On thirty percent

One morning, about twenty years ago, I woke up on a rainy Cleveland morning to hear the radio predicting a thirty percent chance of rain.

"Thirty percent?" I asked no one in particular, "How can that be. It's raining now. Shouldn't that be one hundred percent?"

And so I began a series of calls to local weather men and women and to the national weather service asking about this. The first woman I talked to at the official government office explained it to me like this. "If there is a seventy percent chance of rain," she said, "bring an umbrella. If there is a thirty percent chance, don't worry about it."

So anyway, I poked around until I found out what is really meant when a certain percent chance of rain is reported but I mainly use that woman's rule of thumb. Although between forty and sixty percent I'm never sure what to do.

It's twenty years later and I'm trying to make sense out of a similar statistic. Suppose I create something and sell it. I sell it through someone else's channel. That other person has taken care of shipping and ordering and credit cards and a web page and bunches of other things I don't want to worry about. How much should I keep and how much should they keep?

When I first started writing books the publishers would say that I got to keep fifteen percent of fifty percent of the cover price. That's seven and a half percent, but somehow I wasn't supposed to be able to work that out for myself. They explained that with typesetting and copy editing and printing and marketing that this would be fair - they would keep half and I would keep half of the real profit.

The business changed. The publishers don't actually set type anymore. In fact, I've had to deliver some of the books I wrote camera ready. But an author generally gets ten to fifteen percent of fifty percent. At the Prags authors get fifty percent of whatever we make on a book - so as long as what the book brings in minus the costs is more than ten to fifteen percent of its cover price the authors are doing better than average.

OK - so you're a publisher with a book to sell or you're an author with a book to sell without the help of a publisher. You can go to Amazon. They will split the cover price of the book with you. They pay you just under half of the book's cover price. You print it. You ship it to them. You also have a bunch of costs in developing and creating the book but let's leave those aside. The channel is taking more than half and you are probably ending up with about a third of the cover price.

I know a little bit about this because I've been writing books for a while. I don't know about software --- but I do know there are a bunch of Mac developers who are really angry that Apple will be keeping thirty percent of the sale price of their software in return for giving them access to the iPhone sales channel. Apple could pretty much charge whatever they want --- it's your only sanctioned way onto the phone --- and they are taking 30% and giving the developer 70%. (There are other issues developers are angry about - but that's another post.)

In the case of Amazon, Amazon Advantage is "is nonexclusive and only $29.95 per year plus a 55% standard commission on the sale of your items." (http://advantage.amazon.com/gp/vendor/public/join-advantage-books)

For some the most important word in that agreement is that it is "nonexclusive". I can sell my stuff elsewhere. But if I sell it there then I get 45% and Amazon gets 55%.

Sure, but there are differences. After all - Amazon is handling a physical product. Apple is just distributing bits. Maybe Apple should charge less. Apple gets the price of the iPhone or iPod Touch in addition so these applications are making the phone or the touch more desirable. Apple should take a loss on these items and make it up on the phone.

Maybe.

I actually don't think 30% is so bad. I was IMing with a friend about a dodge around the fee and he said he'd gladly pay the 30% not to have to deal with all of the commerce side.

So, what about the Kindle. The books that you can buy for the Kindle are like the apps you will soon be able to buy for the iPhone. How is Amazon splitting the money for books for the Kindle.

Well, the terms shocked me. "Provided you are not in breach of your obligations under this Agreement, we will pay you, for each Digital Book we sell, a royalty equal to thirty-five percent (35%) of the applicable Suggested Retail Price for such Digital Book, net of refunds, bad debt, and any taxes charged to a customer." (http://advantage.amazon.com/gp/vendor/public/join/ )

So Amazon's Kindle deal is 35% to you 65% to them. Apple's iPhone deal is 70% to you and 30% to them. I'm hoping to develop an iPhone app or two. And at 30%, I don't see any need to bring an umbrella.