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Summary:

Apple’s iBookstore originally launched with many major publishers on board, but Random House was a longtime holdout. Then, just over a day ago, Random House switched to the agency model for e-book pricing and today began populating the iBookstore with its titles.

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Apple’s iBookstore originally launched with many major publishers on board, including HarperCollins, Hachette, Penguin, Macmillan, and Simon & Schuster, but Random House was a longtime holdout. Then, on Tuesday, Random House switched to the agency model for e-book pricing, and today began populating the iBookstore with its titles.

The agency model allows the publisher to set prices, paying the retailer a commission (30 percent in this case) on each title sold. In the traditional publishing house model that Random House still maintains with brick and mortar retail stores, retailers set the prices, sometimes selling titles at a loss in order to attract customers to their own brand or other more profitable products.

Random House reaching an agreement with Apple right before the launch of the Mac-maker’s next-generation iPad device likely isn’t a coincidence. We can probably even expect to see the deal mentioned at the event, since it does represent a major victory for the iBookstore’s catalog. You can check back a little later today to see if Random House does get a mention during our live blog of the Apple announcement.

There’s also the possibility that Random House saw the futility of holding out against Apple when, in just a few short months, it might be the only major purveyor of e-books on the iOS platform. Apple has revised its app guidelines to ensure that if e-book sellers are offering content for use in an iOS app, it must also be sold through the App Store and without a link to an outside store. Amazon, Barnes & Noble and Kobo, all of which currently offer e-book apps connected to their own, separate e-book stores might not find those terms agreeable, and come June 1, the iBookstore might be the last iOS outlet standing. A deal with Apple gives Random House a guaranteed continued presence on iOS devices, even if the other stores pull out.

Related GigaOM Pro Research (sub req’d):

  1. Random House may have delayed because putting titles on the iBookstore isn’t that big a deal, roughly equivalent to a music distributor getting Zune placement. For a typical publisher, it might amount to 10% of sales. Most ebook sales go through Amazon with much of the rest go to Barnes & Noble. Apple’s iBookstore runs a poor third or even fourth.

    Apple execs and some media pundits seem to be confusing digital music circa 2002 with digital books in 2011. But in the digital arena, who’s on top shifts as quickly as the most popular gadgets do. A lot of people buy iPads, but they’re buying them for purposes other than reading, and those who do read on their iPads are most likely to opt for Amazon’s Kindle app and store.

    The reason is obvious. As a writer, I’m no more a fan of Amazon’s bullying tactics than I am of Apple’s. But in the digital book arena Amazon is beating the socks off Apple in selection and features. The improvements are coming so fast, that there’s little or no chance of Apple catching up anytime soon. For why, you need only look at the CEOs. Steve Bezos wants to win and win big. Steve Jobs doesn’t.

    Of course, Apple still has a mystique that anything they touch turns to gold–much like Microsoft had in the mid-90s. But in the long run, staying on top requires thought and hard work more than image and bullying. Apple is simply repeating the mistakes AT&T, IBM, and Microsoft made between the 1960s and the 1990s. They’re attempting to use market dominance to crush their competition.

    The sad thing is that those other corporations really did dominate their respective markets. When the FCC ruled in Carterfone’s favor in 1968, almost everything connected to phones lines was made by AT&T affiliate Western Electric. In the 1970s, when IBM demanded that only their accessories could be attached to their computers, they really did own the mainframe market.

    But Apple is attempting to dictate rules in two markets it does not control. Running third in ebooks and just entering the subscription market, Apple is acting like it owns both simply because it sells a lot of something else, iPads and iPhones. That’s the foolish pride that goes before a fall.

    It’s also why I attach a different meaning to Apple’s recent ban on the Sony ereader app and on what looks like attempts to make it impossible for Amazon and B&N to stay on Apple devices by demanding 30% of retail for products that typically have only a 30% markup.

    Apple moves are born more of desperation than good business sense. The iPods (music sales) and the iPhone (cellular subsidies) conditioned Apple to think that dominating with a device automatically meant dominating aftermarket sales of what went on that device. That clearly isn’t so with digital readers. Amazon has been able to neutralize Apple’s market share by creating its own speciality device (at one-third the cost) and by creating free apps that run on Apple devices and most computing platforms. Amazon’s potential ebook customer base is far larger than Apple’s.

    Apple could try competing openly and fairly in what is clearly an uphill battle for them, but it seems to opting for rules, restrictions and bullying tactics that are likely to result in consumer anger, federal intervention, and perhaps most costly of all, civil lawsuits. The last would come when iPad and iPhone owners can no longer read the ebooks they bought from Amazon.

    Perhaps Apple will turn back from this abyss. What they’ve been saying has been muddled enough that there may still be a debate within Apple about the best path to take. We can only hope that they choose to compete rather than to bully.

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  2. Amazon charges 30% for its subscriptions to publications. Amazon took as much as 70% of the price for ebooks before Apple changed the going rate to 30%. Publishers who are serious about their business will participate as paying customers in the Apple App Store. Those who want a free ride will go elsewhere. Random House has made a wise choice.

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