Since Cory Doctorow began writing a monthly column for Publishers Weekly (see What Can Publishers Learn from Cory Doctorow?) we’ve been monitoring it, because Doctorow never wants for fresh insights into publishing processes that jaded denizens of the industry take for granted.

In the latest Cory Doctorow column in Publishers Weekly he shines his beam on the mysteries of book and e-book pricing, a swamp into which many have waded recently but few returned with any insights.

His particular focus is what he calls price discrimination, “the idea that you make more money by segmenting your customers based on how much they’re willing to spend…In publishing, price discrimination is accomplished through ‘windowing.’” To put it simply, windowing is the practice of starting with an expensive hardcover edition for the well-heeled and the impatient; then, in time, releasing cheap editions such as mass market paperbacks or e-books.

Price discrimination, says Doctorow, is balanced by what he calls “demand elasticity.” Instead of starting with a high priced edition and stepping down to cheaper ones (and making many customers wait), you start out with a low price to begin with in order to attract the largest audience in a concentrated period of time.

The crossroads of these two concepts also happens to be the crossroads of traditional publishing and digital publishing. The exigencies of the traditional require a stepped rollout of editions from higher priced to lower. But the economies generated by digital enable a publisher to slash list prices. The latter means a lower profit margin per unit sold but that’s made up by – more units sold! And that happens to be the retail model practiced by Amazon with the Kindle.

That works great for customers and it sure as hell works great for Amazon, says Doctorow. But, as the recent shooting war between Amazon and Macmillan demonstrated (see Publishing’s Weekend War: 48 Hours That Changed an Industry), that model represents a grave threat to traditional publishing.

“That’s because the Kindle is a ‘roach motel’ device,” says Doctorow. Its terms of sale “ensure that books can check in, but they can’t check out. Readers are contractually prohibited from moving their books to competing devices…It means that e-book customers can’t break with Amazon without jettisoning their digital libraries.”

As is so often the case, Doctorow’s views are colored by personal experience. “Amazon refused to allow any changes to its terms for my last book, both in the Audible edition and the Kindle edition, refusing to allow me to offer the book with some introductory text affirming readers’ rights to move the books to devices that Amazon hasn’t approved.”

For this reason, Doctorow is not buying into the Amazon business model, no matter how many other benefits the company offers.”Amazon has done an incredible job of figuring out how to cross-sell, upsell, and just plain sell books. They have revolutionized bookselling over the course of a decade. As a reader and a writer, and as a publisher and a bookseller, I am constantly amazed at how good they are at this. But I don’t believe in benevolent dictators. I wouldn’t endorse a lock-in program run by a cartel of Santa Claus, the Tooth Fairy, and Mohandas Gandhi. As good as Amazon is at what it does, it doesn’t deserve to lock in the reading public. No one does.”

And by “no one,” Doctorow includes Apple. “Don’t hope for a better shake from Apple, either,” he says. “Apple’s longstanding love-affair with proprietary formats and lock-ins will very likely make the iPad every inch the roach motel that the Kindle is.”

You can hear Doctorow on the topic on BlogTalk Radio.

Richard Curtis

Every Blogger owes a debt of gratitude to newspapers and magazines. This posting relies on original research and reporting performed by Publishers Weekly.