Amazon’s Misleading Math

Full disclosure: I am not on either Hachette’s or Amazon’s “side.” I am on the side of not distorting facts. This particular “fact” has been bothering me for days.

In Amazon’s recent statement about its contract negotiations with Hachette, it has stated (among other things) that it thinks the correct retail price for ebooks is $9.99 or less. It makes its case for this claim in part with the following factoid:

“For every copy an e-book would sell at $14.99, it would sell 1.74 copies if priced at $9.99,” the company wrote. “So, for example, if customers would buy 100,000 copies of a particular e-book at $14.99, then customers would buy 174,000 copies of that same e-book at $9.99. Total revenue at $14.99 would be $1,499,000. Total revenue at $9.99 is $1,738,000.”

On its surface, I suspect this seems pretty reasonable and a lot of people have bought the logic. If books sell more copies at $9.99 than at $14.99 and thereby generate more revenue, why on earth would publishers insist on setting prices at $14.99? They are clearly losing money!

Except it isn’t clear at all. If you read this statement carefully, you’ll realize that for every 100 copies that sell at $14.99, another 74 would sell at $9.99. But the 100 copies will still sell at $14.99. And therein lies to the falsehood in the math. The retail price of an ebook isn’t a static value. Publishers don’t release ebooks at $14.99 and then leave the price there forever. They leave the price at $14.99 until the market of consumers who will buy at $14.99 is tapped and then drop the price (often in conjunction with the release of a cheaper paper format).

A traditionally published ebook (especially a successful one) often goes through many retail price changes. This is annoying for consumers, I grant you, who may feel shafted when the ebook they purchased for $14.99 goes on sale for $1.99, but they got to read the book three years ago instead of waiting until the price dropped to the bargain basement.

Amazon’s claim that total revenue for books at $9.99 is greater than that for books at $14.99 doesn’t take this pricing mechanism into account. The simple fact is that if the publisher can get 100 customers to buy the book at $14.99, the total revenue for those sales is $1,499. When sales being to flag at this price, the publisher can then drop the price to $9.99 and presumably sell another 74 copies for total revenue $739.26. This amounts to total revenue of $2,238.26.

By contrast, if the publisher starts at $9.99, all 174 of those sales are at $9.99 and total revenue is $1738.26. That amounts to the publisher (and Amazon) losing $500 in revenue for every 174 sales. Multiply that over thousands of sales, and it’s a LOT Of money to leave on the table.

If this is the case, why does Amazon want the retail price of ebooks to be $9.99? After all, it looks like they are, in fact, losing money. I don’t know the answer for certain, but I can speculate.

If the retail price were capped at $9.99 (not just at Amazon but everywhere), Amazon would not have to discount as often or as deeply to be the cheapest game in town (which is what they want). Discounts come out of Amazon’s portion of the sale price, not the publisher’s, so less discounting may mean greater revenue for Amazon, even if total revenue is reduced.

Don’t Read This Post…

…That is, unless you’re willing to put up with a lot of sad, rambling observations about grief and survival. If you feel you can stomach my navel-gazing, then by all means, continue.

I’ve read a lot of books about grief and grieving in the past four months. Yesterday, I finished Harriet Sarnoff Schiff’s The Bereaved Parent, which was published in 1977 but is deservedly a classic on the subject of loss, especially the loss of a child. I guess, if there’s one thing I’m “getting” from what I’ve read so far is that we’re doing everything “right”: going to support groups and talking about our loss, giving our surviving children space to express their feelings, taking steps to ensure we don’t build a shrine to our son in his room or by making him perfect in our memories, and so on. Sometimes, I feel like we’re the model grievers; I’ve been told numerous times by people who attend our support group that our family has been an inspiration to them.

So if we’re so perfect, why do I feel like life is empty and meaningless? Why do I go to bed every night wondering what the fuck I was thinking when I decided it would be a good idea to get married and have children and put myself on the path to this unbearable outcome? I thought of my family as the one thing that was worth living for, the one thing that mattered more than anything else. And now I’ve lost my innocence. I’ve been thrown out of that Garden of Eden to understand that all of that purpose can be taken from me in a heartbeat. That I can be the parent to an incredibly smart, talented, loving 16-year-old son one minute and lose him in the next. And if I can lose him, I can lose everyone. I can lose everything. What, then, do I have?

The answer, right now, is nothing. And it’s a wholly unsatisfactory answer. Because right now, I’m going through the motions, doing the things I’m supposed to do, being the model griever, and it’s not getting me any closer to feeling like I want to live. Oh, don’t worry. One thing grief has taught me is that I would never, ever deliberately inflict this kind of suffering on those I love by taking my own life. I’m not remotely suicidal. What I am is apathetic. Whether I live or die may be of concern to others, but it matters very little to me. And that’s because I don’t know what the hell I’m living for beyond those other people.

That should probably be enough. Maybe I’ll come to the point where it is enough. But right now, I’m genuinely in search of something more. Something bigger and better that I can do in the world that will make my life and my pain seem worthwhile. My children will grow up and begin their own lives. I can’t continue to invest my purpose in them indefinitely. My husband and I will continue to love and support each other and grow old together. But that can’t be all there is.

So I’m out here. Looking. Searching within myself for whatever it is I’m supposed to do that will matter.

At our support group last week, I talked about this. THe facilitator said, “Maybe that was Julian’s gift to you.” Maybe it is. I only hope I am worthy of it.