Why (And How) Apple Killed The $US9.99 Ebook

Publishers joining Apple's iBooks store are turning their back on Amazon and its vision of the flat $US9.99 ebook. Apple forced the music industry to charge 99 US cents per song, so why are they helping publishers set their own prices?

To screw Amazon.

The difference between Amazon and Apple is this: Amazon is very much in the ebook business to sell ebooks. They want you attached to their platform. That's why the Kindle Reader is on both PC and iPhone, as well as the eponymous e-ink device. Ebooks are huge for them. They sell six ebooks for every 10 physical books. Apple, on the other hand, sells content in order to sell hardware. The iTunes Store, the App Store and the brand-new iBooks Store exist so you'll buy iPods, iPhones and iPads, which is where Apple really makes money. iTunes revenue is just a bonus, though an ever fatter one with the explosion of the App Store.

You can see that the two companies place far different values on the content they sell. A more illustrative example: Amazon has been selling books at a loss - paying $US15 for a hardcover bestseller, only to turn around and sell it for $US10 on the Kindle. Apple would never, ever sell content at a loss. They make a decent bit of change, but apps and music are really just a way to fill up your iPhone.

Do you remember three years ago, when Apple was battling with the record labels for control over (legal) digital music? Apple still owns 69 per cent of the market and sell one out of every four songs, period - in other words, they owned the market, which deeply frightened the labels, who were afraid of losing control. Universal, the biggest label flipped out, and even tried to build the anti-iTunes. That failed, so the music business bit the bullet (or the poison pill) and went DRM-free, not with Apple, but with Amazon. For a spell, became a credible competitor to the iTunes monster, long enough to give the labels negotiating power. When iTunes music downloads went DRM free, many of them - particularly hit singles - suddenly cost $US1.29.

The situation is remarkably similar, except this time, Amazon's wearing the market-maker pants. Some estimate Amazon's share of the ebook market to be 90 per cent, but I've heard from people in the publishing industry say it's closer to 80 per cent. But that's nitpicking. At this moment, Amazon owns ebooks. The book publishers' fears are the same as the record labels with iTunes: They're paranoid about losing control over pricing, and their own digital destiny. They're worried that books are being undervalued, and that once people have the mindset that the price of an ebook is $US9.99, and not a penny more, they're doomed. They needed an insurgent player: Apple.

Apple has advantages that Amazon didn't have with music: Scale and technology. iTunes has just moved three billion iPhone apps. Apple's sold over 250 million iPods. By contrast, Amazon's sold an estimate 2.5-3 million Kindles since it debuted two years ago. Analysts predict Apple will sell twice as many iPads this year alone.

In terms of technology, e-ink looks old and busted and slow next to the iPad's bright, colour display. (Even the fact that the written word is much easier to stare at for long periods of time when presented on e-ink won't save the current Kindle.) An iPad can do more than books: Beautiful digital magazines, interactive textbooks, a dynamic newspaper. Oh, and it's a computer that does video, apps, music. Amazon's scrambling now to make a multitouch full colour Kindle after betting on e-ink, but that kind of development takes at least a year. Even if they churn out a full colour reader that is somehow better than the iPad, it likely won't matter: It would just be a very nice reader to iPad's everything else, and it would be nine months too late.

The print industry is swirling down the toilet, and apocalypse-era publishers minds' dance with hallucinations of digital salvation via iTunes for print. It's the iPod for books. What Amazon was supposed to deliver, but now maybe never will.

With that contrast in mind, all the publishers needed was a little push. All Apple had to whisper was, "Hey, we'll let you set your own prices for books. You should control your own destiny. We'd love to have you. You know, $US12.99 is a really good price for a beautiful colour version of your amazing books. BTW, why are you letting Amazon undersell you?" It doesn't matter that publishers make less absolute money through the agency model used by Apple - Amazon might've given them $US15 for a book it sold for $US10, but under the agency model, the seller takes 30 per cent off the top. They wanted to feel in control, and that their books are worth something more. Steve gave them that, even as he's probably got his fingers crossed behind his back.

