[FoRK] Apple Entry into Market Means Higher eBook Prices

Marc Erickson marcerickson at gmail.com
Sun Feb 7 16:10:14 PST 2010

Apple Entry into Market Means Higher eBook Prices  
by Paul Thurrott 
For the past two years, online retailer Amazon.com has dominated the eBook
market with its innovative Kindle devices. But Amazon's biggest eBook
innovation-the low cost of eBooks-might soon be a thing of the past, thanks
to Apple's new iPad device. The reason is that Apple, aping its iTunes Store
model, will allow publishers to dramatically raise prices on eBooks. And
Amazon might have no choice but to raise prices as well.

The publishing industry has long complained about Amazon's consumer-friendly
pricing practices. Whereas new hardcover books often sell in the $20 range
at retail, Amazon wanted to establish its Kindle as the de facto eBook
platform. So, it priced most new eBooks at $9.99, a much more attractive
price that drove book lovers to Amazon's reader.

What's interesting about Amazon's approach is that it actually loses money
on each $9.99 Kindle eBook. That's because, today, publishers sell new
eBooks at the same price to retailers as they do hardcover books. Amazon's
bet was that by establishing a standard, it could later negotiate with
publishers to lower the price. This strategy would benefit Amazon, of
course, but also the millions of readers who purchased Kindle devices.

Apple's entry into the eBook market with the iPad tablet device and its
integrated iBooks eBook reader software has ruined this opportunity.
Utilizing the tiered pricing model it provides for other content on the
iTunes Store, Apple has presented the world's biggest publishers with a
higher price range for eBooks than Amazon has. And hoping that Apple would
be able to defeat Amazon in this market, virtually all these publishers have
jumped on board.

The result is much higher prices to consumers. And these higher prices come
across the board: 

Higher prices for the device. The iPad comes in six models that cost from
$499 to $829 per unit, compared with $259 for the Kindle. Amazon also sells
a higher-end Kindle DX for $489, still well below the least expensive iPad.
Of course, the iPad is far more than an eBook reader, but then it should be
at those prices.

Higher prices for wireless access to the device's online bookstore. When
consumers purchase a Kindle, Amazon provides them with free 3G wireless
access to the Amazon online store so that they can purchase content on the
go. This access also works internationally, so travelers can purchase books
effortlessly overseas, albeit at a small per-purchase price. Meanwhile, iPad
users must utilize Wi-Fi, purchase books on PCs, and transfer them via USB,
or pay AT&T for 3G wireless, at a cost of $15 to $30 a month. And this 3G
connection won't work internationally (though other carriers will offer
similar plans to customers who purchase iPads in other countries).

Higher prices for books. Although Amazon pioneered a consumer-friendly $9.99
pricing structure for new books, Apple is allowing publishers to set their
own price, and most have indicated that they're more interested in a $14.99
starting point for new books.

While Apple was negotiating this coup with the world's biggest publishers,
one of those publishers, Macmillan, demanded that Amazon raise prices on its
Kindle books to match Apple's prices. Otherwise, Macmillan threatened that
it would delay electronic publication of new Kindle books for several months
so that customers would be forced to buy more expensive hardcover books (or
utilize Apple's iTunes Store).

Amazon responded to this threat last week by temporarily pulling all
Macmillan titles from its Kindle store and Amazon.com website. But on
Sunday, the retailer caved, saying that-in the end-it had to allow Macmillan
to set prices if it wanted to stay competitive with the new Apple entry. 

"We have expressed our strong disagreement and the seriousness of our
disagreement by temporarily ceasing the sale of all Macmillan titles,"
Amazon wrote in a statement to customers. "We want you 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

What Macmillan got out of Amazon was the same deal that the five biggest
publishers-Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin
Group, and Simon & Schuster-got from Apple: New eBooks will sell for at
least $12.99 to $14.99, and the seller (Apple, Amazon) will get a 30 percent

And what consumers will get out of this Apple entry, of course, is higher
prices. Yet another innovation for which we can thank Steve Jobs, and that's
true whether we use a Kindle or an iPad.

> -----Original Message-----
> From: fork-bounces at xent.com [mailto:fork-bounces at xent.com] On 
> Behalf Of Gordon Mohr
> Sent: February 2, 2010 5:43 PM
> To: Friends of Rohit Khare
> Subject: Re: [FoRK] Betting on the iPad
> Dr. Ernie Prabhakar wrote:
> > Hi Gordon,
> > 
> > On Feb 1, 2010, at 3:23 PM, Gordon Mohr wrote:
> >> Dr. Ernie Prabhakar wrote:
> >>> So, anyone willing to bet *against* Apple selling 13 
> million iPads by June 2011?
> >> I will. $50?
> > 
> > Deal.
> It's on!
> >> We can expect Apple's quarterly report for the quarter 
> ending June 2011 to give enough info, right?
> > 
> > Um, not necessarily.   I don't think they break out unit 
> shipments very often. We'd have to wait for some milestone 
> press release, and perhaps interpolate.  In case of 
> vagueness, we can refer it to the list (ultimately, Rohit) 
> for adjudication.
> > 
> >> And I actually think the iPad will be a big hit. Just not 
> that big, in the first 15 months. Not as many people need 
> iPads as iPhones.
> > 
> > They just don't know it. :-)  Plus, don't forget that the 
> iPhone didn't have an App Store and was limited to very few 
> countries / carriers during that timeframe.
> The most bullish analyst (BroadPoint AmTech) has a prediction 
> that, if you squint and front-load their year-two numbers, 
> just barely touches your estimate. See:
> http://www.benzinga.com/104011/apple%E2%80%99s-ipad-tears-up-t
> he-rulebook
> zoom: http://iphonasia.com/wp-content/uploads/2010/01/Picture-19.png
> ...or...
> http://appleinsider.com/articles/10/01/28/wall_street_expects_
> apples_risky_ipad_to_sell_1m_5m_in_first_year.html
> Note that these are from people who are generally bullish on 
> the device and AAPL. So if they're all wrong, I lose.
> > On Feb 1, 2010, at 3:32 PM, Lucas Gonze wrote:
> > I think the macro scale impact of iPad is in changing the 
> traditional
> >> desktop metaphor for the PC.  I'm not convinced that iPad 
> itself will 
> >> sell a huge number of copies, but I do think it's likely that 
> >> iPad-like user experiences will become common on machines with as 
> >> much power as a PC.
> > 
> > "I'm not convinced" -- are you just waffling, or will you 
> join Gordon and put $50 behind your opinion?
> Be an Ernie P.[1] or a Russell T. [2], not an Adam B. [3,4] 
> -- put your money where your mouth is!
> - Gordon
> [1] this exchange
> [2] 
> http://www.xent.com/pipermail/fork/Week-of-Mon-20050110/033188.html
>      I won the bet as I offered -- USD did finish 2005 up 
> against EUR --
>      though Russell was right on the CAD and the long-term trend!
> [3] http://www.xent.com/pipermail/fork/2001-December/007548.html
> [4] http://www.xent.com/pipermail/fork/2001-December/007550.html
>      Despite my offer to let Adam pick addresses and 
> timeframe, I don't
>      think that even with 8 years' hindsight, and occasional 
> nibbles at
>      metered service testing in some regions, he could today find 5
>      addresses that had unmetered 1Mbps broadband in 2001 and then got
>      more-expensive and/or metered broadband anytime since. So, his
>      unwillingness to bet revealed the foolhardiness of his prediction
>      that metering was the inevitable future of home internet access!
> _______________________________________________
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> http://xent.com/mailman/listinfo/fork

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