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The folly of replicating the physical world

By Joshua Gans - posted Monday, 22 November 2010

A few years ago, when the last book in the Harry Potter series was coming out, my wife and I faced a dilemma: who would read it first? This was a serious marital issue, and we resolved it by getting a divorce. No, seriously, just for this problem, we did what we would have done had we not been married: we bought two copies of the book.

Perhaps this is the reason why the Harry Potter series is yet to appear digitally (at least legally so). For today, we would not face that dilemma with an ebook. We both have Kindles (or a Kindle app in my case) and most publishers allow a single account to view its books on multiple devices. We can both happily read the same book having purchased it just once. And it should be like that. After all, we are both going to read it eventually anyway. Why shouldn't we be able to enjoy the experience at the same time?

I thought of this experience when reading this article in The Economist, describing the new arrangements publishers are reaching with ebook sellers to allow purchasers of ebooks to lend them to others. In each case, you can lend it to one other person (on the same device) for a couple of weeks. As The Economist notes, this "sham" is designed to convince you that buying an ebooks is just like buying a physical book. Of course, it is far from that.


For the consumer, the life of any one book is limited (for reading that is: you may still want it for display, in which case a digital book won't really cut it). Printing so many copies for such a small amount of reading is a waste - a realisation that led Benjamin Franklin to give us the public library. Publishers have always been lukewarm about that particular idea, despite accepting libraries' permanence. So surely, The Economist asks, what we want to do is rent books, an approach already available in the textbook market.

The Economist writes: "The book business may yet be able to avoid recapitulating all that pain and disruption [of the music industry], not least by pinching ideas from the off-line world." I disagree. Pursuing off-line strategies in an online world can lead to disaster.

Rentals unnecessarily constrain the consumer, as anyone who has rented a digital movie knows. It is a big pain if you want to finish watching that movie the next night. What happens if you take too long to read a book? This is a worry we don't need and simply does not match the economics.

The point here is that publishers need to recognise that books are a shared information good, and the online world presents new opportunities for new kinds of sharing.

Shared information goods [pdf] like books require costs of production that are entirely unrelated to the extent of their use. Physical books have this quality, but for ebooks it is particularly stark: there are no costs for additional use beyond the first copy. That means we need a business model that recognises their shared good status. We also need one that recognises what "friendship" does in that environment. Put simply, compared with a bookseller, you often know more about which of your friends might like a book. That is precisely why you might want to lend them a copy.

That suggests an alternative perspective and perhaps approach to book selling. Why not make your consumers - who have more information about many of your consumers, a.k.a., their friends - your sellers?


Here is how a publisher might tap into that dynamic: when a consumer buys a book, allow them to purchase "multiple copies." Those copies could then be given or sold to others as "single copies".

To see how this might work imagine you can buy a book as a single copy or a double copy. If you buy it as a single copy, you can't legally transfer it to another person. If you buy it as a double copy, you can transfer it to another person once. Think about what this might mean if the single copy cost $10 while the double copy cost $15, you would likely make more money. Currently, if you want your friends to read a book, you either have to persuade them to fork out $10 or wait until you can lend it to them. With this new option, you can give or sell them the book for $5 or more if you have purchased a double copy. You don't have to worry about time limits, not reading at the same time, etc. You can also engage in gift exchange: I'll buy this one and you buy the next. That spells opportunity for reading and encouraging more demand by exploiting a social dimension.

Who wouldn't this cover? Well, friends who previously wanted to read a book at the same time and would have been willing to pay for it. That is, my wife and me. The potential losses from those sort of people, though, would be low - especially when you think that, for ebooks, we are already purchasing as if they are a shared good anyway.

Of course, this will all still beg the question as to who gets the books in a family if there is an actual divorce. While this is not something pressing on my mind, as Harry Potter has ended, I'm too strategically minded not to worry about what I actually own. I suspect that we will always share custody of our Amazon account. That's quite a selling point.

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This article was first published in The Harvard Business Review blogs on November 17, 2010

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About the Author

Joshua Gans is an economics professor at Melbourne Business School. He writes on these issues at

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