O'Reilly on publishing content for iphone and kindle

Here is some points from O’Reilly’s interview with Andrew Savikas on Forbes:

It would be economically bad news to sell a $5 product to someone who would otherwise pay $50. But it’s good to sell a $5 product to someone who would not otherwise be a customer (provided, of course, that the marginal revenue exceeds marginal cost). For Safari Books Online, for direct sales of our e-books and now for this (single) iPhone app, the data suggests that they have created growth without sacrificing print market share. For example, our market share for printed computer books sold at retail was 14% in 2004, and is now 16%. According to Nielsen Bookscan data, the print version of iPhone: The Missing Manual has sold nearly as many copies as the next two competing titles combined in the time period since the app version went on sale in December.
It’s true that the revenue per unit for the app is smaller than for a book, but our costs are lower, too. The app does not require the upfront expenses that printing paper books does–a crucial consideration at a time when cash flow is more important than ever. This is a simplification, but before Dec. 17, the world was divided into two groups–people who would pay $24.99 for iPhone: the Missing Manual as a book and people who wouldn’t (either because it wasn’t worth it to them or they didn’t know about it). We’ve since subdivided those groups and found that some people in the “won’t pay 24.99″ group will pay $4.99 for the app (and some of those then buy the book too). We also found some people in the “paid $24.99″ group who would pay an additional $4.99 for the App too.
The majority of the costs associated with bringing a book to market are indeed fixed costs. Digital books allow us to amortize those fixed costs over many more units, with minimal marginal cost. That said, I’m a huge fan of Peter Drucker’s assertion that cost-driven pricing is one of the five “deadly sins” in business. ….”Customers do not see it as their job to ensure a profit for [businesses]. The only sound way to price is to start out with what the market is willing to pay–and thus, it must be assumed, what the competition will charge–and design to that price specification.”…….If the market opportunity is for $4.99 or $9.99 digital books, then we need to figure out how to satisfy that demand profitably and not waste energy trying to “convince” customers that the price should be higher. When we tried a higher price point for that iPhone app (raising it from $4.99 to $9.99), sales fell by 75%! That’s a price-elasticity of demand of 1.8–in other words, at $19.99, we’d sell less than five a day. ….On a platform like the iPhone, customers aren’t comparing books to other books; they’re comparing books to games, music, movies and tens of thousands of other choices that dwarf the inventory at even the biggest bookstore.