Tag Archives: Publishing

Amazon’s Clever Price Discrimination Strategy

Amazon likes to discount books. Here are some examples, starting with Game Theory 101: The Complete Textbook:

gt101

We are only looking at the print prices in this blog post. Originally $13.99, Game Theory 101 is yours for only $11.75.

It’s a similar story for The Rationality of War:

war

Down from $10.54, you can buy The Rationality of War for $9.30.

And finally, here’s Game Theory 101: Bargaining:

bargain

Originally $11.09, Bargaining now sits just under $10.

I suspect the average consumer is pleased to see these discounts. For authors who publish through CreateSpace, however, these discounts are incredibly confusing. We can set the original price. No matter how much Amazon discounts it, they pay us a set amount of money per sale. As such, we also like Amazon’s discounts. In fact, the larger discount is, the happier we are.

The problem is, the discounts are inconsistent. When you initially publish a book, Amazon will always tag it with the list price. Then, after some time and without any warning, Amazon might reduce the price. Or they might not. I have discussed this problem with other authors, and there doesn’t seem to be any explanation for what’s going on.

That said, I now have a theory. Amazon has found a clever form of price discrimination.

What Is Price Discrimination?
The maximum price any of us is willing to pay for a good or service can vary heavily. A lot of Americans will pay $10 or more to see Fifty Shades of Grey. Meanwhile, others may only be willing to pay $1 to see such a movie. We call such a maximum price an individual’s reservation value.

As a business owner, your dream is to charge everyone their reservation value. For example, suppose Fifty Shades’ potential audience consists of two people, one who is willing to pay $10 to see the film and the other who is willing to pay $1. If you could somehow charge the $10 person $10 and the $1 person $1, you would make $11. This makes you the most amount of money possible.

Of course, movie theaters cannot easily distinguish between those high value and low value types. As such, like most businesses, they offer a single blanket price of $10. The $10 person sees the film but the $1 person does not.

Despite the difficulty in price discriminating, businesses try it to varying degrees of success. Student and senior citizen discounts are perfect examples. Both of these groups live off of fixed (and small) incomes. Consequently, as a whole, they are less willing to pay high prices for entertainment. Businesses like movie theaters therefore offer cheaper prices to these groups than to people who tend to have larger disposable incomes.

Airplane flight prices work in a similar way. Vacation travelers are unwilling to pay $1000 for a flight across the United States. In contrast, many business travelers who need to get to New York on short notice are willing. Airlines thus charge relatively cheap prices on flights booked well in advance and massively jack up the prices on the days before takeoff.

Don’t let these discounts fool you. Although they may make it seem like the businesses are acting generously, the discounts exist to maximize profits.

Price Discrimination on Amazon
Broadly, people who publish through CreateSpace fall into one of two categories: vanity authors and what I will call profit makers. Vanity authors write books without the intention to make money. They simply want to “publish” a book so they can say they have. These authors will sell tens of books to friends and family, but their work will never catch on with a larger audience. They give self-publishing a bad name.

Profit makers use CreateSpace because they do not want to hand over a large share of revenue to a traditional publishing house. Vanity is not a concern here. They invest time in writing books and publishing through CreateSpace because they know their works will make a substantial amount of money.

Unfortunately for Amazon, it is very difficult to differentiate between vanity authors and profit makers. Further, there are substantially more vanity authors than profit makers out there. As such, Amazon’s best guess for any new book coming from CreateSpace is that the work is from a vanity author.

This is where I think Amazon’s price discrimination comes into play. Amazon suspects that every new book is vanity. Sales of vanity books do not operate like a normal market. Vanity authors are selling virtually all of their books friends and family. These individuals are willing to spend more money on these books because they know the author. Their reservation price is consequently higher than your average individual. In many cases, it may be substantially higher—a poorly edited vanity book is essentially worthless to the average consumer, but friends and family might be willing to spend $10 or $20 on the book.

If you are Amazon, what incentive do you have to cut the price? Any discount you offer directly hurts your bottom line, and these vanity books are not responding to standard supply and demand factors. Consequently, you don’t have any incentive to discount. The vanity books will be sold to the friends and family and no one else. No discount maximizes your profit.

Of course, Amazon suffers when the book is from a profit maker, not a vanity author. These books respond to supply and demand, so cutting prices by 10% can actually cause more people to buy them. So Amazon might want to reduce the price in these circumstances.

Put yourself in Amazon’s shoes for a moment. You want to discriminate here to maximize your profit. But how?

