Kindle Total Cost of Ownership: Calculating the DRM Tax

I want to buy some technical books before the end of the year. Before I did, I thought I'd investigate the current state of e-reader products.

My primary interest is portability of my technical books library. There are always a couple of books I want to keep beside my desk when I'm working. Unfortunately, the books I want beside me varies, depending on the current context and project.

Further, "my desk" is not a fixed location. It's wherever I happen to be working that day: at home, at a client site, or at a Starbucks. This means I'm often caught without my desired reference material at hand. Or, when I have the books I want, I'm lugging around an extra 10 pounds. An e-reader loaded up with my technical books would be a great solution.

Most commercial e-publishing is done in a proprietary format that uses DRM to lock down the content, and permits access only on specific devices. If you have an Amazon Kindle, then you'll need to acquire your e-books through Amazon. If you have a Sony Reader Touch, then you have to go to the Sony Reader Store. If you have the impressive, open source Foxit eSlick Reader, then you're SOL because the eSlick eBooks store is pretty limited.

(If, however, you want a reader primarily for PDF documents, then the eSlick looks like an excellent choice. I'm thinking of people such as an academic who reads lots of research papers, or a lawyer who reads lots of briefs.)

Amazon offers a larger selection of technical books in electronic form than any other store – by far. I went through my current wishlist of a couple dozen books, and found that about 60% of them are available for the Kindle. Of the 40% not available, most were specialty or small publisher books, and not the kind that would serve as reference material. None of the other bookstores came even close. So a Kindle – and only a Kindle – would meet my functional requirements.

There is one other problem with DRM protected books. When the reading device reaches its end of life, you have to assume all the content you purchased will be lost. If, for instance, I went with a Kindle, all of the content I purchase can be used only on devices supported by Amazon.

When, several years later, it comes time to replace that Kindle I may get a new Kindle – but I can't assume that. Maybe somebody else will have a better device at that time. Or, maybe Amazon went bankrupt or evil or stupid and I need to switch to another vendor. There are any number of reasons I might like to switch my e-reader. If I do, I have to assume I won't be able to use any of the content I purchased for the Kindle.

Thanks to DRM, when my e-reader reaches its end of life, I will have to pay to acquire replacement books for the material that's locked out of the new e-reader. I call the amount of that purchase the "DRM tax" – an added cost imposed by DRM restrictions.

The DRM tax is not the total cost of books purchased over the life of the device – only the cost of the ones you want to replace. You wouldn't necessarily want to replace everything. Technical books have a limited lifetime. When the Kindle reached its end of life I'd just repurchase those that continue to be useful.

I constructed a model to evaluate the total cost of ownership of a Kindle, as compared to buying traditional paper books. Here are my assumptions:

  • I purchase about 20 technical books a year.
  • The average cost of my books is about $30.
  • A Kindle costs $259, with no recurring expense.
  • The Kindle versions of books are about 10% cheaper than the paper versions.
  • The useful lifetime of Kindle would be about 3 years.
  • There is about a 50% chance annually that I'd want to keep a book.

The cost of my traditional book purchases over a 3 year period is:

3 years * 20 books/year * 30 $/book = $1800

The cost of a Kindle has three components: the cost of the device, the cost of the media, and the DRM tax.

The cost of the e-reader media over the same period is:

3 years * 20 books/year * (30 * 0.90) $/book = $1620

Awesome! Switching to a Kindle saves me $1800 - $1620 = $180, which goes a long way to offsetting the $259 cost of the device.

But then there is the DRM tax. According to the assumptions above, of the 20 books that I buy in a year, after one year I'd want to keep 50% of them, which is 10 books. After two years, just 5 of them. After three years, 3 (rounding up). This means that over the three year lifetime of the Kindle, I'd need to repurchase 10 + 5 + 3 = 18 books when the device is retired. This means my DRM tax would be:

18 books * (30 * 0.90) $/book = $486

So, the additional cost imposed on me by the Kindle DRM is $486. That's the last piece we need to calculate the total cost:

$259 + $1620 + $486 = $2365

So, my total cost of ownership for a Kindle would be $2365.

That compares to $1800 for plain paper books. If I switch to a Kindle, the cost would increase $565. That's too much!

Although the Kindle doesn't make sense for me, your situation may be different. For instance, if you use an e-reader primarily for recreational reading, you may want to keep far fewer books than the 50%/year I used. If you read a bestseller a week, that's 52 * $10 = $520 a year. If your retention ratio is 10%/year, then your DRM tax would be about $70, which is a lot less painful.

Or, better yet, maybe someday Amazon (and publishers) will realize how much harm they are doing with DRM. If the DRM tax was removed, not only would more people get e-readers, but also, thanks to the low friction of e-book purchasing, they'd buy more e-content.

