8 ms·

My two big takeaways from this are: 1. Amazon sells every Kindle ebook at a loss of $3 -- they pay $13 wholesale and sell it for $9.99. I thought this was a ty

by seldo 13y ago

My two big takeaways from this are: 1. Amazon sells every Kindle ebook at a loss of $3 -- they pay $13 wholesale and sell it for $9.99. I thought this was a typo, but then Jobs repeated the figure (though he said $12.50). It was my impression that Amazon also sells the Kindle itself at near-cost, so does that mean that Amazon's entire ebook business has been running at a loss the whole time? 2. Jobs certainly did win this negotiation, but ultimately they were both wrong. As Jobs says, "Heck, Amazon is selling these books at $9.99, and who knows, maybe they are right and we will fail even at $12.99." Amazon's share of the ebook market in the US is 65%, with Barnes and Noble (who also charge $9.99 for most books) another 25%. iBooks has the remaining 10%, nothing like the success of iTunes in the music market.

adventured 13y ago
1) No, because Amazon does not always pay $13 wholesale, and they do not always sell for $9.99. There has never been a segment wide set figure on either.
- fragsworth 13y ago
  So was Steve just making shit up? i.e., he won the negotiation because he was so full of shit that they didn't see any way to talk sense into him?
  - jonknee 13y ago
    I guess you're right if by "winning" you mean signing a deal and then having a criminal investigation into his behavior. I'd wager that no one won (customers lost, the publishers didn't make any more money and now Apple is stuck in a legal battle that all the counter parties have paid their way out of).
    - GalacticDomin8r 13y ago
      Careful, Jobs-hero worship is still quite high.
    - declan 13y ago
      This is incorrect. The DOJ filed a civil lawsuit, not a criminal prosecution, against Apple. The Feds are unlikely, IMHO, to win the case. Here's something that Greg Sandoval and I wrote at the time the lawsuit was announced, and I think it holds up well today: http://news.cnet.com/8301-13578_3-57412861-38/ http://news.cnet.com/8301-13578_3-57412861-38/
peterkentdsen 13y ago
Amazon never sold every Kindle book for $9.99; many were sold for higher. The DOJ reported after their investigation that they found Amazon was making a profit.
k-mcgrady 13y ago
>> "Amazon's share of the ebook market in the US is 65%, with Barnes and Noble (who also charge $9.99 for most books) another 25%. iBooks has the remaining 10%" That's in the US. Worldwide Apple is estimated to have around 24%. Not great but not too bad either.
grimtrigger 13y ago
2) Doubt this is a fair comparison. Kindles are clearly a superior device for reading than iPads.
- lostlogin 13y ago
  Not for all. 1) Reading for me involves access to a browser and typing on a kindle is deeply unpleasant. 2) Reading in the dark requires a light and the attachments for the kindle have all seemed a kludge to me. That said, the iPad is imperfect here are the screen doesn't dim enough.
  - OrsenPike 13y ago
    I think a better way to phrase it would be "Kindles are clearly a superior device for reading [novels and similar material] than iPads." An iPad obviously is better for things like glossy magazines, graphic heavy books/PDFs, etc. However as a replacement to my "books" then the Kindle wins over the iPad. Also the Kindle Paperwhite (and Kobo Glo, etc) are pretty great for low light reading. I agree the old lights were a bit annoying although the Amazon leather lighted case has always been pretty decent to be fair.
    - meepmorp 13y ago
      > Kindles are clearly a superior device for reading [novels and similar material] than iPads. For you perhaps; I prefer reading on an iPad. It doesn't bother my eyes, and it doesn't make it difficult to sleep. Maybe the fact that I don't typically read outside makes some difference here.
      - mitchty 13y ago
        Probably, I tried the other weekend to read a kindle book on my ipad outside. Yeah not happening with sunlight at all. Not sure how the kindle works out there, but the glossy ipad might as well have been a mirror.
      - skeletonjelly 13y ago
rkudeshi 13y ago
A little backstory to explain the $13 wholesale -> $9.99 retail thing: Books have traditionally been sold to wholesale at $14, then sold at retail for $28 MSRP. When Amazon started selling ebooks, they stuck with the same model - they were buying ebooks wholesale from the publishers at $14 each. However, they proceeded to sell them to consumers at $9.99. Yes, they were losing money on every sale. Why? Because they knew this was their chance to dominate the books industry, just as iTunes had done in music. Amazon's MP3 store, despite launching with cheaper and DRM-free music, has never been able to make a serious dent in iTunes' market share. So Amazon knew there was a huge advantage in being the first to dominate the market. Of course, as Jobs alludes to in the