The Danger in Quashing Apple’s Anticompetitive Publishing Deal

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I find myself in a somewhat unusual position when it comes to the ebook antitrust battle royal quietly occurring between the U.S. Department of Justice, Apple, and the major publishers, with Amazon, Barnes & Noble, mom and pop book stores, and even authors all serving as interested parties.

The DOJ is (so very probably) right that anticompetitive collusion occurred between Apple and the publishers, but I think it is making a mistake trying to undo that collusion. Doing so will clear the way for Amazon to dump books below price, taking ever more share (and power) in the book industry—that is the greater anticompetitive threat in my never humble opinion.

Apple, Publishers, Amazon

The Issue

The issue is that the DOJ is concerned that Apple and five major U.S. publishers colluded to raise ebook prices and is actively investigating the situation on antitrust grounds. The investigation centers around the deal Apple and these publishers came to in bringing ebooks to the iPad in the form of Apple’s iBooks store.

That deal effectively shifted the power of ebook price control to publishers, away from retailers like Amazon, Barnes & Noble, or Apple. If I may, let me explain it by reusing the description I wrote in Wednesday’s news coverage on the subject:

Before the iPad and this deal with the major publishers, retailers like Barnes & Noble and Amazon paid publishers a fixed price and were then free to sell those books at whatever price they wanted. Amazon would frequently sell Kindle editions of those books below cost in an effort to promote the platform and take share away from brick and mortar retailers like Barnes & Noble and the now-defunct Borders.

Apple had no desire to lose money on ebooks and offered publishers the above-described agency model, but it include an enforcement clause that has since been nicknamed the “most favored nation” clause, a takeoff on the international trade agreement term of the same name.

By including that clause, publishers agreed to not sell its books for less elsewhere. Armed with that agreement, publishers were able to force Amazon to renegotiate their deals with that retailer to fall in line with Apple’s, thus ending Amazon’s ability to dump books.

Yuh-Huh

Half of my problem is that I think colluding to raise prices is exactly what Apple and these publishers did, and the result is that some ebook prices—especially best sellers—went up overnight on Amazon. The other half of my problem is that I believe this was actually good for consumers.

Oh, not in the short term. In the short term, consumers are paying higher prices for ebooks, and that sucks. In the long term, however, I think that this was the only way for the publishing industry to keep Amazon from wrecking the publishing industry and gaining monopoly power in the process.

I know, that seems like a strong statement, but publishers agree with that, too. They believe that the agency model has allowed more book sellers to stay open, most recently telling that to The Wall Street Journal, off the record of course.

Amazon’s endgame is not only to have a choke hold on retailing, but on publishing books, too. I’m not the only one to think so, either.

As someone who loves to read—and full disclosure, I am in the process of trying to get a publishing deal on a novel I recently completed—I don’t think Amazon is fit to be the sole steward of the future of books.

Double, Double Toil and Trouble; Publishers Burn and Retailers Bubble

To be fair, this isn’t all about Amazon, or even Apple. The publishing industry is in trouble, and just like the music, TV, and movie industries before it, publishers are having a dickens of a time adjusting to the pressure being exerted by the Internet.

Print sales are still the bread and butter of the industry, but they are down. At the same time, the same chains that took out mom and pop book stores by the hundreds are either gone or are troubled.

The sale of ebooks is the only thing on the rise thanks mostly to (and mostly because of) the success of Amazon’s Kindle platform. The result of that success, though, is less choice.

Yes, we, as consumers have cheaper prices because of Amazon, but today there are fewer places to buy books. I don’t think that’s a great trade off, largely because if you take Amazon’s game plan to its ultimate conclusion, we’d only have one place to buy books, and I can guarantee you that when that happens, Amazon will finally, after all these years, recognize the importance of profits and margins and jack up those prices.

Admittedly, we may be headed to a future where the book business shakes out as follows: Great mom and pops like Powell’s, Book People, Strand Bookstore, and Book Passage serve an increasingly niche print business, while ebooks are available in three or four flavors: Kindle, Nook, iBooks, and “ePub” books published by major authors like J.K. Rowling who have such a big brand they can publish directly to end customers, and to hell with publishers.

