Amazon vs. Hachette Update - It's About Price

[darryl]

Originally Posted by Hrafn

No, they do not have "a whole lot more information" they have information that is a whole lot more aggregated, and therefore is a whole lot less useful for estimating elasticities. Is the fact that we sold less books this holiday season for higher unit prices because of the price, or because of an economic downturn? Is the fact that people are buying more $20 Harry Potter books than $25 Stephen King books because they're cheaper, or because people like Harry Potter more?

Statistically, heavily aggregated data means very few 'degrees of freedom' and a model that is nowhere near robust, because so many contributory factors end up being conflated.

I know all this because (i) I've got a degree in Statistics & (ii) because I've actually worked in the field of Regulatory Economics/Competition Law, including on calculating price elasticities.

There is continuing disparagement of Amazon's figures on this forum. Some of it is valid, including your own criticism of "heavily aggregated data". This, of course, can only be put to rest by Amazon releasing the detailed data which has been aggregated. This is not going to happen any more than Hachette or the other BPH will release their detailed data. In fact, what Amazon has released, aggregated as it is, is far more than I have seen on this topic from any member of the BPH.

Your criticism is of aggregated data in general. Recongnising that we are not going to get the detailed data you demand, I would have thought that the most productive course was to attempt to evaluate the data we do have. If it is that bad, I would expect that there would be some data which contradicted it in major respects. If there is, I have not yet seen it.

Yet we have in this topic seen many efforts to evaluate the efficacy of the information. These include comparable data from Smashwords, speculation on Amazon's reasons for lying and for taking the risk of the consequences thereof, and importantly, the very fact that Amazon's business practices accord with its position. They did prefer the $9.99 price point, just as they profess. If they make more money at $14.99, why on earth would they not set that price? If any of the BPH wish to claim that they suffer at $9.99 they are at liberty to provide their own data and indeed their own explanation. But looking at what explanatins we have seen so far are troubling. Retarding the EBook market in an attempt to bolster their preferred print book market. Subsidising loss-making publications which are nevertheless required to be published for the Public Good? Encouraging the local industry. And avoiding cheapening the image of books in the public mind. Really?

Using what seems to be the best data available, and evaluating that data against the real world and the relevant explanations provided seems to me to favour Amazon's position. All the criticisms of methedologies and errors that they might lead to are moot. That an error or errors might have occurred does not mean that such error or errors did occur, particularly in these circumstances. Please look to the particular case.

[Hrafn]

Originally Posted by darryl

There is continuing disparagement of Amazon's figures on this forum. Some of it is valid, including your own criticism of "heavily aggregated data".

I wasn't in fact disparaging Amazon's data but the publishers'.

Amazon has access to the data (at least on their own customers) on a completely disaggregated customer-by-customer basis, as well as being in a position to experiment on their customers by offer subsets different prices (as we know they've done in the past). This should put them in a position to build some very accurate and robust models. They would also be in a position to make a lot of money off this information, so I'd expect them to hire some very smart econometricians to design their models.

Thus my original point that I'd tend to trust Amazon's numbers over the publishers.

Addendum: it should also be noted that I was talking about level of aggregation in the input data that Amazon versus the publishers have available in creating their models. This is completely different from how aggregated versus detailed the reported results are.

[darryl]

Originally Posted by Hrafn

I wasn't in fact disparaging Amazon's data but the publishers'.

Amazon has access to the data (at least on their own customers) on a completely disaggregated customer-by-customer basis, as well as being in a position to experiment on their customers by offer subsets different prices (as we know they've done in the past). This should put them in a position to build some very accurate and robust models. They would also be in a position to make a lot of money off this information, so I'd expect them to hire some very smart econometricians to design their models.

Thus my original point that I'd tend to trust Amazon's numbers over the publishers.

Addendum: it should also be noted that I was talking about level of aggregation in the input data that Amazon versus the publishers have available in creating their models. This is completely different from how aggregated versus detailed the reported results are.

My apologies. I completely misinterpreted your post. My only excuse is it has been a long day. Once again, my apologies.

[pwalker8]

Originally Posted by SteveEisenberg

I don't think that fiction readers subsidize nonfiction readers. Lots of nonfiction sells well, especially in paper editions. Hachette (almost all fiction) didn't buy Perseus (heavily nonfiction) in order to lose money.

It may be that, on average, bestsellers subsidize midlist. But publishers do not know which titles are going to be the hits and which are going to be midlist. True, some famous names (James Patterson, Hillary Clinton) are surefire bestseller authors. But those authors demand such a high advance that the publisher may lose money on their bestseller. And if a publisher only publishes books by proven bestselling authors, it will eventually die. They do need to takes chances to survive.