From my personal experience and discussion with other authors, I think Amazon has figured out a way. They start by offering no discount, under the assumption that the book is from a vanity author. They then wait. And wait and wait and wait. Vanity books will see their sales fall off a cliff after a month or two. Profit making books will see continued sales over the long term. This differentiates the type of book. Amazon thus cuts the price of books that sell, knowing that doing so will lead to even more sales.

To be clear, this is speculation backed up with some non-random observations. Still, I think there is a good chance that price discrimination explains Amazon’s strategy. Although the discounts may seem to be applied randomly, I can’t imagine a company with $88 billion in revenue is doing this without purpose. Price discrimination explains it.

Calculate Day-of-Week Sales Averages on KDP

For the longest time, KDP aggregated all sales information by week. Now KDP has nice graphical breakdowns of daily sales. Naturally, I wondered if my sales averages differed significantly by the day of the week. I compiled an Excel spreadsheet to give me a quick answer. Apparently the day of the week does not an impact for me, at least not in any significant way.

Still, I figured others would want to know the same information. As such, I did a little bit of extra work on the spreadsheet to make it usable for others. You can download it here. It is very simple to use. Just follow these four steps:

1) Select the tab in Excel that corresponds to the current day of the week. (For example, if today is Tuesday, use the Tuesday tab.)

2) Go to KDP’s sales dashboard. Use one of the pull down menus to open the last 90 days of sales. This will give you the most days to average over.

3) Copy each day of sales from the graph to the spreadsheet. This will require some work because you have to do it manually and need to pay close attention to graph to make sure you are copying down the correct number.

4) Excel will automatically calculate each day of the week’s average sales.

Again, you can download it here. Let me know what you think.

averages

“I Was a Digital Best Seller!”: NY Times’ Bizarrely Misleading Op-Ed

A couple days ago, the New York Times published an op-ed from Tony Horwitz, a Pulitzer Prize winner, chronicling his publishing of BOOM: Oil, Money, Cowboys, Strippers, and the Energy Rush That Could Change America Forever. A Long, Strange Journey Along the Keystone XL Pipeline. Ostensibly, it is the story of how online publishing does not live up to its hype. In reality, it is a parable of someone without good strategic or business sense committing a bunch of mistakes. And the best part: despite a lack of self-awareness, he gets paid off anyway.

To recap the important points from the op-ed, The Global Mail offered Horwitz $15,000 (plus $5,000 for expenses) to write a long-form piece on the Keystone XL pipeline. By the time Horwitz finished, The Global Mail had folded. He thus approached Byliner, who offered to publish the story as a digital book for 33% of the profits and a $2,000 advance. After a month, his book had only sold 800 copies, not enough to pay through the advance. This leads Horwitz to conclude that digital publishing is a failing enterprise.

However, the op-ed is actually a story of Horwitz making a bunch of mistakes and not realizing it. To wit:

1) As far as I can tell, he never signed a contract with The Global Mail. If I were going to spend a large percentage of my year writing a single story with the promise of $15,000 at the end, I would want a legal guarantee to that money precisely because of the issues he encountered.

2) He had a publisher (Byliner) that apparently did nothing for him. With digital publishing so easy now, the only reason to use a publisher is because they will actually do something for you. After all, Amazon will give you 2/3rds of the purchase price if you go it alone. If you are giving half of that to your publisher, you had better be getting a lot back. Instead, the publisher gave him a cover and siphoned off a large chunk of money.

3) He used an incompetent agent to sign the deal with Byliner. A good agent here would make sure the contract forces Byliner to do its job by publicizing the book to warrant its share of the revenue. Apparently there is no such language in the contract. If you are planning on signing a contract without giving it much forethought, why let the agent steal a percentage of your money as well?

4) Okay, #3 is not completely true—Byliner’s publicist “wrote a glowing review of “Boom” on Amazon, the main retailer of Byliner titles.” Amazon’s review policies make it clear that this is a flagrant violation: “Sentiments by or on behalf of a person or company with a financial interest in the product or a directly competing product (including reviews by publishers…)” are not allowed. So Horwitz is openly admitting that he has used false reviews. In the process, he implicates his publisher as well.

5) He thinks that being on the best sellers list for a particular subcategory means that he was selling a lot of copies. For someone with an extensive publishing history, this is remarkably naive. In fact, you can sell a handful of copies and get on these lists; you should not expect to make it rich unless you are on the overall best sellers list.

So we have a publisher that is completely unhelpful and an author who lacks business and strategic sense who are not making much money on a book venture. Does this warrant a New York Times op-ed on how digital publishing is full of false promises? Hardly.