emails, this was unsustainable in the long term. The publishers knew that once Amazon became the dominant ebook seller, they would come back to the publishers and revise the terms of purchase. At that point, $9.99 would've become ingrained in consumers' minds and Amazon would've said they could no longer pay $14 wholesale, probably more like $7 wholesale instead. The reason the publishers acquiesced to Jobs so quickly was because they knew 70% of $12.99/$14.99 would be better than 70% of $9.99 in the long run. (Because of most-favored-nation clauses in the contract, publishers forced Amazon to also increase prices to $12.99+ and switch from the wholesale model to the agency model once the iPad went on sale. Amazon pulled HarperCollins books from their site briefly, hoping a groundswell of consumer backlash would force HC and Apple to revise their contract. It didn't happen and now ebooks are sold just like apps - publishers set the price and Apple/Amazon gets 30%.)
- comrade_ogilvy 13y ago
  Thanks! That is helpful. The bottom line is that Jobs knew that he was offering HC a fair deal. For HC to argue that they needed a bigger cut was based on smoke and mirrors. "Gee, if you want to make only the same amount of money you could just give the authors, um, more money, right?" That is an elegant way of calling a bluff.
- mtgx 13y ago
  > "Amazon's MP3 store, despite launching with cheaper and DRM-free music, has never been able to make a serious dent in iTunes' market share". Maybe because iTunes selling DRM'ed music for so long helped them gain that market lock-in, just like it helped Amazon get the same lock-in with DRM ebooks. If publishers knew what's best for them, they would force Amazon to offer DRM-free books before it's too late, and the process can't be reversed anymore.
ojiikun 13y ago
All I took away from this was that AAPL wanted to make about $0, AMZN wanted to make about -$3, and in both cases the author makes about $3, meaning that of the $13 wholesale, the publisher is getting a 75% cut of the sale. I cannot fathom that the publisher performs any function possibly worth this much money. How, since we no longer have to ship dead trees, have we not evolved a system that gives authors 75% of the sale price?
- Guvante 13y ago
  Apple has always made 30%. They were the ones to start that model. Publishers are actually about relationships, not dead trees. They can get your book to the customer, which is where the value is. From the consumer point, you only care about the producer, but the producer cares about the publisher a lot more than the customer.
  - jbooth 13y ago
    Yeah, but again, that's back when you'd be talking with all these different retail stores to get your book to the customer. Plus printing, shipping, all that. How about 1) Write book. 2) Spend a day or two getting it on Amazon, Apple, B&N online. 3) Keep 100%. Might be harder for authors who need marketing but I have no idea why established authors aren't self-publishing en masse.
    - elithrar 13y ago
      > How about 1) Write book. 2) Spend a day or two getting it on Amazon, Apple, B&N online. 3) Keep 100%. Might be harder for authors who need marketing but I have no idea why established authors aren't self-publishing en masse. The issue there is that if no one knows about you or your book, 100% of nothing is still nothing. Publishers also often provide advances, which can be make a big difference. Note that I am not defending some of their questionable business practices, but to pretend they provide zero value is silly.
      - sireat 13y ago
TechNewb 13y ago
Another interesting note is the level of innovation. Apple is reinventing the 'book' in the digital realm, by providing authoring tools for free, while rethinking what a textbook can be in the digital real (videos, interactive content, etc.). I hope more publishers take advantage of it. I personally still prefer the PDF for e-books, as it maintains original design, layout, and typography, as well as page numbers. I'd like to see Apple and Amazon both start selling these formats DRM free, with watermarking. Amazon's Kindle has e-ink, and a great selection for fiction, but not too many text books. And honestly I would not want to read a programming book, or other text book, on the kindle for the reasons stated above.
- chrisbolt 13y ago
  "I personally still prefer the PDF for e-books, as it maintains original design, layout, and typography, as well as page numbers." That's great if your device happens to match up with the size of a book, but it's far less flexible when it comes to devices of different sizes. I want to read books on whatever device I have, phone, small tablet, large tablet, computer, whatever. And I want the ability to adjust the size of the text. I don't want to lose that just because some books might not have that flexibility, and most do. Also, Kindle and iBooks have page equivalents, that solves the page number issue.

