Apple Lost the eBooks Trial, But It Can Still Win the eBooks Market

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3-shot

Amazon is beating Apple in the eBooks racket by using Apple’s own pricing strategy for music.

But Apple can still clobber Amazon by out-Appling not the iTunes pricing strategy, but the Apple marketing strategy: Create a vastly better user experience for both content creators and content consumers! Oh, and focus on audio.

Here’s how.

The music industry didn’t like it very much when Apple started taking over the growing digital music business by forcing a standard, rock-bottom price of 99 cents per song.

They wanted to control distribution (to keep selling albums, not singles) and they wanted to set prices.

But Apple said no: Nearly all songs would cost 99 cents and music studios didn’t like it they were free to go sell songs for the Diamond Rio.

By the time the studios arrived at their conclusion that allowing Apple to sell songs at that price was a mistake for them, it was too late. Apple’s dominance in downloadable music was so great that iTunes distribution was a requirement for any song to succeed.

That’s a similar model Amazon used to gain 90% of the eBooks market.

But it didn’t work as well for Amazon, as the company was unable to hold on to their overwhelming lead. Amazon’s market share has been declining and, as of today, they have about two-thirds of the market. Apple now has a growing 20 percent of the market and Barnes & Noble has most of what’s left over.

Still, Amazon is clearly winning and more so now that Apple has been found guilty of illegally conspiring to fix eBook prices.

Note that Apple was not found guilty, as some have said, of anti-trust behavior. The judge in the case specifically said that it doesn’t matter whether or how Apple’s actions harmed competition or reduced consumer choice or represented an abuse of some kind of monopoly power (which Apple does not have in eBooks).

Apple’s actions were simply illegal, she ruled, regardless of marked status or conditions.

It’s also not true that the “agency model” was ruled illegal.

(Amazon’s “wholesale model” means Amazon buys books from publishers, then sells at whatever price it wants to — Amazon controls the price. Apple’s “agency model” means Apple charges a percentage of whatever publishers choose to sell books at — publishers control the price.)

The problem with Apple’s agency model is that it results in higher prices. And, of course they’re higher — Amazon’s $9.99 default for popular books is often below cost. Amazon is losing money on many books. Any publisher that wants to actually make money is going to charge a higher price and therefore nobody is going to buy.

Steve Jobs tried to figure out a way to make money on books while competing against a competitor often selling at a loss. The “solution” was a clause saying that publishers may set any price they like, but they can’t charge a different price for the same book elsewhere. In other words, they can’t charge $12.99 on iBooks and then charge $9.99 for the same book on Amazon.com.

And that was the price-fixing conspiracy part.

You see the pickle Amazon has got the industry in? Nobody can charge the same price Amazon does unless they want to lose money on every sale.

Stated another way, charging the Amazon price on Apple means publishers lose money. And charging the Apple price on Amazon is against Amazon’s policy and also against the law if that price is governed by an agreement with Apple.

Amazon has made it impossible to make money on books.

Or have they?

Apple’s 5 Advantages

Apple has five advantages that other companies don’t have.

First, Apple is a premium brand with rabidly loyal users.

While Amazon customers in general and Kindle users in particular are likely to be readers willing to pay money for what they read (or why else would they buy a Kindle), Apple’s user base is probably in second place in that regard. However, Apple has vastly greater absolute numbers.

In other words, a huge percentage of the total potential eBooks market is made up of loyal Apple fans.

Second, Apple users are almost by definition people willing to pay more for superior user experience in general.

Third, Apple’s user base contains a wildly disproportionate percentage of content creators and media innovators. Most graphic designers, indy filmmakers and other types are using Apple products.

Fourth, Apple’s users are especially focused on music, podcasts and audio, because Apple dominates this space and has done since the iPod first came out.

And fifth: iCloud.

These three advantages suggest a strategy for how Apple can beat Amazon: Go ahead and charge more for eBooks, but create a much better user experience for both consuming and producing those eBooks.

Of course, that’s kind of the strategy already. But as books evolve, and more multimedia content is created, Apple should be driving the content-creator and content-consumer experience to such extremes that a more expensive book becomes totally worth it.

I also think Amazon is vulnerable. Amazon owns Audible.com, a company that sells audio books at shockingly high prices.

The Kindle version of Stephen King’s book Under the Dome costs $7.99. The member price for the Audible.com version is: $32.62.

Combined, Under the Dome costs $40.61 for book eBook and audiobook versions.

Surely Apple can beat that price for a beautiful multimedia version that can be “consumed” as a book, an audiobook and/or a multimedia book — say, for $29.99.

So here’s how it would work. Each iBook once purchased could be consumed any way you like. So they could start reading at night while in bed. The next day, thanks to iCloud, you could pick up right where you left off, but listening to the audio version in the car. Once at work, you might set the book on auto-read while you read it on your iMac hands-free. Still later, you might keep “consuming” the book as a multi-media experience on your Apple TV or future iTV, combining video, pictures, interactive and other stuff.

Apple could give publishers the option to either have the author read the book, have an actor read the book or have Siri read the book. (Not the old Siri, but the shiny new iOS 7 version of Siri, which is very human-sounding)

Of course, Amazon does a low-rent version of this — remembering where you left off on one device and picking up on another, and the electronic reading of books.

But the Apple experience could be so much easier, richer and better. Apple already has a huge lead — iPads are better than Kindles; Siri is better than Amazon’s voice-reader, etc.

In doing so, Apple could transform the audiobook from a product into a feature.

By continuing to develop the platform for re-inventing what a book is, Apple could win with its agency model, higher prices and all the rest.

Incidentally, if Apple does this well, the best-case scenario is for Apple to re-invent what a book is, simultaneously obsoleting both the print book and the audiobook.

Apple lost the eBooks price-fixing conspiracy trial, and they’ll lose the appeal.

But it’s not over for Apple and eBooks. It could be just the beginning of something really great.