[seldo]

My two big takeaways from this are:

1. Amazon sells every Kindle ebook at a loss of $3 -- they pay $13 wholesale and sell it for $9.99. I thought this was a typo, but then Jobs repeated the figure (though he said $12.50). It was my impression that Amazon also sells the Kindle itself at near-cost, so does that mean that Amazon's entire ebook business has been running at a loss the whole time?

2. Jobs certainly did win this negotiation, but ultimately they were both wrong. As Jobs says, "Heck, Amazon is selling these books at $9.99, and who knows, maybe they are right and we will fail even at $12.99." Amazon's share of the ebook market in the US is 65%, with Barnes and Noble (who also charge $9.99 for most books) another 25%. iBooks has the remaining 10%, nothing like the success of iTunes in the music market.

[rkudeshi]

A little backstory to explain the $13 wholesale -> $9.99 retail thing:

Books have traditionally been sold to wholesale at $14, then sold at retail for $28 MSRP. When Amazon started selling ebooks, they stuck with the same model - they were buying ebooks wholesale from the publishers at $14 each.

However, they proceeded to sell them to consumers at $9.99. Yes, they were losing money on every sale. Why? Because they knew this was their chance to dominate the books industry, just as iTunes had done in music. Amazon's MP3 store, despite launching with cheaper and DRM-free music, has never been able to make a serious dent in iTunes' market share. So Amazon knew there was a huge advantage in being the first to dominate the market.

Of course, as Jobs alludes to in the emails, this was unsustainable in the long term. The publishers knew that once Amazon became the dominant ebook seller, they would come back to the publishers and revise the terms of purchase. At that point, $9.99 would've become ingrained in consumers' minds and Amazon would've said they could no longer pay $14 wholesale, probably more like $7 wholesale instead.

The reason the publishers acquiesced to Jobs so quickly was because they knew 70% of $12.99/$14.99 would be better than 70% of $9.99 in the long run.

(Because of most-favored-nation clauses in the contract, publishers forced Amazon to also increase prices to $12.99+ and switch from the wholesale model to the agency model once the iPad went on sale. Amazon pulled HarperCollins books from their site briefly, hoping a groundswell of consumer backlash would force HC and Apple to revise their contract. It didn't happen and now ebooks are sold just like apps - publishers set the price and Apple/Amazon gets 30%.)

[comrade_ogilvy]

Thanks! That is helpful.

The bottom line is that Jobs knew that he was offering HC a fair deal. For HC to argue that they needed a bigger cut was based on smoke and mirrors. "Gee, if you want to make only the same amount of money you could just give the authors, um, more money, right?" That is an elegant way of calling a bluff.

[mtgx]

> "Amazon's MP3 store, despite launching with cheaper and DRM-free music, has never been able to make a serious dent in iTunes' market share".

Maybe because iTunes selling DRM'ed music for so long helped them gain that market lock-in, just like it helped Amazon get the same lock-in with DRM ebooks.

If publishers knew what's best for them, they would force Amazon to offer DRM-free books before it's too late, and the process can't be reversed anymore.

[giulianob]

I think it's simpler than that. Most people don't have a clue about DRM. What they know is if they want to listen to music they go buy an iPod and buy music on iTunes. It's more about brand recognition IMO.

[raldi]

They may not have a clue about DRM, but what they do understand is, "If I switch to <competing thing>, I won't be able to use it to listen to my existing music collection, or read any of the books I already bought, or run any of the apps I downloaded?"

And that is all caused by DRM.

[chc]

Except iPod remained just as dominant even after going DRM-free, so that doesn't appear to be the issue.

[raldi]

The iPod isn't as dominant as ever, iTunes is only partially DRM-free (many songs still aren't available for sale that way), existing songs in your collection don't get unlocked, and users have to either pay per song or subscribe to iTunes Match to unlock them.

[ojiikun]

All I took away from this was that AAPL wanted to make about $0, AMZN wanted to make about -$3, and in both cases the author makes about $3, meaning that of the $13 wholesale, the publisher is getting a 75% cut of the sale.

I cannot fathom that the publisher performs any function possibly worth this much money. How, since we no longer have to ship dead trees, have we not evolved a system that gives authors 75% of the sale price?

[adrianhoward]

I cannot fathom that the publisher performs any function possibly worth this much money. How, since we no longer have to ship dead trees, have we not evolved a system that gives authors 75% of the sale price?

Because the dead trees are only about 10% of the cost of publishing a book (and since the tax laws for ebooks are different in many countries that saving is often immediately eaten up by higher taxes).

Because many (most?) authors want to spend their time writing - not publishing. Because producing a book takes time and money. Because publishers also essentially act as the VCs of the book market. Most authors don't earn out their advances.

Take a look at the breakdown of the cost of a bestseller http://journal.bookfinder.com/2009/03/breakdown-of-book-cost... for some vague evidence on how much money publishers actually make out of a book.

