The launch of the iPad earlier this month, with 300,000 units sold on the first day, has led to significant coverage in the mainstream media, and (surprisingly, given the state of the publishing industry) quite a few articles on the upcoming clash between Apple's iPad and Amazon's Kindle.
The Economist has a piece with the wonderful title "E-publish or perish" (March 31, 2010), which highlights the main issues with the current situation regarding digital copies of books. Amazon.com, the market leader, has been pricing many e-books below what it has paid for them in order to gain market share for its e-reader, the Kindle; publishers now fret that customers have been conditioned to believe $9.99 was a fair price for e-books.
A row with Macmillan in January resulted in Amazon.com briefly pulling out Macmillan books from its website in January, although the dispute was later resolved. As explained in this New York Times blog post, Amazon.com has agreed to shift from a "wholesale model," where it decided how much to charge customers for e-books, to an "agency model", "in which publishers sell e-books directly to consumers and pay retailers like Amazon and Apple a set 30 percent commission. The move allows publishers to raise e-book prices from the default $9.99 that Amazon had set for most new releases and best sellers to as much as $14.99." Macmillan, worried about its shrinking margins, used the impending release of the iPad to force a renegotiation of Amazon's pricing model.
(From this other New York Times article, before the media began to emphasize Amazon had been selling e-books below cost: "In a strongly worded message on its Web site on Sunday, Amazon said that while it disagreed with Macmillan’s stance, it would bow to the publisher’s plan. [... Amazon said:] “We want [our readers] to know that ultimately, however, we will have to capitulate and accept Macmillan’s terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books.”" For a different perspective, see HBS link three paragraphs down.)
The Atlantic recently published a fascinating post on its website about the vast array of prices charged for books; for instance, "the hardcover list price [of a recent book] is $29.95 and the CD audio lists at $50. But that is barely the beginning. Amazon sells the printed book for $16.47, the Kindle e-book version for $14.82, the audio CD for $31.50, and the downloadable audio for $34.12. B&N.com has a "member" price for the hardcover of $15.52 and the CD for $36. At Borders.com, the book is $17.97. The Sony Reader e-book is $14.50."
The blog author, who founded Public Affairs Books, comments that "the competition for readers is so much more about choices and platforms than it ever was." He strikes an optimistic note: "As for the notion that overall readership is collapsing, final numbers for 2009 show that not to be the case. E-book sales are surging, up 176.6 percent, to $313 million. Even adult hardcovers were up 6.9 percent, to $2.6 billion." He also repeats a statistic that first appeared in The Economist: "e-books could be as much as 25 percent of the market in the next five years." Maybe the book industry is not quite dying yet.
The former CEO of Random House, now senior lecturer at Harvard Business School, offers his insights here. Interestingly, he appears to be disagreeing with Macmillan. "Instead of making books more accessible and attractive, publishers are attempting to prop up the print book business by upping the price of e-books, Olson says. [...] "I don't know of many successful examples of pricing a product based not on what it costs or what people want to pay for it, but based on another format that is completely different, just because you want to keep that format alive.""
Here come sobering statistics: "Less than half of all American adults ever read a book after leaving school. Most of the remainder read, at most, only one or two books a year." I read about three books a month, usually nonfiction. I know I am atypical; yet it frightens me to think most adults don't even bother to pick up a book on a topic that interests them. The great hope with e-readers is that it will lead people who usually don't read to give it a try, so that digital books, far from cannibalizing the sales of printed books, will expand the market. Interestingly, the HBS students who discussed the case study suggested bundling hardcover and e-book, to allow readers to use both as they please. The former Random House CEO concludes: "It's a very nice time to be at HBS and not in the book industry. It's fun to watch, but it's probably not as much fun to be in the middle of this."
Finally, it should come as no surprise that The New Yorker's Ken Auletta - "the" expert if there ever was one - wrote a piece about Amazon vs Apple in its Annals of Communication series. If you only have time to read one article among all those I link to, make it that one. He echoes many of the themes touched upon in the other articles, from Amazon's strategy to sell e-books below cost to the hope e-books will represent 25% to 50% of the book business in the few years; he also emphasizes the iPad's advantages: "The iPad was clearly a more versatile device: it would provide color and full audio and video, while the Kindle could display only black-and-white text." Auletta also puts the row between Macmillan and Amazon in context, by pointing out it started the day after Steve Jobs unveiled the iPad in downtown San Francisco. (Asked why customers would buy an e-book at $14.99 from Apple when they could get it at $9.99 from Amazon, Jobs replied: "The price will be the same. [...] Publishers may withhold their books from Amazon. They’re unhappy." Sure enough, the row broke out the next day.)
A BNET blog post takes issue with some of the numbers Auletta presents in his article, specifically, the costs of the publishing industry. Using the example of a $26 hardcover selling 10,000 copies, including the blog author argues that "you’ve got $4.10 in the publisher’s pocket for every $13 book sold [$13 being the discounted price the publisher receives from booksellers and retailers], rather than the $1 Auletta claims. That’s a 31.5 percent margin." He also takes issues with Auletta's basing his calculations on hardcovers, when paperbacks represent an important part of the business.
The truth is probably somewhere in between The New Yorker's and BNET's figures. Anyway, Auletta's article also provides a good overview of Amazon's beginnings, a detailed account of the row between Amazon and Macmillan, and a timely reflection on what this all means for independent booksellers. (I am a fervent supporter of independent bookstores, especially Harvard Book Store in Cambridge, MA and - my new favorite, now that I no longer live in the Boston area - McNally-Jackson in New York City. If you're going to buy books, you might as well buy them from people who love them, rather than from companies that view books as one more commodity to make profit from. But again, I am atypical. I know that. The Economist also has a sidebar on the fate of bookstores. An excerpt: "Independent bookshops face a particularly grave threat, because they are unable to match bigger rivals’ prices. Many are branching out by offering new services, such as creative-writing classes." Unsurprisingly, Harvard Book Store and McNally-Jackson run excellent reading series, where they also sell the books of the featured authors. All successful independent bookstores seem to hold high-quality author events, with an edgy vibe in the writers' choices.)
From Auletta's article: "According to the American Booksellers Association, the number of independent booksellers has declined from 3,250 to 1,400 since 1999; independents now represent just ten per cent of store sales." and "Bookstores, particularly independent bookstores, help resist this trend [of focusing on mega-hits rather than good books with a smaller audience] by championing authors the employees believe in." But Auletta also points out many customers are unwilling to pay the higher prices. It is worth noting, however, that many independent booksellers do offer discounts, in particular for best-sellers on the Indie Bestseller Lists (books that are best-selling in independent bookstores), and for holders of the bookstores' frequent-buyer cards, although terms vary. In addition, as the BNET blogger pointed out, Auletta focuses on hardcovers, which are indeed pricey. I buy paperbacks as much as possible, where the Amazon discount doesn't translate in a steep price difference. They are easier to carry around anyway.
I'll end with a quote by an Apple insider, from the Auletta article: "Ultimately, Apple is in the device—not the content—business. Steve Jobs wants to make sure content people are his partner. Steve is in the I win/you win school. Jeff Bezos is in the I win/you lose school."(Both that article and the one in The Economist do mention Apple might have kept an option to charge $9.99 for some of the books, though, which might have to do with Random House not yet agreeing to having its books available on the iPad.)
Please read the full article for great information on Amazon's aspirations as a possible future publisher that will continue to transform the book industry, more tensions between publishers and Amazon.com, and a ton of additional insights!