E-books & stores? Dragons have armor chinks

Digital music, e-books…it’s all the same, right? Technology drives content. The medium is the message. There’s no hope for brick-and-mortar stores in a digital world.

 

Not so fast. That likely isn't the case.

 

What Macmillan did recently in challenging Amazon’s e-book monopoly by changing the business model is the chink in the techno-dragon’s armor. It’s not a mortal wound to the flame-throwing Amazon, but it’s a spot to throw more spears and tear the killer to pieces. More importantly, it’s part of a larger trend to destroy the monopoly of single-delivery options ─ the oppression of the reading device ─ and democratize how content is delivered.

If you’ve been cowering in a cave and avoiding the heat, what happened in the Macmillan-Amazon skirmish was the publisher changed terms for e-book purchases, moving Amazon to the agency model. Different from the current publishing model that wholesales titles based on discount from the publisher’s suggested retail price, the agency model sets the price and pays a commission to the retailer who sells it (thank you Michael DiMarco for the clarification). That sets the minimum retail price. That’s assuming retailers won’t discount or sell below cost ─ an assumption that doesn’t always play out, of course. We saw that last fall when Amazon and its rival dragons Wal-Mart and Target tried to dominate the territory with price-war flame-throwers. Turning reason to ash for the sake of market dominance and potential monopoly, the predators priced book sales at about half of their alleged wholesale cost. But that’s another story.

With publishers more involved establishing retail price, the business model for covering costs and making profits is more workable -- something that the digital-music business model didn’t do. When you kindle the fires of more e-reading devices, it makes content delivery itself a commodity and the content more valuable with more price elasticity.

This should mean savvy publishers will have more options to better manage their sales channels and not cannibalize one to placate the hysteria of the other. And brick-and-mortar booksellers don’t have to be fire-breathing dragons to sell e-books. They can just take care of their customers.

Check out my column in CBA’s March Retailers + Resources magazine for more of my take on the Amazon-Macmillan flare-up.

Comments

[Michael DiMarco]

Technically, the publisher is not setting the base price, the publisher is setting THE price and Amazon (and the coming iBooks store) get 30% of THE price (just like the current iTunes model.) The big departure that Macmillan and other publishers now following suit have done is essentially telling Amazon, "you are not a publisher licensing content from us, you're an agent that can sell our ebooks for a cut of the price we set." A bit different than what you described.

This is also an important distinction in selling ebooks because unlike Amazon or CBA retailer models, the retailer never actually buys the book from the publisher and 'stocks' it. So there's no "discount" from the publisher. The ebook seller earns a 30% commission on the sale of the ebook since there's nothing physical to inventory or stock, just the costs associated with digital storage, web catalog, and e-delivery bandwidth. If the book is $11.99, Amazon gets 30%. If the book is $1.99, Amazon gets 30%. You might say this is a case of tomato, tomahto, but it's a totally different retail paradigm.

[Andrew McGovern]

Amazon does not have an "eBook monopoly" although they probably have the lion's share of the market. Consumers can access the same eBooks in other formats and on many other devices than the Kindle. The upcoming iPad may help level this playing field significantly.

Labeling eReaders as “oppressive” just seems a bit over the top. Who exactly are eReaders oppressing? Apparently not the consumers who are paying $300 or more for them. Why not view eReaders, computers, smartphones, etc. as simply tools to access an expanding world of digital content?

There will be a frenzy of competition over the next few years between companies looking to capitalize on this emerging trend. Scribd.com is an excellent example of an eBook community that will be a factor in the competition.

It is good to see the publishers pushback against Amazon's model, but price fixing, MAPs, etc. are not a permanent solution in a free market. If your product is superior, it will outsell its competition. Retailers and E-tailers will need the freedom to then adjust pricing to compete with one another when selling the same product.

Publishers should focus on quality content and quality promotion of their products rather than trying to manipulate prices. Retailers and E-tailers should focus on eBooks as a tremendous business opportunity, rather than a threat to their livelihood or industry.

The real lesson to be learned and applied in our industry is: “How do we not miss this great opportunity in eBooks like we missed the digital revolution in music?” How that question is answered may make the difference in the long term existence of independent booksellers.

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