Now, I would say that there are some subsidy situations. People who want to own books subsidize people who want to read and return (or resell). Also, people who want to read books shortly after publication subsidize those content to wait a few years. People who buy the hardback, or eBook, the week it comes out are subsidizing the man or woman borrowing a worn paperback in an African village reading room. Is this so horrible?

You might say that you are willing to pay $9.99, during the first month after an eBook release, to subsidize the reading room, but not $14.99. Fine. This will be reflected in Hachette sales data and they will price in the way their numbers people find maximizes revenue. But I can't buy the idea that Hachette is run by idiots who don't know what price to charge.

The whole "book publishers are idiots lost in the past" narrative makes very little sense and has no basis in reality. All one has to do is look how much the book industry has evolved over the last 40 years to know that book publishers are constantly evolving their sales models. When I first started buying books, authors were just starting to switch from the primary revenue stream coming from selling stories to magazines by the word (a model that had been in place since the 1800's) to paper back books. Amazon, on the other hand, just celebrated their 20th anniversary in July and isn't a particularly profitable company. I think they need a bit more maturity before anointing them the masters of the changing market.

[Barcey]

Originally Posted by pwalker8

Publishers may have very little direct contact with specific end-buyers, but they have a whole lot more information than Amazon when it comes to how many books they can sell at what prices for various categories of authors (i.e. well known best sellers, well known mid-tier, etc...). Publishers have been experimenting with various prices points for various types of books for a long time.

Not really. They have a long history of how many books were distributed at various suggested list prices and how many were returned but I don't believe they have good data on:
1) What price they actually sold at
2) How many times somebody looked for a book then decided not to buy it
3) How many times a user picked up a book to read the description or sample and then didn't buy it
4) How many times somebody put it in their shopping cart and then didn't buy it
5) What book they bought instead, what author and what price
6) What percentage bought used
7) How all the above changed when the price changed

Amazon has a vastly better view of things.

[fjtorres]

Originally Posted by Barcey

Not really. They have a long history of how many books were distributed at various suggested list prices and how many were returned but I don't believe they have good data on:
1) What price they actually sold at
2) How many times somebody looked for a book then decided not to buy it
3) How many times a user picked up a book to read the description or sample and then didn't buy it
4) How many times somebody put it in their shopping cart and then didn't buy it
5) What book they bought instead, what author and what price
6) What percentage bought used
7) How all the above changed when the price changed

Amazon has a vastly better view of things.

8) How many customers wishlist a book and wait for the price to drop or how long they are willing to wait to get their price.
9) How many books are straight "pop-in, buy, pop-out" buys and how many (and which) come from promos or site searches and browsing.

They also don't know how often a customer looked at a book and went on to buy a movie or video game instead. Or how much of their entertainment budget goes to books instead of other media.

Publishers know about books' *bottom line* performance (which, in the end is all their corporate overlords care about) but know diddly squat about consumer *shopping* habits or unconstrained preferences. If they knew something, they wouldn't be so reliant on payola to move their "bestsellers" or doing so many "me-too" releases.

You don't need to be an insider to study their behavior and realize where their area of competence ends. And it ends far, far from the consumer.

[eschwartz]

Originally Posted by pwalker8

Yep, it was a loss, not less.

Dominate does not mean that Amazon is the only ebook seller, it means that Amazon holds the biggest market share by a large margin. The latest figures that I saw for ebooks in the US is 65%, with Apple and B&N getting most of the rest.

Ah yes, nothing like a gratuitous putdown to make one feel better about one's self. I find that insults and cheap rhetorical tricks are where one goes when the facts are against them.

You raise an excellent point --as long as you are talking about yourself, who replied to a post with facts

Originally Posted by ApK

No, I don't think so. Just less, not a loss.

Originally Posted by ApK

Amazon is a major player in market but not the only one, and they will not maintain their position if people can't get the books they want there.

For reference, see this thread above

Originally Posted by ApK

But you are doing a swell job of mimicking Hachette's spin doctors.

by responding with:

• one comment that is simply out of touch with reality (you cannot possibly sell something that costs nothing to produce at a loss. -- EDIT: Unless you pay them to take it off your hands. -- Whether that devalues pbooks is an irrelevant separate point), and
• another one that has no relevance and isn't actually a response (whether Amazon has a dominant position or not says nothing about whether they are "locked out of the market" without Amazon; locked out implies totality, and that Amazon would remain dominant if they cannot offer the consumer what they want, like Hachette books).