Comments

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I am right there with you on

I am right there with you on the DRM tax issue, although to be fair, you need to factor in some measure of the probability that when you retire your current kindle after 3 years that you will need to/want to switch e-reader platforms. Obviously this value would be a guess, but I think it's fair to say that if your switching probability is 50%
the switching cost is

18 books * (30 * 0.90) $/book * .5 = $243

Still nothing to sneeze at.

How About Safari Online Instead?

Have you looked into O'Reilly's Safari online books? How many of your needed technical books are available there? Its $22.99 a month for access to 10 books at a time. You can also get download tokens that allow you to download PDF portions of a book each month.

Don't get me wrong, I'm pro-Kindle and have one myself but it might not be the best option for what you're looking for.

Yes, in fact that's exactly

Yes, in fact that's exactly what I decided to do instead of buying an e-reader.

Check with your local library

Many libraries subscribe to the Safari Tech Book platform - it would be worth checking with your local library.

Not quite

I did get a Kindle and will have technical books on it. You are assuming the end-of-life (EOL) on a Kindle will mean you no longer have access to the books. There is now Kindle for PC and soon Kindle for Mac. Those are both free products that let you access all of your Kindle books on those devices. A book purchased for Kindle can be on up to 5 devices at one time. If my Kindle ever fails, or goes EOL or Amazon goes bankrupt I can still access all of the content I have been using. You can back things up at will because it is all just files after all.

I think this changes the equation dramatically. I happen to have a $299 netbook that I use for travel. I could have used it as a poor man's Kindle by just installing Kindle for PC, but it isn't quite as nice for reading as the Kindle is. But the bottom line is I have no additional cost if Kindle peters out for any reason. My content will still always be accessible.

I don't believe the DRM tax is real given this scenario. PLUS, I do purchase other books (fiction mostly) where I can save FAR more than 10% (NYT best sellers are $9.99 vs. $19.99 or higher as an example). There are also a lot of books which are $0.99 because they never caught fire in the market, but some are quite good. These books change your base equation dramatically. At least they do for me. Last year I read 29 books on airplanes and would have saved an average of $10/book which means the Kindle would have paid for itself right there!

- Bob -

Don't forget that with books

Don't forget that with books you can sell some of those when you are done with them or take them to a used bookstore for trade credit. I don't think you can do this with any sort of e-reader, can you?

selling used ebooks

It is against copyright law to sell a used ebook. For details on this subject in layman's terms, I suggest my article

http://mbyerly.blogspot.com/2009/04/first-sale-doctrine-and-ebooks.html

At the bottom of this article are links to law articles on the subject if you are interested.

Format misconception

I'm not arguing with your proposal of the "DRM tax", however you have a misconception that the readers are tied to specific stores. You need to look at the number of formats read by the reader. You can read more than Kindle-DRM books on the Kindle, and you can read even more formats on the Sony and those extra formats are not necessarily subject to DRM. I'm not familiar with Foxit's device, so I can't speak to that. I have a few friends who use both the Kindle and the Sony readers and they are by no means limited to just the Kindle and Sony stores. They very often buy directly from the publisher and use other aggregator stores such as Fictionwise and public domain services such as Project Gutenberg. While you are tied to the Kindle file management system for the transfer of your books, you are not tied to the Sony software for the same. The most common alternative to Sony I hear discussed by my friends who are regular users, is Calibre, an open source product. Also, Overdrive, a vendor to libraries of electronic books and audiobooks, has worked with Sony to make their inventory available for those devices. Hopefully, you may find more books are available to you than you thought when you look outside of the Kindle and Sony stores.

Purchasing books for the Sony Reader

Just to further clarify on the format misconception issue: I have a Sony Reader, but live in Australia, and therefore I can't buy books from the Sony store. I can, however, buy any EPUB or PDF eBooks from other sellers (and the sellers are limited in Australia) and use them on my Sony device. While I would love to be able to buy from the Sony store, I get by without it by buying content elsewhere and borrowing from my library's OverDrive service.

If you really want an eBook reader, then I would recommend buying something that supports EPUB. I don't disagree with the DRM tax concept (in fact I think it's really apt) - DRM is a great big mess - but going for a device that supports the emerging standard format would mean your content is more likely (if not certain) to remain usable if you switch devices down the track.

Not a solution

"Have you looked into O'Reilly's Safari online books? .... Its $22.99 a month for access to 10 books at a time."

"Yes, in fact that's exactly what I decided to do instead of buying an e-reader."

Your primary complaint about the Kindle is the DRM and the fact that you "can't take it with you" when your Kindle reaches end-of-life (which isn't true given the iPhone/PC/Mac readers). But you are going to spend $252.99/year for 10 books (less if you need "2-slot" books) that you can't keep?

