Monday, 23 April 2012

Apple, E-Books and the Steve Jobs Secret deal.

"Eroding the value of perception of their products in customer's minds" said Steve Jobs about the Amazon Kindle launch when they began discounting top titles to 9.99 usd. So he went about fixing it and here's the story.

I consume books, I don't just read them, I eat them. Probably three a week and I have a lot, an awful lot, in dust jackets lining shelves. Nearly as many as I now have on my Kindle.

Because I loved books and bookstores, I was one of the first to dislike The Sony EReader when it launched and yet, one of the first to adopt it because I'm in that space. 

Interesting isn't it, that Sony were one of the very first companies to get into book etailing given their ongoing demise as I blogged recently here They actually had THE opportunity to own this market. 

The principle was the same as itunes. Once you buy the device, you had to log into the service to download and activate. So you automatically were forced to become a book customer by just purchasing the hardware (indeed exactly the same subsequently, as Amazon's Kindle). But it guaranteed the device maker (Sony) revenue from ongoing book sales. The profit was not in the device, it was in the subsequent ecommerce book downloads and indeed, looking back they should have given the device away for free. Like shaving - the real money is in the blades not the razor.

Anyway, the Sony ereader, although first out of the box to market, was poor. Hard to operate, hard to understand, no real "store" with insufficient titles and after a day trying to operate it, I put it aside in a drawer, where it remains today untouched and unused. And then I was given an Amazon Kindle.

Actually when you think about it, Jeff Bezo's Amazon (the world's biggest bookstore) must have looked on at the time of the Sony launch with real concern which probably gave impetus to their first Kindle device. Here was a big player, Sony, entering their online space. So they had to get their device out there quickly and being rushed, did so as a basic model with few features (it's basically a black and white screen and nothing else).

But supported by a bookstore like Amazon, the Kindle quickly moved to push aside everything in its wake and achieved an unbelievable 90% market share and ultimately selling more ebooks than books themselves. 

And mine changed the way I bought books forever - a fantastic little device that I adore to this day.

Recently near where I live (Dalkey, Dublin) a beautiful little book shop closed after 30 years. Run by Michael, I went up on closing day to shake his hand and thank him for the memories - but on reflection of course, us downloaders must take some responsibility for these closures. Ebooks have destroyed retail sellers like 'Waterstones' and the wonderful 'Borders', but mind you, these retailers also let this online business get past them. Exactly as so many brands still are.

The Kindle has also revolutionised price, bringing down the cost of books. The Kindle Fire, in my view, is a further example of Amazon's ambition to sell more than books and notably VOD (movies /video on demand). In reducing prices, through reducing margins (such as retailer margins) it "upset" the market but was good for consumers. 

Publishers had always controlled publishing, pricing and distribution. Now they had a total change on their hands through the Kindle which actually allows authors direct access to publishing/distribution online. Great actually that the internet has broken that stranglehold too. But they didn't like it. And neither did Steve Jobs.

So in walks Apple. Late to the party but with a hugely popular device/s already out there (Iphone, Ipad) which could easily become book ereaders and in turn give Apple access to the market and compete with Kindle under a brand called 'ibooks'.

During that time (2008/9) Apple had meetings with certain publishers - because in order to become a major online book reseller, you need the content, the books, from the publishers. So you need the publishers "onside".

These meetings (actually more dinners than meetings included none other than Steve Jobs himself) took place in swanky restaurants such as New York's 'Picholine' and 'Alto' (per 'The Financial Times') with 5 of what is known as "the big 6" worldwide publishers.

What has been suggested and last week the subject of court filings, is that these meetings were in fact an attempt by Apple to collude with publishers over ebook prices (per 'The Daily Telegraph'). 

Publishers would enter into new agreements, called 'Agency models' with Apple, where the publisher could dictate the price of an ebook, provided the retailer (Apple ibooks) got 30% of the price. Not only would that fix prices, but drive them up for the consumer through collusion. And in doing so, give The Amazon Kindle real (unfair) competition.

Of course Apple gained by having the publishers support (so ibooks now had content) and it gave the publishers, in conjunction with Apple, an opportunity to re-establish old margins which had been squeezed as Amazon forced prices down.

Real greed, real old-world manipulation of Dickens and Thomas Hardy if it's proved to be true.

In three days in January 2010, on the eve of The Ipad launch the 5 publishers signed these "Agency agreements" with Apple (HarperCollins, Schuster, Hachette, Penguin and Pearson).

The charges that have now been filed against Apple and the publishers were immediately denied by Apple who said the "charges were simply not true". Fighting talk, however we then discover 3 of the 5 publishers, whilst admitting no guilt, immediately moved to settle. They claim innocence whilst at the same time make payments as if they were guilty. Interesting concept.

Interesting too that this weekend 'The Daily Telegraph' reports that Apple (remember, "simply not true") has offered to settle the matter in Europe but vowing to "fight on" in the USA. The European Union had opened an investigation into anti-competitive behaviour by Apple last December. 

In fact Apple now is trying to turn the PR towards the fact they they were simply trying to "break", Amazon's "monopolistic grip". Indeed they what is alleged, collusion in their own interest and to the harm of consumers by increasing prices.

The fact remains that through their cries of innocence, they're trying to settle matters, as are their collusion publishers, for using price fixing as a way to further their business to the detriment of readers like me. And I hate to say that because I always thought of them as being great.

People often say and are interested in the future of Apple after Steve Jobs and wonder how it will be? They often say, such as after the recent IPad launches that "it wouldn't happen if Steve was there". Sad that in this case, he was. 

What a pity that the great reputation of Apple has become tainted in this way. And yet how great it is to see more books being sold than ever, through the advent of ereaders because of low cost and ease of access.

We can thank Amazon and their Kindle for that.
Apple's "Agency Models" would have had the opposite affect.

Go out and get yourself a Kindle.