing as saying they are bad. I’m saying that once they meet a certain threshold of quality, the experience of reading one is pretty much like reading another. YMMV

      That’s why I hope that our host is wrong about the future of books being $1. I am willing to pay more to read something that rises above the fungible genre fiction level. (Yesterday, I bought an e-book on the New Testament for $25.65.) I pay $9 for Michener and even more for Edward Rutherfurd. I will pay whatever Amazon wants for the sequel to “The Passage.”

      As you alluded to, my leisure time is worth something to me and want my reading to make the most of it.

      • Quite frankly, I’d be glad if I was wrong.

        However, it’s the tragedy of the commons and the lottery mentality that having a store that can only feature 100 books at a time (as opposed to bookstores that can feature thousands of books, perhaps even tens of thousands of books) creates.

        The value of winning the lottery of a Top 100 spot will be so tempting that lots and lots of authors will go with $1. You can already see it in how authors are GIVING AWAY their books for free publicity. Except this time they will be giving them away for $1 for the chance that they hit the Top 10 and make enough in one month to tide them over for a few years.

  6. Mark Coker of Smashwords, somewhat at my urging, did an analysis of the price elasticity of demand for ebooks — that is, how changing the price of an ebook changes the demand for it. There seems to be some wishful assumption that ebooks sell best when they’re less expensive; what Mark found (and what I’ve also found) is that ebook sales seem to less dependent on price than one would think. His data showed that the optimal profit range (and let’s remember that authors need to eat, so optimizing profit is not a bad thing) is in the $6-10 range. My experiments in pricing with ReAnimus Press is that we sell just about as many units at $2.99 as at $9.99; and while we might sell a few more units at $.99 if we promote it, not anywhere near enough to make that a more profitable price point; indeed, unless we heavily advertise the 99 cent price, ordinary unit sales are -about the same as- as $9.99.

    What all this suggests to me is along the lines of what frankpwhite mentions above, that the value of a book is largely inherent in the book itself, the story, thus the reader’s willingness to commit the reading time (and probably also cover art, reviews, and other non-price-related factors relating to the content and whether the reader want to commit). Price -seems- like it ought to be a large factor, but experience just doesn’t seem to bear that out. (And possibly it’s inversely related: That higher priced books give the impression of being higher quality.)

    So, if low price isn’t truly a large factor in a reader’s purchase decision, it makes sense to charge more. (So, no, I don’t accept the premise that $1 is where ebook pricing is heading. I’d say it’s heading upwards, e.g. towards $10.)

    Amazon is no fool, and is in business to optimize their profit, so their decision to downplay cheap books makes perfect sense.

    I realize this may not be what readers and indie authors want to hear; a sort of reality bites thing. But it suggests that readers will pay what they feel is a fair value for a book (my surveys have suggested that people say the fair value for ebooks is in the $5-10 range; and that’s self-reported data, so it’s possible people will pay more than that when faced with the actual “buy” button).

    Indie authors — even midlist authors — even bestselling authors with midlist/backlist titles that aren’t bestsellers — all want their books to get seen and bought. Sadly for many, if the value is inherent in the book, then it won’t particularly matter if the price is 99 cents or $9.99; the book will probably sell as many copies as people are interested in buying, and that may not be as many as the author would like.

    I would say this is in the absence of marketing: In particular, spending money to promote the book. (Which of course eats into profits.)

    So what I hear people sad about is that Amazon has taken away the free marketing of showing $1 books. Well, that’s Amazon’s choice, and probably helps their own bottom line. It hurts those very, very few authors who got lucky that their $1 book made a highly visible marketing list, but it probably didn’t do anything to hurt the vast majority of authors who don’t make the top 10/20/100 lists.

    • Thanks for the comment. Very good points. One thing I will point out is that the Price Elasticity of Demand is not some golden rule that is set in stone. It requires that there be some availability restriction.

      We’re in a very different market situation here. The supply is tending towrds infinity. And the sales rankings are super powerful. Way, way more powerful than in markets which resulted in the Price Elasticity of Demand curve.

      The #1 and #2 books don’t just sell 25% more than the #101 book. Sometimes they sell 10 to 20 times more. They also sell 100 times to 500 times more than books that are at #10,000.
      They also have 1,000 times the visibility of a book outside the Top 1,000. Price Elasticity of Demand, unless I’m mistaken, assumes the product is known. We’re talking about a case where users don’t even know the book exists – so price elasticity of demand can’t kick in. How can a reader know they’d pay $5 for a book if they don’t even know it exists.

