E-books have arrived. There's no longer any doubt about that because in the wake of the plethora of e-readers, Apple's iPad is about to enter the market. The bigs have stopped throwing down over whether e-books should exist. Now they're throwing down over how much they should cost. The journey from whether to how much marks the milestone of an industry change.
This week Amazon and Macmillan locked horns over price point. At the iPad announcement, Steve Jobs indicated that Apple would only take a 30% commission off the sale of each e-book. Under the Apple scheme, publishers would set the price. Boy, howdy, that would suit the publishers just fine but the public - not so much. After the iPad was out and about and had established itself with a sales history, the pricing structure would have given publishers leverage over Amazon. Note that I said AFTER.
One publisher didn't want to wait. Before the stories from Job's launch announcement had gone to print, John Sergent, CEO of Macmillan, decided to go all Godfather on Amazon. Sergent told the e-tailer giant to adopt Apple's price structure and abandon its pricing insanity ($9.99 as the max for an e-book) OR Macmillan would do "extensive and deep windowing of titles". In other words, Macmillan said, give us control of pricing or lose the right to sell our newest and most popular books.
Sergent made the worst of all negotiating errors - he made a threat he couldn't or shouldn't back up. And Amazon took him at his word. The e-tailer didn't just give a verbal response, it gave a real world response. Amazon removed the buy button from all of Macmillan's titles, e-books and print. Now Amazon sells a lot of e-books, but it doesn't out and out dominate the market because that market is too new, it's evolving daily. However, no bookstore on the planet sells the number of print copies that Amazon does.
Now Macmilian is in a corner without a fallback position. It overlooked the fact that even after the Apple launch, it will still need Amazon. Macmillan reacted by issuing a "letter" to its authors/illustrators and the literary agent community. As the blog Dear Author noted, the letter missed its most important audience -- the readers. Macmillan wants to make money on its product, Amazon wants to sell a lot of its product, and the readers want to buy books and e-books at a fair price.
The delicate balancing act of marketing/price structure can't work if total control is given to the publisher. Amazon talks about anti-trust and in response, Macmillan cites a US Supreme Court decision legalizing retail price maintenance for luxury goods. Common sense and the free market can imagine more practical reasons for not giving a producer control of the price of its goods. What would Wal Mart or Dollar General have to charge for goods if the manufacturer set the price?
If Amazon wants to make money on volume instead of price margin, that helps the consumer. If Macmillan weren't so short sighted, it would realize that it helps the publisher and its authors too. People all over America (like me) are caught like rats in the trap of the economic crunch and we can't afford to pay big prices for books. But the crunch won't last forever (please God) and when it passes, readers will be able to pay more for books.
Macmillan forgot the most important lesson of the Godfather - if you're making the other party an offer it can't refuse, first you better be sure it can't refuse. Amazon could and it did. Be careful what you ask for publishers, because you might get it.
...continue reading "Marketing Madness & The Price War of 2010"