We’re launching tomorrow.  Manfred Macx will be open for business.  It’s been quite a long time coming, but barring unforeseen disaster (and, if necessary, in spite of it), tomorrow the wait will be over.

We are very excited, and more than a little terrified of what’s to come.

I’ve been chatting this morning with Mark Hecker, Executive Director of Reach Incorporated, about the plans for the launch of ManfredMacx.com.  And then I saw this post come up at Techdirt.

A fascinating new study has shown that “pay what you want” offerings seem to maximize the net take for those using it if they include charitable giving. The study was done at an amusement park, where people could buy a photo of themselves on a roller coaster, and four different situations were tested: (1) the standard “pay a fixed price” (2) a straight “pay what you want” (3) fixed price with part of the money going to charity and (4) pay what you want with part of it going to charity.

What’s amazing is that the fourth one was the best one in terms of the net amount to the seller (yes, after giving the portion to charity). Sales were much higher and the net dollar amount to the seller was much higher than the straight “pay what you want.”

“Pay what you want” is definitely one aspect of the model at ManfredMacx.com, so it’s wonderful to see that a partnership with a charity can be beneficial to everyone involved.

That said, we are proud to announce that the money raised with our first book is going to Reach Incorporated.  They find students who are struggling with reading, help them to be better readers themselves, and help them teach younger children to be better readers, as well.

We’ll have more details soon, so be sure to check back.

I just installed this fantastic mobile site plugin for WordPress on the recommendation of a wine-blogging friend.  If you visit this site using a mobile browser, you should get a really nice view optimized for your smaller screen.  Let me know if you have any issues.

Anyone paying attention has been hearing this for quite some time, but we’re really almost ready to launch ManfredMacx.com.  It’s been a long and eventful road, but it really is almost time to start publishing some books.

The first book we’re going to publish is my 2002 National Novel Writing Month effort, The Dance of the Ducks.  All the proceeds will be donated to charity, so if you want me to call you on your birthday, you can make that happen, and know that your money is going towards a good cause.  And the novel still has an unnamed character, so the naming rights will be available, too.

And if you have a novel you’d like to publish, let us know.  We’d love to talk to you about your book.

ManfredMacx.com has a merchant services provider!  Nothing is set up yet, so we can’t launch the site, but this is the last piece of the puzzle.  All that remains is getting the information to connect to the card processing system, writing a bit of code, and then finding some authors who want to sell some scarcities!

Direct Connect is the company that’s going to process cards for us.  So far, everyone there has been really helpful.  I’ll keep updating as we really get a sense of what it’s like to work with them.

No one should be surprised when a website launches late – the bigger surprise is when things go as planned.  Manfred Macx is no exception.  However, the primary reason the site isn’t live now is that I grossly underestimated how hard it would be to find someone to process credit card transactions.

So, to help those out there with a great idea but just as clueless as I was about what it takes to get a merchant services account, here are things I’ve learned.

1. Forget PayPal.  Sure, they’ll approve you when others won’t, but this is just so they can take the first month’s fee.  They don’t actually do any review of your business model when you sign up.  They take your fee, then when you try a test transaction to make sure you’re connected properly with their API, they’ll lock your account for review.  Had they bothered to read the information they took when I signed up, they would have known that my business plan violated their terms of use.  They chose not to read, and I wasted a few weeks thinking my problems were solved.  Their customer service is great for the purchaser, but TERRIBLE for the merchant.  Stay away.
2. Collecting money on behalf of a third party is risky. I never really thought about it, but there’s a big difference between “the customer pays you, then you deliver the product”, and “the customer pays you and someone else delivers the product”.  Even if you don’t see the difference, the underwriter will.  It’s important to know who is responsible for making the customer happy.
3. There will be more chargebacks than you expect. You may think your customers will love the service you provide, and maybe they will, but your merchant services provider will assume that many of them will be unhappy and want chargebacks.  Lots and lots of chargebacks.
4. Merchant services providers have bad websites. Don’t know why.
5. There are more layers than you realize. I thought, going in, that I would find someone to process credit cards.  But in most cases, you need the front end (Authorize.net, for most providers) and the back end (First Data is the largest, but there are tons).  Plus you need a bank.  And you’ll probably run into resellers, where you make a deal with Company X, but the application actually goes to Company Y, and Company Z actually processes transactions.  It all seems sketchy to me.
6. The application will be unintelligible, and mostly boilerplate. It annoys me to no end that legal documents intended for non-lawyers are so ridiculous.  Being a lawyer is hard – ask anyone who’s gone to law school.  Reading a basic legal document shouldn’t be hard.

So, I have two promising leads on the table.  If neither one of them pans out, I’m going to try Amazon’s services.  They do the processing for two websites with similar models (Kickstarter and IndieGoGo).  But Amazon is notorious for cutting off partners who annoy them (see:  MacMillan, the states charging them sales tax).  I hesitate to depend on Amazon for a vital part of my business.

I’ll keep you posted on progress.  We’re ready to go once we have a credit card processor.

