April 12, 2012
News yesterday that the U.S. Department of Justice was going after Apple and two major publishers over alleged e-book price fixing must have been like Christmas day at Amazon headquarters in Seattle, Washington. In fact, after the DOJ announced its plans, Amazon celebrated by announcing that their e-book prices would soon begin to fall. For example, the price of some major titles could fall to $9.99 or less from $14.99, saving readers a bundle, according to The New York Times.
How We Got HereSince 2010, according to the government, Apple along with five of the nation’s largest publishers instituted an agency model to determine the prices of e-books. This model meant that publishers, not retailers, would set the price of books, with Apple receiving their automatic 30 percent cut. As a result, book prices across the board went up because no bookseller could undercut Apple. Plus, as many as our own readers have pointed out, most e-book prices were the same no matter the retailer. However, three of those five publishers have now settled charges, including HarperCollins, Hachette, and Simon & Schuster. This leaves Apple to basically fend for itself, along with Penguin and Macmillan, the two publishers that chose not to settle with the DOJ.
Good For AmazonAmazon, as both the world’s largest online retailer and controller of 60 percent of the e-book market, is now positioned to stick it to Apple, and others, just as the tablet wars are heating up. The reason for this is two-fold. First, Amazon can once again control the prices of e-books, just as it did before Apple came along and released the first iPad in 2010 and started pushing the agency model. This means that Amazon can undercut the prices of e-books, giving the company’s Kindle brand a built-in competitive advantage. Remember, Apple demands a 30 percent cut of each sale made in the App Store and through its iBookstore. Amazon, on the other hand, can take a loss on every book it sells to gain market share for its Kindle devices. Second, Amazon can use this opportunity to kill off what remains of traditional bookstores. For instance, Amazon can now undercut the cost of e-books verses books, putting companies like Barnes & Noble at a disadvantage. And B&N's Nook tablet? Yeah, that could become a memory eventually. The end result is a growing market share for Amazon, with e-books anyway, with Apple left to defend its practices in court.
Kindle vs. iPadThis news doesn’t mean that Amazon’s Kindle brand will suddenly overtake Apple’s iPad. After all, while Kindle e-book readers and the company's Kindle Fire tablet only allow e-book purchases through Amazon, iPad users can purchase e-books wherever they are cheaper, whether it is through Apple’s iBookstore or Amazon’s Kindle app. Still, it could result in Amazon being much more competitive in the tablet market, just as Apple’s e-book market share could plummet. Finally, the DOJ’s could eventually move from e-books to the entire App Store. Will the government eventually decide Apple’s iOS platform isn’t competitive as a whole, and that the company’s automatic 30 percent cut of everything isn’t right? Naturally, that is a discussion for another day. One thing is certain, however. The days when publishers (and ultimately Apple) set the prices of e-books seems to be ending. For that, score one for Amazon and for consumers. As Michael Norris, a book publishing analyst with Simba Information told The New York Times:
“Amazon must be unbelievably happy today. Had they been puppeteering this whole play, it could not have worked out better for them.”