by seldo 13y ago

adventured 13y ago

1) No, because Amazon does not always pay $13 wholesale, and they do not always sell for $9.99. There has never been a segment wide set figure on either.

fragsworth 13y ago
So was Steve just making shit up? i.e., he won the negotiation because he was so full of shit that they didn't see any way to talk sense into him?
- jonknee 13y ago
  I guess you're right if by "winning" you mean signing a deal and then having a criminal investigation into his behavior. I'd wager that no one won (customers lost, the publishers didn't make any more money and now Apple is stuck in a legal battle that all the counter parties have paid their way out of).
  - GalacticDomin8r 13y ago
    Careful, Jobs-hero worship is still quite high.
  - declan 13y ago
    This is incorrect. The DOJ filed a civil lawsuit, not a criminal prosecution, against Apple. The Feds are unlikely, IMHO, to win the case. Here's something that Greg Sandoval and I wrote at the time the lawsuit was announced, and I think it holds up well today: http://news.cnet.com/8301-13578_3-57412861-38/ http://news.cnet.com/8301-13578_3-57412861-38/

peterkentdsen 13y ago

Amazon never sold every Kindle book for $9.99; many were sold for higher. The DOJ reported after their investigation that they found Amazon was making a profit.

k-mcgrady 13y ago

>> "Amazon's share of the ebook market in the US is 65%, with Barnes and Noble (who also charge $9.99 for most books) another 25%. iBooks has the remaining 10%" That's in the US. Worldwide Apple is estimated to have around 24%. Not great but not too bad either.

grimtrigger 13y ago

2) Doubt this is a fair comparison. Kindles are clearly a superior device for reading than iPads.

lostlogin 13y ago
Not for all. 1) Reading for me involves access to a browser and typing on a kindle is deeply unpleasant. 2) Reading in the dark requires a light and the attachments for the kindle have all seemed a kludge to me. That said, the iPad is imperfect here are the screen doesn't dim enough.
- OrsenPike 13y ago
  I think a better way to phrase it would be "Kindles are clearly a superior device for reading [novels and similar material] than iPads." An iPad obviously is better for things like glossy magazines, graphic heavy books/PDFs, etc. However as a replacement to my "books" then the Kindle wins over the iPad. Also the Kindle Paperwhite (and Kobo Glo, etc) are pretty great for low light reading. I agree the old lights were a bit annoying although the Amazon leather lighted case has always been pretty decent to be fair.
  - meepmorp 13y ago
    > Kindles are clearly a superior device for reading [novels and similar material] than iPads. For you perhaps; I prefer reading on an iPad. It doesn't bother my eyes, and it doesn't make it difficult to sleep. Maybe the fact that I don't typically read outside makes some difference here.
    - mitchty 13y ago
      Probably, I tried the other weekend to read a kindle book on my ipad outside. Yeah not happening with sunlight at all. Not sure how the kindle works out there, but the glossy ipad might as well have been a mirror.
    - skeletonjelly 13y ago