For years, people in the business of publishing content have used windowing to maximize revenue.  The most expensive version comes out first, and the die-hard fans who have to have it right away will buy.  Lesser fans wait for the the next version, a little cheaper, and the casual fans or not-even-fans wait for the bargain version.  This worked because each version was a reasonable substitute for the others.  For books, reading a hardcover and reading a paperback are not so different.

But as we move farther in the direction of digital distribution, this substitution goes away.  As more people read books on screens instead of paper, the hardcover and the ebook are no longer substitutes.  Sometimes they are complements, and sometimes they are completely unrelated.  For authors we love, we will read the electronic version and take the pristine hardback to the author’s reading at the local bookstore for a personalized signature.  For other authors, more and more people are only going to be interested in the ebook.  The hardcover will not be a substitute or a complement – it will be a waste of space in their living room.

Unless we rethink the way windowing is done, and really only window the substitute goods, this practice will only hurt authors and publishers.  When goods are complementary or unrelated, holding one back hurts sales, not helps.  If you put out the hardcover first, people who want the electronic version will be angry, and are more likely to look for entertainment elsewhere, or turn to filesharing sites who are sure to have nice leaked or scanned copies.

There are a great many things that frustrate me about the current state of the publishing world.  I’ve discussed many of them here and elsewhere.  The latest thing that really gets under my skin is this idea that publishers have to have the blockbusters to pay for all the books that don’t pay for themselves.

If you are in the business of selling things, and you sell something for less than you paid for it, this is a failure on your part.  Now, it’s a little different if selling that thing at a loss enables you to sell more of other things (see loss leader).  But that’s not what’s happening here.  The publishing industry is essentially selling the profitable thing to pay for the loss leaders.  This is not how selling things works.  This, incidentally, is why the publishing industry has such a problem with Amazon – Amazon is very good at using loss leaders, and it undercuts the way publishing has always worked.

There are numerous solutions to the problem, but all involve a big change in the way publishers do business.

First, they can make the “losses” less costly.  Move compensation towards the back – advances are gambles by publishers that often don’t pay off, and guess who gets to make up the difference?  That’s right, the reader.  Won’t this hurt authors, you ask?  Probably.  This is not what anyone wants, so we’re going to have to figure out ways to fix it.

Perhaps a better idea is for the publishers to learn how to use loss leaders correctly.  When someone buys the latest Dan Brown hardcover, give them the debut novel from a relative unknown who writes fast-paced conspiracy thrillers.  Note that this works even better with ebooks, where the marginal cost to produce another copy is infinitesimal.  You’ve now increased the value of Brown’s book, and maybe you’ve gained a fan for the new author.  I rarely buy books from authors I don’t know (not without strong and trusted recommendation), but I often by the second and third and fourth books from authors I first read for free.

As an aside, this works even better if you’re an indie bookshop run by someone who would know right away which unknown author would perfectly complement a Dan Brown or other famous author.

Publishers, recognize that the way (most of) you do business now is broken.  It is fixable.  Go figure out how.

If you ask around, you’ll get a bunch of different opinions on why the book publishing industry is having trouble.  Often you’ll hear that piracy is the problem.  Amazon is another usual suspect.  The internet in general, encompassing piracy, Amazon, and this horrible new generation that thinks everything should be free . . .

But to place blame on any of the above is to really miss the point.  The publishing industry is struggling because it is losing control of the process at both ends.  The distribution channels, led by Amazon, perhaps to be joined by Apple, are taking bits of the process.  They have said, “you need us as much as we need you, and it’s time to start negotiating with that in mind”.  And on the other side, the quality and availability of tools to self-publish have risen dramatically, and are continuing to rise.  That’s not to say that an author with a blog and an account at Lulu is on equal footing with a best-selling author with the backing of an entire publishing company.  But the gap has closed enough that the author, too, has a bargaining chip.

At the end of the day, the price paid by readers and distributors is dropping and the price paid to authors is rising.  This makes it easy to think that price is the root of the problem rather than merely the most visible effect.

Publishers need to step back and think about what they can provide that has real value.  They have editors on staff, and authors need editors.  They have marketers on staff, and authors need marketers.  What authors no longer need is someone dictating the terms of everything.

This does mean that publishers will make less money.  But this is a reflection of the natural economic process rather than something that must be stopped with new laws and regulations.  It is easier now to produce a book and get it into the hands of readers.  There are cheaper substitutes for the services provided by publishers (again, not necessarily of the same quality, but increasingly good enough).

In a free market, this means that profits for publishers will fall.  This is progress.  It is only tragic for those unwilling or unable to adapt.

The myth of marketing costs

No, I don’t mean that marketing is bad or that it doesn’t exist or that you shouldn’t pay for it.  Good marketing is a very valuable tool.

However, when you say, “I have to charge this much for my product to cover marketing costs”, you are doing it wrong.  If you aren’t making back the money spent on marketing in extra profits, you should find someone else to do your marketing, or stop doing it altogether.

If you spend $10 on marketing, your profits (not your total sales) should increase by at least $11.  Otherwise you were better off to just keep your $10.

So what “I have to charge this much for my product to cover marketing costs” really means is “I am charging you more so I can make more money”.  Good work if you can get it, but you’d better make sure your customers never find out what’s going on.  They aren’t likely to be happy about it.

See part 1