The eBook Cat is Out of the Bag but no one realizes it yet

Here’s a question –

In a world where people download free music, pirate software and games, and complain when an app isn’t free or $1, how are Publishers and Amazon and B&N selling ebooks for $9.99 and $12.99?

You could come up with a lot of answers. Let’s hazard a few –

  1. People who read books are more ethical.
  2. Most people want to pay for things they download. They just are forced in certain cases (music, software, games) into piracy for reasons like DRM, inconvenience, unavailability, etc.
  3. The convenience factor makes people willing to pay $9.99 or $12.99 for books.
  4. People who read books understand that authors need to get paid and that if they stop paying, the quality of books might greatly suffer. So a pragmatic reason to pay for books, rather than anything else.
  5. Publishers and Amazon and B&N have done a good job of making ebooks seem worth the money.
  6. Closed Ecosystems prevent the free culture of the Internet from seeping in.
  7. The New Gatekeepers are preventing the race to zero by doing things like handicapping low price books.
  8. Amazon destroyed the value proposition of free books by encouraging indie authors to make books free and thus associating ‘free’ with low quality.
  9. Most authors willing to offer free books don’t have very polished books.
  10. People value their 4 to 10 hours of time enough to pay for high quality books that are edited well.
  11. The legal threat of breaking DRM etc. keeps people away from ebook piracy.
  12. Publishers and Amazon have done a good job of creating artificial scarcity of high-quality books.

While we can make very strong arguments for each of the following, the only ones that are unique to books and would explain why ebooks haven’t suffered the fate of other digital content are 1 and 4 (strong moral compass and/or amazing longsightedness of book readers).

Those two are hard to believe explanations because we’re talking about people and money. Firstly, there are all types of people – as readers we might subscribe to the fantasy that every person who reads books is morally superior to everyone else, but are they THAT superior. Secondly, people tend not to spend their money for something if they can get it for free. There has to be a very, very good reason for people to pay for something when they can get it for free.

My contention is that the reason ebooks still retain ‘value’ is surprisingly simple.

People don’t realize they can get any eBook they want for free

We have progressed from hardcovers and paperbacks to ‘paid ebooks on devices suited for reading’ without any extended period of time where free pirated ebooks from the top authors were easily available online in excellent quality.

Not in terms of reality – because they were always available if you searched. But in terms of perception and convenience – People who read books just didn’t know or just weren’t willing to do all the hard work.

So we had a strange situation –

  1. You could download any ebook you wanted for free. Although not necessarily easily.
  2. Most People who read books were not aware of this or unwilling to make the effort.

That transitioned to a world where –

  1. You can download lots of paid ebooks with lots of convenience. Amazon deserves a ton of credit for wireless downloads – that is one of the main reasons (along with things like creating a closed ecosystem and creating a reading focused device) that helped make it VERY convenient for readers to PAY for books.
  2. You can get pirated ebooks relatively easily.
  3. Most People are aware of the first but not of the second. In particular, they are not aware that they could choose to NEVER pay for an ebook again.

If you think this is nonsense consider one of the main selling points of the Kindle – No Computer Required.

Consider the type of questions you find on Amazon and B&N forums.

We are talking about people who are not tech-savvy being transitioned from paper books to ‘closed ecosystems with paid ebooks’ who never got touched by the ideavirus of free on the Internet.

There are three major barriers that prevent these users from joining the ‘free music’ and ‘free software’ crowd –

  1. Some of them just don’t know the option exists.
  2. Some of them can’t negotiate the technological hurdle of understanding computers and technology to strip DRM or locate free ebooks.
  3. Some of them can’t negotiate the effort barrier of searching for a reliable site for free ebooks.

These are major hurdles. To someone who is tech-savvy and knows that free ebooks are available online they seem very, very trivial. However, they are huge. The first is insurmountable – How can a reader switch to pirated ebooks if the user doesn’t know they exist? The 2nd and 3rd are nearly as big as the first for lots of people.

That brings us to the next question – How long can this situation last?

For how long will Readers be unaware that Pirated eBooks exist and they never have to pay for Books again?

It might last a long time.

We have the Internet being replaced by closed gardens. Apple and Amazon are creating large ones. B&N and Kobo and Sony and other companies are creating small ones.

In each case, it hurts the Ecosystem owner to create a culture of free (except Android and Facebook because they are just gathering up cattle and sheep) and thus they promote Paid. So users who are in these ecosystems are safe for a very long time.

