An American Editor

March 23, 2010

The eBook Wars: Amazon vs. Apple

The hot topic in ebookland in recent days has been the battle over pricing. The first gauntlet was thrown by Apple when it offered an agency model to publishers for its new bookstore to support its iPad. The battle began in earnest when Macmillan demanded Amazon accept the agency model. Now it is all-out war.

There are a lot of shaky assumptions underlying this war, the shakiest being that Apple will be as big a player in ebooks as Amazon. Publishers signing on with Apple and who are willing to imperil their relationship with Amazon are gambling that the Amazon’s glory days as a dominant bookseller are past. If I owned stock in Macmillan, I’d be thinking change the leadership because this gamble is much too risky.

Let me confess that I am not a fan of Amazon. I don’t buy from Amazon, preferring to pay more to buy the same book elsewhere. I think Jeff Bezos and company — the whole arrogant lot of them — need to be taken down a whole bunch of pegs. But Steve Jobs and Apple aren’t any better. The two CEOs and companies could be identical twins. If either or both crumbled, I wouldn’t shed a single tear.

Similarly, there is something amiss in the big publishing houses; not one can claim having taken the high road in ebookland without causing a loud chorus of snickers. But what truly is amiss is the reliance on Apple to topple Amazon. What happens if Apple turns out to be a bit player? Or if after the initial rush to buy the iPad, sales fizzle? Or if it Apple becomes dominant and decides that ebook DRM is hindering sales and demands that it be removed? Or if… [fill-in your own question here]?

Amazon is a fighter; we’ve witnessed that over the years. Bookselling is its core business and like a lioness who will fight against all odds to protect her cubs, Amazon will fight to protect its core business. Books are not a core business for Apple. The iPad can be successful and never sell a single ebook because Apple’s core business is not bookselling.

When publishers look at Amazon sales they need to look beyond ebooks, which is still an infant market. Most book sales through Amazon are of pbooks, the books that publishers claim are their profit centers. Not having seen the Apple bookstore yet, I can’t say with 100% certainty that Apple will sell only ebooks, but I’d be willing to bet that will be the case. So publishers are gambling as follows:

  1. that Apple can gain the lion’s share of the 5% ebook market; that Apple can reduce Amazon’s alleged current 90% share of that market so significantly that publishers win, albeit only in the ebook market
  2. that it is better to have access to Apple’s share of the ebook market than it is to have Amazon’s share of the ebook and pbook markets, even if Apple’s total book market share is less than 50% of the 5% ebook market whereas Amazon’s total book market share is 20% (or higher) of the combined pbook and ebook markets
  3. that iPad buyers are buying the iPad to use as an ebook reading device rather than for other reasons and purposes
  4. that all of the ebookers who currently have invested in Kindles will suddenly drop their Kindles and their Amazon accounts to adopt the wholly incompatible iPad and Apple bookstore

There are many other gambles that publishers are taking, including the risk that Amazon might retaliate by reducing visibility on its website of offending publishers p and e books, but the biggest gamble, to my mind, is that Apple will become a sufficiently significant player in the whole book market — both p and e — to offset Amazon’s market clout.

As much as I dislike Amazon, I think that is a fool’s gamble.

If the ebook market share was close to 20% of all book sales, the gamble might be worth taking; but at 5%, the risk of losing one of the major, if not the major, movers of pbooks — the publishers’ claimed profit center — makes the gamble too risky. This risk is compounded by the other mistakes the publishers are making, primarily by

  • not convincing ebookers of the value of the publishers’ products — publishers cannot simply declare they are valuable and leave it at that; they must convince ebookers that it is worth $14.99 for a leased book that cannot be shared among relatives or devices
  • raising pricing but not raising the quality of the product
  • not insisting on a single, universal format and DRM scheme for ebooks so that people could shop at any ebookstore regardless of their reading device
  • placing all their hopes for combatting Amazon’s dominance in the single, unproven basket of Apple
  • not recognizing that Apple is likely to be as problematic a partner as Amazon should Apple have success with ebooks (just ask the music industry)

So now Amazon is counterstriking by demanding no more agency-style agreements and 3-years of no lower price guarantees from the 5 agency-model publishers. Who do you think has the upper hand? I think the publishers who sign with Apple are digging themselves a hole that could well turn into their grave. There is no way to ensure that Apple’s ebookstore succeeds on a large enough scale in a rapid enough manner to survive the economic losses that will occur should Amazon carry through on its retaliation. Apple is simply an unproven quantity and no one really yet knows even how good the iPad is for book reading. Plus Steve Jobs has a reputation for vindictiveness — imagine the position of publishers who sign on with Apple and who anger Jobs after having already snubbed Bezos.

I recommend New Orleans for the funeral. At least you will be buried with panache.

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