The irony? The New York Times provides great publicity, even if your op-ed is completely wrong. As it stands, the book is #445 on Amazon’s best sellers list and was probably higher a couple of days ago when the story was first published. The real lesson here is that you can be horribly incompetent and still make a lot of money by writing about all of the mistakes you make—as long as you can convince the New York Times that it is the system’s fault, not yours.

This post has been very negative overall, so I feel like I should end on a kinder note. Tony Horwitz may be a fantastic writer. (I don’t know—I’ve never read anything of his. But a Pulitzer is a good indication.) His book on the Keystone pipeline might be great too. (The reviews on Amazon are good, likely even if you take out the fake review(s).) The takeaway point is that you need more than just good writing to succeed in the publishing world. Horwitz showed a lack of good sense here, and these are mistakes that you should avoid making yourself.

Do Book Sales Determine Number of Book Reviews?

In a word, yes.

That is not what I thought I would say when I first considered writing this blog post. Authors frequently complain that a book of theirs has sold very well and yet does not have very many reviews over on Amazon. And, in fact, that is what inspired me to look into this–my Rationality of War has sold better than I expected it to for the past two years or so, yet it still has zero reviews. Perhaps stranger, Game Theory 101: The Basics is by far my best seller, yet Game Theory 101: The Complete Textbook has the most reviews despite selling only a fraction of the copies.

Aside: I’m being intentionally vague about the exact number of sales any particular book has made because that is a part of my contract with Amazon. The graphs that follow will also be unlabeled. Apologies.

I understand that readers choose to review books for different reasons, so we should not expect reviews to be consistent across genres or even otherwise very similar books. But it seems weird that the difference is so big. Right?

Well, I figured doing some math could help out here. One obstacle to doing a large study on this is having data on a large number of books. Outside of New York Times best sellers, we simply do not know much about sales figures. And looking only at NYT best sellers is problematic since they are all very similar–they have all sold a tremendous number of books.

I can provide a partial solution. I have twelve books up on Amazon and have kept extensive sales records on all of them. While twelve is not a huge number, it will still provide a useful picture on the connection between sales and reviews.

My first thought was to plot the number of sales and the number of reviews each book had. This was not particularly helpful:

notlogged

The diagonal line is the OLS “best-fit” line. Sales do increase the number of reviews, but the graph is not particularly meaningful because of the bunching on the left side of the graph. This is common for data of this type. Book sales have an exponential distribution–many, many books only sell a handful of copies while very few sell a substantial amount. My library also follows this distribution.

To solve this problem, I logged my sales figures and recreated the same graph:

loggedsales

Ah, much better. We now see a clear trend: more sales lead to more book reviews, though the expectation becomes murkier for the best selling of books.

It shouldn’t be surprising that more sales lead to more books–more people reading increases the number of potential reviewers, after all. However, I was surprised by just how strong the relationship is: the correlation between logged sales and reviews is .896! (Positive correlation ranges between 0 and 1, so it is difficult to get much higher than this.) Even the unlogged data have a strong correlation of .757. The number of sales really is determining the number of reviews.

TL;DR

  1. Book sales are extremely correlated with book reviews.
  2. Variance in the number of reviews increases as books become better sellers.

gt101

Game Theory 101: The Complete Textbook Update

Two years ago today, I published the first incarnation of Game Theory 101: The Complete Textbook. (It was incomplete back then, heh.) Every summer, I like to go through it and make changes where I can. This time around, I decided to add a new lesson on games with infinite strategy spaces, like Hotelling’s game, second price auctions, and Cournot competition. I have correspondingly added some content to the MOOC version. Videos below.

Initially, I was hesitant to add more material to the textbook because Amazon’s fee increases as the file size of the book increases. Yet, the size of the textbook shrunk because I cut down on unnecessarily wordy sentences. (Switching “is greater than” to “beats” probably chopped off 300 words from the book.)

The optimistic interpretation: Readers now learn more while reading less!

The pessimistic interpretation: I really, really need to work on writing shorter sentences.

 

gt101

How to Format Images for Kindle

Formatting images for Kindle is a huge drag. The official KDP FAQs are laughably underdeveloped here, basically telling you that the four most common image types are supported (gee, thanks!) and not much else. Personally, I have completely redone the images in my textbook Game Theory 101: The Complete Textbook at least three times now, most recently because the way Kindle compresses images changed without any notice. I am writing this post to impart my knowledge on you.