There is certainly a level of choice preserved in such a future. Three ebook stores and big name authors isn’t much different than the Borders vs. Barnes & Noble reality that most cities in the U.S. were limited to before Borders closed.

Practical Reality

But, and this is the big but, I don’t think we’d even get to that point. I believe that as soon as Amazon can, it will start dumping best sellers once again, and that this pressure will be the final straw for Barnes & Noble. The Nook may survive as a separate company, but that’s hardly guaranteed.

Apple’s collusion with five of the six major U.S. publishers served as a lifeline to everyone who isn’t Amazon. It leveled the playing field, which helped keep the market diversified. Take away that lifeline, and all bets are off.

Indeed, if the DOJ enforces the end of the agency model or Apple’s most favored nation status, there’s no guarantee that Apple will keep iBooks open. The company does a half-assed job of competing as it is. I intend to write a separate column on that topic, but Apple doesn’t want to compete on price, and already does a poor job of securing premium titles (where the hell is The Hunger Games on iBooks? Why is Harry Potter on Kindle and Nook, but not iBooks?)

iBooks brings in about $50 million a year for Apple—not even a blip on the P&L statement—and if sales drop because Apple isn’t willing to take a loss on books, too, I can easily see it reaching the point where it’s not worth Apple’s while to maintain it. The company could become quite willing to let Amazon supply ebooks for the iPad through its Kindle app.

Let’s Lynch the Publisher!*

Back to the publishers, there is another serious issue with Amazon gaining too much power in the publishing industry. The company is already working hard to court authors to publish directly to Kindle without going through a publisher.

This has already attracted scads of unpublished authors, many of whom immediately engaged in a race to the bottom by selling their books for $0.99, hoping to be the one in a hundred thousand who sells a bunch of them.

In addition to devaluing books as a whole by doing so, the reality is that many of these authors were unpublished for a reason. Most published authors have a love-hate relationship with their editors and publishers, but the truth is that they serve some important roles in the world of publishing, including gate keeper, nurturer, babysitter, trainer, and editor.

In a world where everyone self-publishes, great books will be few and far between. That’s not just my opinion, it’s the opinion of many authors who talk about how much their editors have helped them. As part of my path to getting published, I’ve been reading a lot of essays by published writers on these topics, and this is one of the areas in which they have been quite consistent.

Big Authors Thrive, While Everyone Else Struggles

Another consistent theme I’ve read is that the future Amazon is pushing us towards is one where big name authors continue to do quite well due to the power of their brand, while it becomes difficult or impossible for new authors to be discovered by readers. In that world, even mid-level authors can’t make a living writing full time.

Again, that means fewer great books. I happen to love great books.

There’s also the issue of Amazon’s self-publishing terms and conditions. Check out Jim Hines’s  story about how Amazon cut the price of one of his self-published books from $2.99 to $0.99 without his permission, and without even telling him. Not only did that cut how much he made per sale simply because the price was lower, it had the side effect of changing his percentage from 70 percent to 35 percent, the amount Amazon pays to self-published authors on book priced less than a dollar.

Cute, huh?

When he asked about it, Amazon restored the original price, but pointed out that the terms and conditions of his self-publishing deal allow the retailer to change the price of his books without notice, and that it can change its terms and conditions at any time, without notice or further agreement required.

Amazon couldn’t pull that with a publisher, and it couldn’t pull it with, say, twenty, maybe thirty authors who are big enough to have a voice. The rest of them, however, are subject to Amazon’s whims and will have even less recourse the more power Amazon accumulates in the world of books.

Don’t Miss the Forest for the Trees

For all these reasons, and more, I believe the DOJ is missing the forest for the trees in wanting to bust Apple’s chops for collusion. There’s no doubt to me that Apple was colluding with most of the publishing industry, but its practical effect is to promote choice and diversity, and to limit the biggest book seller on the planet from gaining even more market share by dumping books on the market.

*With apologies to Jello Biafra

Comments

daemon

Bryan, I’m flabbergasted that you actually believe that Apple’s actions were good for consumers.

Bryan Chaffin

Do you find fault with the reasoning laid out above? Feel free to share.

Peter

Ah, yes, the benevolent Apple…

Amazon would frequently sell Kindle editions of those books below cost in an effort to promote its Kindle platform and take share away from brick and mortar retailers like Barnes & Noble and the now-defunct Borders.

