Moderator’s note: Will e-books really help the typical reader save money? Here are some Kindle-related thoughts from Rob Preece, owner of—trained as an economist. – DR

robpreece1 First, you’ve got to assume a useful life—and consider the discount rate. I’m going to assume your e-book reader lasts three years and ignore the discount rate, which is about comparing a buck spent now with a buck saved in a couple of years. For most of us saving a dollar a couple of years from now is not as valuable as saving a dollar now.

Let’s assume you buy your Kindle at $400 and you regularly read best-sellers in paperback at $20 each, but you now buy them for Kindle at $10 each (and we’ll assume that Amazon keeps the $9.99 pricing).

Repaying the $400

To pay for your Kindle, you’ve got to buy enough books to repay your $400 from the savings. Which is 40 books. Over three years, that’s 13.33 books a year. Which would make you a fairly heavy reader.

Now, if you normally wait for books to come out in paperback, your savings drop dramatically. For example, you can buy Wee Free Men by Terry Pratchett in paperback for $6.99. On the Kindle, you save 20% or $1.40. At a savings of $1.40 a book, it would take you 286 book purchases to repay your Kindle or 95 a year.

Let’s make this a bit more real by assuming you read a mix of paperbacks and new best-sellers. As long as you buy at least one best-seller a month, and a couple of paperbacks, you’re talking break-even. Adding a modest discount rate (say 10%) means a few more books, but not too bad.

Makes sense if you buy new best-sellers regularly

Bottom line: As long as you buy best-sellers new on a regular basis, you actually can come out ahead with the Kindle. It’s rougher with the Sony because Sony doesn’t discount so much from cover price (if at all).

This is simply the cost savings from buying books. I intend, some day, to try to calculate what I pay per year for keeping the thousands of paper books in my house–costs I don’t incur for my e-books. I think this makes the economics come out a lot better but no matter how you look at it, a dedicated eBook machine is a good investment only for a dedicated reader. For the average reader (five books a year), figure out how to read on your PDA, smartphone, or even your PC.

(Picked up from Rob’s comments in the TeleBlog.)

Technorati Tags: ,


  1. This is why I think prices on e-reader devices need to come down a LOT—or else the ereader functions on multi-function devices that people ARE willing to pay for needs to be improved. I can read ebooks on my mac, but I don’t have software (other than a web browser) that uses the whole screen, and the web browser doesn’t save my place the way an ebook reader does. And the screen is too bright. My Alphasmart Dana is a good little machine—and well worth the $70 I paid for it (although I would not pay $400 for it new!) I do use it for e-reading and will read a lot of books on it, but I wish the screen did not reflect so much.

    I would not pay for a highly priced reader, but I would pay for an UMPC that can also do other things, provided it has a good screen and decent reader software.

  2. You need to consider also the lack of the ability to resell the books. Although I don’t take advantage, Amazon allows me to resell paper books online, I can also pass them on to friends or give them to charity, none of which you can do with e-books, making them intrinsically less valuable that paper.

    I tend to buy books in bulk orders from Amazon, around 40 at a time, 3 times a year. plus impulse purchases, so I guess this make me a heavy reader.

    I’ve been reading ebooks for years on Palm, and now windows mobile phones, mostly free books sourced from Gutenberg. I think they are very handy.

    I’d like a Kindle like-device, but I can’t see it as a replacement for paper books for leisure reading, (except maybe during travelling) due to the physical enjoyement of the paper book. Certainly for technical reading, I’d consider it, especially with search functionality, place keepers, annotations and free updates.

  3. There are some false assumptions above:

    -heavy book readers are the ones tending to reread their books; buying Kindle books is a losing proposition for them since at some point not too far off you will lose your books (or at the least have to buy a new Kindle – so add extra 400$ every 2-3 years, and this assumes Amazon does not stop supporting Kindle drm which from a company that stopped supporting previous drm books purchased from them is quite unsafe to assume)

    -heavy book readers are picky; bestsellers become so because of the casual reader; there is no guarantee that most of your books will be available from Amazon in Kindle format; also heavy book readers tend to read older titles much more than the casual reader and again the savings are minimal there

  4. I know the 20$ figure for new hardbacks is a general number just used for the calculation, but most hardbacks I come across in Barnes and Nobles or Borders are more than 20$.

    Is a book a month of 13.33 a year really heavy reading?

    I’ve been considering the Kindle for a relative who lives in a rural area where the only source of books is a small public library or Walmart. Interestingly, the Kindle coverage map indicates that there is coverage in the area. This seems to be a great solution where there are few if any real bookstores within 60-100 miles.