In your calculations you purchase 20 books per year. At the end of 3 years you would have 60 books on your Kindle, 30 of which you think will still be "keepable", but still only access to 10 at a time on O'Reilly. And of course you're stuck with only O'Reilly books (and a few others, but missing some big names). Don't get me wrong, I love O'Reilly, but they aren't the only tech publisher.

Also, your solution breaks once the power goes down or you work somewhere without Intrenet access. With a laptop and a Kindle I can work any time, any place, with no connectivity and no power.

Finally, e-Readers are still in their infancy. And yes, DRM is an issue right now. But if you use iTunes as your model, you'll see that the market will eventually require the removal of DRM. Protection is always at the forefront of any new technology. But while Amazon can eventually remove the DRM from books leaving you with 60 transferable books eventually, O'Reilly is unlikely to ever let you keep 20 book per year at their cost.

Seems to me that your solution doesn't solve your original problem, which makes this article feel more like a rant.

Math off slightly

You mean you would need to repurchase 17 books, not 18. If you keep 3, that means you're replacing 10 + 5 + 2.

Kindle and recreational bks

With regard to Kindle for recreational reading - don't buy. Get recreational reading from the library. Many Sony readers are compatible, but not Kindle

O'Reilly on Kindle is DRM-free

I'm thrilled to hear you chose Safari Books Online, but also want to point out that O'Reilly books on Kindle have no DRM (though are in the proprietary mobi format, and Amazon does not give publishers a way to update books).

Kindle cost/benefit

I don't have any particular ax to grind in the Kindle vs. other reader (although I certainly do with eBooks vs. paper). A couple of considerations, though:
1. Kindle is available in other formats including Kindle for the PC. You could continue to read those books you value on your PC, even if you switched to another device at the end of your 3 year estimated life.
2. There is a non-zero probability that you'd choose another Kindle. Reduce your DRM tax by this probability.
3. There are high costs in storing and lugging around paper books, especially big bulky technical books.
4. It is possible that your willingness or need to keep a book for multiple years is not random but, to some extent, predicable. If you purchase high-probability keepers in paper, this would further reduce your DRM tax, possibly swinging the equation.
5. The Kindle or other reader would be an added convenience if you occasionally read fiction or other materials.

Best of luck with your choice.

Rob Preece
Publisher, www.BooksForABuck.com

To play devil's advocate,

To play devil's advocate, Amazon knows that their core audience for the Kindle won't be those with lots of reference books. They're targeting people like my mom. People who buy a book to read it once and then move on to the next one. (Think bestseller list readers and Oprah book club followers.) The DRM tax on the majority of their customers is minimal because people in this group aren't likely to want to replace most of the books that they've purchased and read.

That core audience is also

That core audience is also less likely to understand that the books they purchase from Amazon are really leases subject to DRM and not transferable if they want to move to a different vendor. The multi device support Amazon offers is only good as long as they continue to support the format.

You missed an important variable

I save about $2k per year due to my Kindle. Since I don't live near a well-stocked major book store I used to purchase every book I was interested in. Now, using Kindle's sample feature, I regret fewer purchases and purchase far fewer books per year.

Capital cost of the Kindle itself

The DRM tax doesn't actually need to be paid until you've retired the first Kindle. So in the first three years:

3 yrs * 20 bks/yr * (30 * 0.9) $/bk + $259 (Kindle) = $1879

Already in your first three years you've spent $79 more with a Kindle.

You incur the DRM tax in the fourth year. So, your second Kindle (for years four through six) will cost you

$1879 (60 bks 3 yr TCO) + $486 (DRM tax on 18 books) = $2365

Over the course of six years you've spent $4244, for which you would have spent $3600 in real books.

Years four through six will have a higher DRM tax, now calculated on an initial 38 books:

.125 of 38 books from the fourth year = 4.5 (round up to 5)
.25 of 20 books from the fifth year = 5
.5 of 20 books from the sixth year = 10

so you're keeping 20 books after the sixth year, costing you a DRM tax of $540 in the seventh year. DRM just looks worser and worser.

With real books you'll get some resale value on books you don't keep (not so much for technical books). For fiction it might be %10 of the cover price:

42 books at $2 resale = $84 !

That would reduce the 3 year TCO for real books to $1716.

But you can't resell used Kindle books, so for each three years there's an additional "lost revenue" DRM tax of $84. That just makes DRM look worser still.

