In today’s New York Times, an account of the scrambling and general mess going on in e-books as Amazon and Apple try to position themselves in the market ahead of the iPad launch. They are each pushing different pricing models — Amazon who sets the price to consumers and negotiates the price to publishers and Apple who will let publishers choose their own price but will just take a 30% cut (a la the App Store). Actually, Amazon aren’t totally against that model but are looking for lock in deals and guarantees of not being undercut if they move to the ‘agency’ model. Publishers don’t know what to do but would like to keep their options open.
The issue really is whether some books will be exclusive to one platform or the other. This has little do with Kindle sales as Amazon has already announced that the Kindle will be on the iPad as a competing app to iBooks. So publishers will have access to the iPad regardless of exclusivity although consumers might find it all a pain. But in a market where consumers might easily want to have all of their books in one place, exclusivity creates the possibility that the market might tip to Apple or Amazon rather than continuing and open competition amongst them both. In the end, both are retailers but the rents here should flow further upstream. As I said, it is a mess.
But a new study by Gil and Warzynski can shed light on one issue: will exclusivity be good for the market? That is, is it really the case that exclusivity will bring with it behaviour, by Apple or Amazon as the case may be, that grows the eBook market? Their study looks at video games where different titles were sometimes exclusive to a given console. When the console maker (say Nintendo) owned an item (say, Mario), they did things designed to enhance the chance that item sold. This involved, as is predicted by economic theory, some softening of competition on the video games market. Strike one against market growth. For exclusive titles (that is, not owned but dedicated to a platform), sales were just simply lower. Strike two against market growth. So they are not out, just messy and consumers feel that.
All this suggests that Apple and Amazon should concentrate on the hardware and leave the software nice and open if they want eBooks to grow. Of course, Apple’s incentives are stronger than Amazon’s here as they do not have a physical book business. Nonetheless, the point remains.