I can live with the fact that Amazon offered up the Kindle Fire at a bargain price of $199 because they knew they would make it back in sales. What i can’t live with is the fact that virtual Books or the Kindle edition is more expensive than the physical copy.
A quick trip to the Amazon help forums informs us that it’s not actually Amazon that sets the price for the Kindle Edition, it’s the publishers.
The thing I tried to keep in mind when is that pricing is a sensitive issue, and it took the music industry a while to adjust to the new realities. Publishing is still trying to figure the new, real, world of books. The growing pains are clearly upon us.
After a bit of research I discovered what happened, and it basically is all Apple’s fault, indirectly. Publishers saw what Apple was doing in the iBook store. Instead of selling their books to Amazon at a wholesale price that allowed them to discount and sell below cost, publishers said that they would set the price and Amazon would take a specific cut of it. This is called “agency pricing”, because Amazon is acting as a sales agent for them in this regard rather than as a retailer. So most of the major publishers got together and told Amazon that they were going to be copying Apple’s model.
Amazon is now forced to raise their prices above the typical $9.99. The reason publishers forced the move was they were afraid that the $9.99 price would set expectations in customers’ minds that this was the “right” price for books. they feared that sooner or later Amazon would be able to dictate terms to them, insisting that they take a lesser cut so Amazon could keep selling at $9.99 but turn a profit too.
Ironically, the agency publishers are now earning significantly less per e-book than they used to, even when the books are priced higher than $9.99. And they’re selling fewer copies, too. So rather than let Amazon kneecap them, they apparently decided to do it to themselves, pre-emptively.
Of course, there are no such price controls on physical paper books (in the USA, at least), which is why Wal-Mart and, yes, Amazon, can continue to slash the prices on paper books. Amazon can do it because they have such an amazing warehousing and distribution network that their overhead costs are incredibly low; Wal-Mart does it partly for similar reasons but largely as a loss leader to get people into the store to buy other things.
Amazon was trying to spur a dependency on a new product category, which would have worked. The thing the publishers didn’t realize is that Apple’s model usually only works for Apple, that publishers thought they could replicate it with out their ecosystem is a testament to their old school mentality. So I guess I should give Apple a pass, since they merely inspired stupidity and didn’t actually cause it.
Thanks to @DhruvBhutani who tipped me off to this ridiculous trend!
