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The Economics of eBooks: What You Save, What You Stand to Gain

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Comparing eBooks with bound books in terms of costs and benefits is a bit like comparing apples to oranges. The solution to a successful eBook venture lies in recognizing how different they are.

Editorial & Prepress Savings

The most obvious difference between eBooks and bound books is the overall cost of getting them to their intended audience.

A publisher should not anticipate any significant cost advantage in the editorial phase of creating an eBook, since it doesn’t differ significantly from the editorial phase of bound-book production. But it should be noted that most eBooks are developed in tandem with bound books, with the result that publishers incur no additional editorial costs.

The first real difference between eBooks and bound books in the development chain comes directly thereafter. While the bound book will require typesetting, the eBook will require digital formatting, usually called “conversion.”

The cost of digitally formatting a typical 300-page eBook of professional quality is about $500 if the book’s text and images are available in some digital form–e.g., a word-processing or desktop publishing file. While this cost can be even lower if the digital formatting simply re-purposes existing data, the resulting eBook will usually suffer from poor typography and will be formatted inappropriately. For instance, chapter headings might not start on new pages. Hard line breaks might still exist, compromising the flow of the book. Images might noencerrelate to the correct text. eBooks produced from re-purposed data will also lack features such as hyperlinked Tables of Contents and interactivity.

The same 300-page book that can be digitally formatted for about $500 would cost an estimated $1,250 to typeset, so a publisher should anticipate a 50%+ savings in this step of production.

 

Production & Distribution Savings

The complete elimination of PP&B (printing, paper, and binding) in the production of eBooks also significantly reduces costs, of course, obviating concerns about capital investment and per unit economies of scale. Even greater cost savings and efficiency can result from drastically diminishing the support expenses associated with bound books. In other words, significant savings come from replacing the costs involved in warehousing, insuring, shipping and returns, as well as costs of damaged books, with the much lower costs for bandwidth, content hosting, and Digital Rights Management (DRM) fees.

In addition, retailing eBooks is more cost-effective because sales outlets–soon to include kiosks–need no inventory and shelf space.

For copyright-secure eBook distribution to eBookstores like Amazon and Yahoo, standard trade discounts are the norm. These may appear extremely high, considering the cost savings to distributors and retailers alike, but they are necessary to compensate for the limited number of eBook sales. That being said, the share that distributors and retailers will take from an eBook’s retail price is likely to drop significantly as eBooks become more and more mainstream.

Publishers who want to sell directly while utilizing Digital Rights Management to keep their eBooks copyright-secure will find that feature-rich solutions with low upfront costs (such as providing readers with multiple format options to read from their desktops or handhelds, and advanced DRM features such as eBook rentals) will have a per-sale fee of up to 33% of gross sales, while more focused solutions with higher upfront costs (such as providing a single format option and basic DRM features that simply allow eBooks to be securely purchased) will have significantly lower per-sales fees, even none in some circumstances. Because these various offerings are highly dependent on publishers’ specific needs, no one solution is ideal for all.

 

The Real Benefits

But all of these efficiencies and savings alone are not the true payoff for eBooks. In fact, if you’re considering eBooks simply because of their low costs, you are probably not going to find publishing them highly successful at this point. The reason is simple: eBooks will never replace bound books. Bound books will always have the benefit of being tangible, intuitive, and easy to read, not to mention owning 500 years of market penetration. The benefits of eBooks are different. And they meet different needs.

eBooks can add convenience to both the purchasing process and the reading experience. eBooks can tap markets bound books cannot reach as effectively (e.g., segments of today’s youth market, and students or doctors who want mobile libraries). eBooks can also offer rich features such as interaction, multimedia, and hyperlinking. The feature list of eBooks goes on and on, with the result that the primary payoff for eBooks comes from taking your most valuable asset–content–and further capitalizing upon it by bringing this to new audiences in new ways.

Because the eBooks sales and delivery process is automated and inexpensive, a publisher can earn back more marketing dollars by offering some titles direct, augmenting traditional sales channels while at the same time obtaining key marketing data about customers. Moreover, eBooks can be significant marketing vehicles themselves, offering convenient links to more detailed information or similar products that can be sold directly, as well as to community-building tools such as subscription-based Web sites and Internet events.

eBooks also provide publishers with a realistic way to save readers money by including advertiser-subsidized content.

 

Success through Synergy

Several ePublishers have reported that eBook sales and even giveaways of entire eBooks have generated healthy sales of bound books. One example comes from the online marketing guru Seth Godin, who gave away his book Unleashing the Idea Virus, which promotes “infecting” people with an idea in order to create demand. Godin reports that visitors downloaded more than 100,000 copies of the entire book from his site within 30 days, while another 300,000 copies were downloaded from other sites or passed along. Either in spite of or because of the giveaway, the $40 hardcover edition of the book hit #5 on Amazon.com’s bestseller list.

My conclusion, based on this and other evidence, is that, in the final analysis, the key markets for eBooks will be those that complement bound book sales and take full advantage of the unique benefits the end product can offer publishers and potential audiences.

Rich Elwood is eBook Technologies Director at BookZone, Inc., which offers ePublishing and other services to the publishing industry. Elwood has more than five years of experience in many facets of ePublishing. The author of two critically acclaimed novels, he was a two-time finalist in the 2001 EPPIE Awards as well as a finalist in the 2001 International eBook Awards. For more information about BookZone’s ePublishing, conversion, and other online services, visit

http://www.bookzone.com/services, e-mail bookzone@bookzone.com, or call 800/536-6162 (480/481-9737).

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