04/18/2011 10:54 am ET | Updated Jun 18, 2011

Why 99-Cent e-Books Are a Bad Deal -- For Authors

Readers argue that a book which requires no paper and ink, no shipping and handling expenses, and no warehouse storage fees, should cost considerably less than its print counterpart. Their case is made more compelling thanks to the deep discounts Amazon and other online retailers offer on print books, which often result in the publisher's e-version costing more than the book does when purchased from the retailer in print.

When authors publish their books electronically, most price their titles between $2.99 and $9.99 -- primarily to take advantage of the 70% royalty rate currently being offered by Amazon for e-books in this price range which are made available for download to the Kindle.

However, a growing number of authors are pricing their online offerings for as little as 99 cents. Why is this?

Why 99 Cents

To understand why authors are willing to sell their books for less than a dollar, it's first necessary to understand Amazon's royalty structure. In his blog post, "The rise of the 99-cent Kindle e-book," cnet tech reviewer Dan Carnoy explains:

If you price your e-book at $2.99 or higher, you get a 70 percent royalty from Amazon when using its Kindle Direct system, or 65 percent from Barnes & Noble when using its PubIt self-publishing platform. That means that if you set your price to $2.99, you make around $2 on each copy you sell.

But if you drop below $2.99, you end up with a 35 percent royalty. That's a big difference, but it's still better than what you get on an e-book from a traditional publisher (25 percent of the net sale, which comes out to around 17.5 percent of the price of the book). Still, you'd think that most people would choose to go for the 70 percent royalty.

Most of them used to. But then something happened on the way to the check-out cart. Some authors started saying, 'Screw it, I'm not selling that much at $2.99, I'll just go to 99 cents and see what happens.' And bam, some of these books took off. And some really took off.

Because authors control the price of the e-books they publish, some experiment with price points, lowering the price to 99 cents when sales are slow in an attempt to gain visibility and momentum, and -- if they're lucky -- kick the book into Amazon's "Top 100" Kindle list. Then after the desired result has been achieved, they raise the book's price again.

Others believe that an extremely low price will appeal to cash-strapped buyers, and ultimately, they'll gain more readers. "Lowering my prices makes it easier for them to buy my books," explains one self-published author, adding, "I'd rather earn a 35% royalty for the 99-cent book than no royalty for zero sales."

Why Not 99 Cents

However, many authors note the growing number of 99-cent e-titles with dismay. "I'm definitely a person who believes e-books should cost less than physical books," says Keith Cronin, MBA and author of the forthcoming novel Me Again (September, Five Star). "But the bargain-basement pricing strategy many self-published authors are adopting is setting a dangerous expectation, which may be hard -- or impossible -- to reset."

"At issue is the phenomenon of 'anchoring,'" agrees William Poundstone, bestselling author of 11 books including Priceless: The Myth of Fair Value (and How to Take Advantage of It)." When people don't know what a fundamentally new product should cost, they are strongly influenced by the first price they encounter... A reasonable person might ask, what does it cost to produce and market an eBook? But that's like asking what does it cost to produce and market a movie. The answer can be zero (YouTube) or $500 million (Avatar). The biggest unknown of all is what the consumer will pay."

It's already being demonstrated that consumers will happily purchase e-books for less than a dollar. But what effect does this pricing strategy have on authors?

"A 99-cent book depresses the hell out of me," says Danielle Younge-Ullman, author of Falling Under, a novel previously published by Plume soon to be available as a self-published e-book. "Not just for myself, but for anyone who has busted their butt to write, revise and polish a book and then have it published, by whatever means. Because at the end of the day, I hope my work is worth more than the price of a Snickers bar."

Advocates for 99-cent e-books claim the low teaser price helps them gain new readers. But opponents worry that if readers come to expect the 99-cent price, it will no longer be effective as bait. Then what? they ask. Will authors start doing penny promotions in order to get their books noticed?

"Ask anybody who sells anything for a living: no business wins in a price war," Cronin warns. "And that's what we're looking at right now."

Or put another way, if authors don't value their work, will readers?

Karen Dionne is the internationally published author of the environmental thrillers Freezing Point and
Boiling Point. Karen is also the co-founder of the writers organization, Backspace, and serves on the board of directors of the International Thriller Writers. Visit Red Room to find out more about her books and to read her blog.