from O'Reilly -- whether prices are excessive.

[David Farber <dave () farber net>]

________________________________________
From: Tim O'Reilly [tim () oreilly com]
Sent: Tuesday, July 08, 2008 12:56 PM
To: David Farber
Cc: ip
Subject: Re: [IP] Re:   whether prices are excessive.

On Jul 8, 2008, at 8:35 AM, Dennis Allison wrote:

Mary makes the case for electronic textbooks.  She breaks the textbooks cost into segments (retailer 2, author 1, 
publisher 1, printer 1, and wholesaler 1) and then assumes a $60 price for the text--a bit misleading since textbooks 
frequently cost a lot more than that.  (Hennessey and Patterson lists at $85, the Dragon book at $106).   If textbooks 
books were available electronically for download, the retailer/printer/wholesaler segments would mostly disappear and 
the overall cost would be on the order of $20.

This kind of analysis is misleading.  Why does everyone assume that the retailer and wholesaler go away in a digital 
scenario?  Look at online music.  Are people buying from iTunes, or are they buying direct from the artists?  Old 
retailers/wholesalers might go away, but new ones take their place.

Distribution systems are driven by math, an efficient way for millions of providers to reach millions of consumers.  
Maybe there could be some P2P future, but even then, the P2P system becomes the retailer/wholesaler, and in the world 
of homo economicus, likely ends up taking a cut.

And dividing things up between retailer and wholesaler doesn't make things any better.  If a retailer like Amazon or 
Barnes & Noble becomes big enough, they ask for wholesaler-sized terms, not retailer sized terms.  So the ONLY thing 
that comes out of the equation is printing cost.

And printing cost, as the original poster points out, is less than 20% of the cost.  There *might* be some savings 
there, but there's actually a lot of digital infrastructure required that imposes costs that weren't present in old 
school publishing.

That isn't to say that textbook prices aren't too high.  But that's a simple case of an entrenched set of players 
trying to keep their profit margins up.  Digital won't change that.

I've spent a lot of my career producing books on high end topics that sell at the low end of the cost spectrum for our 
segment.  I've also spent a lot of time in digital publishing, and I can tell you, it isn't significantly cheaper or 
higher margin in the end.  It's remarkable how, when everything is all-in, how digital distribution systems like Safari 
Books Online (our joint venture with Pearson) ends up delivering about the same bottom line for authors and publishers 
as print.  It *does* provide far greater choice to consumers, as they get access to everything (including a very long 
tail) for a price comparable to what they were paying before for individual books.

____________________________________________
Tim O'Reilly, Founder and CEO, O'Reilly Media
1005 Gravenstein Highway North, Sebastopol, CA 95472
707-827-7150   tim () oreilly com<mailto:tim () oreilly com>
http://www.oreilly.com, http://radar.oreilly.com





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