(The slice taken by marketing in the above seems high from what others have told me. Its also a somewhat simplistic breakdown since it ignores some of the long-term costs from publishers that aren't related to "books" directly. e.g. the advances to authors who never get published, etc. - so the potential publisher profits aren't quite as large as they appear here - there's other overhead outside the printing/distributing/selling books bit)

Also see http://ireaderreview.com/2009/05/03/book-cost-analysis-cost-...

It's also something Charlie Stross has posted about a fair bit see this collection of posts http://www.antipope.org/charlie/blog-static/2010/04/common-m...

TL;DR - people think about book prices being related to cost of producing media. That's like thinking software costs are mostly about the price of printing DVDs or shifting bits. It's mostly about book development costs - not media costs.

[Guvante]

Apple has always made 30%. They were the ones to start that model.

Publishers are actually about relationships, not dead trees. They can get your book to the customer, which is where the value is. From the consumer point, you only care about the producer, but the producer cares about the publisher a lot more than the customer.

[jbooth]

Yeah, but again, that's back when you'd be talking with all these different retail stores to get your book to the customer. Plus printing, shipping, all that.

How about 1) Write book. 2) Spend a day or two getting it on Amazon, Apple, B&N online. 3) Keep 100%.

Might be harder for authors who need marketing but I have no idea why established authors aren't self-publishing en masse.

[elithrar]

> How about 1) Write book. 2) Spend a day or two getting it on Amazon, Apple, B&N online. 3) Keep 100%. Might be harder for authors who need marketing but I have no idea why established authors aren't self-publishing en masse.

The issue there is that if no one knows about you or your book, 100% of nothing is still nothing. Publishers also often provide advances, which can be make a big difference.

Note that I am not defending some of their questionable business practices, but to pretend they provide zero value is silly.

[sireat]

There have been numerous posts by authors (some here on HN) that publishers offer very little marketing these days.

You have to do the marketing legwork yourself, even if you are with a major publisher.

The advances might be the one thing they offer, but then Kickstarter might be an option.

[hkmurakami]

AAPL makes $3~4.

Publishers are who "make" the writers in the first place (unfortunately) by shouldering the distribution, marketing, etc. Without them (or without the author being e-famous(tm) already), an author can't hope to sustain himself through writing.

Maybe things would change if we were more willing to "pay" for discovering content creators through our own time investment, but this is doubtful.

[robotresearcher]

eBook distribution is now handled by Amazon, BN and Apple. No reason to pay the old publishers for that.

[objclxt]

Amazon, BN, and Apple don't pay advances (...to the vast majority of authors. Maybe a few exceptions for big name exclusives).

Many authors write books, send them to their agent to sell, and then get paid up-front by a publisher, followed by an agreed royalty should the book sell more than a certain amount. This offers a certain amount of security, more so than self-publishing.

The more important point is that for many authors, the international markets are a big source of revenue. Self publishing in English is one thing - sorting out the translation is quite another.

I think it's important to not tar all publishers with the same brush. There are actually a growing number of independent publishers dedicated to the indie/digital space.

[valleyer]

Old habits (and legacy establishments) die hard.

[6d0debc071]

Well, publishers still do something - marketing and relationships mostly, I believe - but realistically they don't do anything worthy of that sort of money. It's just difficult to do things without them. I vaguely remember a story about a woman a while back who had just hired a publisher to do marketing for her though, rather than acting as a publisher and taking massive loads of money from it. So, it definitely sounds possible to get around them.

Sort of like the music market, from the sound of it - massive rip-off. But if they're the people who control the majority of the publicity....

[TylerE]

They also, in most cases, front an advance (with no guarantee of getting it back), which allowed the author to work on the book without starving.

[6d0debc071]

There's plenty of excellent, freely available, writting out there that didn't involve an advance. So, I'm sceptical of the necessity of that model.

But even if we assume that an advance was necessary - A couple of years of no starvation wages ought to be negligible compared to the sort of amounts we're talking about for a successful book. You don't pay fixed amounts back in terms of percentage of take - that's foolish. At worst you might pay it back with a risk premium, like a bond.

Publishers would presumably have you believe that they're providing a service, at risk to themselves, and that risk is sufficient to justify their take. That they have to make as much money as they can on the few successful books to pay for the masses of dross that they fund. But this just makes it an exceptionally bad deal for people who are consistently good. If you have a track record, then you should be in a different risk pool.

The questions are really ones of risk management and information asymmetry: how many successful books are you going to get and how well can you predict your risk? Does the author even need an advance? Are the editors even honestly trying to predict the success of a book or are they just going with their gut or their political bias or whatever? It's not a very competitive market after all.

If people had the option to not take an advance, and to take a much larger cut of the sales, I think many would.

[peterkentdsen]

Amazon never sold every Kindle book for $9.99; many were sold for higher. The DOJ reported after their investigation that they found Amazon was making a profit.

