Remember your customer

My thoughts on the Apple/Amazon/Big 6 business model clash:

If publishers successfully force agency pricing  on Amazon (which appears to be happening), it will certainly be to the detriment of consumers. Publishers will raise prices in the name of reasserting the “true value” of their works, and less people will buy ebooks. Simple supply and demand.

Amazon selling ebooks at $9.99 (below cost) benefits consumers at the expense of competing retailers and weakens publisher’s control over pricing. Yet if Amazon’s strategy proves sustainable (that is, if Amazon can offset losses on bestsellers by raising prices of other ebooks), it will almost certainly lead to increased sales in the long run for publishers. Again, lower price=higher quantity demanded.

Then again, if Amazon’s model proves unsustainable, it will be just that. Nonetheless, in the short term, the strategy is akin to putting money directly into consumers pockets, while publishers are still getting paid for their titles. Amazon is accepting the losses intentionally and with full responsibility. What’s the problem with a little free money, folks?

Some people say this is predatory pricing–after Amazon drives all competitors out of the market they will raise prices and reap monopoly profits. Since there appears to be no long-term barriers to entry in the ebook retail market, I don’t give this threat much credit. If Amazon were to attempt this, a new competitor would enter the market after prices were raised and Amazon would be forced to keep predating, suffering even more losses.

I opine that publishers want to move to the new agency model so they can collectively raise prices. If there is monopoly power to be had, it is from collusion between the Big 6 conspiring to raise prices and lower output–the polar opposite of Amazon’s strategy. This would increase profits and lessen the likelihood of DRM breach.

But it is important to remember that the reason any business exists is to serve the customer. Ultimately, the most successful business will be that which best serves the needs of their customers. Ebook retailers have two “customer” groups: publishers (who consume retail services) and readers (who consume the end product). Apple is appealing to the former, Amazon is appealing to the latter. Because readers are the be-all-end-all customers, Amazon’s model should (if it could be proven sustainable) win the day.

For those of you pointing the finger at Amazon, shouting “monopoly!”, you should remember your customer. In the end, the better business is that which better serves the customer.

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