Reselling eBooks doesn't pass the sniff test

There is renewed interest in the idea of being able to re-sell eBooks and other digital content. First, Amazon and Apple have both entered the patent fray with exchange ideas that allow electronic content to be traded in much the same way that they can be traded as physical content. Second, the US Supreme Court has reaffirmed the “first sale” doctrine in copyright law. For copyrighted material with a physical form — such as a paper book — the first sale doctrine limits that ability of a copyright holder to prevent or extract money on future sales of that book. So when you buy a book, anywhere in the world, you can sell it again without the publisher or author’s permission. Could the same apply to eBooks?

The idea is that if you have an eBook, then you should be able to re-sell it to another person. Given that this is permitted for physical books, why not have the option to discard a book and earn a few bucks when you are done? This sounds reasonable but smells funny.

When you have a physical book, there is a sense in which it is good if the “paper” were not simply gathering dust but can be used by others. That inefficiency is, of course, not there for electronic content. There is no waste going on if it is left unread.

The issue with eBooks is precisely because there is no waste, there is no rivalry. So that means that the book is boiled down to its essence which is, I buy it to read it, I read it, and then if I sell it to you and you read it, we have both consumed the book for a ‘single price.’ For a physical book, the ability to sell and read is limited. For an electronic book, take this to the limit and I can buy a book, sell it to millions and they can all read it for a ‘single price.’ This is something I have researched on. So it is not surprising that publishers and booksellers are looking for another way. And that way is to come up with a technology that puts the rivalry back for electronic books.

Now I don’t doubt that they can find a way to do this. And moreover, if they do find a way to do it, it is possibly better than limiting eBooks to a single owner forever. At the same time, the whole notion of trying to replicate the inefficiency of physical books just so you can have enough frictions to uphold a physical private property rights environment seems crazy. By thinking this way you limit the ability to innovate in how we consume and share information goods.

To see this, consider the case for wanting to resell an eBook. It starts with the fact that you have read it. Now you may want to read it again or, in the case of a textbook, perhaps dive into a part in the future. But you also know there are those who haven’t read the book out there. They can buy the eBook themselves or you could sell it to them. If the physical-replication eBook reselling options were available, you could offer to deny yourself the future ability to read a book, to give another person the ability to read the book. The loss in efficiency comes from the fact that value would be higher if the other person could read the book while giving you the same option you to read the book.

Any reselling option, where ownership and reading rights are transferred, is, therefore, inefficient. So how can these efficiencies be tapped?

First of all, you could do what publishers may want and prevent a lateral exchange between readers. In doing this, readers are forced to go to them and pay to read but, so long as prices can be determined properly, both parties end up reading.

But there is another issue here: a reader can be a better seller than a publisher. One of the reasons why you might sell an eBook (or lend it to others) is that you are recommending it to them or would like to jointly consume the product. This cuts out the middleman of having your friend have to take your recommendation and then go to the store and buy a book. To be sure, for electronic books, that is a just saving a few clicks but this appears to be what people are worried about.

So there two ways to overcome this. One would be to allow consortium purchases: let people buy books as a group. In effect, you build in exchange into the business model. This will work if you want people to form clubs and if people forming clubs hope for reciprocity in funding book purchases. We already have a limited form of this in the guise of shared Kindle accounts. But why limit it there? Why not allow book clubs?

Another way to overcome this would be to offer readers a commission for sales to a friend. That is, you sell a book to a friend, and you can receive a payment for it. This might be in the form of a credit for your original payment. To be sure, there is an incentive to find friends and share costs but, at the same time, that process of enlisting your customers as your sales agents can expand your market.

Notice that this last option is not that dissimilar from the resale exchanges proposed by Amazon and Apple. It is just that they do not require rivalry. Instead, they require a payment mechanism associated with the expansion of readership rights and access associated with referrals.

Of course, this is all just my musing. But the point remains that really innovating on electronic content involves embracing and accepting all of the efficiencies that come with that content. As soon as you crimp those efficiencies in order to shove that content back into physical realm limitations you also limit the scope for innovation that can potentially expand markets.