And you absolutely are imitating Hachettes spin doctors, insomuch as you say the same things. You may feel it is true nonetheless, but saying you aren't saying the same thing as them is a little ridiculous.

But I like your gratuitous putdown about "insults and cheap rhetorical tricks" when the facts are against you. You raise a very good point about that, and you're right -- you should stop.

[howyoudoin]

Originally Posted by tompe

Because then it would be valid for one specific book and that was not what they said. And if they has statistics that more supported their position they would tell it. So yes you can know what they mean. Nothing strange with that.

They could have gathered those sort of statistics for multiple books, and that makes it a worthwhile trend to make note of. They might not have given explicit indication that those were indeed the sort of statistics they're employing, but the converse is true too - I see no reason to automatically assume that they're employing useless statistics. I see no reason to not believe that the same book priced lower would yield greater sales than if it were priced higher. Does one really even need a record of statistics to be convinced of it? If the reverse is true, and sales at 14.99 yield greater profits than sales at 9.99, why isn't Amazon pushing for the greater pricing instead?

[pwalker8]

Originally Posted by eschwartz

You raise an excellent point --as long as you are talking about yourself, who replied to a post with facts




by responding with:

• one comment that is simply out of touch with reality (you cannot possibly sell something that costs nothing to produce at a loss. Whether that devalues pbooks is an irrelevant separate point), and
• another one that has no relevance and isn't actually a response (whether Amazon has a dominant position or not says nothing about whether they are "locked out of the market" without Amazon; locked out implies totality, and that Amazon would remain dominant if they cannot offer the consumer what they want, like Hachette books).

And you absolutely are imitating Hachettes spin doctors, insomuch as you say the same things. You may feel it is true nonetheless, but saying you aren't saying the same thing as them is a little ridiculous.

But I like your gratuitous putdown about "insults and cheap rhetorical tricks" when the facts are against you. You raise a very good point about that, and you're right -- you should stop.

Well that was fairly absurd. You do understand that Amazon paid the publisher for each ebook they sold don't you? There is indeed cost involved. When Amazon sells an ebook for less than they pay the publisher, then they sell it at a loss. As for the rest, all I can say is whatever dude, if you don't want to admit you didn't bother reading what I wrote before spouting off, fine.

[pwalker8]

Originally Posted by Barcey

Not really. They have a long history of how many books were distributed at various suggested list prices and how many were returned but I don't believe they have good data on:
1) What price they actually sold at
2) How many times somebody looked for a book then decided not to buy it
3) How many times a user picked up a book to read the description or sample and then didn't buy it
4) How many times somebody put it in their shopping cart and then didn't buy it
5) What book they bought instead, what author and what price
6) What percentage bought used
7) How all the above changed when the price changed

Amazon has a vastly better view of things.

I'm pretty sure that Amazon doesn't have that information either. At least not 2, 3,5,6 or 7. You also have a lot of inference there. For example, price rarely comes into play when I chose to buy a book. So trying to mine my browsing habits for price data will give you a lot of bogus information. I might have clicked on a book, looked at it and decided I didn't want it for all sorts of different reasons, or I might have clicked on the book by mistake when my cat bumped my arm or I might have misremembered the title of the book that I was looking for. You can't know just by mining the server logs.

True market research involves a lot of talking to the end customers to understand what they like and don't like and what is important to them. Publishers do a lot more market research than you think. They do research into things like book covers, book titles and price points.

[Hrafn]

Originally Posted by pwalker8

You also have a lot of inference there.

As do you. You are inferring, without any apparent basis, that:

• Amazon could not infer from your browsing and buying habits that you are relatively price indifferent. Or that they even care about the price elasticity of single customers, as opposed to large demographic groups.
• That every single mistaken click will in some way totally invalidate Amazon's data. I am quite sure that Amazon fully expects individual browsing data to be very 'noisy' from a statistical point of view, and therefore only interesting and useful in large sample sets.
• That asking buyers questions will reveal more about their buying habits than about the buying habits they think they should have. Finding out what actually makes them put down their money is almost certainly more useful.

[fjtorres]

IBM on Big data in retailing:

http://www-935.ibm.com/services/us/g...g-data-retail/

We found that 62 percent of retailers report that the use of information (including big data) and analytics is creating a competitive advantage for their organizations, compared with 63 percent of cross-industry respondents. We also discovered that retailers are taking a business-driven and pragmatic approach to big data. The most effective big data strategies identify business requirements first, and then tailor the infrastructure, data sources and analytics to support the business opportunity.

