Why Amazon May Not Take Over The World After All


by - April 21st, 2010


The comprehensive article by Ken Auletta over at the New Yorker this week about the Amazon vs Apple vs Google ebook free-for-all has prompted me to consider how close Amazon came to dominating the publishing industry – particularly when it comes to ebooks.

Now, I don’t want to point fingers or choose sides here. I believe that almost any company in the unique position Amazon has been in for the last few years would have done the same. But there’s a very good argument that what Amazon was trying to do was at least a little bit evil.

Amazon made a tactical error when it remotely wiped copies of 1984 from its customers’ Kindles. This did not prove to anybody that they were not evil.

Basically the story is this: Amazon had a virtual monopoly on the sale of ebooks with the Kindle. And to an extent, they still do. Although there are plenty of other ebook stores, none have the reach, connections, range, consumer trust and reliability that Amazon does. Amazon was trying to set the standard price of ebooks at $9.99. They did this by taking a loss on almost every ebook they sold. But Amazon has deep pockets, and the Kindle to sell, so it was worth it to them to try and grow the industry.

Unfortunately, looking forward, publishers the world over could see that this price point was unsustainable. They feared that as Amazon gained more power over the ebook market, they would force the wholesale price of books down. To quote from the New Yorker piece:

Traditionally, publishers have sold books to stores, with the wholesale price for hardcovers set at fifty per cent of the cover price. Authors are paid royalties at a rate of about fifteen per cent of the cover price. On a twenty-six-dollar book, the publisher receives thirteen dollars, out of which it pays all the costs of making the book. The author gets $3.90 in royalties. Bookstores return about forty per cent of the hardcovers they buy; this accounts for $5.20 per book. Another $3 goes to overhead costs and the price of producing and shipping the book—leaving, in the best case, about a dollar of profit per book.

Obviously these aren’t the exact same margins as in Australia, but they’re very similar, and illustrate my point. What the argument ultimately came down to was this – what is a book really worth? When you take away the cost of printing, which ebooks don’t incur, what should you reasonably pay for a book, and – perhaps more importantly – what does the industry need to receive in order to remain profitable and be able to keep producing books?

The number the industry came up with was $US14.99. They forced Amazon to accept this with the help of Apple and a liberal dose of chutzpah. Google, when it gets into the ebook selling game in the next little while, will help solidify this higher price point.

So, industry saved, right? Right? What do you think? Do you pay too much for books? Would cheaper prices lure you into buying ebooks? Is $AU16 too much for an ebook?


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Joel Naoum (113 Posts)

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9 Responses to “Why Amazon May Not Take Over The World After All”

  1. Nyssa Says:

    Pan Macmillan just released their own ebook store (beta) here, and the prices are almost the same as a physical book! Also they seem to have some formats for some ebooks, but not all. Mostly it seems PDF/in browser viewing is the norm, although some books can be purchased as ePubs.

    Allen and Unwin’s pricing is only a wee bit discounted, I think 20% from the physical book.

    It’s not cheap enough for me, personally. I’ll still spend $30 on a physical book, but I won’t for an ebook.

    Also just a small thing – the 1984 books were wiped because they did not have the right to sell it. I do agree that it was stupid, but only because they should have checked in the first place (and I also agree that they are evil!). It’s the same thing why we can’t buy the same ebooks that they can in the US, the US publishers (generally) hold the rights to the ebooks only in their country.

  2. joelblacklock Says:

    Hi Nyssa, thanks for commenting. The reason you’ll find a lot of Australian ebooks are still sold at full or almost-full price (especially through publisher websites) is that publishers are trying not to spook their main customers (bookshops) by undercutting their print prices with electronic books. You’ll find over the next few months, as more Kindles are sold and the iBooks store opens up for iPads here that this will change.

    I’m curious – why will you spend $30 on a physical book but not an electronic book? (Not saying I disagree with you, but would love to hear your reasoning!)

  3. Nyssa Says:

    Pan Macmillan did sign up with Dymocks (also evil for their PIR stance) for their ebooks – wonder how that will go for them both…

    I admit I’m still nostalgic about paper – only got an iPhone on the weekend, so still looking downloading lots of classic scifi. It may be an illusion, but I feel that with buying the physical book, I get more for it. Then again I don’t buy a lot of books any more because I review and get them for free ^_^

    Also another thing is DRM. I know it’s this way with music and gaming, but haven’t fully investigated it for ebooks, but you know how you only get so many ‘licenses’? I used to get music from the ninemsn store and it only came with five licenses. I kill a lot of computers, so I’ve ‘used up’ all my licenses and even though I paid for it, I can’t listen to it anymore. If I kill my iphone or upgrade to a WePad (open source software for the win!), will it let me?

    And one of the final reasons is physical books aren’t ‘exclusive’. Terry Goodkind and a few others have signed exclusive deals with ereaders. Even if I did want to go through the agony of the Sword of Truth series again but as an ebook, I’d have to buy that device.

  4. joelblacklock Says:

    Yeah, very good points. I think the DRM issue is one that’s going to divide the industry for a long time to come. Personally, I think it needs to go. The iTunes Music Store sells music without DRM now, I think it’s feasible that in a few years when ebooks truly take off they’ll start selling them without DRM – so you can read them on whatever ereader you like. But until readers get used to buying ebooks, publishers are unlikely to sell them without DRM. But then the DRM is turning off readers. It’s a vicious cycle. It will be interesting to see what happens in the next couple of years.

  5. Nyssa Says:

    Agree – DRM does nothing. I still laugh when I think about EA putting apparently the best security, securom, on the game Spore, and it still turned out to be the most pirated game of the year.

    In terms of ebooks, it only really seems to stop legitimate customers doing what we want to do – and piracy happens with physical books anyway.

  6. joelblacklock Says:

    Agreed. DRM is completely anti-consumer. I think we’ll probably see a shift away from DRM in the next few years though – as I said in my previous post, these things require patience more than anything else. Turning the whole industry around in a few short years is, unfortunately, a bit much to ask for.

  7. Anne Says:

    I think ebooks can only be a good thing for the book industry provided that they are priced correctly, and we are moving towards this slowly. From what I’ve heard from the early adopters, being able to download books straight to a device in the comfort of your own home has encouraged people to buy more books than they usually would, and this can only be a good thing for the industry.

    Granted, with more people buying ebooks there may come a time when paper-and-ink books lose ground to the new market. But this isn’t necessarily a bad thing. Think of all the environmental costs that will be saved from less physical distribution, for one thing. I for one welcome our new ebook overlords (hi, Apple, Amazon, Google).

    $AU16 is definitely not too much for an ebook. Perhaps now that ebooks allow publishers to strip away the distribution costs, we can start putting a higher value on the intellectual labour that goes into creating a book – the work of the author, editor, researchers, etc.

  8. Anna Says:

    It’s a similar conundrum to what’s been happening in the UK with the supermarkets. They sell books for around A$6 which obviously hurts both traditional booksellers and publishers. But because the supermarkets shift so many copies, publishers can’t do without them, to the extent of consulting on covers to ensure that they’ll get an order. The problem is that – as with discount stores here – the range of books is limited. And I worry that training consumers to believe that books, whether e or dead tree, are worth so little can only damage the industry further. Australian readers, so far, have been willing to pay much more for books than their UK counterparts (prices like for like are much higher here) but with ebooks challenging the whole concept of territorial copyright and Amazon selling at a loss to promote the Kindle, I don’t see the situation continuing for long.

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