Precious Cargo

Refreshingly Bitter And Twisted Observations On Life's Passing Parade.

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Friday, July 28, 2006

Proof That Friendster Is Dead

From the Wall Street Journal (July 27, 2006; Page B1):

“Friendster Inc., known for bringing people together, could wind up making enemies among its peers.

Last month, the Web company was awarded a patent related to searching for people online based on their relationships, and it expects another patent to come through soon.

Now, company executives are weighing their options, including whether to sue rivals.

After News Corp. acquired MySpace last year, Friendster tried to put itself up for sale. Mr. Lindstrom calls that effort 'poorly timed,' and nothing came of it."

You know your dot com has bombed when your only hope to derive income from it is by filing patent infringment lawsuits against your competitors.

Do Used Book Sales Hurt Sales of New Books?

M. J. Rose reprints James Grippando's article “Buy New”: The Internet, Used Books, and the end of the World as We Know It.

Grippando argues that sales of used books hurt the sales of new books, especially mass market paperbacks. Because a reader can buy a used hardcover for considerably less than its cover price, no one will ever pay full price for a hardcover.

Grippando argues, "Is this really a bad thing? You bet it is. If this trend continues, publishers may well be able to publish only those authors who can earn out the bulk of their advance in the first few weeks of hardcover publication. That means fewer authors will get published."

What is Mr. Grippando's solution? First, publishers should get rid of remaindered books or deface them in such a way that they do not present an attractive alternative to new books.

Second, readers should be shamed into buying new books based on an unproven argument. Grippando writes, "Hey, it’s perfectly legal to buy used books, but people who do it should know two things. One, the author, publisher, and local bookstore make nothing on the resale of books. Two, diminished profits for the people—yes, we are talking about people, not just corporations—who write, publish, and hand-sell books leads to one inevitable consequence: fewer choices for consumers."

Mr. Grippando is beating a dead horse which has already been beaten before.

In the July 28, 2005 edition of the New York Times, UC Berkeley economics professor Hal R. Varian analysed the impact sales of used books have on new books. Here are the money quotes:

"When used books are substituted for new ones, the seller faces competition from the secondhand market, reducing the price it can set for new books. But there's another effect: the presence of a market for used books makes consumers more willing to buy new books, because they can easily dispose of them later.

But Mr. Bezos is not foolish. Used books, the economists found, are not strong substitutes for new books. An increase of 10 percent in new book prices would raise used sales by less than 1 percent. In economics jargon, the cross-price elasticity of demand is small.

One plausible explanation of this finding is that there are two distinct types of buyers: some purchase only new books, while others are quite happy to buy used books. As a result, the used market does not have a big impact in terms of lost sales in the new market.

Applying the authors' estimate of the displaced sales effect to Amazon's sales, it appears that only about 16 percent of the used book sales directly cannibalized new book sales."

Used books are not the problem. Mr. Grippando argues that the impact of used book sales will compel publishers to cut back on the number of authors and books they publish.

Good! Publishing today is structurally unsound. There are too many books chasing too few readers. Publishers should drastically reduce the number of books published. The consignment model of bookselling should be ended and the losses on returned books will no longer contribute to the price of new books.

Publishers must abandon the blockbuster and star mentality they now embrace. Pay all authors the same advance and royalty. Brand name authors with an established demand for their books will still get rich and the average debut author will be no worse off than they are now. But publishers will reduce the risk and resulting losses when a heavily hyped book flops if they don't invest millions in it.

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