Rethinking the Kindle DX

A while ago, I panned the business plan of the Kindle DX because I felt that college students would just pirate their textbooks. After talking to my sister, I'm no longer sure that the numbers are on my side.

Make no mistake, I'm as convinced as ever that the Kindle DX will lead to massive textbook piracy, but I'm not sure that it isn't in author's, publisher's and Amazon's interest to go down this route anyway.

Let's take a hypothetical book textbook - An Introduction to Kindlenomics101, on sale new for $50.00.

Further, assume that the author gets 10% and the publisher gets 10% of the retail price, or $5 each. The rest of the money goes to the school bookstore for shipping, storing, boxing, etc. I have no idea how close these numbers are, but let's not let reality get in the way of theory - theoretically it's the same thing.

Every year, 100 students take An Introduction to Kindlenomics101.
The first year all 100 have to buy new copies of the book because it's brand new and there are no used copies.

100 students * $50 = $500 for the author, $500 for the publisher and $4000 for the bookstore.

At the end of the year 60 students decide Kindlenomics is a waste of time and sell their books back to Amazon for $15 each. (The bookstore now has 60 used copies and $3100 in revenue)

In Year 2, the used copies are only $40 so every used copy sells, as do 40 new copies.
$50 * 40 = $200 for the author, $200 for the publisher, and $1600 for the bookstore
$40 * 60 = $0 for the author, $0 for the publisher, and $2400 for the bookstore

Lets assume this process repeats for years 3-5 with enough books wearing out that the used book population is stable at 60 copies. At year 6 the frustrated professor publishes An Introduction to Kindlenomics 2.0, making all the existing books worthless.

At the end of 5 years we have:
$1300 for the author, $1300 for the publisher and $16,400 for the bookstore (There is no book buy back at the end of year 5).

Now, lets examine the ecconomics in DXland.

Assume the book still costs $50 and that there are still 100 students per year. In Kindlenomics there are no used books, but lets assign a piracy rate of 50%.

50 * 50 = $250 for the author, $250 for the publisher, and $2000 for Amazon

It's the same for all 5 years, leaving us with:
$1250 for the author, $1250 for the publisher and $10,000 for Amazon (and $0 for the bookstore).

With regular books, 52% of all students will pay full price, while 48% will be able to buy used books at 20% off. With kindlenomics, 50% of students will pay full price, while 50% pay nothing.

Conclusion:
There's a bunch of lessions.
First, the campus bookstore is screwed, Amazon shuts them out completely. Amazon may generate less revenue, but it wasn't generating any before.

Second, because there are no used digital books, piracy can be as high as 50% before it has an impact on the author or publisher. That's assuming the kindle's revenue structure is the same as a physical book's - it's probably much kinder to the author and publisher since Amazon doesn't have to store and keep track of the inventory. My guess would be that Amazon is making deals that let authors and publishers come out ahead even if piracy goes up to 2/3 of all copies.

Third, honest students who buy the books are going to end up subsidising the dishonest ones who steal. That will likely either lead to a long term cultural shift against piracy, or students will buy some books and steal others to average the cost out. Will enough people buy books to keep the system going or will individual insentives (steal all books, pay nothing) prevent a more fair system (steal half your books, pay half the total price).

Ecconomics on Amazon's side - kindle success!