Why Amazon May Not Take Over The World After All

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?