KNOW THIS: Industry Players and the Future of E-Books: Amazon.com
June 22, 2010
Other articles in this Know Something Project series:
Industry Players and the Future of E-Books: Scribd (May 2010)
Industry Players and the Future of E-Books: Apple, Inc. (June 2010)
“Price Cuts Electrify E-Reader Market” read a headline from a late-day on-line edition of The Wall Street Journal yesterday. Since earlier reports on Monday had already announced Barnes & Noble’s move to decrease the price of its Nook reader, many wondered how Amazon, a long-time top dog in the e-reader marketplace, would respond. Within a few hours, speculation ceased as Amazon announced it, too, would drastically decrease the price of its e-books reader.
Both the Amazon Kindle and Barnes & Noble Nook readers now sell for under $200 ($189 and $199, respectively, with a Wi-Fi-only Nook also available for $149). As an analyst noted in the WSJ.com piece: “Booksellers are actually making money off of e-books now. That was not the case when they built their business plans and set their original prices for these devices. Now they can go to the old razor-world model of giving away the razor for free and selling the blades. They are starting to give away the e-reader.” Such price cuts on e-reading hardware could result in the sale of more than 6 million e-readers this year in the U.S. alone, the analyst said, with worldwide 2010 e-reader sales reaching over 10 million.
Amazonian Impact
Founded by CEO Jeff Bezos in 1994 and launched in 1995, Amazon.com began as an on-line book retailer that eventually morphed into the largest U.S. on-line retailer by selling a wide range of products. Its Kindle wireless reader, originally launched in November 2007, was followed by the current Kindle 2 in February 2009 and the large-format (9.7-inch versus a 6-inch display) Kindle DX just months later. While the Kindle 2 now has its new price point of $189, the Kindle DX currently still sports its hefty $489 price tag.
One year ago in our first article on e-books, we noted that e-book reading consumers outside the U.S. had no wireless access to the Kindle Store. This problem was addressed by the October 2009 release of an “international” version of the Kindle 2 that reportedly works in more than 100 countries, followed by the early 2010 release of a Kindle DX also equipped with free “Global Wireless.”
Still not addressed, however, are questions regarding sales figures for Kindle devices and for e-books purchased and downloaded for free through the Kindle Store. In January of this year, a business article distributed by Reuters to financial on-line publications suggested Wall Street investors may eventually turn on Amazon if such solid figures aren’t shared soon. While some analysts state Kindle and related e-book sales comprise a very small percentage of sales made by the huge Amazon enterprise as a whole, others argue Amazon’s original source of income—selling books—still contributes significantly to the company’s bottom line. If the e-books market continues to grow and negatively impacts sales of print books, Amazon stands to lose if it does not remain a strong leader in the e-book market, especially as more industry players release readers equipped to purchase e-books through channels other than the Kindle Store.
Amazon did take steps last year to expand access to the Kindle Store to devices such as the iPhone and iPod Touch (and now the iPad) via its free Kindle app available through the on-line Apple iTunes store. It also now sells more than one million inexpensive eDocs. Such documents include short non-fiction books, newsletters, case studies, articles, reports, and study guides from publishers such as Harvard Business Publishing and Elsevier in categories that include business; computers and Internet; and health, mind and body.
But steps in favor of accessibility don’t come close to addressing concerns widely voiced regarding Amazon’s “Big Brother” approach to controlling the content it sells in the name of piracy protection. Last summer, Amazon’s decision to delete certain versions of George Orwell titles from Kindles across the country led to spirited discussions regarding e-books ownership. Beyond the right of a company to reach in and reclaim property of any type purchased for personal use by private consumers lie issues involving controls embedded into e-books.
As discussed in our June 2009 e-books article, digital rights management (DRM) software attached to files impacts how such files can be used. The Kindle DRM is notoriously limiting, so much so that tech bloggers worldwide rejoiced last December when hackers discovered a way to strip it. According to FictionMatters.com, “The Kindle DRM…is a type of electronic lock which controls what users can do with legally purchased books. While ostensibly meant to prevent piracy, [Kindle] DRM also controls the amount of times a book can be deleted and reinstalled from the Kindle store, how many devices it can be read on, and whether the purchaser can make legal backups of the file.”
The post notes that in the U.S. stripping DRM from any file “even for the purpose of shifting legally purchased content from one device to another for personal use is considered a criminal offense under the Digital Millennium Copyright Act (DMCA).” For more on digital rights management, see this KSP article on DRM.
E-Books Pricing Wars
Many consumers still assume Amazon sets lower-than-average prices for the e-books it sells due to the once-heavily Bezos-promoted promise of $9.99 e-book versions of bestsellers. Earlier this year, however, publishers such as Simon & Schuster and Harper & Collins signed agreements with the retailing giant that allows each publisher to set its own e-book prices. Many of these agreements were inked shortly before or after the launch of Apple’s iPad earlier this year.
One such agreement was achieved only after a highly dramatized back-and-forth between Amazon and U.S. publisher Macmillan, which insisted Amazon accept terms similar to those the publisher had just hammered out with Apple. The “agency model” (more information on the agency model is provided in our earlier post on Apple’s impact on the e-books industry) was at first dismissed by Amazon. When Macmillan insisted on setting prices for its own e-books, all books (print as well as digital) it published suddenly became unavailable on the on-line retailing giant’s site. A week later, the two parties settled their disagreement.
Though Macmillan appeared to have “won” this battle, some speculated—and still suspect—the entire episode was concocted so the large publishing house would get what it wanted while Amazon would appear the hero for settling for what it didn’t want. Regardless, most prices for Kindle e-books are no longer kept under $10, with more titles now sold closer to $15 on a regular basis. Not a bad win-win situation for Macmillan, Amazon, and other publishers who’ve inked similar deals, whether in public displays or in private.
Regardless of pricing battles and any other controversies, Amazon’s Kindle remains a highly rated dedicated e-reading device. And Amazon’s sudden price cut for its Kindle 2 is due to be followed by the announcement of an entirely new Kindle “in coming weeks.” If in its quest to be the go-to source for all things e-book Amazon continues to take steps that make e-readers affordable and e-books easily downloadable (whether for free or at a cost still lower than print editions), it may very well retain its popularity among consumers who want the immediate, mobile access to digital works the largest on-line retailer in the country seems ready, willing, and able to provide. At least for now. As a detailed Amazon-Apple piece in The New Yorker noted, almost as a side-note: “[A] dozen other digital reading devices were on display at the Consumer Electronics Show in Las Vegas in January, providing more competition for the Kindle.”
—Karen DeGroot Carter
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