FAQ: Amazon vs. Macmillan -- The iPad wins

Amazon likely to raise e-book prices, then blame publishers

When Apple introduced the iPad last week, it launched a lot more than a tablet device. The announcement included the Apple iBook store, which in subsequent days provoked an e-book pricing firestorm, leading Amazon.com to temporarily halt sales of Macmillan e-books and paper books over the weekend.

Reactions to Amazon's pulling the plug on Macmillan, and Amazon's subsequent capitulation, took off in all directions. Macmillan authors, notably science fiction writer John Scalzi, were outraged by Amazon's action. Meanwhile, some Amazon.com e-book buyers blasted Macmillan, vowing they won't pay more than $9.99 for a first-release e-book and will take a pass on e-books that cost as much as $14.95, the price Macmillan is proposing.

The brouhaha between Amazon.com and Macmillan serves as a precursor to more e-book pricing and marketing battles in the months to come, said analyst James McQuivey of Forrester Research.

"There's going to be a whole bunch of crazy things happening in the e-book market this year," McQuivey said in an interview. "The fat lady is far away from singing."

McQuivey said the fallout from the weekend kerfuffle will ultimately lead to Amazon's raising its first release price for e-books to $14.99, up from $9.99, and then blaming publishers such as Macmillan as the cause for the increase.

Behind the battle is Apple, the iPad and the iBook store, McQuivey and other analysts said. Apple has allowed publishers to set their own prices for e-books, putting pressure on Amazon.com to do what the publishers want as well.

To sort out the issue, we present this FAQ to answer some of the major questions.

What transpired between Macmillan and Amazon after the iPad launch last week? Apple announced the iPad on Jan. 27, with CEO Steve Jobs identifying five publishers, including Macmillan, that will sell e-books from the iBook store for use on the iPad.

The next day, Macmillan CEO John Sargent met with Amazon officials in Seattle and proposed selling e-books for as much as $14.99, according to a statement and paid advertisement that Sargent made on Publishers Lunch, a Web site for the publishing industry.

Sargent said Amazon informed him the next day that all Macmillan e-books and printed books would be taken off Amazon.com and its Kindle e-book site, with Macmillan books available through third parties only.

What did Amazon say about this? Amazon issued a statement late Sunday on its Kindle forum indicating "strong disagreement" with Macmillan that led to its ceasing sales of Macmillan titles. But Amazon also said it will "ultimately ... capitulate and accept Macmillan's terms" because of the "monopoly" Macmillan has over its titles. Amazon added that customers will have to decide whether it is "reasonable to pay $14.99 for a bestselling book."

Amazon also said it expects that not all the major publishers will follow Macmillan's lead, and that many independent presses and self-published authors will offer lower-priced e-books.

What's been the reaction? Macmillan authors, such as science fiction writer John Scalzi, hit the roof with a series of blogs over the weekend, culminating on Monday with a list of seven ways that "Amazon so very failed the weekend."

Scalzi was angered by Amazon's "stealth" removal of Macmillan books, including his, and also how Amazon handled its public relations response to Macmillan, which included an unsigned posting on a reader forum.

"Because of the idiotic events of this weekend, people will just want an iPad even more. Again, Amazon: Well played. Well played indeed," Scalzi concluded.

But surely some e-book buyers don't want to pay more for e-books, as Macmillan suggests? Quite right. An Amazon forum, "Boycott anything over $9.99," is filled with angry comments from customers objecting to higher e-book prices. However, one quieter comment from a writer identified as The Librarian read simply, "Let's set our own pricing and not buy anything over $9.99. They will eventually get the message."

In a Business Insider column, editor Henry Blodget reasoned that Macmillan has been selling e-books to Amazon at whatever prices it wanted to set, up to $15, but Amazon has sold them at a loss, sometimes for $9.99. "We're not against Macmillan charging ... Amazon [what] it wants for its books. We're against its telling Amazon what it has to charge for them," Blodget wrote.

Is Apple coming out and saying it plans to have iBooks sold for $14.95 through the publishers it has named? No, but there are rumors and opinions that iBooks titles will sell for $12.95 to $14.95. McQuivey said the fact that Macmillan met with Amazon the day after the iPad was announced strongly supports his belief that Apple is allowing publishers to set their own prices, within what's reasonable.

"The Macmillan and Amazon battle was precipitated by the iPad launch," McQuivey said. "Apple told publishers, 'We're on your side. We understand you don't like pricing set by Amazon and others. Why don't you set prices?' So that's likely the foundation for how iPad sells books."

So is Amazon going to keep taking a loss on some books and charge $9.99 if Macmillan charges $14.95? McQuivey expects Amazon will ultimately sell its books at the higher prices set by Macmillan and possibly others, and some readers will avoid the higher-priced books.

"This battle between Amazon and Macmillan could have gone on for days, but Amazon tried to prove its point, and when they ultimately raise prices, Amazon will say it wasn't their fault," he contended. "They can raise the price and not take the blame, which is a pretty good situation for Amazon."

So has the iPad, in effect, leveraged the market price for e-books? McQuivey says no. "Apple thought they had leverage, but it's clear that Amazon is holding better cards in the long run. Amazon has given in, but Macmillan's higher-priced books will suffer," he predicted.

So, why did Amazon capitulate? Amazon capitulated quickly, McQuivey said, "because it doesn't mind making publishers upset, but it doesn't want authors to be upset," including the likes of Scalzi, since such an uproar could tarnish its image with authors and readers.

Will sales of the iPad or other e-readers suffer from all of this e-book pricing fluctuation? Several analysts said they don't think the e-reader market will slow down just because first releases sell for higher prices, even $14.95. Forrester Research said that 4 million e-readers were sold last year, with 6 million expected to sell in 2010.

But what about the iPad? The iPad is multifunctional and not just an e-reader, so higher-priced books sold via iPad would not necessarily hurt iPad sales. Conversely, the iPad is seen as having an impact on e-book prices.

"The e-book market is still scrambling for the right price for e-books," noted Jack Gold, an analyst at J.Gold Associates. "Whether e-book prices change is all about how the iPad sells in the first year, whether a couple of million or many millions."

So, who's the winner here? The answer is probably Apple, because it's already throwing its weight around in the e-book market before it has even released the iPad.

What about consumers? Well, consumers would lose by paying more for e-books. On the other hand, consumers also get another choice of e-reader with the iPad, a multi-touch device that brings users into the e-book market in addition to performing other tasks. It would also compete with Amazon's Kindle.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen, send e-mail to mhamblen@computerworld.com or subscribe to Matt's RSS feed .

Copyright © 2010 IDG Communications, Inc.

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