Amazon is dead. Wait. No it’s not.

Amazon’s stronghold on e-book pricing crumbles, will renegotiate with Macmillan and HarperCollins « Boy Genius Report.

There has been so much talk about how the iPad and iBooks store has been destroying Amazon.  Specifically, its ability to negotiate rock-bottom (and below-cost) prices for ebooks because they had such a dominant position in the field with the Kindle.  The link above, from BoyGeniusReport, was one of the first really substantive ones I read.  Another one has come out about the third major publisher, Hanchette – also associated with the iBooks store to come out with the iPad – putting the strong-arm on Amazon.

The main link on this post is rather significant, in that it includes a quote from Rupert Murdoch, CEO of News Corp and in a rather level-headed statement, states that

We don’t like the Amazon model of selling everything at $9.99. They don’t pay us that. They pay us the full wholesale price of $14 or whatever we charge. We think it really devalues books and it hurts all the retailers of the hard cover books

This statement is quite telling.  First, Amazon has been selling Kindle books at below cost.  Presumably, this is some kind of strange reverse complement, “razor-blade” scenario.  The Kindle at a relatively high price, and then the books somehow below cost to help drive the justification of buying a Kingle (you need titles, after all, just like one needs to launch a video game console with lots of games right off the bat).  I’m not sure how Amazon is able to handle that much of a loss per book but let’s look a bit deeper.  It might also be Amazon trying to be a middle-person in a two-sided market, where it heavily subsidizes the cost to the buyer in order to produce enough content to make the whole thing worthwhile.  The “charge” to the publisher is the reduced value.  It’s not quite a perfect fit for what I’m studying right now in class but it’s close enough.

First, all Murdoch wants is to charge end-users the actual cost that Amazon is paying.  Okay, that’s actually not so bad.  Other than deviating from the established norm, Amazon is at least now operating at cost.  And considering how many Kindles are out there, they still have a high user base with books that will likely be no more expensive than those available on the iPad.

Second, the comment about value is intriguing.  Even if the prices are exactly the same on the iPad as the Kindle, then “value” to the end user is about the same.  The only difference will be psychological effect of sunk cost – having already bought the Kindle – or other factors.

One rather significant one is that I can go a month without charging my Kindle.  When’s the last time you’ve done that with anything that involves a backlight, LED or LCD screen?  Even if you turn WiFi, bluetooth, etc off you’re looking at a significant decrease in battery life.  And, let’s not forget that while you’re going to get a HUGE surge in iPad purchases at first and possibly an even bigger dent in Kindle sales, I really wonder whether it will, even over just a few months, level off on both sides.

One thing that will also be interesting is whether users will be “imprisoned” by the iPad once they get it.  Not that I am not committed now to Kindle books since I got one, but once you get an iPad, you are unlikely to go out and buy a Kindle if you think it is a better fit for your reading needs.  Unless you are a voracious reader, and the battery life for the iPad just doesn’t fit your needs.

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