Lending Economics Kindle prices are plenty high, despite what publishers say

I'm too cheap to buy a real deal Kindle, but I did grab the (free!) iPhone app as soon as it came out, and have to say - I'm impressed. I've read Dan Ariely's "Predictably Irrational" (a fantastic read worth a post in and of itself...) and am currently reading "Dreams of My Father" by some dude with a funny name.

I gotta say - it's a perfectly serviceable reading experience: fonts are crisp, bookmarking is easy, and as someone w/ a short-attention span, I appreciate being able to "turn the page" every few seconds.

But I think the $9.99 price point is too high, despite the whining from Publishers. Here's why.

Obviously, there are savings in the marginal costs of producing each book, since there is no need for paper, printing, binding, shipping, etc. So I'd expect these cost savings to be reflected in the price.

But I'm also bothered by the lack of lendability in the current Kindle model, and think this restriction should be reflected in a deeper discount. I very much enjoy sharing books with friends and then discussing them. Always have. I am also a big believer in the concept of a public library. Both of these "scenarios" are challenged by the current Kindle model in which an ebook is tied to a single device. I can't even lend a book to my wife. Lame. When we can't read books that we get on loan (i.e. for free), we pay an implicit premium over a physical (lendable) book, as we need to buy everything we want to read on the Kindle.

The following is a very, very, back of the envelope look at relative per unit costs & revenues of physical and (unlendable) digital books, that I think supports the case that Kindle content should be cheaper. Or lendable.

This embedded spreadsheet contains a quick collection of sample data comparing "real" books to Kindle versions on Amazon:

Let's first talk about the paperbacks:
a) Average price is $10.25 for "real", $9.57 for Kindle...
b) BUT, marginal costs of physical production are 12.5% less for Kindle books, based on NYTimes article referenced above)and this is self-reported in that article...I frankly imagine it to be more.
c) AND, assume that 25% of the books that I read I get as loaners from friends, wives, enemies, co-workers, libraries, etc. With the Kindle, I need to buy every book that I want to read. So I buy more books. (this 25% number comes from 1 data point here = me...did I mention back of the envelope?)

Based on these assumptions, spreadsheeted out below, we see there is ~50% more profit per Kindle sale than from "real" sales, at least with paperbacks.

And all this, not to mention that the same NY Times article states that Amazon is actually paying more than $9.99 back to the publishers – as much as $13 per book to ease their concerns about the business model.  (I do not know how this compares to Amazon’s physical book subsidy, or not. Amazon's payments to publishers is an interesting topic, but a bit beyond the scope of this little post…)

(Disclaimer #1: Yes, I know there are additional costs, royalties, marketing, etc, that go into a bottom line profit calc, but these are essentially equal between two forms, hence "relative baseline" qualifier)

(Disclaimer #2: I'm not really addressing the relative merits ("willingness to pay") for Kindle vs. non-Kindle content. It's all very debatable. My feeling is that there are pros and cons for each form, but ultimately, I am paying for the content more than the form...and that if anything, the physical form would command more of a premium than the Kindle form. Think: bookshelf-show-off-effect). But the goal here is to show that Kindle model is plenty profitable and prices could/should be lower. So this question, while interesting, is a bit tangential.

(Disclaimer #3: Would I really buy all the books that I am getting via loan from friends, etc?  Perhaps not...And of course I can still get physical loaners...for now...but even if I would only otherwise buy 2 out 3 books that I get on loan, the numbers work out in the Kindle’s favor)

Hard covers are a murkier picture, as the prices vary more widely, in both Kindle and "real" forms. I'm not totally clear why (though it does seem clear that Dean Koontz is a greedy bastard). But following the same approach, Kindle dollars still come out on top.

So: I say let's lower the prices...or figure out a reasonable way to lend content...part 2 of this post will include a proposal for the later...