Amazon knew what it was doing by insisting on $US9.99 as the price for ebooks. A flat, easy-to-understand rate - one that's notably cheaper than its analogue counterparters - is a paradigm that works, especially when you're trying to essentially build a whole new market. It plays into the part of our brains that like easy things. That likes the number nine. (No really, nine is a psychologically satisfying number.) Amazon believed in it so strongly, as I said before, they sold books at a loss to keep it up.

Price would've been Amazon's major advantage over Apple too - being able to undercut Apple by setting whatever price they needed to compete would've been its ace in the hole against the iPad's flashy colour screen, and everything else it can do. And now that's poofed. Apple will be able to sell you ebooks for the exact same price as Amazon. By turning the publishers against Amazon, they've effectively dicked the Kindle over. Why? To fill out another bullet point as to why you should buy an iPad. The real question is how long it'll take publishers to realise that's all they are to Apple: one little bullet point.


Comments

    The nonsense about killing $9.99 ebooks and raising the price to $15 is a defensive move for book publishers where if the consumer has to pay a higher price, then the chances are the consumer will want to buy a hardback or paperback version of the book instead of a digital ebook.

    The $15 price point is also a defensive strategy on Apple's part to steer users away from buying $15 ebooks to instead buy $9.99 apps and games on the Apple iPad. The Apple iPad is a multimedia device. The Apple iPad is not really an eBook Reader. Because really, are you going to want to read a book on an Apple iPad or do you really want to play a game, use an app, watch a video, or surf the internet on the Apple iPad? People are not going to be using the Apple iPad for reading books. People will be using the Apple iPad for games and apps, videos and the internet.

    Really, are you going to want to buy a book for $15 or a game or an app for $9.99 on an Apple iPad?

    In the end, Amazon will continue to have the Amazon Kindle for ebooks while Apple will have the Apple iPad for games and apps.

    Personally I think the iPad is likely to fail as an e-reader, if not totally. It's a pointless, middle of the road 'thing'. Like Apple TV it's sad to see so many people get sucked in by a meatless sales pitch because of a Jobs fetish.

    It's twice the price of a kindle and LED screens suck for long reading.

    Bad analysis. I think you'd find that Apple makes more money off the songs/apps it sells off iTunes than it does moving its own gear. Try to do some figures before sprouting nonsense.

    I can't be the only person who prefers paper books. I'm not at all interested in ebooks and would never buy a Kindle. I might look at the iPad, but it would not be for reading. It has the advantage of being a multi-use device.

    interesting!

    my anti-apple nerve was pulsating at times but this was a good article.

    I'm sure publishers will overlook the fact that the app store has undervalued software...

    A fixed rate for books? wtf?

    hey I know, lets make a fixed rate for paintings while we're at it...

    Amazon should just follow apple's pricing method. it is ludicrous that the publishers can't set their own price!

    then their ereader will fail for one reason, the same reason everything that goes up against apple fails, not like you apple fanboys think; "because tech spec argument 1, and logical argument 2" no, because people will know about the ipad, due to Apple's marketing, and business practices.

    once you have that, all your product needs to be is bearable (IE6?? Windows??).

    I have LOADS of lcd screens in my life, if I wanted to read on an lcd screen, I'd use my Desktop, or my laptop, or my smart phone, I don't need an ipad. I think eink, if it does what it said, was the smart choice, I think in a fair, logical world, amazon would win with their cheaper , better gadget for the task.

    but as I said, all of this is irrelevant.

    The few authors I know are turning their backs on Amazon because, until the iPad, Amazon demanded 70% of the profits and ownership rights on ALL digital devices. Since digital books never go out of print copyright ownership is permanent.

    The appearance of the iPad caused Amazon to lower their cut to Apple's 30%. But, unlike Apple, Amazon will only give you that if you assign copyright to Amazon on the Kindle, let Amazon set the price ($9.99 max) and guarantee that you will not let any other ebook distributor sell for less than Amazon.

    Personally, I have no need to spend $9.99 for a paperback that I can buy for $7.99, fits in my pocket, won't break if I drop it and doesn't need batteries. However, I would love a digital copy of Harrison's 20 lb., 3000 page Principles of Internal Medicine. I bought it on sale for $100 and I don't expect to see it for less than that on the iPad or ever on Amazon for $9.99.

