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Q&A: Smashwords Founder Mark Coker Predicts Drop in eBook Prices


Smashwords founder Mark Coker created a multi-platform publishing service that helps independent writers and publishers compete with traditional publishing houses.  But now that the major publishers have fixed their prices, it’s the retailers who need the help. Here, Coker dissects the agency model of bookselling and answers the question, what should readers pay for an eBook?

Which retailers are you currently working with?

We’ve signed distribution agreements with Sony, Barnes & Noble, Kobo, Apple, and we’re working on a deal with Amazon.

What about Google?

Google is being frustrating right now.  [They're reluctant to give Smashwords agency terms.  We have over 20,000 books ready to ship to them, but if they won't give us agency, we can't supply them. Smashwords has agency with every other retailer.]

The old model for selling books (and this is based on how print books are done) is a wholesale model where a retailer pays from a discount off of the cover price and then can discount the book and sell the book at whatever price they want.  That worked well for print books.

But for eBooks, the model was not working so well.  Amazon was discounting their eBooks to a price that was less than what they were paying from the publishers.  So the publishers got upset about that – they feared that Amazon was setting unrealistic expectations in the marketplace for what a book should cost, and they feared that Amazon would come back to them, months or years later, and demand lower prices.  And so publishers didn’t like that idea.

Publishers, inspired by the launch of the Apple iBookstore, adopted what’s now called the agency model.  Under the agency model, Apple acted as an agent and would not discount the book.  They would sell the book at the price mandated by the publisher – so no more discounting.  Five of the six big publishers adopted the agency model and then forced it down the throats of all the other retailers.  So, publishers are happy with the model because they can control the price.  If they want to lower the price, they can; but the retailers weren’t happy because it took away their ability to compete based on price.

Of course, customers were concerned that it would mean book prices would go up, but that’s not really a concern of mine, because book prices are coming down, and they’re going to continue to go down.

Why do books need to be that expensive if there are no printing costs involved in publishing an eBook?

That’s a common statement that you’ll hear, especially from book buyers, from customers.  They don’t want to pay print prices for an eBook because they know there’s no paper involved.

The publishers will tell you that that book is still very expensive for them to create.  They need to pay the author in advance, they need to edit the book, produce the book, convert it into an eBook, distribute it – the truth is somewhere in the middle in terms of what really matters.

I would argue that publishers need to carry the burden of most of those expenses anyway, to produce print books, because print books still account for 90% of the book market.

The incremental cost to move your book to an eBook is really negligible.  You can use a platform like Smashwords and convert your book for free.  Realistically, for less than a hundred or two hundred dollars, a publisher can get that print book into eBook format so that their argument of production costs really doesn’t hold water.  There is some distribution cost, because managing the e-book supply chain is a completely different beast; something that we [at Smashwords] spend our days doing.  In the end, it is a much lower cost to publish and distribute an eBook than a print book.  And so, eBooks should be less than a print book, and they will be. At Smashwords, the average book is less than $5.

What do you think is a good price for a typical eBook?

It depends on the objective of the author or publisher.  If the objective is to reach as many readers as possible, then a lower cost book makes sense.  If the objective is to maximize revenues and earnings, then a higher price makes sense.  But it really depends on the book.  I think non-fiction can support a higher price than fiction because people read non-fiction usually to solve a problem that has value to them, whereas people read fiction for entertainment and escapism.  There are multiple other opportunities for that, many of which are free.  I think fiction is more competitive, even though it’s the bulk of the market.

Do you recommend giving books away for free?

For free books – we’re a big believer in free books – I think this is definitely an area where independent authors have a competitive advantage over the large publishers.  Free books are really the best-kept marketing secret in eBooks today.  The highest grossing authors on Smashwords are writing series of books and then giving away the first in the series of books for free.   It’s a low-cost, high-impact marketing tactic.  If you’re a great writer and you can write a book that resonates with readers, then you’ll hook them on that first book and some percentage of them will then convert to purchase the rest of the series.

UPDATE: After this article was posted, Mark Coker called in with additional information about Google.  The change has been marked in brackets.

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