A VC in Vacationland

I am a book collector.  Not a big one, but just first editions of books I particularly enjoyed reading and can reasonably afford. That does eliminate first editions of the James Bond novels, which can sell for $6,000 to $10,000 apiece in the rare book market today.  If I'd only known that when I first read them all.

Anyway, I noticed about a year ago that there were a growing number of 1 cent books being offered on Amazon, eBay and other auction sites. Being a supply chain guy, I kept wondering how anyone could make money on this business model.

Over the weekend, all was explained to me.  The New York Times Book Review published an interesting essay, Attack of the Megalisters. To cut to the quick, the money is made in the shipping allowance, currently $3.99 on Amazon. An exceptionally efficient seller, the essay states, can make 75 cents net margin out of a transaction. Not a fortune but multiply that by 100,000 sales in a year and someone can make a reasonable living in the on-line book business without the hassle of having an expensive store, employees and the mandatory cat.

So  where do all the 1 cent books come from?  Many come from "donations"–people who advertise, for example, on Craig's List and offer to pick up your excess books for free.  Others, like Thrift Books, acquires its stock by the ton, usually from libraries, secondhand stores and charities.

Most used or rare books, however, are not sold for one cent.  Many on line book sellers use sophisticated software, from companies like Fillz,an inventory and pricing service, to set prices on the web by optimizing across numerous variables, such as competitor ratings.  The industry has few barriers to entry and newbies often just screen scrape existing seller's listings, put them on their own site at a higher price, then buy it after they sell it from the unsuspecting competitor.

But many of the most successful players in the on line market are good old traditional book stores who use the web to reach a broader audience.  Who says you can't teach an old dog new tricks?

One could see a similar business model emerge for on line sales of vinyl records, CDs and DVDs.