Cost and Price in Telecom and Publishing
I worked for a few years as an engineer in the telecom industry. I witnessed an interesting cost versus price debate that went on between the marketing department of the company and the engineering group. The debate was over the price the marketing department had set for different versions of data T-1 lines. A number of years ago a T-1 was a fast way to connect to the Internet for businesses.
There were primarily two types of T-1′s sold, one was a digital T-1 line the other an analog T-1 line. The digital was the newer technology while the analog was old and outdated. The engineering department didn’t want to sell the analog T-1 lines anymore because they were costly to support. They also wanted the marketing department to set the price higher on the analog T-1 because of the greater cost to deliver and run it. Engineering also wanted marketing to charge less for the digital T-1 since it cost substantially less to deliver and support. Seems like a logical argument as engineers usually are.
However the marketing department refused on the grounds that the industry charged more for digital T-1′s despite the lower costs. They also wanted to keep the analog T-1′s at a lower price to boost the perceived value of the digital T-1.
How does this tie into publishing? I see a similar trend happening with ebooks versus paper books. Clearly paper books cost substantially more money to produce and sell. The difference in cost is staggering when you think about the entire process it takes to produce and deliver a paper book. An ebook has little to no production cost per each book sold. It’s an all digital format versus the paper book which is an analog. Yet watching the pricing trends you can see publishers pushing prices higher and higher on the digital format while they push down the prices of the analog.
I’m sure there is a team of engineers arguing to drop the rates on the digital books and raise the prices on the analog book. After all it seems only logical to pass on the wonderful cost savings of a digital format to your customers. If only there were more engineers running our companies.