      The Value of a Book could be anything. Customers will pay what they are allowed to get away with. You’ve seen it in music. I just saw an interview with Gene Simmons this morning where he said:

      The same people who love music, college students, destroyed the record industry.

      It’s very possible to ‘value’ something highly and still not pay for it.

      • I want to second the thanks for the comments. Your take on what constitutes “fair value for ebooks” is where I end up: $5-10, with exceptions for non-fiction titles with limited audiences. There, all I ask the price not be as high, much less higher, than the paperback edition.

        As to how readers will know about the self-published title going for $1, that is a problem but, as a reader, it’s not a priority of mine. As I wrote above, many of these titles are fungible and, as you (Switch 11), the kind of success that an Amanda Hocking enjoyed was a kind of “lottery ticket.” Without denying her efforts or her talent (I haven’t read any of her books), her success had an element of serendipity to it.

        While I don’t begrudge anyone their success and good fortune, I am more concerned about sustaining a viable reading “ecosystem” in the post-Big Publisher era. A market flooded with fungible $1 genre fiction is not one that can sustain the stuff worth reading very long. Every writer has to eat and $1 ebooks cannot support the writers whose work I’m interested in reading.

        If Amazon wants to use its considerable clout to create a more sustainable ecosystem, that’s all right by me, providing that they allow people to continue to sell their stuff for $1 if the authors so choose. Amazon is under no obligation to issue lottery tickets.

      • Just to clarify, I was referring to the price elasticity of demand wherein the demand changes (number of sales) as you alter the price. Commonly might expect to sell more units at a lower price, or fewer units at a higher price, for the same specific product. The question is at which price point do you make the most profit. (A perfect example would be what happens right around $2.99 at Amazon: At $1.99 you get 35% and let’s say you sell 10 units per time period; at $2.99 you get 70% but maybe sell only 8 units per time period, but make a lot more money total.)

        My point is that I’ve seen in a lot of cases books that are selling — i.e. people do know about them (these are from fairly well known science fiction authors, like Ben Bova) — but the same exact books sells just about as many units at $3.99 as at $9.99. So, lot more profit at $9.99 if it sells the same number of copies. I’ve even seen books that sell the same number of copies per time period at 99 cents as at $9.99. (Unless I really publicize the 99 cent price, then it sells more copies — though still makes less money than the fewer units selling at $9.99.)

        It’s not possible for us to really test prices above $10 because Amazon cuts the royalty down to 35% again (so a book would have to sell as many or more units and be price at $20 or above — nyeh)… but the major publishers can price at $12.99 or whatnot, and I suspect they’re making more total profit at that price, on a given book, than if they’d priced it at $9.99. Probably fewer copies selling at $12.99, but probably not -that- many fewer. So, the price elasticity is fairly inelastic.

      • It’s interesting that only Amazon and B&N have access to all this data. Wonder if they could start selling it to authors and Publishers down the line.

  7. How exactly do any of you know what everyone else is selling? Until Amazon releases their algorithms publicly, none of you have any idea, and this is all speculation.

  8. wow. a great read. I do hope that 70% ebook market comes along soon for the $1 books, but if not, even 50% would be nice.

  9. Interesting article, but as others have pointed out, there are some serious issues with your analysis. I’ll leave those to people far better suited than I am. I hope everyone reads and rereads Phoenix’s posts.

    My question is just about this: “One million ebooks sold in one year at $1 with a 70% cut translates to $700,000 a year.”

    Who is getting 70% on $1 books? Some pricematched authors might, but I think AZ will shut that down before too long.

    • Friends have pointed out that you may have meant someone will come along and offer 70% for $1. Perhaps, but it’s important to understand why they haven’t yet. Is there any player who offers above 45% for that price?

      • Even if someone did offer >35% for ebook sales, the problem is that the lion’s share of the traffic is on Amazon; and the lion’s share of what isn’t on Amazon is on B&N, who pays only 40% of $1. So if one does have a small web store — for example, at ReAnimus Press we have our own web store and the capability to sell any author’s ebooks through it, for which we pay a lot more than Amazon(*) — the reality is that sales will likely be very small in comparison to sales on Amazon. Amazon is just where most people get ebooks.