Can you give evidence of this?

Wait, I thought the whole reason that Apple could make money selling a song for 99 cents—and according to everybody, Apple makes very little money on iTunes music sales—is because digital distribution is so cheap.  So if Amazon could sell a best selling book for $9.99, they must obviously be “dumping” it?

Yeah.  And 99 cent music from the iTunes Music Store had no effect on iPod sales.  But Apple selling cheap music for people to fill up their iPods is a good thing.  But Amazon selling cheap books to fill up their Kindles is a bad thing.

So I assume that Apple telling the music publishers how much they can sell for their music for (99 cents or three choices: $0.69, $0.99, or $1.29) is a bad thing.  It would be better if Apple allowed those music and movie companies to set their own prices, right?

In other words, when Apple lowers prices on content to sell hardware and control a market, it’s good (iPad).  When Amazon lowers prices on content to sell hardware and control a market, it’s bad (Kindle).

I get it now.

Dan

Peter, you’re missing the point.

Long term, Amazon having control of the book market will lead to a lot of bad books, a few really good books, and not much in between. Also, prices will rise again once there’s nowhere else to buy books. Read the article again, properly this time!

If you look at what iTunes has done to the Music industry, it’s actually been good. Previously, it was all ‘jobs for the boys’ and we were told what music to like. iTunes gave unsigned and unheard musicians, that couldn’t get past the blinkered music industry giants, a platform. We were being ripped off too, ?16 for an album was the norm pre iTunes. Musicians still make good money, we have a greater choice of music, and we don’t pay stupid prices for it.

lrd555

Had Amazon been actually making $, I would be concern. But Amazon’s business model is slowing but surely coming apart @ the seams.

On the other hand, Apple’s selling 15 million iPads per quarter and by the end of this year, it’s Apple not Amazon that will be selling the most e-books.
Apple’s the one with $100 Billion war chest, the soon to be 400 physical store and truly amazing ecosystem around all its products.

Therefore, I could careless I would care less about book pricing.

I really don’t see the need to fuss about book prices. It’s the platform that matters.

Lee Dronick

I really don?t see the need to fuss about book prices. It?s the platform that matters

We can fuss about both.

wab95

Bryan:

A thoughtful tour through a minefield of controversy. I particularly appreciate that you post this as an ‘opinion’ piece and, just in case a reader overlooked the header, state in situ that this is an opinion.

Looking at Peter’s comment above, I was tempted to respond along the lines of Dan’s pithy summary, so now, thanks to Dan, I can simply say, ‘Agreed’. You provide ample references and links that permit the reader to at least follow your train of thought.

That said, permit me to offer what, at least to my thinking, is a sobering point of perspective on book publishing, as well as Amazon vs Apple as book publishers/retailers.

Unlike the music or other entertainment industries (movies, TV), books are about information, education and the most dangerous thing of all to human society, ideas. Having but one gatekeeper for the publishing of ideas, leaving aside questions of motive or conspiracy, which I don’t think apply here in any case, risks collective impoverishment of thought and culture, if for no other reason than that certain ideas (e.g. classics) don’t make money. This could lead to a variant on Ray Bradbury’s dystopian Fahrenheit 451 future, driven not by the will to suppress subversive ideas, but simply by dent of market forces, where certain books (and ideas) simply fall out of circulation for lack of profitability, with equally deleterious effects.

Books represent humankind’s collective brain trust, no less than a thought and cultural repository. They are not simply our heritage, but guides to our future. Leaving their availability in the hands of but one publisher is an unacceptable level of risk, and a thing to be averted - by a free market preferably, by legal resistance if necessary. The world’s great despots and dictators have never undervalued the power that books represent, and neither should we. As important as are all forms of art (and I speak as a modest patron), literature is an altogether different creature, exquisitely vulnerable, inconceivably powerful.

Regarding Amazon vs Apple, two more different businesses can scarcely be contrasted, nor does time permit it. Simply put, the one has built its fortune on selling the products of others (often below cost) as its principal content; the other at selling the products of its own R&D, and occasionally selling others’ products/content (e.g. books, music) to facilitate the sale of its own products.