  5. What about the resale value of the paper books? Is there/can there be a resale market for DRMed ebooks? If you resell your paper books after reading them then you recoup some portion of the original purchase price. If you can’t do that with your ebooks, then they suddenly look less attractive.

  6. I think it’s quite unlikely Amazon will continue selling all NY Times hardcover best sellers for $9.99. That’s the flaw with every article I’ve seen like this one. They are not guaranteeing this, the wording says “9.99 unless otherwise posted.”

  7. I picked the $20 because I wanted to be conservative, and because many bestsellers are discounted, by the Amazons and BNs of the world. Obviously if we picked $30, the economics get better.

    Sadly, people who read a book a month are ‘heavy readers,’ at least statistically.

    Liviu, you’re absolutely right that many heavy readers don’t concentrate on best-sellers. For non-best-sellers, Amazon still offers significant savings for Kindle editions, which means that there would be a payback period but we’d have to develop a model ‘heavy reader’ and create a reading mix. Of course, heavy readers do read some best-sellers, and right now, that’s where the big discounts exist.

    David/whey, I don’t know about you guys, but my local Half Priced Books pays less than a dollar for a new hardback (and almost nothing for paperbacks). But yes, if you resold your books, that would make the Kindle payback a tiny bit harder to justify.

    Liviu, you’re absolutely right that the Kindle plan includes a lock-in to Kindle. If you want to switch to a non-Kindle-compatible reader in the future, you might have a hard time re-reading your books. We could model this–figure what percentage of books a heavy reader wants to read more than two years after he/she initially purchases them and then subtract a discounted value for this loss, minus the percentage of readers who’d want to buy a new Kindle anyway and wouldn’t have the loss.

    Although I ignored discount rates in my first post, you do have to remember that being able to re-read a book ten years from now has a pretty insignificant discounted present value.

    Also, I ignored the benefit of not having to store paper books, cart them around with you when you move, etc. For an increasingly mobile population, these benefits can be significant.

    Obviously the model is simplified. I think it does call attention to the kind of reader who’d find the Kindle highly attractive–people who read lots of best-sellers.

    Rob Preece

  8. As I stated elsewhere here just yesterday, you’re leaving out FREE in this equation.

    At mobileread, I’ve come across a ton of Sony Reader-formatted books that I’d *love* to read. None of these are currently in print. Trying to get them in print versions — used market, of course — could be pricey. Even being conservative, I think it’d cost about $200 to assemble the collection in print that I’ve gotten for FREE.

    So half of a Reader’s price would already be covered for me.

    And then… what if I decide to go mad, due to impatience, and start ripping apart and scanning some print books I have (which are, again, all out of print)? I could easily wring the remaining $200 out of that.

    Others mention being able to re-sell their books. I find that weirder than a-book-a-month being used to define “heavy reading.” Books I get I tend to hang onto. Free preview is what the public library is for.

    And yep, if I could read borrowed NYPL epubs on a Sony Reader, my god, I’d amortize the cost in about 3 months just from that use alone!

  9. I just do not think that buying a Kindle is justified on economic ground and trying to sell it on those grounds is misleading. There are lots of reasons to buy a Kindle and the people doing so most likely do not do it on economic grounds. I love e-books and read a lot of them on my devices

    I bought specifically for e-books, in order, an Ebk1150, a Nokia 770 at full price when it launched, a used tablet, a Sony with the discount, and more recently an iTouch for pdf’s, and while eink has been a bust for me being too slow, I love my 770 and iTouch, the Ebk found a loving home overseas since my father in law loved it when he visited and the tablet is useful for this and that.

    If a UMPC gets at a reasonable price for me (under 400$ – either the Samsung or the Raon will do), I will buy one such immediately, but I would not justify any purchase on economic grounds.

  10. Re Mike Cane’s comment about the Sony Reader and the NYPL. I’m currently looking at a few readers for exactly that purpose. The iRex Iliad (~$700) and the Bookeen Cybook 3 (~$400) are top on my list and support the protected Mobipocket format which accounts for a decent percentage of the e-books available at my local public library.

    I haven’t found enough books at the library to justify the initial outlay, but it’s getting close (at least for the Cybook).

  11. Mike,

    Free is an important additional benefit for many of us. I certainly enjoy the Baen Free Library, and have found a number of books I’ve enjoyed on Gutenberg and on Similarly, not free but important, you can buy books significantly cheaper from Baen and many small publishers, even leaving aside the Kindle discount, than the paper versions of the same. On the other hand, many people don’t read public domain books and wouldn’t put any value. Each reader will have to do the same. Absolutely agree that the paper resale value is a non-issue but as I think David pointed out several months ago when I said the same thing, it’s something that perennially gets listed as a disadvantage of eBooks. As far as the book-a-month reader being a heavy reader, I think David had some scary statistics on reading in the US several months ago. Yep, a book a month is way above average. And remember, the average includes the book-a-day romance reader who generally buys paperback and would save only a few pennies by buying e instead.