That means that a relatively large percentage of people who are in ‘Ecosystems of Good Intent’ are SAFE. They are NEVER going to realize they can get everything for free. If my contention is correct, then it would mean that Google Books sells very little and Amazon and Apple and B&N sells a lot. That even with 1 million devices activated a day Android sells less ebooks than B&N with its 10,000 to 30,000 devices and reading apps activated a day. That Google sells far less than Amazon with its 30,000 to 100,000 devices and reading apps activated a day.

This creation of ‘Ecosystems of Good Content’ is critical. People who criticize closed ecosystems don’t realize the things that closed ecosystems enable (saving authors and actors and developers from starvation, for one)

Once Readers realize ‘Free Anything’ is available, will they be willing to pay for books?

That depends on what sort of world we live in, and what the barriers to ‘free everything’ are.

Do we live in a world where –

  1. People always try to ‘do the right thing’ and pay for content they get.
  2. People always try to get content and things for free.
  3. People evaluate the value of content and then pay if they feel the price is fair.
  4. People choose ‘free’ if it isn’t too much work.
  5. People choose ‘free’ if there is no legal risk.
  6. People are a mix of the above types of people.

My contention would be that it’s the last. That we have people who will pay if the price is fair, people who will pay because it’s the right thing to do, people who will pay if it’s too much work to get free, people who will pay if there is a legal risk to piracy, and people who want free everything.

So, for the gradually increasing number of readers who are realizing that ‘free everything’ is a possibility, the New and Old Gatekeepers have to put in barriers –

  1. Make it hard to get ‘free everything’.
  2. Make the value proposition fair. This is the reason Amazon pushed for $9.99. If eBooks are at hardcover prices it makes it ‘morally acceptable’ for readers to pirate. The ‘unfair’ price makes it justified to pirate indiscriminately.
  3. Make it a legal risk to pirate. This is why removing DRM is illegal. This is why Publishers and Gatekeepers still have DRM. Not because they want to kill good users, but because they don’t want to make it too easy for the 25% to 50% of users who are convenience-driven to pirate.
  4. Make it ‘too much work’ to pirate. You see this in how different devices treat sideloaded content. It’s given second class citizenship for a reason.
  5. Make it ‘more convenient’ to use paid ebooks. This is why you see features like cloud syncing and highlight syncing etc. This is why you see 60 second downloads and features like X-Ray.
  6. Make it ‘cost more in terms of time’ to get free books. This is why you see Amazon go after free ebooks with a vengeance. Not by stopping them but by overwhelming readers with low quality ebooks. So searching for ‘good’ free ebooks is too costly in terms of time and effort.

The Gatekeepers are very busy creating barriers that make it easier and more convenient and safer for readers to BUY their ebooks.

It’s ALL about Convenience and Costs

Readers value convenience and cost –

  1. Time. The time needed to find what they want. The time they will invest in reading. The bang for buck they get on their time.
  2. Money. The cost. Is it fair?
  3. Effort. How much mental thinking and effort they will have to do to get a book.
  4. Ease. How easy it is.
  5. Instant Gratification. How ‘quickly’ can they get the satisfaction?
  6. No Big Risks. No viruses. No legal issues. No malware.
  7. A Lack of Friction. No awkward websites. No awkward searches. No formatting and format issues. No conversion and DRM stripping steps.

If someone were to make getting pirated ebooks really, really easy and safe – then a huge chunk of the readers who realize pirated ebooks are available would take that option.

You can be idealistic and pretend that 90% of readers would choose to ‘do the right thing’. However, it’s clear from what we see IN REAL LIFE in movies and music and software and games that this does not happen. If people get the chance to pirate safely and easily, then a very large portion of them do pirate.

Would you rather pay $100 for books every month or buy a present for your kid/spouse/mother/yourself? What if everyone else was pirating? What if it were socially acceptable and cool to pirate?

There are just two things keeping the Books Industry safe right now – a lack of knowledge amongst readers and a lack of convenience in getting pirated ebooks.

The eBook Cat is well and truly out of the bag. We have the Internet. We have eReaders and Tablets in people’s hands. The control is GONE. The Gatekeepers don’t have Gates any more – except those in our minds left over from a past era.

What’s saving the whole industry is that huge portions of readers either don’t know they can get any book they want in pirated form, or they have to put in too much effort and time to get those pirated books.

If one or both of these barriers are removed, then we will find out whether readers have some magical qualities that enable them to resist the charms of piracy. Let’s hope it doesn’t come to that because Reality tends to win all arguments it has with Idealism.

What is the reality of ebook piracy?

CNet has an article wondering whether the iPad will lead to more ebook piracy and it’s worth a read. It brings up a tangentially related but much bigger topic –

What is the reality of ebook piracy?

Everyone seems to have a different opinion of it and it involves complicated things like good and evil and a fight for rights and morals and ethics.

