Who decides what an e-book book costs, the retailer or the publisher? This is the question at the heart of the debate on e-book pricing. Previously many publishers sold e-books to retailers for a fixed rate and the retailer decided what to charge the end user. If the retailer wanted to make a small profit, big profit or even a loss it was up to them. Amazon seized this model since they can sell e-books for near, at or even below cost and still make money by selling other products. Amazon’s loss-leader strategy paid off and the Kindle is their best selling product ever.
However, Apple would rather that the publisher set the retail price and give the retailers a fixed 30% margin. Even though this is blatantly anti-free market nobody seemed to care in this case because iPads are very shiny and people are impressed when you have one of these fondle-slabs. Apple doesn’t sell anything at a loss or even at low margin so this model fit better with their philosophy.
Today Random House became the last major publisher to switch over to the agency model that Apple prefers.
When you listen to Apple talk about the iPad 2 tomorrow just remember what it costs you and what it costs the market.