    Liviu, I’m an economist so I tend to think of everything in economic terms. It’s a job hazard. That said, ultimately people are going to make the switch to eBooks because eBooks provide benefits to them. Some of these benefits may be pure cost savings in acquisition (which is what I’ve modeled). Some of these benefits may be lifestyle (being able to read where you are, carry less weight on trips, instant gratification, not having to buy bookshelves). I would argue that all of these can be quantified economically. Again, that’s the benefit/detriment of the kind of training anyone with a PhD in economics gets. What’s the joke about to a kid with a hammer, everything looks like a nail?

    I want a UMPC, too. I think they’re cute beyond words. That I don’t buy at $2000 but would in a second at $200 says something about value, don’t you think?

    Rob Preece

  12. “I just do not think that buying a Kindle is justified on economic ground and trying to sell it on those grounds is misleading. There are lots of reasons to buy a Kindle and the people doing so most likely do not do it on economic grounds. I love e-books and read a lot of them on my devices.”

    Well, if I understand Rob’s analysis, the market for the Kindle is really book geeks like the sorts of folks who post to Teleread! For me, the marginal value of having a lightweight device that holds 5,000 books on an SD card all instantly searchable is far greater than $400.

    And you simply route around the DRM damage by using sources like Baen, etc. and converting them to non-DRMed Mobipocket.

    The Kindle and the Sony Reader and Cybook are exactly where the iPod was when it was first released. Way too expensive, no color screen, and not a whole lot of features. I can’t imagine anyone but early adopters and book geeks being satisfied with the existing range of choices for ebook readers. They all have significant gotchas.

  13. In your economics analysis, I don’t see any analysis on the shipping cost of buying books at (say) Amazon, or the transport/parking costs of going to a bookshop to buy them in person. Some books are bought while “I was there shopping anyway”, but not all – at least in my case.

    I buy many of my books from Amazon. Often I can store up an order of 3 or more and split the shipping costs, but that can still easily add $5-6 per book bought. If I’m in a rush for one book, the cost of shipping can be more than the price of the book, adding more than 100% to the cost.

    eBook purchases would get around both problems, the shipping cost and the shipping delay in getting stuck into reading it.

    I’d like to see that analysis, using some real data, like people’s real book buying history (Amazon will have all the data and shipping options chosen and costs, etc for the on-line purchases).

  14. Agree with both Mike and Brian. For us book geeks, eBooks are simply better and a good reader provides value even if there is no savings.

    That said, if we want to expand into the broader market of people who are occasional readers, and if we want to encourage people who haven’t tried eBooks, we need a price point that people can accept without swallowing hard–or a way of cost-justifying the expense. That’s one of the appeals of the multifunction device–that the justification can be spread over multiple applications (swiss army knife problems notwithstanding). Actually, with its web browser, the Kindle might come close to being a multifunction device. You’ll note that my little analysis didn’t put any value on the web aspects of the machine. That’s through not having seen it in action so I can’t get a feel for it. Also, it’ll be interesting to see if Amazon really can keep the cost of web browsing at free.

    Rob Preece

  15. One thing that will pay for the Kindle much quicker than buying best sellers, is replacing a subscription to the New York Times.

    For me to get the gray lady delivered to my door costs $6.40/week, or $333/year. Now a Kindle subscription that is pushed to my Kindle every morning is $14/month, or $168/year. That’s $165 in savings every year (not to mention the benefits to the planet of not printing that news paper, and not physically distributing it)

  16. Shamus: People will say, What? You’re paying for the Times when you can read it free online?! (They say that about paying for it on Kindle!)

    Where’s the Department of Education?! Why aren’t we getting our money’s worth out of it? Why isn’t there a national initiative to switch students over to ebooks? Given the humongous market, reader prices could plummet.

    In fact, it doesn’t even take *our* government to do this. What about all those governments looking at the OLPC? (I guess, for them, the XO would *be* the ebook reader…)

  17. The point about shipping costs hits close to home with me. I pay $80/year for Amazon Prime so I don’t have to fiddle with shipping on books. That’s $240 over three years. I’ve probably bought 20 books from Amazon this year alone. I am a heavy reader. Being able to buy a book and download it from any location is also a plus. I’ll probably wait until the Christmas is over in case Amazon puts out some deals once the buying season is over.

The TeleRead community values your civil and thoughtful comments. We use a cache, so expect a delay. Problems? E-mail