This post will suggest that all the moralizing and talk of principles comes into play after people have made their assessment of what’s in their best interests – Not before.

The ‘People do what’s best and most convenient for them’ Model of Piracy

 Let’s start with customers –

  1. One set of Customers want to see fair prices and don’t like piracy. They will not pirate – However, they want fair prices.
  2. Another set of customers want free books and also want as much convenience and as good a reading experience as with paid books. They will always pirate – they just want the quality and convenience of reading pirated books to match paid books.
  3. There is a third set of customers who will pirate if they are pushed beyond a certain limit. They will pirate if they feel they are not given a fair deal.

This is a rough approximation – it’s more of a continuous spectrum with higher concentrations at the very ends of the spectrum.

People factor in benefits, especially convenience, and costs, especially punishment

The first thing people look at is – What’s the benefit to me.

They look at the book, the value for money, the joy they’ll get, how much they want it, the convenience, the quality of the reading experience and come up with a rough idea of the net benefit to them (the pleasure they will derive).

Next they look at the costs of choosing between buying the book and pirating it.

  1. Cost of buying the book – Monetary, Risk of frustration if book is not high quality (not well formatted), taking the risk of being disappointed with the book, amount of effort they have to make, time it takes, and so forth.  
  2. Cost of pirating the book – Amount of effort to acquire the book, time it takes, chance of getting a good quality copy, risk of being found, risk of punishment, getting a bad reputation and other societal costs, guilt of doing something unethical (it is also linked to societal costs), guilt of denying author of a livelihood (also societal).

Basically our model points out that nearly all of the downside of pirating the book is related to societal costs – guilt which is an ancestral remnant of the importance of working together, the risk of getting a bad reputation, and the risk of being punished by society’s laws.

Three Switches for Rampant Piracy

Three key switches that need to be flipped to make piracy rampant –

  1. Convenience – It should be possible and convenient to pirate ebooks.  
  2. Freedom from Guilt and a Bad Reputation – There should be some easy excuse to rationalize breaking the social contract. An excuse for others and for ourselves.
  3. Freedom from Punishment – Some safeguard against being identified and punished. An absence of punishment would do too.

There are some people who will never pirate because that just goes against their values. There are also people who will always pirate because paying would go against their values. If we leave out these people we get the majority of people who will pirate based on whether the three switches are flipped or not.

What flips each switch for a person is different.

  1. Searching 5 minutes to find a pirated copy would rule out some people because it’s just too inconvenient. This is why some people who fully intend to pirate want DRM free ebooks.
  2. Higher Prices make some people feel they are absolved of guilt as Publishers are breaking their end of an implicit contract. They begin to believe that they now have some sort of moral right to steal.
  3. Anonymity is the key for other people. As soon as they feel they could never get traced the lack of the threat of punishment frees them to do what they feel is best for them – pirate ebooks.

Basically, it’s not that people are choosing to pirate out of frustration. It’s that people are not pirating due to the costs – even if the costs are intangible things like the risk of damage to your reputation or a personal sense of right and wrong.

If we remove the costs we will get the natural state i.e. people not paying for ebooks.

The natural state is to pirate things

This might sound crazy. However, if you had one person with food and another without and no societal rules you would only have three possibilities –

  1. They decide on an agreement. 
  2. The one without food steals from the other and succeeds.
  3. The one without food tries to steal and fails.

The Internet is in many ways like that – With the added bonus for thieves that there is no identification. People are put into tempting situations again and again without the threat of damage to their reputation and without any fear of punishment.

Companies and Authors don’t really understand piracy

It’s easy to understand why companies and authors misunderstand piracy – the huge danger piracy poses for them makes them irrational when confronted with it.

  1. For retailers it’s best to sell a lot of books and get as large a share as possible. For them piracy is very bad as it cuts sales drastically.
  2. For Publishers it’s again best to sell a lot of books and get as large a share as possible. For them piracy is especially bad as they lose sales plus they end up producing goods for freeloaders and parasites.  
  3. Established authors fall in the same camp as Publishers. 
  4. Upcoming authors or those using a pro-customer stance as marketing are willing to give away their product without anti-piracy checks. They feel the lost sales are made up by reciprocation and free marketing and people returning the favor in other ways.

The 4th is the most interesting and we’ll address them last.

Let’s start with Retailers, Publishers and Authors.

Since piracy is very harmful to them and since people always provide surface reasons for piracy Publishers never realize the dual tasks they face –

  • They have to understand that the natural state is piracy – People not paying for ebooks. Publishers have to put in place costs to ensure people avoid this pirate state.
  • At the same time they have to do it without pointing out the natural state or giving customers another excuse to justify their piracy.

