[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.