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Last week a temporary cease-fire went into effect amidst a brewing battle between Amazon.com and Macmillan, a unit of Germany's Verlagsgruppe Georg von Holtzbrinck GMBH and one of the largest publishers in the US.
The battle was over the price of ebooks on Amazon's site. Macmillan insisted upon -- and eventually received -- a 30-50% increase over the $9.99 loss leader price for new releases that helped build Amazon's dominant position in the ebook market. But only after an attempt by Amazon to wield its distribution power to force Macmillan to back down. (You can read the details at this link).
Most pricing disputes are about slicing the pie. This one is about the future of the pie. There's a lot in play, and at stake.
Amazon and Apple are hoping to create preference for their devices (Kindle, iPad) and ecosystems of ebook stores and supplier relationships.
The suppliers -- big publishers at this time -- are trying to prevent the collapse of their primary competitive advantage: their supply chain.
Want to know what's going to happen?
Amazon will continue to build relationships with their customers by working, primarily, to keep convenience high and prices low (that's their nature). Mind you, they'll certainly try to keep up on the tech front.
Apple will leverage the relationship with their customers by continuing to innovate on the product front, while developing relatively high margin relationships with partners (it's in their DNA).
Big publishers will exert their supply chain power to slow the collapse of their legacy model (they can't help it).
And out of nowhere, entrepreneurs will spring forth with new business models that will offer unique bundles of value for both authors and readers. Perhaps an ebook/content model similar to cell phone contracts (sign up for two years worth of content at x dollars per month and get the reader free).
The evolution of the ebook market (which is the future of books) is going to be exciting to watch, as well as a strategic study in marketplace transparency, supply chain disintermediation, pricing, and innovation. The winners will be those who emerge with a superior bundle of value for the two primary players of the value exchange game -- authors and their fans.
And price, as always, will be a signal; a function of expectations, scarcity and value. If a book's value is enhanced via an ebook platform experience, the price will be higher than its physical counterpart not lower.
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Tom is timely, thought provoking and all about the new brand vision packaged as a Seinfeld stand up. I went to school on his ideas.
Jeff Taylor, Founder, Monster.com and CEO, Eons.
There's another and more worrying aspect to this battle: Macmillan are trying to enforce old world physical book prices onto new world digital books. Given that the distribution costs for digital books are hugely less than for physical books, there should be a lower price.
I fully support the idea that all authors should get a decent royalty from all sales, whatever the medium. But it strikes me that Macmillan are simply trying to increase their margins by selling a product that's easier to distribute at the price of one that's harder to distribute.
Posted by: Mark JF | February 04, 2010 at 10:38 AM
Exactly, Mark.
"Big publishers will exert their supply chain power to slow the collapse of their legacy model (they can't help it)."
Posted by: Tom Asacker | February 04, 2010 at 11:06 AM