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There’s a war going on in the ebook arena between Amazon and Apple. Now that Apple has forced the issue of price, by offering books at a higher price than Amazon and with the help of Macmillan temporarily withdrawing titles from Amazon, why are consumers going to choose a device with a singular focus as opposed to one that functions as a reader and groovy netbook?
In a post this week, blogger Bob Lefsetz argues that rights holders, particularly in music, are fighting against the inevitable – a business model which moves from a la carte pricing to subscription. He cites the example of two videogame makers, one of whom sells games through traditional channels, and another who offers games for free, then gets consumers to buy added features after. The former gamemaker is going out of business, while the latter is thriving.
Apple absolutely cares about the price of content. It simply takes different approaches to pricing depending on the competitive landscape. It was through its aggressive initial pricing of songs on (.99) that helped establish the iTunes music store as the dominant player, iTunes as the dominant software and, most importantly, the iPod as the preeminent device.
In the case of ebooks, which Steve Jobs initially dismissed as insignificant (“people don’t read”), Apple recognized that it needed to unseat Amazon’s “first mover” leadership position. Here, it knew that it couldn’t simply undercut Amazon’s price; the publishers wouldn’t go for it, plus it would most likely require each sale resulting in a loss, potentially far greater than the profitability of the iTunes Store for music. Instead, it introduced the iPad with higher individual and variable book prices, which “coincidentally” happened at the same time of Macmillan’s very public pullback. Amazon caved, and now other publishers are going to start insisting on raising the prices of books, particularly popular ones. (This actually could be good for the industry, as people will pay more for the hits, but catalog items will be value price. Yet, per the New York Times, many readers are complaining loudly.)
Ultimately, as Lefsetz notes, it is all about selling hardware, but Jobs must know how important it is to have a steady stream of content – whether music, movies, podcasts, games, apps, etc. – for people to use on their devices. I’m sure Apple hates the fact that it had to raise prices for iTunes Plus to $1.29 per track. It means less people will probably buy music there, because most consumers thought .99 was too expensive and will just steal the music.
Regardless, I wouldn’t count Amazon out. With the addition of color, and some more interactivity, the Kindle could quickly become a pretty cool device to compete with the iPad.
Are ebooks just as valuable to you as your printed ones?
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It’s fascinating to watch all this unfold. Here’s my take..
Publishers are thrilled by the iPad because it gave them leverage to negotiate with Amazon. Using that leverage they negotiated ‘agency’ pricing which means higher prices at launch that go down when paperbacks get released. This means that they’ve bet heavily on an unproven distribution model, the iPad, and simultaneously angered 3 million kindle owners who now have to pay higher prices for new releases.
The difficulty with comparing eBooks to music is that consumption dynamics are very different. People simply can’t consume the books the same way they do MP3s. Subscription pricing makes sense for music because people can consume thousands of songs each month. Not so for books. Also, when MP3s hit the music scene, CDs were chalk full of filler tracks no one wanted.
Another angle to consider is delivery. MP3s are vastly superior to CDs because they aren’t dependent on physical media and specialized hardware for playback. Books are their own delivery vehicle that have at least one ‘hardware’ advantage over eBook readers, battery life. The most compelling use-case for eBook readers is the voracious reader on vacation who, by way of eBooks, can travel much more lightly. This example is very niche and It seems unlikely to me that people will want to pay the same price for a digital version of a physical product that clearly has much lower production and distribution costs. So, the question I have is: Will the iPad bolster or stifle eBook adoption?
It’s going to be an epic battle, just like what we saw with the record industry. There are billions of dollars at stake, and people / companies will not go down without a fight.
Apple’s new iPad will be a barometer as it quickly ramps up and gains not only market share form Amazon’s Kindle, but also drives up new business, similar to what the iTunes did.