    Apple's advantage is that ebooks are just a bullet point for them. They don't have to screw authors or publishers to make a profit. Competition is good. If Amazon sells for less in a format I can use on any reader, I will buy from them. I look forward to the day Amazon stops letting publishers set the price on printed material and starts selling all their books for $9.99.

    There are a number of facts in this article which conflict with other things I have read Amazon and Apple pricing. What is the source of your information stating that Amazon pays $15 for e-books and sells them for $9.99? That makes absolutely no sense.
    I had previously read that Amazon keeps 70% of revenues from e-books and gives the publisher 30%, whereas with Apple it is the opposite.
    Would be curious to know the source of your figures?
    Thanks

    Are you suggesting we would be better off if Amazon continued on as the monopoly, the Walmart of bookselling?

    It's amazing how you guys continually get this wrong. The iPad looks to be a beautiful device- for games, videos and newspapers/comic books. Reading a newspaper, with short content and imbedded videos, or comic books, will be great on this. NOT books. Long form reading of books (do you even know about that?) is uncomfortable on a back-lit LCD screen, especially one as large as this.

    Apple will sell many iPads. But how much book reading will actually be done on it? Very little. I'll bet that if you poll all iPad owners in 1 year, you will find that they spend less than 10% of their time on it reading BOOKS! THAT's why this is not a Kindle killer.

    In fact, it will be a Kindle enabler. If Apple allows the Kindle App on the iPad(as they do now with the iPhone), then Kindle owners will buy their books from Amazon, read them on their Kindle, and, ocassionally on their iPad, as a supplement.

    Apple will not kill the Kindle or Amazon. Amazon will still sell Kindles and kindle books to people WHO LIKE TO READ BOOKS!! What about that don't you understand? Reading a book for 1-2 hours per day (which is true of most kindle owners) are NOT the buyers of iPads- at least not for the bulk of their book reading.

    You techno guys believe that the only good device is one that does 7 things well. That may be true for you, but not for book lovers. They want to read books- and they will not do it (except for a little) on the iPad.

    Just because you don't read books, and prefer to play games on your cute devices does not mean that everfyone does. You are casting your likes over everyone- and it doesn't work that way.

    the Kindle will be hurt somewhat by the iPad sales, but NOT the Kindle book store.

    Wow! Now Apple is being blamed for killing the $9.99 e-book and yet not even one iPad has been sold. This is absurd. Suppose people don't want to pay more than $9.99, then the publishers would have no option but to lower prices again.

    If, and I say if, Apple can manage to move about 5 million iPads this year, doesn't that help the e-book industry. It might get more people interested in reading digital books. It may just jumpstart the digital book industry just like the iPhone jumpstarted the smartphone industry into the huge numbers that there is now. In time, digital book prices may be re-adjusted to lower prices once lots of tablets hit the market and publishers can make more money through sheer volume of digital book sales.

    I suppose basically you're saying that Apple should have gone along with Amazon and also offered digital books for $9.99. If Apple did that then you would probably have said that Apple is definitely trying to put Amazon out of digital book business just by matching their prices.

    Apple now has become the bad guy and hasn't sold a single iPad or e-book. All Apple did was say that they'd sell digital books for a higher price and the publishers were happy. Clearly, Apple is not the digital book market leader having zero sales. Who even knows if the iPad will sell. If it doesn't, then Amazon is back in business selling books for $9.99.

    Why don't you blame the publishers for killing the $9.99 e-book since they're the ones that should be able to fix prices? It's their content.

    I realize Apple is out to grab market share in the digital book industry, but raising prices is good for publishers and may help in the conversion of paper to digital books for the overall benefit of consumers.

    Except what really stinks about this is: online books should cost less. The manufacturer has to make only one copy. They don't have to print and transport all those other copies that a paper book needs. Their costs are negligible for an electronic copy. Electronic books, unless other significant value is added, should not cost as much as paper.

    Your arguments seem to turn upside down occasionally. First, you say Apple doesn't care about profit from iTunes content because its business model is to make lots of money by selling lots of its hardware.

