Kindle Edition: Not A Purchase But A Long-Term Lease

[C]an you imagine if publishers said you couldn’t loan a book to a friend and let her keep it as a long as she likes? Donate it to Goodwill? Set it free through BookCrossing? Sell it on eBay or Amazon?

We can do all of those things with a real book and none of them with a Kindle book.

 

I bought my first Kindle-formatted mystery novel today. It was a pragmatic decision, but it wasn’t really a purchase, even though that’s how the publisher and Amazon present the deal.

With Kindle editions we’re really engaging in a long-term lease, not a purchase. And as a result, the rents charged by publishers, as a general rule, far exceed market value. But markets that lack competition (in this case, a lack of interoperability and proprietary formats) will have “rents” that are elevated relative to those that have competition (those with interoperability a.k.a. substitution).

Let’s back up a minute.

I’m not a troglodyte.

I love books (dead tree editions). But I have lots of digital editions: some are PDFs (with and without DRM), some are Amazon-only web-versions. I have a subscription to O’Reilly’s Safari Books (courtesy of my ACM membership). I can read digital books through the University of Washington library. And I’ve owned Kindle-formatted books since the first Kindle app: but the books relate to teaching, works like The Power of Pull and Predictably Irrational. I’ve been experimenting with the technology as well as measuring my response to the format change. But I’ve not made a leisure reading purchase.

This purchase, About Face by Donna Leon, was a pretty rational decision, the kind that might make a theoretical economist happy. My decision process went like this:

• I’ve read every book in this series. In order. I was able to pick up a copy of the most recent book, A Question of Belief (2010), from Half-Priced Books.* But I have not yet read About Face (2009). I love Commisario Guido Brunetti and his family, and I didn’t want to skip an installment.

• 

  At first glance (Chart 1), About Face appears to be sold only as a hardback, audio book (not an option for me) and Kindle book. It was this chart that I used to make my purchase decision. Clearly the Kindle edition is the least expensive option compared to a Amazon hardback edition. If I want to wait a week or so for delivery, I can buy from an Amazon marketplace vendor, where the  difference in price ranges from less than a dollar for a new copy to about half-price for a used copy. But time is an issue, since I also want to read the most recent installment in the series. Is my time worth a dollar? Three?

• 

  However, there is a paperback edition (Chart 2), it just doesn’t show up on the main product page. I had a vague memory of an oversized paperback version that retailed for almost as much as a hardback, so I ran another search on Amazon. The Kindle edition is still less expensive than a new paperback but, just like with hardback, it’s not quite as inexpensive as a used edition, unless you factor in time.

However, what this decision making process ignores is the residual value of the book after I’ve read it.

Because this is a series that I enjoy, I’ve kept every book. So I did not factor resell value into my decision. But I should have.

The market for used books is large and the Internet has made it a very competitive one. When I buy a book — hardback or paper — I have the option of reselling it. If I buy from the University of Washington Bookstore, I also get a rebate at the end of the year (it’s a cooperative). Yes, this is a future stream of money (and thus should be discounted by the almost zero interest rate), but it does reduce the total cost of the book.

There is no secondary market for Kindle-editions, but there couldbe. There is no technical reason why there is none. Just a matter of will and imperfect markets.

Because this is a series that I enjoy, I have loaned copies to lots of friends. I feel obligated to introduce Donna Leon to people who like this sort of mystery. Or friends who are headed to Venice. However, I cannot loan About Face, my Kindle book, to a friend. Although some Kindle books can be loaned, once, for a 14-day period, this one cannot. Amazon says that’s a publisher decision.

This is why I say that a Kindle “purchase” is like a long-term lease: Amazon and the publisher hold the cards. Amazon can revoke what is, in effect, a license. The publisher can prevent a loan. Collectively, publishers have prevented the development of a secondary market.**

Because this is a lease, not a purchase, the price for the product is excessive relative to the tangible good that is freely exchanged property. I mean, can you imagine if publishers said you couldn’t loan a book to a friend and let her keep it as a long as she likes? Donate it to Goodwill? Set it free through BookCrossing? Sell it on eBay or Amazon?

We can do all of those things with a real book and none of them with a Kindle book.

What might be a more appropriate rental price for a Kindle edition?

At the Apple store and Amazon, a movie that sells for $14.99 (digital download) rents for $3.99: that’s a factor of about 4:1. By this metric, About Face should rent for about $2.00 (one-quarter of the digital edition price). Clearly, a rental would not be a long-term (indefinite, forever) lease. I don’t know if the Amazon 14-day period is the right time period. I can think of some books (Benkler) where 14 days would be insufficient. (Hmmm. The Wealth of Networks is available free as PDF downloads, so that’s not the best example.) Maybe there should be a short-term (7 days) and longer term (30 days) rental option. But the digital purchase? It needs to be a purchase, complete with the ability to loan it to one person for an unlimited time, donate it to Goodwill or sell it on a secondary market. Unless Amazon’s servers were to disappear overnight, technology is not the obstacle to creating this market.

This is only half of the problem, however.

The other problem is interoperability. I can, for example, subscribe to The New Republic’s web-based online edition for $30 a year. Or I can subscribe to the less flexible (in so many ways) Kindle edition for $27 a year. The two subscriptions are not interoperable although they are both “digital.”

Publishers, like most incumbent organizations when faced with extraordinarily disruptive change, have stuck their collective heads in the sand and pretended the changes would go away. They have abandoned any and all leadership to the technologists, and the result has been a plethora of proprietary (competing, incompatible) formats.

I believe publishers need to take the lead in creating a true market for digital editions. If they do, I think that they will find, just like Hollywood did with VCR rentals, that a digital edition rental market will provide a second income stream.

* I’m on medical leave and reading a lot of fiction because I don’t have the energy or mental acuity to focus on hard stuff. I’ve set Cleopatra aside because I can’t concentrate well enough. So when I go to Trader Joe’s to feed my stomach, I also go into Half-Priced Books for a little mind candy.

** Book publishing is a very concentrated market: the top 5 control almost 60% of the U.S. trade (not textbook) market (2009):

1. Random House (owned by Bertelsmann, Germany) – 17.5%
2. Pearson (UK) – 11.3%
3. Hachette (France) – 10.0%
4. Harper Collins (owned by News Corp)- 9.8%
5. Simon & Schuster (owned by CBS) – 9.1%
6. Holtzbrinck (Germany) – 5.4%
7. Thomas Nelson – 3.2%
8. Scholastic – 2.1%
9. John Wiley – 2.0%
10. Workman – 1.2%

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