Big data is mainstream, not some fanciful dream.
Amazon is not alone in profiling customers by tracking their on-site behavior.

Anybody remember Target's little pregnancy test adventure?

http://www.forbes.com/sites/kashmirh...er-father-did/

Every time you go shopping, you share intimate details about your consumption patterns with retailers. And many of those retailers are studying those details to figure out what you like, what you need, and which coupons are most likely to make you happy. Target, for example, has figured out how to data-mine its way into your womb, to figure out whether you have a baby on the way long before you need to start buying diapers.

And here is a source from the center of the universe;

http://www.nytimes.com/2012/02/19/ma...ted=1&_r=2&hp&

Price elasticity is real and so is customer profiling.
However, you need a direct relation with the customer, which is something the corporate publishers gave up decades ago.

http://www.salon.com/2014/06/19/why_...with_hachette/

[eschwartz]

Originally Posted by pwalker8

Well that was fairly absurd. You do understand that Amazon paid the publisher for each ebook they sold don't you? There is indeed cost involved. When Amazon sells an ebook for less than they pay the publisher, then they sell it at a loss. As for the rest, all I can say is whatever dude, if you don't want to admit you didn't bother reading what I wrote before spouting off, fine.

You are trying to compare apples to oranges -- a typical tactic of spin doctors.

I was discussing Hachette's products, which cost nothing for them to make and therefore everything is profit for them. Amazon does indeed have overhead (since they are not selling something that costs nothing to produce, they are selling something that costs money to buy from the publisher) -- and that is a problem for Amazon, so Hachette is all good anyways, mmmkay?

You also seem to have decided I "didn't bother reading what [you] wrote before spouting off" despite the fact that I extensively used and reworded what you said in my response -- while I may have been flippant and rejective of everything you said, one certainly cannot deny that I clearly did read it...

Perhaps you didn't read what I wrote? since the only thing you have to say about it is the equivalent of "yeah, whatever you said is wrong".

Originally Posted by ApK -- Latest Reputation Received

Thanks! Wonder if we'll wear him down before Amazon and Hachette come to an agreement. :-)

Probably not. (This is Apple all over again; I'm noticing a trend here...)

[eschwartz]

Originally Posted by pwalker8

I'm pretty sure that Amazon doesn't have that information either. At least not 2, 3,5,6 or 7. You also have a lot of inference there. For example, price rarely comes into play when I chose to buy a book. So trying to mine my browsing habits for price data will give you a lot of bogus information. I might have clicked on a book, looked at it and decided I didn't want it for all sorts of different reasons, or I might have clicked on the book by mistake when my cat bumped my arm or I might have misremembered the title of the book that I was looking for. You can't know just by mining the server logs.

Yes, they know all of this, by aggregating those browsing habits. Their data guys were hired for a reason, and it is because they know how to compensate for this inaccuracy by looking for trends. And viewing a book then deciding "for all sorts of different reasons" is exactly what they are looking for as per 2), because nobody other than you said that Amazon assumes the only reason is price. Again, that is what trends are for.

True market research involves a lot of talking to the end customers to understand what they like and don't like and what is important to them. Publishers do a lot more market research than you think. They do research into things like book covers, book titles and price points.

As hrafn said, you are randomly assuming:

That asking buyers questions will reveal more about their buying habits than about the buying habits they think they should have. Finding out what actually makes them put down their money is almost certainly more useful.

[Sydney's Mom]

Originally Posted by tompe

The $9.99 price was only for best sellers in the beginning. It was not setup to be the maximum price.

I know--that is actually how it was referred to between Apple and the Publishers.

I would be content to let the market decide, but the publishers insist that I subsidize pbooks. This was the rationale behind the "$9.99 Problem". As we see in this thread, there are people who only want ebooks, and people who want pbooks of certain authors or subjects. That is fine. But I only want ebooks, and I cannot gift or lend or donate those ebooks. If I want to do that I have to buy a pbook. So why should the price I pay for the ebook have anything to do with propping up the market for pbooks?

I think the publishers have really shot themselves in the foot. When the kindle first came out, I looked to buy books I wanted to read. When the price went to $14, $16, $18.99, I went to the library. I believe all the big publishers are now selling digital books to libraries; at least there have been very few if any bestsellers I haven't been able to get at the library. The only problem with the library is series, and I have been buying to supplement series. But my library is filling in their series digitally, as well.

If publishers allow the $9.99, I may go back to buying. But that means I have to change my behavior, again. I can't promise to do so, but they have to realize that consumers understand what they are paying for when they charge $14.99.