You may have heard that the Department of Justice decided to launch antitrust litigation against Apple and some major publishers for alleged price fixing and that most of them decided on the same day to settle. The alleged sin was that Apple and the publishers decided to go with the agency pricing model in which the publishers get to set the prices for their books in the iBooks Store, while Apple takes, I believe, a 30% cut.
So late last night I read this:
“How Steve Jobs Got Apple Into Trouble Over Ebooks” by Lance Ulanoff, Editor-in-Chief of +Mashable.
Wow, is this guy clueless.
And if Steve Jobs really thought Amazon screwed up, he was clueless as well. Amazon is WINNING.
Jobs pushed the agency model on the publishers? I don’t think so. They preferred that model but couldn’t get Amazon to go along with it without Apple’s help. It’s the screw-your-customers model and it wouldn’t have been good for the publishers over the long haul. They want high ebook prices so that they can hang onto their outdated IP-dependent business model of selling paperbacks and hardcovers in big box brick & mortar stores for as long as possible.
BusinessWeek offers an interesting inside look to the bankruptcy of Borders. The perception that many people had was that this was a blow delivered by Amazon and ebooks, that there is no future to the bookstore. It might be true but the Borders case is not a good case in point, argues this article.
The piece points out that the store it is profiling here was actually very profitable, and increasingly so in the last few years. In fact, more than half the stores were in the black. The reason it closed was entirely due to the overall financial health of the company and a series of bad management decisions. It expanded insanely and wildly during the boom years, gobbling up ever more real estate as prices were soaring. When the bust hit, prices crashed and its investments in physical space suddenly looked stupid. This put massive pressure on the operation. It could no longer sustain its profitability expectations and its belief that the boom would last forever didn’t materialize. There were also a series of too-little-too-late decisions regarding digital media.
I find this account very persuasive. People without knowledge of the way business works always assume that any company that is going belly up was flopping, that people just weren’t buying the product. That is not usually the case. What it means is purely a matter of accounting: costs outran revenue and expected revenue. That can happen very easily with a few, small miscalculations. No matter how much success you are experiencing, it is the cost accounting that ultimately matters. This is true regardless of whether we are talking about a multinational with $5 billion in sales or the lemonade stand down the street. Every firm faces the same cost/revenue matrix.
Cost accounting rules, whether big or small, and this is true for everyone. This is the great egalitarianism of the market that is hardly ever noted or noticed by people who know nothing of business life.
To be sure, the book business must and will change, and dramatically. The old-line publishers will be buried. Laissez-Faire Books will be on the cutting edge. (Unpaid advertisement: please like Laissez-Faire Books FB page!)
Over at Forbes.com, Reihan Salam had something rather unexpected but very welcome to say about the CEO of a major corporation:
That the success of the Kindle is good news for Amazon should go without saying. But it represents a remarkable environmental advance as well. The publishing industry in the U.S. felled roughly 125 million trees and generated vast amounts of wastewater. And, of course, physical books have to be transported by trucks, which generate carbon emissions, exacerbate congestion, increase traffic fatalities and cause wear-and-tear on already overburdened roads. One assumes that Bezos didn’t have the environment foremost in mind when he pushed the Kindle concept forward, yet he’s arguably done more to fight climate change by threatening hardcovers and paperbacks with extinction than any number of environmental activists.
Salam goes on to argue that Amazon will ‘win the internet’ through the Kindle and its rapidly growing ebook sales. I don’t know about that. What does it mean to ‘win the internet’? He only considers Facebook as a rival. What about Google? Android and ChromeOS are poised to dominate the mobile phone and tablet pc markets, putting Google into direct competition with the Kindle. Then there’s Google Search, Books, Voice, Gmail, Docs, Maps, Chrome browser, TV, and so on and so forth.
But bravo to Salam for daring to recognize in public the (probably unintended) positive environmental externalities of business decisions and technological innovation driven by profit-seeking amidst market competition — indeed, for daring to rank them on par with or above that of ‘altruistic’ environmental activists.
Cross-posted at Is-Ought GAP.