[pedanticfreak]

My understanding is that Amazon was guaranteeing some publishers the same profit per sale that they would get from a hardback book in exchange for allowing Amazon to fix the price at $9.99. In some cases the profit was more than the $9.99 Amazon was charging so Amazon had to pony up $1 or $2 on each sale.

I think more recently Amazon has allowed publishers to use an alternative agency model that lets the publishers set their own prices and Amazon takes a fixed percentage cut of the sale. This doesn't cause Amazon to lose money, but now publishers can sell eBooks at nearly the same price as paper books which hurts the Kindle's attractiveness and slows adoption.

Regardless, this is an unworkable situation Apple has constructed. Amazon barely makes 30% of the sale price of each book if it even makes that much at all. It can hardly afford to give away its entire fee and then some to Apple.

This is either a strong arm attempt to get Amazon to agree to a strategic agreement for a fraction of the revenue or Apple is simply trying to destroy the Amazon Kindle app entirely. Either way Apple wins and Amazon loses. I suppose consumers can come out ahead if the strategic agreement allows in app purchasing of Kindle books for the same price, but it could also be bad if the iOS Kindle app disappears.

[wildwood]

I wonder if Apple might use this as a way of phasing out BookShelf and making the Kindle app the standard reading software for the iPhone. If the Kindle app shipped on every new iPhone, that might be worth it to Amazon to give Apple a respectable cut of the action.