    Then you say Apple would never sell eBooks at a loss. Why not? Since they don't mind breaking even on content and will make more on some content and less or minus on other. This has happened with its music, movies and TV fare. Why not with eBooks, too.

    This upside down logic makes we want to visit the wonderful land of Australia

    You've obviously had no idea what Amazon makes on each ebook. They certainly don't pay $15 and sell it for $9.95 as you assert! You have no idea what Apple will charge per ebook either. Why you had to spoil your article with such childish assertions is beyond me. Amazon shouldn't have tried to design the Kindle themselves. Their market analysis should have told them that a single focus product would not be competitive except if they gave it away with a contract to buy so many books over two years. They never divulged their actual sales. Many liked the Kindle; but it had very little competition at the time. Amazon risked their ebook business outside of software running on other hardware which may well keep them #1 for a couple of years. After than who knows? Meanwhile, Apple will be making billions.

    Apple makes its money by selling hardware. Selling content (software, apps, music, video, podcasts, university courses, eBooks, etc.) for very little profit supports its hardware sales.

    The fact that it sells content for very little profit means that it is actually a BENEVOLENT force for the content providers. It becomes an ALTERNATIVE CONDUIT for the sale of the content provider's product.

    For software developers, Apple has been a GODSEND. Apple has been a GOLD RUSH of profits and dreams. On what other platform can a regular person compete against the big companies, write a program and become a millionaire? Only on Apple's platform - OS X (the underlying operating system for Mac OS X, the iPhone OS, the iPod Touch OS, the iPad OS, and Apple TV).

    For music companies and artists, Apple allowed them to sell digital music successfully. Otherwise, the music companies and artists had to compete against FREE pirated music. Apple has created the mindset that it is OK to buy digital music, that it is BETTER than obtaining free pirated music. Apple had to use a fixed price of $.99 because the public had to be attracted to purchase rather than just copy. Fixed prices for music is a GOOD THING, not bad, in this light. Of course, music companies, in their greed, forgot that they are fighting against FREE MUSIC, not Apple. Thus they fought and won variable prices. The outcome? People are buying less music and instead are pirating more. The music industry is contracting again. This is what happens when you don't pay attention to Apple.

    For Book Publishers, the public has been languishing on the sales of books. Piracy is NOT a concern. People have stopped reading, thus aren't even interested in pirated books. Plus, reading a static text eBook on a computer wasn't very interesting. Amazon has helped stir up interest in eBooks with its fixed prices. But the Kindle is a LIMITED MARKET. It does only black and white. It can't do books with color illustrations. It can't revolutionize book reading and garner the interest of the public into reading books. All it did is CANNIBALIZE the sales of hard copy books to EXISTING READERS. It did not expand the market for reading at all. And it DEVALUED the work of authors - making them look like a dime a dozen. In essence, Amazon's Kindle with $9.99 prices is KILLING the book business.

    Books can take a lot of work to write. For example, Technical books and Textbooks, especially, take a lot of money and effort and time to develop. Why would a publisher be interested in selling a $350 textbook for $9.99? The Kindle would do nothing for it other than devalue it.

    The Kindle does NOTHING to interest children in reading. It does nothing to "kindle" their interest in education and a lifetime of reading.

    Apple completely changes the equation for books. As Steve Jobs said, Apple is simply going to go farther than Amazon has with the iPad.

    The iPad can expand the market and garner the interest for reading again. It offers publishers a hope for a better future. It transforms publishing.

    The future is in eBooks. But the eBooks can now be LIVING BOOKS - with color, with audio, video and animations. They can stir the imagination and spirit of the public - which the Kindle could never do.

    And this future is not in devalued books and worth of authors. By allowing variable pricing, publishers can now price the book at market value - the actual worth of the book and the author.

    Apple doesn't just allow up to $14.99 sales of books.

    Books on the iPad can actually be completely priced WHATEVER THE PUBLISHER WANTS.

    For example, publishers can create an App version of a book and sell it for whatever they want. Medical books on the iPad and iPhone are ALREADY BEING SOLD successfully. If you look at their prices, you'll see that the prices are up to $300 a copy. App Books are also DRM'd and can thus not by copied to more than 5 devices, thus keeping the value of the book.

