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Week of 21 February 2011


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Monday, 21 February 2011
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10:00 - Barbara ended up labeling enough tubes over the weekend for the first 28 microchemistry kits. (If that number seems odd, it's because there are 28 labels per sheet.) That took her about four hours in two sessions, but she did it while she was watching TV. Obviously, shipping 100 to 200 kits a month won't be a problem time-wise. My drop-dead target date for shipping the first kits isn't until mid-May, so we may be able to beat that. I may start taking pre-orders a month or so before we actually start shipping kits. Balancing lead-time on components versus keeping inventory reasonable will be an issue, but one that we can deal with.

I haven't given much attention to marketing or sales. In terms of marketing, I'm planning to depend largely on word of mouth. Home schoolers are well organized, so getting the word out shouldn't be too difficult. Nor do I plan to use resellers. I don't think they'd contribute much if anything to increasing sales volume, and the cost of using them simply boosts the price of the kits. A reseller, for example, would want 40% gross margin. In other words, for a kit with a retail price of $150, the reseller would pay us $90. Or, another way of looking at it, if we need $150 of revenue per kit, we'd have to set the list price at $250 to clear $150. I'd rather sell that kit directly for $150 and save buyers the extra $100. If that reduces sales volume, well I can live with that.

But I don't think it will reduce sales volume. On the one hand, having the kits in reseller catalogs and on their web sites increases their exposure to potential buyers. But on the other hand, pricing the kit to allow for reseller margin would price some people out of the market. My gut reaction is that a $150 kit that's available only directly should sell in larger numbers than a $250 kit that's available from resellers as well. And I think most home schoolers would agree with me that they'd rather pay $150 than $250 for the same kit.


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Tuesday, 22 February 2011
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09:48 - As Barbara and I were watching S2E1 of Da Vinci's Inquest on Netflix streaming last night, I mentioned that S3D1 of New Tricks was on its way to us. At $20/month, we get far, far more value from Netflix than we ever got from cable TV. Same deal with the Kindle, where we get far, far more value than we ever did buying print books. That's something content providers had better get used to. People want choice and they want value. They want to read or watch exactly what they want to read or watch, and they want to do it on their terms and on their schedule. The old business models--cable/satellite TV and print books--don't deliver either, and they're doomed to fail eventually.

Content providers who understand this are going to clean up. That's why Netflix is adding subscribers at a tremendous rate while cable and satellite are, for the first time ever, actually experiencing a net loss of subscribers. Same deal on ebooks. High-priced ebooks are rightly perceived by most potential customers as rip-off. Conversely, the indie authors who are selling their ebooks for $0.99 to $2.99 are cleaning up, and will continue to do so. The smart ones are also publishing their books without DRM, realizing that every "pirate" copy is in fact free advertising.

Here's how that works. One of these days, for example, I'll probably hear from our friends Paul and Mary that they've bought a Kindle. I'll hand them a USB stick with 3,000 "pirated" ebooks on it. Mary and I read a lot of the same things, so I'll recommend some of those to her. In that collection of 3,000 ebooks, there might be one by a particular author I think Mary would like. If she reads and likes it, what's the next thing she's going to do? Right. She's going to go over to the Kindle store and find out that author has 17 other books, priced from $0.99 to $2.99 each. Is Mary going to go off and search the intertubes for unauthorized copies of those 17 other books? Of course not. She's going to one-click order all 17 of those books, giving that author 17 sales he or she wouldn't have gotten otherwise. Hell, she might even buy a legitimate copy of the one she already has. Why not? It's cheap and easy to buy.

And the same thing will happen in reverse. When Mary finds a new author she likes, she'll give me a copy of that book. If I like it, I'll go buy the rest of that author's books. It's the same thing as trading paperbacks. In either case, the author gets no money for that first trial book or two, but cleans up on future sales. And that can't happen if authors put DRM on their ebooks.


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Wednesday, 23 February 2011
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07:57 - It's always annoyed me when people use the term piracy to refer to copyright infringement. Yesterday, we were reminded what piracy really is. A group of copyright infringers pirates seized four American citizens, held them for ransom, and then murdered them. What I really, really don't understand is how any of these copyright infringers pirates survived. Some were apparently killed during the confrontation with a US Navy vessel, but most were instead captured and are to be brought to trial. Why? These people are outlaws in the original sense of that word. It was fully within the rights of the captain of that vessel to have them summarily executed, which is what he should have done. If it had been me, I'd have put them back on their boat, given them a short head start, and then used their boat for target practice.

Speaking of people I don't like, I haven't heard anything more about the Wisconsin demonstrators who used fraudulent doctors' excuses to fraudulently claim paid time off to attend the demonstrations in Madison. If I were the governor, I'd verify the doctor's excuse for anyone who claimed sick leave that day. Anyone who fraudulently claimed sick leave on the basis of one of these fake doctor's excuses should be summarily fired.