[k-mcgrady]

>> "Amazon's share of the ebook market in the US is 65%, with Barnes and Noble (who also charge $9.99 for most books) another 25%. iBooks has the remaining 10%"

That's in the US. Worldwide Apple is estimated to have around 24%. Not great but not too bad either.

[adventured]

1) No, because Amazon does not always pay $13 wholesale, and they do not always sell for $9.99. There has never been a segment wide set figure on either.

[fragsworth]

So was Steve just making shit up? i.e., he won the negotiation because he was so full of shit that they didn't see any way to talk sense into him?

[jonknee]

I guess you're right if by "winning" you mean signing a deal and then having a criminal investigation into his behavior. I'd wager that no one won (customers lost, the publishers didn't make any more money and now Apple is stuck in a legal battle that all the counter parties have paid their way out of).

[declan]

This is incorrect. The DOJ filed a civil lawsuit, not a criminal prosecution, against Apple.

The Feds are unlikely, IMHO, to win the case. Here's something that Greg Sandoval and I wrote at the time the lawsuit was announced, and I think it holds up well today: http://news.cnet.com/8301-13578_3-57412861-38/

[GalacticDomin8r]

Careful, Jobs-hero worship is still quite high.

[grimtrigger]

2) Doubt this is a fair comparison. Kindles are clearly a superior device for reading than iPads.

[lostlogin]

Not for all. 1) Reading for me involves access to a browser and typing on a kindle is deeply unpleasant.

2) Reading in the dark requires a light and the attachments for the kindle have all seemed a kludge to me. That said, the iPad is imperfect here are the screen doesn't dim enough.

[OrsenPike]

I think a better way to phrase it would be "Kindles are clearly a superior device for reading [novels and similar material] than iPads."

An iPad obviously is better for things like glossy magazines, graphic heavy books/PDFs, etc. However as a replacement to my "books" then the Kindle wins over the iPad.

Also the Kindle Paperwhite (and Kobo Glo, etc) are pretty great for low light reading. I agree the old lights were a bit annoying although the Amazon leather lighted case has always been pretty decent to be fair.

[meepmorp]

> Kindles are clearly a superior device for reading [novels and similar material] than iPads.

For you perhaps; I prefer reading on an iPad. It doesn't bother my eyes, and it doesn't make it difficult to sleep. Maybe the fact that I don't typically read outside makes some difference here.

[mitchty]

Probably, I tried the other weekend to read a kindle book on my ipad outside.

Yeah not happening with sunlight at all. Not sure how the kindle works out there, but the glossy ipad might as well have been a mirror.

[skeletonjelly]

Still, the difference is staggeringly: staring at a lightbulb vs a surface.

[meepmorp]

They're different, sure; I prefer staring at the lightbulb, apparently.

[chrisbolt]

"Reading in the dark requires a light and the attachments for the kindle have all seemed a kludge to me."

Kindle Paperwhite has an LED backlit screen with an e-ink display that sounds like exactly what you want.

[stevenwei]

The Paperwhite really is a fantastic reading device: the e-ink works perfectly under sunlight and the backlight works perfectly in the dark. The only thing I don't like about it is the touchscreen interface can be rather clunky/slow to use.

Also, I can't help but feel that e-ink and LCD displays are going to converge in the not-too-distant future, and at that point there won't be much reason to buy a Kindle over an iPad anymore.

[durzagott]

Actually, it's an LED frontlit screen, not backlit. While this may seem like a small distinction, it is much easier on the eyes (I'm told).

[otisfunkmeyer]

If you jailbreak, there's f.lux which greatly helps and there's another tweak which makes the lowest brightness even lower. It's a great combo and changed the game for night-reading on the iPad for me.

[lostlogin]

Thank you - I'll investigate. I've only ever got funny looks when I say 'how far can you dim it' to people with devices I might want to use in the dark.

[fuebar]

well, kindle paperwhite is awesome but the fact that I cannot load my pdfs or other ebooks format keeps me away from it.

[TechNewb]

Another interesting note is the level of innovation. Apple is reinventing the 'book' in the digital realm, by providing authoring tools for free, while rethinking what a textbook can be in the digital real (videos, interactive content, etc.). I hope more publishers take advantage of it.

I personally still prefer the PDF for e-books, as it maintains original design, layout, and typography, as well as page numbers. I'd like to see Apple and Amazon both start selling these formats DRM free, with watermarking.

Amazon's Kindle has e-ink, and a great selection for fiction, but not too many text books. And honestly I would not want to read a programming book, or other text book, on the kindle for the reasons stated above.

[chrisbolt]

"I personally still prefer the PDF for e-books, as it maintains original design, layout, and typography, as well as page numbers."

That's great if your device happens to match up with the size of a book, but it's far less flexible when it comes to devices of different sizes. I want to read books on whatever device I have, phone, small tablet, large tablet, computer, whatever. And I want the ability to adjust the size of the text. I don't want to lose that just because some books might not have that flexibility, and most do.

Also, Kindle and iBooks have page equivalents, that solves the page number issue.