For Amazon, as a book publisher/retailer, books have to sell in order for them to stay in business. For Apple, since its profits come from the sale of its own products, its bookstore simply has to simply break even and not cost it money. Based on these different models, I see room here for very divergent book selection and even specialisation. Most importantly, I see scope for healthy competition, which when it comes to protection of ideas, is always a good thing.

Many thanks for the thought piece, Bryan.

Peter

Long term, Amazon having control of the book market will lead to a lot of bad books, a few really good books, and not much in between. Also, prices will rise again once there?s nowhere else to buy books.

And this is different from Apple having control of the downloadable music market…how?

First, where’s this “dumping” evidence?  If Apple can make money selling music for 99 cents, I’m pretty sure Amazon can make money selling books for $9.99 (which was generally the price before Apple got involved).  Also, everyone says that Amazon’s hardware strategy is to sell the hardware at near cost (or below, according to some) and make it up by selling content: Books, Movies, and Music.  Now Amazon is losing money by “dumping” e-books on the market as well as “dumping” hardware?  So where are they making money?  The whole “evil Amazon conspiracy to take over e-books” is just a figment of the Apple Fanbois imagination.

If you look at what iTunes has done to the Music industry, it?s actually been good. Previously, it was all ?jobs for the boys? and we were told what music to like. iTunes gave unsigned and unheard musicians, that couldn?t get past the blinkered music industry giants, a platform.

Put down the Kool-Aide and step away from the keyboard.

Where are you getting this?  Name one band that iTunes has “discovered.”  These bands aren’t dealing directly with Apple, they deal with CD Baby and such that sign with Apple as just another label.

And again, here’s rampant fanboism at work.  Way back when, Apple signed some deals with the the music companies that may not have been in the music companies’ best interest.  Apple became a powerhouse—nee a monopolist—selling online music (Apple is the number one music retailer in America and has 78% of the online music market.)  This was a good thing, right?

Amazon does the same thing with e-books.  They sign deals with the publishers that may not have been in the publishers best interest.  Amazon becomes a powerhouse (I’m not sure of the market share) selling e-books.  And this is a bad thing.

Huh?  I’m not sure I’m seeing the difference.

[quote author=“wab95”]For Amazon, as a book publisher/retailer, books have to sell in order for them to stay in business. For Apple, since its profits come from the sale of its own products, its bookstore simply has to simply break even and not cost it money.

Wait, I’m getting lost here again.

You’re saying, “Oh Noes!  Amazon is dumping books to sell their Kindles!”  Then you’re saying that Apple can, essentially, break even on selling books because they make their money selling iPads?

Dan

Fanboism? No, not me. Awful experience of awful windows PC’s led me to Apples products, when a secondhand 5 year old, ?80 eMac outperformed a 2-3 year old PC that cost me over ?1000 new, I was impressed. Plus Apple actually look after you as a customer, I replaced the eMac with a secondhand MacBook for under ?400 - that was about 3 years ago, and the only niggles I’ve had - Apple have sorted it out for me, at no cost. If a company gives me good products, and good customer service, I see no reason to not use them. Do you?

Who cares if the deals Apple signed weren’t in the Music Companies best interest, as far as I could see, the Music Companies weren’t giving ANYONE the best deal! And now we’ve got a better deal. Really, what’s there to whinge about? Incidentally, I didn’t say that iTunes discovered ANY musician, I said iTunes gave them a way to sell their music. It’s my understanding that anyone can sell their music on iTunes, am I wrong?

I won’t profess to be an expert when it comes to the Amazon book thing either, but Bryan’s point and reasoning make perfect sense to me.

The way I see it is this: Apple want to make some nice products that we can all enjoy, and of course nice profits. It’s a business, why should anyone deny them making a profit? From what I understand, Amazon want everything and are happy to sell Kindles at a loss, and books at a ridiculously low price so they can play the long game and take control. Once they’ve got control they can do what they like. Which of those two situations sound more ethical?

Peter

If a company gives me good products, and good customer service, I see no reason to not use them. Do you?

