Thursday, May 13, 2010

A Bite of the Apple

Today we're going to look at Apple and its publishing strategy.

We begin on January 27 of this year with Steve Jobs' announcement about the forthcoming release of the iPad and the launch of the iBookstore.

The first thing to note about Apple's publishing strategy is that--unlike the Kindle or the Nook--the iPad is not a dedicated reading device. According to Apple's press release here, the iPad is a "device for browsing the web, reading and sending email, enjoying photos, watching videos, listening to music, playing games, reading e-books and much more."

Apple's iPod is a dedicated music device so why didn't Apple release an e-reading device? The answer lies in Steve Jobs' famous comment to the New York Times in January, 2008. Jobs said Amazon's Kindle "would go nowhere":
"It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore,” he said. “Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.”
Given that mindset, it makes perfect sense that reading would be relegated to an incidental function for the iPad.

And Apple is very clear that their main business is the sale of electronic devices, not electronic books. Their entry into publishing is intended to enhance their iPad sales.

Apple approached the Big Six publishers about contracting with the iBookstore. The New York houses indicated an interest, but with a twist.

As I've explained before, in the traditional "wholesale" model of publishing, the retailer pays 50% of the list price of a book and then sets its own retail prices. Five of the Big Six publishers expressed a willingness to partner with Apple, but only under a new business model. The proposed a new "agency" model, under which the publisher would decide the retail price of a book and pay Apple a 30% commission on each sale.

Apple agreed to a one-year contract. Only Random House sat out.

Under the agency model, the plan was to price most best selling e-books featured in the iBookstore between $12.99 to $14.99.

So the question remains: Will serious readers prefer to buy a $499 multi-function Apple device on which they can load a free Amazon app which will permit them to shop on Amazon ... or will those serious readers prefer to buy a $259 dedicated e-reading device from Amazon? Or will they opt for another direction altogether?

Will both Apple and Amazon continue to prosper in the publishing arena? Apple has already announced that they sold 1 million iPads by in just 28 days. If only 10,000 of those million iPads sold were for the $599 version that has more memory, Apple could already have half a billion dollars in iPad gross sales.

And with a million iPads in circulation, that new Amazon app makes it likely that at least a few of those users purchased e-books from Amazon.

The real revolution will begin when the technology advances to the point that color graphics and photos can be cost effectively reproduced in an e-reading device. Then textbooks, picture books and children's books will all be available for sale on e-books.

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