Publishers have to establish a win-win contract, convince customers it’s valid and good for both parties, and then enforce it.

Companies aim to maximize profits

What makes things interesting is that just as the natural state for customers is to steal whatever they can (steal being used in a mild sense), the natural state for any company is to maximize profits any way they can.

They have to convince users of the value of their product and it helps to paint a win-win scenario. However, companies aim to create the most profits – whether it is via higher prices or higher volumes or lower costs.

In a way it is a company’s job to get the most profit out of customers – whether it is ethical or unethical just depends on the individual company’s strategy and value-system (their actual one – demonstrated via their actions, not the one they put on a poster).

This brings us to a very surprising conclusion. 

The need to pretend that what you’ve decided is ‘the right thing to do’

We have two warring desires –

  1. Publishers and Published Authors’ desire to maximize profits and  make the most money they can.
  2. Customers’ desire to get the lowest possible prices and the most value – including, if possible, pirated ebooks.

In an ideal world the parties would draft up a win-win agreement. However, reality insists that each thinks they can outwit the other.  

The sub-conscious ‘What’s best for me’ Decision

What both parties do is figure out what’s best for them.

  1. You have reasonable people on both sides who come up with a win-win model. 
  2. There are greedy Publishers who come up with a $25 ebook model. 
  3. There are greedy readers who come up with an ‘information wants to be free’ model. If they’re smarter they try to achieve the same via pushing for elimination of DRM.

People on both sides are figuring out what’s best for them, factoring in what they think they can get away with, and then promoting that.

The politically correct reason designed to fool others

To get away with more than you’re entitled to you have to fool others and that’s where it helps to have a good red herring –

  1. For readers who want to pirate books conveniently DRM becomes about freedom and convenience. 
  2. For Publishers who want to fleece readers higher prices become ‘necessary to sustain the business’

The more hard to explain and decipher the reason the better. The more emotional and moral and ‘good’ the reason the better.

That’s why, even with 25,000 Publishers, we still can’t get one straight answer on what the costs of creating and publishing books really are. It’s also why people with the most extreme views about ebook rights always claim to have the higher moral ground.

The reason we often need to fool ourselves 

It’s easier to fool others into doing something (that’s good for you personally) if you yourself believe that’s the right thing to do and helps both parties.

It also works as a safeguard against all our social inclinations and instincts.

Take an author whose selling point is fighting for ebook rights. The reality might be that the main reason his books sell and he gets coverage is because he claims to be for ebook rights. In a way it’s his calling card. Yet to be truly effective he has to believe that it is a moral war. It sounds so much less powerful (even to oneself) if it’s painted as just an innovative new marketing strategy.

People want to have their cake and eat it too – not only do they want things that benefit them a lot, they also want to believe that they are actually sacrificing themselves while making all these profits.

Is there such a thing as justifiable piracy?

That’s not really a question that can be answered. It’s all supply and demand and power and control.

Companies that have products that are in high demand try to make as much money as they can. If they get more and more power they keep making things more and more lopsided until at some point things snap and people leave.

When customers get a lot of power they do the same. Take the Internet and how people expect everything to be free. Customers, when they get lots of power, start exploiting content creators until at some point the content creators just leave for greener shores.

We’re seeing this same greed with ebooks. Everyone is focused on the layer of illusions and lies and rationalizations – whatever gives them freedom to do what benefits them the most.

The truth is that ebooks are cheaper and easier to publish than physical books. Publishers are trying to hide that – perhaps due to still being stuck in the model of physical books. It’s also true that ebooks are easier to pirate and there is far less danger of being caught. Readers are trying to make the most of that.

We have two groups of people trying to exploit each other instead of working together and it’s going to hurt both in the long-term. The decline of Books will just be collateral damage.

Assumptions about eBook Piracy that don't make sense

The most puzzling aspect of the various arguments about piracy are the completely unfounded assumptions people on both sides of the argument make.

The ‘We Lost $27 trillion to Piracy’ Argument

Publishers Weekly talks about a report by Attributor –

Publishers could be losing out on as much as $3 billion to online book piracy, a new report released today by Attributor estimates.

From the four sites that make digital download data available–4shared.com, scribd.com, wattpad.com, and docstoc.com–Attributor found 3 million illegal downloads in the final quarter of 2009 of the 913 books followed.