Nope.  Trust me, my first Mac was a Macintosh 128K back in 1985.  I’ve been an Apple user and developer since then.  Had a 128K, 512K, Plus, II, IIcx, IIfx….the list goes on for a while…

Who cares if the deals Apple signed weren?t in the Music Companies best interest, as far as I could see, the Music Companies weren?t giving ANYONE the best deal! And now we?ve got a better deal. Really, what?s there to whinge about?

Well, when you look at it that way, absolutely nothing!

Of course, Amazon was giving us best sellers at $9.99, which is also a good deal.  So why all the whinging about how if Amazon did that, they’d corner the market for e-books.  Hasn’t Apple cornered the market for downloadable music?  78% is a pretty big share of the market.  Yet nobody seems to think that’s a bad thing.

From what I understand, Amazon want everything and are happy to sell Kindles at a loss, and books at a ridiculously low price so they can play the long game and take control.

“Ridiculously low price”?  Like 99 cents for a song?  Hey, if Amazon can make money selling books for $9.99, why should they charge more?

See, here’s another way of looking at it:  Amazon had an advantage over Apple in that they were also selling print books and basically modified their deal with the publishing companies so that they would pay a wholesale price for the rights to publish an e-book.  Apple couldn’t compete in this realm and they knew it.  So they used their market dominance and control over their popular platform to conspire with the publishing companies to knock out their biggest competitor.

Why I use the “fanboi” moniker is that the only way Bryan’s article makes sense is if you ascribe altruistic motives to Apple.  “Oh, Apple wanted to save the market for e-books from being dominated by Amazon and promote open markets and capitalism and aren’t they just wonderful?”

Bryan Chaffin

Hi Peter, I provided links to support my arguments throughout the piece. I also noted several instances in which the broader world shared my concerns (or vice versa). The issue of Amazon selling best sellers (both ebooks and Kindle editions) below cost is well documented (More examples in another post)

Apple sells songs for US$0.79 - $1.29 (there might be a wider range, but most songs are either $1.29 or $0.99) and takes 30% of the top. The labels now determine the price of individual songs. It’s the agency model, the same model Apple uses in iBooks and the App Store.

Amazon used to buy books based on a wholesale price and then determine its own retail price. Part of its success is that its lack of a store front and extraordinarily efficient distribution system allowed it to sell books at razor thin margins that beat the pants off of every brick and mortar store out there.

That’s all well and good, capitalism at work and whatnot. The problem is that Amazon has now grown so large it can it can use the profits (or at least its operating cash flow) to sell both books and Kindle devices below cost to gain share.

In the case of its Kindle Fire, I don’t have a problem with Amazon dumping the devices below cost. Apple has a chokehold on the tablet market, and someone needed to claw some share away from the iPad maker.

I see the book industry as different. Initially Amazon sold books below cost to simply gain traction for Kindle, which became the first successful digital book platform. Now, however, Kindle is a solid success, and Amazon began using the same pricing strategy to blast Nook out of the water, keep any other companies from wanting to make a serious effort at ebooks, and put even more hurt on brick and mortar stores.

As I said in the column above, the end-game is one book store to rule them all in and in the darkness bind them to Amazon’s whim.

That long run, that end game, is worse for consumers than Apple arming publishers with the tools necessary to level the retail playing field.

Now, since you seem to have been hung up the most on the easily shown point that Amazon was dumping books, I assume that you now see the nature of my concerns. smile

Bryan Chaffin

More links to stories about Amazon’s dumping strategy:

Link 1
Link 2

Bryan Chaffin

More links:

Link 3
Link 4
Link 5
etc.

Dan Fuzz

Peter said:

Why I use the ?fanboi? moniker is that the only way Bryan?s article makes sense is if you ascribe altruistic motives to Apple.  ?Oh, Apple wanted to save the market for e-books from being dominated by Amazon and promote open markets and capitalism and aren?t they just wonderful??

 

My final point on this is:

No one is saying that Apple are amazing, and trying to save the market for eBooks, they’re just trying to apply a fair and balanced method, where the prices are set by those that write and market the books. Not by them. This will allow for fairer and consistent pricing for everyone, and it WILL be better in the long run.

It seems to me that they are blending the traditional methods of selling books, whilst utilising modern means.

I do have a good grasp of business, and in this case, Apples way is the better way. If it wasn’t - I’d say!