--Bob (who knows that "worser" isn't a real word, but finds it so useful)

The cost of DRM on a Kindle

I have to say I recevied a Kindle for Christmas and I am very surprised how open of a platform it is. There is no software to install, you just drag and drop a file in one of the many supported formats onto the unit and now you have it on the road to read. It supports PDF, .doc, .html, .txt and .mobi

There are piles of free books available at places like manybooks.net, feedbooks.com and gutenburg.org

In fact one of the first things I downloaded to read was Content: Selected Essays on Technology, Creativity, Copyright, and the Future of the Future a book you can purchase in paper from Amazon or get for free from feedbooks.

A lot of folks think that the free content is not good, far from the case, there is a lot of good free content. Also with the built in wireless I can get to a LOT of content for free that is on the net and up to the minute. Kindle has become my new news reader. Since there is NO monthly fee for the wireless, I think you have to off set some of the cost of DRM because you make it up in free service.

Will I pay a little for owning a kindle -- sure, but I also pay a little if I really HAVE to have a pay per view video. I still take time to go to the local redbox, and I still look for non-drm books in place of using the kindle store purely out of how easy they have made it.

Anyway, I wanted to balance the view in this analisys.

I'll echo that sentiment

I read an awful lot of Gutenberg books on my Kindle. Classics like Adam Smith's book, Plato's The Republic, Cicero, and lots of other really old stuff that's been in the public domain for a couple thousand years.

Penguin Classics publishes these books, and I could buy them from the bookstore. But I see these works of classic civilization as my cultural heritage, and my birthright. Why should I have to pay the Penguin Classics Tax just for them to put the words on cheap paper? :-;

I've been reading the 8 volume classic History of the English People by John Richard Green on my Kindle. It's not the best history out there, but the writing is beautiful. It's been out of print for decades, and a rare book store quoted me $70 a volume and up for each of the 8 volumes.

My Kindle paid for itself completely right there.

I buy my programming reference books on paper though. I don't find the Kindle as practical for reference as a paper book.

Good analysis

Some quibbles -- not including any evaluation of the increased utility a Kindle's portability provides being foremost in my opinion, particularly since you cited that as the initial attraction of non-dead-tree books -- but good stuff here overall.

I won't be surprised to see a serious economics paper on this sort of thing sometime in the next few years, perhaps after these readers have been out another year or so. I don't think we have quite enough experience with these systems to pull off one with meaningful conclusions just yet, although I could be mistaken. (Most particularly, we probably need a couple years' worth of experience beyond the typical device lifetime, so that we can determine accurate, non-predictive, real-world DRM costs by surveying broad samples of individuals.) It's also quite possible someone's written that paper and that I simply haven't run across a link to it.

Interesting article - confirms for me going the non-DRM route!

As I think (Ken?) said above it's clear that there is going to be reluctance to go the DRM route if there are any other choices ...

And I think with software around like Calibre, as Katie says above, to manage non-DRM content, and non-DRM content being the obvious way for other Readers to go head to head against the Kindle, I hope we won't be worrying about this issue in a couple of years time.

The other significant cost issue of course is the requirement for the wireless equipped readers (the Sony Daily Edition, or the Kindle) to purchase 3G data plans, which seems equally absurd to me.

I haven't bothered with a discounted cashflow analysis but 4 years of (min) $15 per month data subscription for the new Sony PRS-900 for example adds another $720 in data plan costs.

It is going to be interesting to see how much the 3G functionality is regarded as mandatory by consumers. If you've got a computer on around your house or office most of the time synching publications via your PC through something like Calibre is pretty easy. So 3G's real advantage is the ability to follow hypertext links.

How much are people prepared to pay for hypertext ....? Dunno!

Rip Off

The cost of these DRM infected eBooks are pathetic, 10% off of the physical book? Perspective ..

Now if they were at least 1/4 of the price of a real book I would think about it, maybe. The point is you're renting it and an average of only a 10% discount verses something you own???? If you "own" the book you keep it or you could always either give it away or sell it to a second hand book store.

Bottom line is the DRM licensing model is way to restrictive for the price they're charging

I am thinking of Kindle or

I am thinking of Kindle or other e-reader. One benefit not mentioned so far that I think may be critical for readers of technical books is the search function available in an e-reader; not available in paper. Ever stare at a page in a book and wonder how to press Ctrl-F? I have, more than a few times.

As Patrick Draper mentioned, he gets technical books in paper. This makes some sense to me in terms of: novels are read sequentially and rarely does one flip through them to read or re-read a particular section. I often flip through a technical book to look at one section or return to a section I read before; jumping from TOC to Index and flip pages quickly to the section I want and quickly scan the few pages before and after the page I found via TOC or Index. How easy is that to do with an e-reader.

That said, there is still the portability factor in being able to carry all those books.

Also not mentioned so far, I can read a paper book during take off and landing. I suppose e-readers have to be turned off at those times.