Here are the most important time/money saving tips:

  1. This process is going to suck. You will think you are doing everything right, then the Kindle uploader will find a way to completely screw you over. An image will stop appearing. The image will appear blurry. Your document size will suddenly explode. You will become unbelievably frustrated at some point. Accept it now, and understand you will likely have to do some experimentation to fix these problems later.
  2. Kindles (and the .mobi file extension) were created to display text. Images were very clearly an afterthought. However pretty your image looks on your computer screen, it is not going to look nearly as pretty once you have uploaded it. Sorry.
  3. Do not use fine lines in your images. To compress file sizes, KDP evidently eliminates random lines of pixels from your images. If parts of your image contain lines that are only one or two pixels thick, those lines may magically disappear in the final version. In other words, make your images as blunt as possible. You can’t control which lines disappear, but that will not matter much if no single line is crucial to the image as a whole.
  4. By extension, if your image contains words, be careful which font you use. I originally used Cambria in many of my game theory payoff tables, but Cambria has a lot of numbers and letters with very thin lines. (The middle part of an e has this feature, for example. Without that middle line, you are looking at a c.) I switched over to Franklin Gothic Demi. It is blocky and ugly in PDFs. But Kindle is not PDF world. Blocky texts look great in Kindle world. You can also consider bolding other fonts to manually create blockier text.
  5. Do not create images larger than what you are using for your final product. In the normal publishing world, you should blow up all of your images, save them as large files, and shrink the dimensions once you have put them in the file. This ensures that the dpi (dots per inch) of the images remains large, which is important for printing purposes. But Kindle world is not the normal world. Following normal advice leads to two problems. (1) Kindle will randomly decide to remove lines of pixels, creating the problem described above. (2) Kindle will retain the larger file size, thus increasing the size of the document without changing the quality of the image on the screen. This means you will be unnecessarily paying greater delivery costs.
  6. You should also compress your images. To do this, I use IrfanView, which is the greatest image cropping software ever created. Simply paste the image into IrfanView and press “s” to save. When you choose to save as a JPEG, it will give you a range of quality options from 0 to 100. I suggest selecting 50 here, which is in line with KDP file size control guidelines. If you choose a smaller amount, the colors of the image will start to bleed into one another. Anything more hardly changes the observable quality of the image in the Kindle but sucks up file space. (And we want to shrink this to save on delivery costs.)
  7. Finally, some basic infromation: If you are writing your book on Word, you need to use the INSERT -> PICTURE command. If you copy/paste an image directly into the document, the image has a nasty tendency of disappearing when you upload the book. If you have a lot of images in your book, I suggest adding this to Word’s quick access toolbar.

Following these guidelines has decreased Game Theory 101‘s delivery costs by $0.03. While that might not seem like much, if you sell eight copies a day, that’s almost $90 over the course of the year. It has also increased the attractiveness of the book, which one would imagine correspondingly increases sales.

Let me know in the comments if you have any other tips, and I will be glad to add them here.

How to Make Your eBook Look Real Instantly

Here’s an annoying problem e-publishers face. I have a book, Game Theory 101: The Complete Textbook. It’s a really awesome book. But it’s also completely digital. As such, I can’t do promotional images of a book. All I have is a two dimensional cover:

I think I have a cool looking cover. But it would be really nice to have a physical book for promotional images.

As luck would have it, I accidentally found a way to accomplish this when I wrote my previous blog post. I wanted to create a promotional image for the book that wasn’t just the cover. After playing around for a while, I eventually got to this:

Looks pretty nice, right? The best part of it is that it is (mostly) a default setting in PowerPoint, so it is extremely easy to replicate on your own. Here’s how to do it for yourself in a few simple steps:

1) Grab the original image of your cover. This process isn’t going to turn a sucky book cover awesome, so I hope you already have a decent one to start with.

2) Open up Microsoft PowerPoint. Paste the image into a blank slide. (I’m using the 2007 edition here, which is still pretty standard. I’m not sure if it works on 2003 or 2010. I suspect these settings did not exist in the 2003 edition. They probably exist in the 2010 edition, but I have no clue if they are still default settings.)

3) Click once on the image. This should make a Format tab appear in the tabs bar. Click on it.

4) Click on Picture Effects, go to Presets, and choose preset number 10 (pictured).

5) You now have an image of your book that looks like it is a physical copy. You can right click to save the picture or just copy and paste it into the image editing program of your choice.

You can also make some further edits to tailor the image to your liking. For example, I made two changes to my final image. To access the options, right click on the image and select Format Picture. I removed the transparency by clicking on 3-D Format, selecting Material, and choosing Warm Matte. Also on the 3-D Format menu, I changed Depth to 15 pt. This makes the book look a little bit thicker.

Even with these additional changes, the entire process takes under a minute. I think the end product looks great, and I hope this you sell a few more copies of your book.