Has Amazon Won or Lost the e-Book War? Both

Amazon’s battle with book publisher Macmillan was a valiant attempt to retain control over pricing in the rapidly changing world of e-books, but its weekend display of brinksmanship was short-lived. The online retailer yanked Macmillan books from its virtual shelves — both e-books and regular books — on Friday, triggering an online flame war with Macmillan authors and many of their supporters, but by Sunday night Amazon had capitulated and agreed to accept Macmillan’s new pricing model.

Update: According to a research note from J.P. Morgan, the Amazon/Macmillan dispute isn’t quite over yet. The brokerage firm said that as of 5 p.m. ET on Monday, “many best-selling Macmillan titles appear to still not be available on Amazon, suggesting the situation is still not fully settled.”

The unseen actor in this little mini-drama, of course, is Apple. With the launch of the iPad, the consumer electronics giant tilted the balance of power in the e-book market decisively away from former leader Amazon, even though Apple’s device isn’t shipping yet. The company also negotiated a new payment structure with publishers like Macmillan, which is being referred to as the “agency model.”

In a nutshell, instead of Amazon or Apple behaving like a retailer of e-books — someone who should get to set the ultimate price of the product, as I argued in this post about Amazon’s duel with Macmillan — they would instead be treated as an agent of the publisher, and receive 30 percent of the list price of the book in question. The surprising thing about this arrangement, as Brad Stone notes in the NYT’s Bits blog, is that this gives publishers exactly the kind of pricing flexibility music labels wanted from Apple but were repeatedly denied (they eventually struck a deal late last year).

So Amazon has lost and Macmillan has won, right? Not exactly. One of the ironic things about the battle is that the pricing model Amazon was resisting will pay the retailer more than the model it favored, which would have seen all e-books priced at $9.99. Under that system, Amazon actually loses money on each book, since it has to pay publishers about $15 for them. Under the “agency model,” Amazon will be paying publishers about $10 per book, and selling them at between $12 and $15 apiece (under the arrangement described by Macmillan, prices will decline over time).

While it may make more money in the short term, however, Amazon still loses, because it has to give up pricing control to publishers, and a rise in e-book prices won’t help move more Kindles, either. The retailer’s exercise in brinksmanship also made it look bad: Author John Scalzi does a good job of rounding up the mistakes Amazon made, including the fact that its unilateral removal of Macmillan books (print and electronic) turned both authors and their fans against the company. Amazon also didn’t respond when the battle broke out, letting Macmillan win the high ground.

In the long run, of course, Amazon’s biggest fight isn’t going to be with Macmillan, or even with the book industry as a whole. Its true nemesis is now Apple (Michael at The Apple Blog has his own take on the Amazon/Macmillan brouhaha).

Post and thumbnail image courtesy of Flickr user Frederic della Faille.

You're subscribed! If you like, you can update your settings


Comments have been disabled for this post