Tuesday, February 9, 2010 at 6:16AM Amazon loses the first--but not the last--battle in the eReader wars.
It just got more expensive to read the modern way! For a while, at least.
From the beginning, Amazon promised the buyers of the Kindle that not only was eReading the wave of the future...it was also going to be less expensive. This was because it--Amazon--was going to sell eBooks loadable on the Kindle for a mere $9.99, in effect making buying a book an impulse purchase. It was a terrific way to sell the Kindle, eBooks, and book-worms on the future of reading--but the strategy only worked as long as Amazon was the only game in town. But that's no longer the case.
With the arrival of Apple's iPad the game has changed in two important ways: For the better for publishers but for the worst for readers. Competition has, it seems, made pricing of eBooks more expensive, not less so--which seems pretty weird for students of business. Hell, competition is supposed to make prices come down, not go up! Introduction of the iPad has had exactly the opposite effect. Let me explain.
The story's not being reported quite right--Apple's not the problem.
The odd thing about the whole story is that Apple is getting the blame for eBook prices rising--but it, Apple that is, is really just a by-stander in what's going down; even the Wall Street Journal reporters don't have it figured out just right yet.
Here's the inside story: From the start, major publishers have resented Amazon for up-setting the book-seller market. With Amazon's emergence from out of nowhere, it has grown to be the dominant player in a heretofore very old, stable, retail market and the selling of reading materials, i.e., via brick-and-mortar stores. With the birth of Amazon, that all changed--to the detriment of the publishers and their long-time "friends," the store-front book sellers.
With the emergence of electronic devices--first the Kindle but then others--publishers received a second blow from Amazon: Not only did Amazon dominate the selling channel, they now were able to exert new, disproportionate control over book prices...with the plan to sell eBooks for a mere $9.99. And that offer to sell books for next to nothing [compared to normal book prices] was a huge inducement to early Kindle buyers!
ePublishers have been hoping, praying, and waiting for this day to come!
And that strategy worked well for Amazon while it was the only game in town; however, with the coming of competitors in the eReader device market, publishers saw their chance to get even--they raised prices on eBooks to Amazon, in effect betting that they'd be able to recoup the loss of money in sales to "cheap" Amazon eReader customers, i.e., for $9.99, and make it up on a sweet deal with Apple and their iPad customers who'd be prefer the new eReader device...and pay higher eBook prices at the same time.
So there you have it--increase re-seller competition and prices are supposed to go down, but instead they have gone up...but only for the time being; indeed, this is a very odd development. But the headline was picked carefully--this is just the first battle: In time, prices may very well come back down.
It's a matter of time before eBook prices settle back down.
How is this possible? It's very easy...everybody knows how low eBook prices can be! After all, ePublishers have not for all this time been selling eBooks for eReaders via Amazon at a loss--they've been making money, not just as much as they otherwise might have liked, so these circumstances won't last forever; eBook prices will come back down. However, for the time-being Kindle eReaders will be paying more--30% to 60% more--as by-standers in the marketplace brawl of eBooks, eReaders, and--for the moment the most important bullies--ePublishers!
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Reader Comments (3)
Terrific post, Keith. I have heard people commenting about how weird it is to see prices rise in the face of new competition, but you did a great job of explaining the dynamics here.
Apple is not a by-stander at all, rather they are an active participant in an "Agency" model channel of distribution. The 30-50% price increase away from Amazon pricing is now giving the retailer, (Apple's IStore) a 30% comission on all sales. Prices will not move much in the future with this model. Hachette Book Group CEO David Young was quoted five days ago as saying that:
"In fact, we make less on each e-book sale under the new model; the author will continue to be fairly compensated and our e-book agents will make money on every digital sale," he said. "We're willing to accept lower return for e-book sales as we control the value of our product--books, and content in general. We're taking the long view on e-book pricing, and this new model helps protect the long term viability of the book marketplace."
Besides Hachette, Penguin, Simon & Schuster, McMillian, and HaperCollins all struck similar deals with Apple. So long term price stability and channel control are what this is really all about. Publishing houses are willing to give up higher comissions by going with Apple over Amazon because they gain distibution control.
You are wrong. We don't know how low prices can be (and still keep a flourishing stable book writing culture alive) because Amazon is a monopsony. The low prices were the result of this, and this only. They could dictate the prices since they were the only game in town, and books are complementary products to their real product, the Kindle, which ties you into only buying Amazon books (so if they consolidated their lead even further, they could drive publisher prices even lower, like how Walmart forces some of their suppliers to sell below manufacturing costs.)