rkudeshi 13y ago

A little backstory to explain the $13 wholesale -> $9.99 retail thing: Books have traditionally been sold to wholesale at $14, then sold at retail for $28 MSRP. When Amazon started selling ebooks, they stuck with the same model - they were buying ebooks wholesale from the publishers at $14 each. However, they proceeded to sell them to consumers at $9.99. Yes, they were losing money on every sale. Why? Because they knew this was their chance to dominate the books industry, just as iTunes had done in music. Amazon's MP3 store, despite launching with cheaper and DRM-free music, has never been able to make a serious dent in iTunes' market share. So Amazon knew there was a huge advantage in being the first to dominate the market. Of course, as Jobs alludes to in the emails, this was unsustainable in the long term. The publishers knew that once Amazon became the dominant ebook seller, they would come back to the publishers and revise the terms of purchase. At that point, $9.99 would've become ingrained in consumers' minds and Amazon would've said they could no longer pay $14 wholesale, probably more like $7 wholesale instead. The reason the publishers acquiesced to Jobs so quickly was because they knew 70% of $12.99/$14.99 would be better than 70% of $9.99 in the long run. (Because of most-favored-nation clauses in the contract, publishers forced Amazon to also increase prices to $12.99+ and switch from the wholesale model to the agency model once the iPad went on sale. Amazon pulled HarperCollins books from their site briefly, hoping a groundswell of consumer backlash would force HC and Apple to revise their contract. It didn't happen and now ebooks are sold just like apps - publishers set the price and Apple/Amazon gets 30%.)

comrade_ogilvy 13y ago
Thanks! That is helpful. The bottom line is that Jobs knew that he was offering HC a fair deal. For HC to argue that they needed a bigger cut was based on smoke and mirrors. "Gee, if you want to make only the same amount of money you could just give the authors, um, more money, right?" That is an elegant way of calling a bluff.
mtgx 13y ago
> "Amazon's MP3 store, despite launching with cheaper and DRM-free music, has never been able to make a serious dent in iTunes' market share". Maybe because iTunes selling DRM'ed music for so long helped them gain that market lock-in, just like it helped Amazon get the same lock-in with DRM ebooks. If publishers knew what's best for them, they would force Amazon to offer DRM-free books before it's too late, and the process can't be reversed anymore.

ojiikun 13y ago

All I took away from this was that AAPL wanted to make about $0, AMZN wanted to make about -$3, and in both cases the author makes about $3, meaning that of the $13 wholesale, the publisher is getting a 75% cut of the sale. I cannot fathom that the publisher performs any function possibly worth this much money. How, since we no longer have to ship dead trees, have we not evolved a system that gives authors 75% of the sale price?

Guvante 13y ago
Apple has always made 30%. They were the ones to start that model. Publishers are actually about relationships, not dead trees. They can get your book to the customer, which is where the value is. From the consumer point, you only care about the producer, but the producer cares about the publisher a lot more than the customer.
- jbooth 13y ago
  Yeah, but again, that's back when you'd be talking with all these different retail stores to get your book to the customer. Plus printing, shipping, all that. How about 1) Write book. 2) Spend a day or two getting it on Amazon, Apple, B&N online. 3) Keep 100%. Might be harder for authors who need marketing but I have no idea why established authors aren't self-publishing en masse.
  - elithrar 13y ago
    > How about 1) Write book. 2) Spend a day or two getting it on Amazon, Apple, B&N online. 3) Keep 100%. Might be harder for authors who need marketing but I have no idea why established authors aren't self-publishing en masse. The issue there is that if no one knows about you or your book, 100% of nothing is still nothing. Publishers also often provide advances, which can be make a big difference. Note that I am not defending some of their questionable business practices, but to pretend they provide zero value is silly.
    - sireat 13y ago

TechNewb 13y ago

Another interesting note is the level of innovation. Apple is reinventing the 'book' in the digital realm, by providing authoring tools for free, while rethinking what a textbook can be in the digital real (videos, interactive content, etc.). I hope more publishers take advantage of it. I personally still prefer the PDF for e-books, as it maintains original design, layout, and typography, as well as page numbers. I'd like to see Apple and Amazon both start selling these formats DRM free, with watermarking. Amazon's Kindle has e-ink, and a great selection for fiction, but not too many text books. And honestly I would not want to read a programming book, or other text book, on the kindle for the reasons stated above.

chrisbolt 13y ago
"I personally still prefer the PDF for e-books, as it maintains original design, layout, and typography, as well as page numbers." That's great if your device happens to match up with the size of a book, but it's far less flexible when it comes to devices of different sizes. I want to read books on whatever device I have, phone, small tablet, large tablet, computer, whatever. And I want the ability to adjust the size of the text. I don't want to lose that just because some books might not have that flexibility, and most do. Also, Kindle and iBooks have page equivalents, that solves the page number issue.