Understand, I am 100% in favor of private workers' rights to form a union. I am also 100% in favor of a worker's right not to join a union or to pay union dues other than completely voluntarily, and I am 100% in favor of employers' rights not to recognize a union and to fire any employee who joins a union and to blackball anyone who is or has been a member of a union. I am also 100% opposed to allowing government workers to form a union or to participate in any way in politics. We need to return to the days when "I'm Hatched" was the response of any government employee who was asked to participate in political activity.



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Thursday, 24 February 2011
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10:47 - Things have been pretty steady around here for months and are likely to remain so for the foreseeable future. I'm spending most of my days writing and in the lab and my evenings reading (mostly) ebooks and (kind of) watching videos as I surf the web.

I've pretty much stopped paying attention to the news. The politicians seem determined to wreck the country in general and the economy in particular, but there's nothing I can do about it. The republicans propose band-aid solutions and the democrats propose to improve things by digging us even deeper. I will admit that I was briefly cheered, albeit incredulous, when I read a headline a couple weeks ago that Obama was proposing a trillion-dollar budget cut. Then I read the article and found that he didn't mean a trillion-dollar cut this year, but spread over 10 years. And his so-called trillion-dollar cut was based on spending levels during the bailouts, so in fact it amounts to about a $10 trillion increase in spending.

Even the Tea Party congressmen don't seem to understand how deep a hole we're in, and that their proposed so-called spending cuts are actually just digging us in deeper. Someone needs to stand up and tell the world that we're flat broke and we're going to really cut spending. Not by reducing the increases, but by actually cutting spending to some small fraction of what we currently spend. Actually, even a trillion-dollar per year cut isn't enough. That's only about a third of the current budget, and we need to cut far more than a third of spending if we're ever to recover. Meanwhile, our scum politicians argue about whether to eliminate spending half a billion dollars a year on NPR or a few million a year on NASCAR sponsorships. Here's an idea. How about eliminating both? That should take about 10 seconds to decide, and they can spend the rest of the day deciding about another $2,000 billion in real cuts.

Of course, none of that is going to happen. We're heading for a crash sooner or later. We'll repudiate our public debt, nationalize foreign holdings, and inflate the currency dramatically, thereby wiping out everyone's savings. At this point, I'd much rather have useful commodities in-hand than money in the bank. Commodities at least hold their value. The government has spent and continues to spend huge amounts of money that it doesn't have and has no prospect of ever raising. Unfortunately, they also control the printing presses.

Given the choice between cutting spending dramatically, which carries a heavy political price, or inflating the currency, which they can blame on us (!), they'll choose to inflate every time. Eventually, they'll stop, because it's hard to vote if you're hanging by the neck from a lamppost.

But perhaps there is hope. Wisconsin and others are trying hard to put a stop to the long-standing depredations of public employee labor unions. Of course, that's because Wisconsin, unlike the feds, can't print its own money. They have to raise whatever money they intend to spend, and they're near the breaking point. Providence, Rhode Island just issued layoff notices to all of its teachers. Not all will actually lose their jobs, but I think it's a safe bet that there'll be considerably fewer public school teachers employed in Providence next autumn than there are now. State and local governments rightly fear tax rebellions breaking out. We've already seen signs of that starting to happen. If it becomes widespread, state and local governments are truly screwed. And the feds won't be far behind. It's going to be an interesting next few years.


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Friday, 25 February 2011
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10:23 - There's a lot of discussion going on on the indie author blogs about ebook pricing. Amazon pays 70% royalties (less a small delivery fee) for ebooks priced from $2.99 to $9.99, and 35% on books priced higher or lower. Smart authors are pricing full-length novels at $2.99--the minimum to get the 70% rate--and shorter works at $0.99. Many of them who have multiple titles available are pricing at least one in each series at $0.99, with the others at $2.99.

Some, of course, are concerned about what they call "the race to the bottom", and the tendency to "undervalue" their work. These folks are clueless, and I don't expect them to flourish or even survive the goldrush. What they don't understand is that what people are buying here is not a product, it's a story. What most people are willing to pay for these stories is constrained by what it would cost them to get the story otherwise. The pricing ceiling is the price of a used paperback, which perhaps not coincidentally, is about $2.99. Of course, an ebook is actually worth less than the price of a used paperback. You can pass along a used paperback to a friend, donate it to the library, or sell it at a used bookstore. You can do some of that with an ebook, assuming it has no DRM, but not all of it. Of course, with the ebook, you don't need to pay shipping charges or for gasoline to drive to the bookstore (or even the library, where you can get books for free).

