But for Amazon, this price point was an apparent no-brainer. The first generation Kindle was expensive, and value conscious customers needed some incentive to buy into it. And while this point is often glossed over, Amazon was actually following a precedent set by publishers in its pricing model. In her opinion for US v. But by , publishers had changed their minds.
Printing and binding and shipping — the costs that ebooks eliminated — accounted for only two dollars of the cost of a hardcover, publishers argued. Before we delve further into the weeds here, a quick primer on how book prices are set. Then it will sell the book to resellers and distributors for a discount off that suggested list price. But once Amazon owns the book, it has the right to set whatever price it would like for consumers.
Under the wholesale model, Amazon is free to decide to sell the book to readers for as little as a single dollar if it chooses to. Until , ebooks were sold through the wholesale model too. Amazon negotiates different discounts for itself at different times from different publishers, sometimes around 40 percent, but at other times higher and at other times lower. But we do know that Amazon was making very, very little money off ebook sales in , and was in fact probably losing money on most of them.
But publishers were terrified of what would happen once Amazon had established itself as the only game in town, ebook-wise. Would Amazon keep pushing prices ever further down?
And once publishers had nowhere else to sell their ebooks, would Amazon start demanding lower and lower discounts from them to subsidize those low prices?
In , Apple launched the iPad, and with it, the modern tablet computer. And part of what made the iPad so exciting was that it contained iBooks, an app that publishers were hoping would do for ebooks what iTunes had done for music: be so convenient and easy to use that consumers would flock to it rather than turn to piracy.
Apple was offering publishers an incentive to root for it over Amazon. With its App Store, Apple had established a resale model that worked differently from the wholesale model publishers were used to. It was called the agency model, and it worked like this: publishers would decide on what the list price for their book should be, and then put it up for sale at that price in the iBooks store.
In other words, assuming Amazon's book business reflects the overall industry, Amazon is still probably selling twice as many paperback books as Kindle books. In its announcement yesterday, Amazon said it sold Kindle books for each hardcover books last quarter. Last month alone, it sold e-books sold for every hardcover books sold. If we use the ratio from the last quarter, it implies Amazon has sold around 22 million Kindle books so far this year.
Another factor that Amazon doesn't mention is that it makes less money per e-book than it does on print books, and in some cases is losing money on e-books. It's good for Amazon to attack the e-book market and try to own it, even if costs a little early on, but let's not forget that e-books don't generate the same income or sales. Packaging 3. Sharing 4. Keeping 5.
Second-hand books. Nevertheless, in eBooks and eReaders took a big step forward and eBooks now represent a sizable minority of the overall book market. Let us know in the comments about your own usage of eBooks and eReaders this year.
That kind of cross-platform reach is no doubt helping to increase the customer base for Amazon's e-books, but it also serves as a reassuring security blanket: Even if you break your Kindle or lose it, you'll still be able to read the books you've bought. While Amazon doesn't provide a breakdown of sales by platform, we're guessing that the vast majority come via the Kindle device, which, with its free 3G wireless connection and dead-simple e-bookstore, makes purchasing books about as effortless as can be.
And since e-books cost Amazon virtually nothing to distribute, the company -- and the publishers whose books it is selling -- should be enjoying pretty fat margins on these titles too.
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