Lee Dronick
Dan Fuzz

See this story on Salon http://www.salon.com/2012/04/08/amazons_1_million_slush_fund/

I think the fact that the Publishers agreed to Apples contract and not Amazons, say’s quite a lot.

And why wouldn’t Amazon be shouting about charitable donations unless they had something to hide?

The Jury is still out for sure, and perhaps only time will tell. But I know what I think….

Stephen

Let’s say you have an idea for a service (SaaS, cloud, supply chain management, whatever) that you hope could go big.  You research your market for pain points, talk to lots of people and listen to their feedback, adjust your plans, and send out your sales team.  Like all good sales folks, they drop names about who they are talking to and who might sign up soon, and who wants what adjustments that your company is considering.  They talk about customer benefits from using your service.  The customer prospects consider what your people say and more, ask questions, give feedback.  Some contracts get signed.  Because you want to minimize complexity (for manageability), you standardize on one version of the contract and one version of your service, at least in the beginning.  Your customers like it, sign up, and use it to keep their own companies in business.

How is this different from iBooks?  If the above is SOP for any business and legal, why is it illegal for Apple with iBooks and publishers?

gnasher729

There is really the question if Apple and the publishers have done anything that would be anti-competitive. Apple has offered publishers a deal that is very, very similar to the deals that Apple has been giving to the music industry, and to software developers (you set the price, we take 30 percents). Before that offer, Amazon had what was close to a monopoly on the sale of eBooks. Breaking a monopoly must be about one of the most competitive thing that a company could do.

So is there any evidence that publishers actually agreed on prices?

webjprgm

After reading this article and the comments (but not yet all the linked articles), I have one question about the anti-competitive nature of Apple’s and publisher’s collusion (maybe it’s two):  What was the nature of Amazon-publish relations before vs. now in terms of who controlled the cost paid to publishers and how does the cost paid by consumers factor into that?

Maybe I’ll find the answer in some of those links.  But the reason for my questions are: why can’t the publishers set a fair price for both Apple and Amazon while still allowing Amazon to charge whatever they want?  If the deals used are simply to force Amazon to sell at the same price as Apple, then it seems to be a collusion by Apple and publishers to counter Amazon in a way that could be termed unfair.  The interesting part is that the unfairness in this case is to prevent a monopoly—somebody else’s monopoly—rather than to create their own.  What motivates the publishers to cooperate with Apple in this regard?  Why do they care what price Amazon charges?  Could they not use the agency model with Apple and then charge Amazon the same Suggested-Retail-Price-Minus-30% while still allowing Amazon to charge whatever they wanted?  Did Amazon have deals with the publishers that forced publishers to earn too little money? If that’s the case, then the publishers would definitely want competitors to Amazon since they could make better money with other companies, whereas an Amazon-only environment would be devastating to them.  But why could they not renegotiate with Amazon for higher prices separately from the agency model?

The agency model seems anti-competitive to me.  It’s not the way our free market capitalist system works.  It is a system that tries to make sure there’s more money flowing to the publishers, and also makes sure that certain retailers can charge the cushy margins they like without being undercut by competitors.

While Amazon may be bad for customers when they become the “one bookstore to rule them all”, I don’t think it’s good to lock us into a price+30% model with Apple either.  We need the ability for competition so that some other store could figure out how to make money selling books with only 20% profit instead, which is overall better for the consumer.  Currently only Amazon does that, but in theory we’d like multiple Amazons, not multiple Apple’s.  I’d love it if Apple was forced to cut their slice of the pie down from 30% on books.

So it sure looks like Apple’s collusion is anticompetitive to me, but my understanding still hinges on whether Amazon somehow forced publishers into horrible terms and why Amazon is not allowed to set their own prices while paying the price the publisher wants.  Did we swing from one bad situation (Amazon’s model) to another bad situation (Apple’s model)?  Do we really want something in between?

Dan Fuzz

Maybe I?ll find the answer in some of those links.? But the reason for my questions are: why can?t the publishers set a fair price for both Apple and Amazon while still allowing Amazon to charge whatever they want?? If the deals used are simply to force Amazon to sell at the same price as Apple, then it seems to be a collusion by Apple and publishers to counter Amazon in a way that could be termed unfair.?