    Books have a future on the iPad, not the Kindle. The iPad will sell millions and millions. It will completely outstrip the Kindle and create a HUGE market for books with willing to spend customers.

    The iPad stirs new interest in reading. Think about how the iPad is the perfect child's computer. Think about how children's books can now COME ALIVE on the iPad to stir their LOVE FOR READING. This, the Kindle can never do. The iPad will do.

      Why is it that you and others so infatuated with the technology of the iPad seem to completely overlook the purpose of the Kindle (and other e-Readers?) They were never designed to be another computing platform but as a way to conveniently and affordably purchase, READ and transport e-books! If one wants to play games and watch video (and read an e-book), by all means buy the iPad or some other more capable device. But the e-readers are purpose built and there really is room for both technologies without attempting to up-end a reasonable pricing scheme for e-books. Really, the motive for that is not an altruistic one.

    Yes, charging up to 50% more per e-book was good enough but once you add color to traditional books that is a brilliant. One can just imagine all the e-book readers present and future rushing out to cough up $500 for a giant iphone that doesn't make calls and throwing away all the much easier to handle gadgets they already have that do make calls -and- do everything else, so they can read books...in color.

    Amazon isn't doing 9.99 out of the goodness of their hart, they're in it to build a business. Well they had more than a year to get their foot in the door. Now there is a better and improve product that they have to contend with the iPad boo hoo, I don't feel sorry for them. They're going to have up their game if they want stay relevant in this business.

    As for publishers, authors, and consumer all they want is competition and let the market set the prices instead of Amazon arbitrarily putting a price fix.

    more like one BIG bullet point. along with all the other print media - newspapers, magazines, comics, etc. Apple clearly is positioning the iPad as the Go-To device for the future of that kind of content creation/distribution. the dead give-away is its shape - 4:3 is wrong for video/movies, but ideal for print media.

    this is important and it may work. society very much needs these kinds of content and the information creation/gathering infrastructure they maintain. but so far the web business model which rewards nothing but distribution (Google, being very "evil" indeed) is starving them.

    Apple is now more than a computer company and now competes in many markets. The traditional delivery system for media, books, magazines newspapers etc. is not going to transfer to digital. Apple has been successful in providing a system that provides capital to content producers. Yes the bloated record companies with their layers of management needed to change just as the media producers will. Just like other types of store, the consumers will move to the one that gives them ease of use and a wide selection. Apple is on its way to create a compelling media store. Others will follow and create compelling stores, or fail. Free enterprise or capitalism has become quite cutthroat Retailers must become innovative and efficient or they will lose out. That is why Amazon has been more successful than the other online retailers. I am happy that Apple has entered the markets. If it wasn't for Apple providing the push we would all be stuck with the many flavors of DRM in music. I hope they will be successful in the other forms of media. The "bullet point" comment is irrelevant. Change can be cruel, but it comes no matter how we protest. Was Amazon keeping the prices low to aid consumers or to corner the market. Ask Barnes and Noble how they feel about Amazon. Amazon is kind of like the WalMart of online. Ruthless. Now they have a competitor with the resources to not only compete but to reshape the industry. I am sure Amazon and others will adapt and compete, but it will be hard for latecomers to get into this expensive fight.

    I think you got this backwards.

    Apple has the iTunes Store and the App Store, and will soon have the iBook Store. In all three stores, Apple charges 30%. Apple has sold billions of units at 30%.

    Apple dropped the one price fits all model when they built the App Store. Applications are not like 45s - err, music singles. There is more variation. You don't expect Microsoft Office to sell for the same price as TurboTax. Books vary, too. You don't expect Gray's "Fun with Dick and Jane" to sell for the same price as Samuelson's "Economics". Similarly, you wouldn't expect an static eBook version of a Lonely Planet Guide to sell for the same price as a fully interactive, location aware version.

    Amazon created the $9.99 price as a "barrier to entry" into the eBook market; that is, to frustrate potential competitors trying to be profitable.

    Apple flipped the script. They are not trying to make money off iBooks, and they have years of experience telling them that 30% is just enough to break even - after spending a hefty amount on advertising.