        [(*) In our case, we use Paypal to handle credit card purchases, and they take 30% + 3% of each transaction. So a sale comprised of just a single $1 ebook means we receive 66 cents; depending on what if any other services we’ve provided, we pay the author 50-100% of that. But the fact remains that most sales will still occur on Amazon+B&N.]

      • Yes, exactly what I meant.

        Earlier, the rationale for only giving 35% cut was that 3G costs were a higher percentage of book prices when below $3.
        Now most devices are WiFi.

        There is NO REASON people aren’t giving a higher cut other than –

        a) They can choose to give a lower cut.
        b) Trying to encourage authors to price higher.

        The actual cost structure has changed a lot. If a user with Kindle WiFi or Kindle Fire or iPad or iPhone downloads an ebook over WiFi then Amazon has ZERO bandwidth costs they have to pay AT&T.

    • If you read the paragraphs before that, I’m saying that ‘Eventually someone will offer that’.

      • Someone pointed out elsewhere that Smashwords already pays over 70%. For various reasons, SW is bust for me.

        Fwiw, if Amazon did pay 70%, I might offer the first book in the series at $.99, but not the others. $3.99 is working for me for a variety of reasons. A few promos at lower prices, bursts of free, but as an actual price – $3.99 fits my genre and my books.

  10. This was a great read!

  11. Excellent information! I alerted The Passive Voice and hope he posts a link to this blog post. I wish more people would talk about how Amazon weights the scales.

    I’m enjoying the comments, as well.

  12. So approximately 16 months ago, there were 23 books in the top 100 at $1. Now there are 9. That’s only a 40% drop, not a massive collapse. But let’s pretend it is, just for fun.

    First off, you have *no* evidence whatsoever that this change is because of some Algorithm or change at Amazon. Just because the top 100 has shifted doesn’t mean it was Amazon’s doing, because by that logic, Amazon is 100% responsible for any and every book that hits the top 100, right?

    You know what happened in the past 16 months? Select. Suddenly, instead of having tons and tons of 99 cent books for the bargain readers to snap up, they have free books being given away day in and day out, more than anyone could possibly ever read. So take all those bargain readers, all those who would normally snap up 99 centers, particularly the popular ones and keep them up in the top 100…and instead have them choose the even cheaper option, the constant Select freebies.

    Also, your idea that 99 cents will take over isn’t matching what’s happening right now. Unless your privy to info we don’t have, nothing has shown Amazon is selling fewer books, and comparing sales ranks vs sales now to a year ago, it seems it takes me even more sales to crack the top 1000. So many books are selling, and more and more, they aren’t 99 centers. But the takeover is inevitable? Why? Just because of price? If that is the case, why isn’t Dollar General the number one place to shop for Christmas toys, if quality, variety, and recommendations no longer matter?

    From what I’ve seen, indie authors who find success tend to *raise* prices once they’ve found it. Once you’ve got a steady fanbase, why would you continue to make 35 cents a sale when you can make 2 dollars? Three? Four? One of my books sells for $4.95. That single sale is equal to nearly ten at 99 cents. Which is easier, getting ten readers to buy the second book in a series, or one?

    99 cents isn’t dead, and it’ll always be around, but it is not the only price, and it will never be the only price. People pay more for what they perceive as better quality (whether the quality is actually better or not). And a favorite author to a reader is *not* interchangeable. Those who love me, love my voice, and love my characters, will be willing to give more, and always will.

    You say Amazon has changed the game. I think more that readers have simply wised up to the game.

    • Please read Ed Robertson’s comment. That’s reality. It’s up to you whether you wish to see it or pretend it doesn’t exist.

    • “From what I’ve seen, indie authors who find success tend to *raise* prices once they’ve found it. Once you’ve got a steady fanbase, why would you continue to make 35 cents a sale when you can make 2 dollars?”

      That’s an interesting confounder right there. One could make the argument that if you reach the Top100 and haven’t tried raising your prices yet, you’re leaving money on the table. (Unless, of course, it is part of some other big-picture strategy.)

      • Yes.

        However, you should consider keeping a few books at $1 so NEW readers can continue to find your books. Your fanbase can only generate so many sales. And then you drop out of the Top 100 and become invisible to all the new readers who might have bought your books.

  13. […] and does Amazon penalize me for a lower-priced book?  For some great thoughts on this, read this post.  What I find especially intriguing are some of the […]

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