There's also been a lot of discussion about the "window of opportunity" closing in a year or so. I don't buy that, either. Yes, some authors who happened to be in the right place at the right time are cleaning up. That'll continue for a while until things stabilize. But ebooks are and will remain a huge opportunity for (good) authors. I may dip my toe in the water in a year or two. Right now, I don't have time to pursue it. But the opportunity will still be there two years from now, or five. The goldrush will be over, but what won't change is the economics of self-publishing ebooks. Historically, authors have settled for a very small share of revenues. That's changed, and it's not going to change back. Publishers are screwed, but authors will do well. Not all authors, of course. Most of those who are currently self-publishing simply aren't very good writers. But the opportunity will always be there for people who can actually write.


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Saturday, 26 February 2011
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09:32 - I figured I'd probably have to buy another Kindle eventually, once Barbara gets around to trying mine. But it looks as if I may need to order two additional Kindles. Yesterday, I headed for the kitchen to get some Coke. As I passed through the den, I noticed Malcolm lying on the sofa with my Kindle between his front paws. He quickly turned it off, apparently not realizing that switching it back on would return it to where he'd left off. So I switched it back on. Yep. One of those $0.99 canine erotica ebooks he'd downloaded from Amazon.

I got email from a friend yesterday. She wants to buy her husband a Kindle and asked about the differences between the Wi-Fi and 3G models. I told her the only real difference was that the 3G model costs $189 instead of $139. As far as I'm concerned, except in very unusual circumstances, there's simply no need for the 3G functionality. In fact, I expect Amazon to drop it in the next model.

Cell-phone connectivity was one of those ideas that seemed good at the time, but it's come back to bite Amazon. When it was introduced, the average ebook was selling for $10 or so, so the cost of transferring it by cell was a tiny percentage of the revenue. Now that most of the top 1,000 paid ebooks on Amazon are priced at $0.99 to $2.99, that cost is no longer trivial, particularly for image-heavy content like graphic novels. Amazon charges a $0.15/MB delivery fee to publishers. For a typical text-only ebook, that averages maybe $0.06, but for a graphic novel or a non-fiction book that includes lots of images, the delivery fee can easy run $2.00 or more. That takes a serious bite out of royalties. And it also takes a serious bite out of Amazon's revenue on books subject to the 35% royalty, which don't incur the delivery charge but still require costly bandwidth to transfer.

How often does the average Kindle owner want to buy an ebook when he's within range of a cell tower but not a Wi-Fi network? For most people, the answer is probably almost never. And when you consider how many ebooks you can store on a Kindle, the likelihood of someone running out of stuff to read when he's out of range of a Wi-Fi network is probably vanishingly small.



10:21 - Oh, yeah. I forgot. More ebook obnoxiousness. It seems that Harper-Collins now wants ebooks sold to libraries to self-destruct after 26 checkouts. Librarians are not amused. Cory has the right answer: libraries should refuse to purchase any ebook that has DRM.

Of course, that decisively eliminates the concept of lending, not that it was ever meaningful for ebooks anyway. Our library system allows patrons to download any of their selection of ebooks, most of which are in DRM'd epub format. Stripping the DRM to allow the book to be read on a Kindle is trivial. I haven't bothered, because our library doesn't have any ebooks that I want to read. Or, if I do want to read one of their titles, I'd be more likely just to buy it.

Libraries as we know them are going away anyway. The buildings will still be there in five years, even ten. And they'll still have librarians in them. But their mission will have changed dramatically. I just checked with Barbara, who confirmed that right now the bulk of public library traffic is adult fiction readers. Many of those are already jumping ship to ereaders. I think it likely that within the next couple of years, essentially all of them will be reading ebooks and not visiting the library.

One very significant factor that's often overlooked is that ereaders are the first technology in recent memory for which older people have led the charge. Even now--granted that we're still early on the curve--older adults are much more likely to own ereaders than younger adults or children. Barbara first commented that there'd be resistance among significant numbers of readers to moving from pbooks to ebooks, probably thinking that older people would be most resistant to change. That's obviously not the case. If nothing else, an ereader converts any ebook into a large-print book. And, in my experience, a huge percentage of people who say they'll never give up paper books change their minds almost instantly once they actually try an ereader.

So, where does that leave public libraries? Certainly not in the business of checking out books. I think public libraries will have to reinvent themselves completely. They'll become community centers, devoting most of their time and space to hosting meetings, lectures and similar activities. You'll probably register to vote there, if you don't already. You'll probably go there to work on your resume and look for a job. Libraries will retain their non-fiction resources and continue to serve as centers for students and others doing research. But they'll no longer be what most people currently think of as libraries.

Oh, yeah. Here's another prediction. The consensus seems to be that in all venues fiction ebooks will outsell fiction paperbacks and hardbacks combined in 2014. (In terms of number of copies shipped, not revenue.) I think those predictions are far off the mark. I predict that fiction ebooks will outsell fiction pbooks (in number of copies, not revenue) by December 2011. I further predict that fiction pbooks will decline to 25% of the market by December 2012, and to less than 10% by December 2013.


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Sunday, 27 February 2011
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Copyright 1998, 1999, 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008, 2009, 2010, 2011 by Robert Bruce Thompson. All Rights Reserved.