I guess because they want more than one retailer, and are worried that Amazon will put the rest of them out of business, therefore only leaving one retailer. Amazon, who could then do as they please, which in turn might hurt the industry as a whole.

But yeah, maybe Apple should earn less. 30% seems a healthy margin to me! I get the impression that Apple are quite happy for there to be other retailers, hence leaving the high margin so that people can compete.

I’d personally like to see some sort of tie up, that means you can still buy the actual music / book / film - but you then get a unique code with that, which allows you to download the same product to your chosen device.

I like the fact that I can buy pretty much anything instantly, but I still like to actually ‘put a CD on’ in the physical sense. As I do like to read an actual book, made from paper! Maybe I’m just part of a dying breed though?

Peter

Hey Bryan!  I guess you don’t work weekends…

Thank you for the documentation.  So it looks like Amazon is selling books for less than they’re costing.

The whole, “we’re making it up by selling Kindles” argument sounds wrong, though.

Just the other day, you were pointing out that Amazon is selling devices at below cost.  In fact, you state:

Amazon can afford to dump the Kindle Fire because the device is a vehicle for selling Amazon?s digital content [...]

But with Amazon selling books below cost, I guess that means…they’re making it up in volume?

But let’s look at the music angle.  Okay, so, Amazon is evil for selling books at the reasonable price of $9.99.  Yet Apple is the savior of the music industry for setting the reasonable price of 99 cents per song to spur customer interest in buying digital music rather than pirating it.  If it had been up to the music companies, singles would have been $4.99 or more.  All true.

But, then, what’s the difference between Apple selling music cheaply in order to spur sales of their hardware and Amazon selling books cheaply in order to spur sales of their hardware?  I assume it’s the theory that Amazon is an evil corporation hell bent on dominating the industry while Apple is not about dominating the industry at all. grin

But feel free to correct me if I’m wrong.

Bryan Chaffin

Hi Peter,

1.) Amazon dumps Kindles below cost in order sell more of all of its products and services.  Kindles lead not to just more ebook sales, but to more sales of all of its products. I think this is genius, and wrote long before the Kindle Fire was announced that Amazon was one of two companies that could compete with the iPad because of its ecosystem.

2.) Amazon discounts books (and other products) heavily because it can. It’s very efficient, and this helped turn the company into a multibillion retailing giant. Nothing wrong with that, IMO. Internet sales offer a lot of benefits to consumers.

3.) Amazon dumps books below price to gain yet more share and put the hurt on brick and mortar retailers.

None of those things is mutually exclusive.

Note that dumping isn’t illegal, per se. It’s only when monopoly or monopoly power enters the equation that it can become an issue.

In the case of Kindle Fire, by dumping Amazon is merely clawing some share away from the dominant company in the industry. That’s fine if you can do it, and Amazon can.

Books are different, IMO. Amazon doesn’t yet have monopoly power in the sale of books, let alone an actual monopoly. Accordingly, it’s dumping activities hadn’t earned the ire of the DOJ here in the States.

My fear is that we are headed towards just such an eventuality, however, if Amazon is allowed to keep dumping.

Amazon is not evil for selling books at $9.99. I think it is dangerous when Amazon sells books at $9.99 when it is paying $12.50 for that book for the sole purpose of eliminating all competition. It could conceivably attain that goal, and that worries me.

Mark

Apple is one of the most draconian companies in the world.  They have consistently put forth anti-competitive polices and placed a stranglehold on smaller companies trying to compete with them.

The idea that Apple should at any level be a gatekeeper protecting the literary industry is absurd.  The concept they should be allowed to continue with illegal collusion to protect the industry from Amazon is even more absurd.

Bryan Chaffin

Hi Mark,

I personally never said Apple should be gatekeeper protecting the literary industry. What I did do is argue that Apple’s deal with publishers prevented Amazon from becoming the gatekeeper, effectively leaving publishers as the gatekeeper.

That’s a far cry from your characterization of my arguments.

Would you mind clarifying your first paragraph?

Lancashire-Witch

Apple’s iBookstore doesn’t sell books in my location (the Store only contains free “classics”). If it were not for the Kindle App on my iPad I wouldn’t be reading e-books at all!

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