Open ebook battle ends, but the war continues

The Great Amazon Delisting may be coming to an end, according to the New York Times. What no one can quite understand is why it happened at all, or took so long to resolve.

A little more than a week ago, Amazon removed all Macmillan books from its online store, both in Kindle versions and the dead-tree variety. This was in response to hardball negotiations between Macmillan and Amazon over pricing of Kindle e-books. Amazon, the market leader in the e-book market, wants to maintain pricing of new e-books at $9.99 to maintain the Kindle's dominance; Macmillan and other publishers, on the other hand, want to control the price of their electronic products.

It's unclear what effect a certain upstart in the iBooks... er, e-book market had on these negotiations, but few think it’s a coincidence that Amazon exercised the nuclear option only two days after Apple announced the iPad and its own online bookstore. Apple is offering publishers the right to set their own prices, and takes a 30 percent cut, much as it does for the App Store; in the book biz, this is called the “agency model,” and it’s what publishers have been pushing Amazon to adopt.

Two other major publishers are now on the agency model bandwagon, and Amazon has publicly capitulated to the new terms. But online Amazon sales continued merrily along for HarperCollins and Hachette all week, while it took five days for Amazon to flip the database switch for Macmillan.

Amazon has attempted to spin its actions as protecting the consumer interest in cheap e-books, but influential author and publisher blogs have generally ranged in calling the Amazon move something between ill-advised and stunningly boneheaded. Most readers, the reasoning goes, neither know nor care who publishes their favorite authors, or about the internecine negotiations between major players in the book market; all they see is that Amazon isn’t selling books they want to buy. Amazon’s move hurt Macmillan's bottom line for the last week, but if those customers bounced over to another online bookstore (or, heaven forfend, a brick-and-mortar store), the long term impact on sales will accrue far more to Amazon than anyone else.

Which seems an odd strategy, when Apple is perceived not as a new e-book startup, but rather the presumptive 800-pound gorilla. Apple has already crushed the competition in both the music and smartphone industries; Amazon may have a 12-length lead starting this race, but no one thinks the odds are 50-1 against Apple catching up. Five hundred dollars will buy you either a Kindle DX ebook reader, or (in two months) an iPad with many more features. Such as color. And 140,000 other applications.

In any case, some news outlets have jumped to the wrong conclusions regarding some aspects of this story (and noblesse oblige prevents me from including any links in this sentence). I don’t have any insider information, but I’ll put on my prognosticator hat and make a few predictions:

  1. This isn’t the “death of the $9.99 e-book.” It’s the death of the $9.99 bestseller... but that particular product has been on life support, thanks to Amazon’s willingness to lose money on most of those sales. That would have lasted only so long as Amazon felt the need to establish a monopoly position; losing money and making it up on volume hasn’t been a viable long-term strategy since 1999.
  2. This is potentially the beginning, however, of the cheaper non-bestseller. Book publishing is a classic example of a long tail industry; for every bestseller, there are literally tens of thousands of other books which aren’t. Publishers can’t tinker with the prices of the rest of their products, since the prices are inconveniently permanently printed on the back cover, but they can easily do so with e-books. Every other media industry which has migrated onto the Internet has seen pricing wars and deep discounting—witness the ubiquity of the 99-cent iPhone app. It’ll be a long while before you see e-books for a buck, but publishers will be quick to recognize the difference between selling 100 copies of a 2005 e-book for $14.95, or 1,000 copies for $5.95. The floor for an ebook’s price will likely be set by the cost of its equivalent paperback; once a book goes out of print, though, that floor drops out.
  3. It remains to be seen how competition between online booksellers will affect pricing; it is notably paradoxical that the entry of Apple into the market will raise the price of some books. Most likely, publishers will keep pricing at parity between the Kindle and iBooks versions, but future strategies may include platform competition and wholesale discounting.
  4. What hasn’t changed: you still don’t really own the e-books you buy. Thanks to e-book DRM, they’re more like semi-permanent rentals. Unless Apple has something up its sleeve with its use of the ePub industry standard, your e-books will continue to be locked in to a particular platform. I personally expect to see iBooks available on iPhones (much as Kindle e-books are), but good luck getting your encrypted e-books running on your laptop or next year’s gadget from another manufacturer. If you want to buy a book which you can lend to a friend, or which you’re guaranteed to be able to read in 2020 regardless of technological change, paper is still your best friend.

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