    In summary, Apple is not trying to screw Amazon; Apple is trying to sell millions of iPads, AND BILLIONS of iBooks.

    Too many wrong assumptions here:
    First: Apple "is" not Apple Computer anymore, they sell computers, software and "media";
    Second: iPad isnt only for games or internet,it's an all purpose gadget, so instead of buying an ebook reader, a netbook and one playstation psp i will prefer to buy an iPad, or if i had these i will prefer to ditch them and buy one iPad that is fast, beautiful, light and stay more time without recharching;
    Use your brain and think one more time before posting things that are too obvious to see.

    Interesting. A little confused though, did amazon pay $15 for a book, or did they pay 70% of the
    price? Did they actually pay 70% of $15 to make their actual cost $10.50 so their loss is much less than $5? And, wasn't the percentage 60/40 before the ipad stuff started ? So, maybe they were actually making a ting bit per book?

    Another fact not discussed, how much will it cost publishers to make better ebooks for ipad? Will they offer a dead version, plus another enhanced version that takes advantage of the ipad but costs even more for the consumer?

    What about the talk about publishers trying to raise prices to protect hardcover and softcover sales? What are the costs produce hardcovers? What are the costs to distribute physical books? If they can charge even more for a live ipad book, could they actually make more by selling an ipad version?

    re Matt: "A fixed rate for books? wtf?"

    Most mass market paperbacks have generally sold at a fixed rate or close to it. (And E-format is closer to that economic model than trades and hardcovers where each book can be more varies in its manufacturing/delivery/stocking costs.)

    re Books.or.Games: "Really, are you going to want to buy a book for $15 or a game or an app for $9.99 on an Apple iPad?"

    You're kidding, right? Who chooses between a game or book based on which is cheaper? Would you buy a boat instead of a car if the boat were cheaper? They're just completely different things that address different needs/desires/purposes. (Or, I suppose nobody buys $50 Wii/Playstation/Xbox games because it's cheaper to buy a book?)

    One can't compare music with books in digital distribution. I ripped my CD for anywhere-anytime listening but I didn't scan my books. If say I'm a Uni student with a text book that weight 1kg, than i'm tempted to do just that! Or perhaps buy the digital copy.

    Here's how I would use the iPad.

    I'll be reading a book on my sofa, and want to take a break.

    I'll close the book and open the NY Times application, or some other newspaper app I subscribe to. I'll go to the daily crossword and play with that. It will be interactive, because I'm using an app rather than just reading a web page.

    Then I'll close that app and browse the web and find a free article about something or other and open it as a pdf doc and read that for a while.

    Then I'll check the TV listings and watch a new release of a series show I'm subscribing to.

    I'll see that a buddy of mine has made a move on a chess game that we're playing and I'll respond to his move and go back to watching my TV show.

    I'll go back to reading my book, come across an embedded URL in the text, and click on it to open the web browser for that site, which gives more information about the subject I'm reading.

    I'll really only spend a couple hours a day reading a book, so the LCD eyestrain is minimal.

    The real killer here is that the application model is going to be a much more interesting way of delivering interactive content than the web page model. That's the real strength of the Apple world of products.

    The music industry is quick to cast blame everywhere but themselves ... but they actually began the process by deciding to stop sales of singles (coupled with the vinyl to CD replacement trend ending, the internet & storage costs dropping) all worked against them - and EVERY digital store before & AFTER iTunes has not gained any traction (Amazon got DRM free mp3 tracks a year before iTunes and took about 1% of itunes 80% market share) ... clearly it's not DRM nor price (WM.com sold tracks for $.88) but convenience. For Amazon, selling monochrome ebooks, maybe $9.99 is all they felt they ask for in trying to build a market but now in full color and maybe interactive elements, we might be willing to pay more ... and it's not like we're absolutely not going to see introductory sale prices and after a couple years, when there are 10-15 million ipads out there, there is going to be a wide price gulf for mass market titles and more genre books ... plus now in full color, we can get photo and art books - something that normally sells for a higher price anyway ...

Join the discussion!

Trending Stories Right Now