I was actually surprised when the Department of Justice went after Apple and some publishers for illegally rigging the prices on eBooks. Of course Apple is fighting back and trying to claim they’re the one fighting for competition and Amazon is the bad guy.
The story is simple. Amazon got in eBooks earlier than Apple and held a dominant position. In order to even sign up publishers at all Apple had to bribe them with higher prices. Amazon knew there was initial resistance to eBooks so they pushed the price ceiling to $9.99, below the typical paperback price so at least eBooks were cheaper than print (not to mention the real issue that it’s easier to lug around one Kindle containing lots of books than to cram multiple books in your carry-on). The publishers hate that price, but think about it. Even a paperback costs something to print, a lot to distribute, and an inventory carrying cost for the retailer. So what does the publisher get paid? – certainly there is a reduction in their margins due to the costs of physical books. Now, OTOH, an eBook completely eliminates those costs and the new costs, the free 3G Amazon provides (for original Kindle) or the server bandwidth to download is Amazon’s, not the publisher’s cost. So if the publisher get paperback price for an eBook they actually make more money than they would from a paperback and Amazon makes less. So the original Amazon pricing made sense.
But Apple was late getting to the eBook business and Amazon already had most of the titles. So Apple used higher prices (good for Apple, good for the publishers, bad for consumers) as incentive to publishers to go with Apple and dump Amazon. Of course since Amazon sells anything Amazon responded with price increases of its own, so the $9.99 book just became the $12.99 book at either Apple or Amazon. So the only loser was the consumer.
And now DOJ is correcting that and Apple and some of the publishers are squealing. But I always thought the publishers were stupid about dealing with the devil – Apple. Did they not see what Apple did, when it was dominant, in music. Apple forced the music publishers to do per-track pricing (the publisher only wanted album pricing) and all tracks at the same price (the publishers want to charge more for the popular tracks). But Apple had the power and forced the publishers to follow its model, i.e. what was good for Apple. So book publishers somehow ignored the fact that it was Apple who had previously acted like a monopolist and would again if it could. So let’s say for the sake of argument Apple won and blew up Amazon, then did the publishers actually think Apple would continue the bribes? of course, not, once Apple was the monopoly, they’d blow up book publishers the same way they blew up music publishers.
But also the hypocrisy of Apple. When it forced $0.99 per song pricing the publishers howled and Apple said they were doing this for the consumer. When Apple broke Amazon’s $9.99 pricing and raised it to $12.99 they had the audacity to call this “competition”, while denying variable song prices was competition. In other words, when Apple does it it’s good, whichever direction it is in the market.
So I’m glad DOJ is kicking some ass in this case because Apple is the clearcut bad guy and Amazon is the good guy. Let’s win this for the consumers, not for Tim Cook to get more hundreds of millions in pay.
p.s. iPad and even Kindle Fire still suck as readers. Yes, they’re nice but you can just feel the battery draining as most of its energy has to go into producing light (which, in turn, is mostly thrown away by the LCD filtering). OTOH, the original Kindles, using the eInk technology, only require power to change the display, not to sustain it. Bottomline, you can fly to China from Omaha (about 20 hours) with your Kindle working the whole time or you can do the first leg of the flight (to Chicago) with you iPad or Fire. Now once my company let me fly to China first-class, wonderful (obscenely expensive), and up in the good seats there was a power outlet so no need to worry about battery lifetime. But back in the regular seats power is NOT available so battery lifetime matters! That pretty active display on an iPad is a flashlight, running down the batteries at maximum rate. A real book didn’t need batteries and could last an entire flight; a eReader, like a Kindle, needs to do the same. So iPad are fine toys, but lousy eReaders, so I’m doubly glad to see Apple get its chops busted.