Before Publishers jump to the assumption that they are losing $3 billion a year to piracy they should consider these points –

  1. Attributor sells anti-piracy products.  
  2. The analysis includes assumptions like this one – DocStoc, Scribd, Wattpad, and 4shared comprise one-third of piracy.  
  3. A lot, if not most, of those people would not have bought a book if it weren’t free.
  4. A significant portion of the ones who did buy the book would buy a used one. 
  5. Piracy can not be stopped completely – There are some people who will never pay for books.
  6. Not everyone is a pirate. However, everyone could start believing books are worth nothing down the line and pirating.
  7. The take-down notice method is not a good way of addressing piracy.

While Publishers are under the delusion that all their problems would be solved by killing piracy users are under several delusions of their own.

The ‘No one who pirates would actually buy the book’ argument

Let’s look at it from a slightly different perspective –

  1. Let’s say that anyone who downloads a pirated copy of a book and then actually reads it gets some value.

If pirated books magically disappeared you would get (for the people who get value from pirated books) –

  1. A portion who are not willing to pay anything and don’t buy the book. 
  2. A portion who think it’s not a fair price and don’t buy.  
  3. The remaining portion buy the book as they do want to read the book enough to pay.

There are two things here –

  1. The third category might be just 10% or they might be 25% – whatever it is, its solid revenue.
  2. The first and second category are getting value without paying anything in return – That’s trivializing the work and the value of authors and publishers.

The argument that Piraters would not buy is wrong because some portion would.

The ‘I can pirate if I don’t agree to the terms’ argument

People who do not agree to the terms the creator sets and don’t pay are not entitled to reading the book.

That’s an exceedingly simple concept.

Say you’re a plumber – You go fix someone’s sink and then they say your quote is too high and don’t pay you. Then they berate you for charging too much and expect you to come back and work for them again, for free.  

If you want to read a book you have to agree to the purchase contract and the purchase price.

If you don’t then you don’t pay and you don’t read the book. There isn’t really any justification for piracy – no matter how unreasonable Publishers or Authors are.

If unreasonable prices were justification for piracy –

  • It would be legal to go into a store that sells items outside your budget or items that you thought were unreasonably priced and steal them.

The ‘Piracy can be solved’ argument

There are a portion of people who will NEVER pay and there are people who will always figure out ways to pirate.

  1. Some people believe information should be free. 
  2. A few just want to get things for free.
  3. There are hackers who want to break piracy checks just to prove it can be done. 
  4. A few Individuals and Companies will always be jealous of any successful author or Publisher and attack them via piracy.

Piracy is not a solvable problem – even closed systems like Kindle and iPhone get hacked and bypassed.

This point is crucial to understand because there is a certain point at which the cost of preventing piracy becomes higher that the cost of piracy.

  • Perhaps once you’ve ensured that piracy is less than 10% the further returns are not worth the costs.

The ‘We can create a perfect world’ argument

Idealistic people like to believe that we could reach a perfect situation – Publishers remove DRM and make things very easy for customers and customers respond by always paying for what they read.

It’s never going to happen.

We live in a world with wars, murder, civil wars, burglaries, assaults, and so many examples of non-perfection.

Do we really think 100% of people are going to do the right thing and pay for a digital book?

The ‘piracy is hurting us so we need to raise prices’ argument

With ebooks Publishers get a lot –

  1. Removing the used book market. 
  2. Reducing sharing to between family members and very close friends.
  3. More sales – if the ‘Kindle owners buy 2.7 times the books they used’ behavior can be replicated across all ebooks.
  4. Lower costs. 
  5. Better and quicker information on sales and customer behavior.
  6. If they play it right a larger cut – Apple is already offering Publishers 70%.
  7. Kindle Store etc. as a grounds for finding new talent. Much less work and less risk.
  8. Closed systems that severely reduce piracy.

At this point if Publishers try to claim they need to raise prices because of piracy, they’re pushing their luck.

Publishers alternate between

  • Excessive fear – which leads to arcane DRM and unreasonable restrictions.
  • Excessive greed – which leads to attempts to sell ebooks (that have no used book market and little sharing) at hardcover prices.

It’s time for them to be realistic and reasonable.

Closing Thought – The Non Ideal Reality

Publishers are trying to take readers for a ride and readers are trying to take Publishers for a ride.

In between you have companies and middle-men who are trying to take everyone for a ride. 

There are very few people and even fewer companies that are being reasonable –

  1. Apple’s 30% cut is very reasonable.
  2. Amazon’s platform model is very good – especially for indie authors who are getting book deals and a shot.
  3. People who are happily paying $10 and sticking to the agreement (whether DRM or DRM free) are being reasonable.

Almost everyone else is trying to set-up a win-loss system.

Content creators, content curators, platforms, and readers are all part of the eco-system and all make valid contributions. It’s about time we accepted it and stopped deluding ourselves that all of books revolves around one (our) element.