How did Apple’s decision to enter the e-book market affect Amazon?
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Apples E-book Business Model affected Amazon in a few ways. One, it allowed Amazon to continue to grow its dominant market share in the digital book market. Two, it resulted in increased competition for digital book readers and pricing pressure for e-books.
What is Apple’s e-book business model?
Apple’s e-book business model is quite simple. Apple takes a 30% cut of any book sold through its iBooks platform. This 30% cut is significantly higher than the usual 10-15% that most e-book retailers take. In order to get this high commission, Apple requires that all books sold through iBooks be priced at $9.99 or less. This low price point is intended to attract customers to iBooks and away from Amazon, which typically sells its e-books for $12.99 or more.
The problem with Apple’s e-book business model is that it is not sustainable in the long-term. In order for Apple to continue to make money from iBooks, it needs publishers to continue to sell their books at $9.99 or below. However, as Amazon has shown, it is possible to sell e-books for much higher prices and still make a profit. If publishers start raising their prices on iBooks, then Apple will either have to raise its commission (which it is unlikely to do), or start selling e-books at a loss. Neither of these options are good for Apple, which is why many analysts believe that Apple’s e-book business model is not sustainable in the long-term.
How did this affect Amazon?
When Apple announced its new e-book business model, it caught Amazon off guard. In response, Amazon quickly raised the prices of its e-books, effectively matching Apple’s prices. This put Amazon at a disadvantage, since it was now selling e-books for the same price as its competitor.
The move had a significant impact on Amazon’s bottom line, as the company saw a drop in e-book sales. This was due to the fact that consumers were now choosing to purchase e-books from Apple instead of Amazon. In addition, many publishers began to sign exclusive deals with Apple, which further eroded Amazon’s market share.
Despite the setback, Amazon has managed to remain the dominant player in the e-book market. This is largely due to the fact that it has a much larger selection of e-books than Apple. In addition, Amazon has been aggressively discounting its e-books in order to lure customers back to its platform.
Why did this happen?
In order to understand how the apples e-book business model affected Amazon, we need to first take a look at the model itself. Apple’s e-book business model was based on the “agency model,” which allowed publishers to set their own prices for e-books and kept 30% of the revenue for itself. This was in contrast to Amazon’s “wholesale model,” in which Amazon bought e-books from publishers at a set price and then sold them to customers at a lower price, keeping the difference as profit.
The problem with the agency model, from Amazon’s perspective, was that it allowed publishers to effectively raise the price of e-books by setting a high list price and then giving Apple a smaller cut than they would have under the wholesale model. This meant that Amazon would either have to absorb the loss or raise prices for customers, neither of which was desirable. In response, Amazon began negotiating with publishers to switch to the agency model, but when apple implemented it, they did so without informing Amazon.
As a result of this change, Amazon was forced to raise prices on many popular e-books, angering customers and driving some of them towards competitors like Barnes & Noble. In addition, this put Amazon at a disadvantage in negotiations with publishers going forward, as they were now seen as unwilling to match Apple’s terms. In sum, Apple’s adoption of the agency model had a negative impact on Amazon in several ways.
What are the implications?
The apples e-book business model had a severe impact on Amazon. In the past, Amazon was the sole provider of e-books. This allowed them to control the prices and the demand for e-books. However, when Apple entered the market, they changed the game.
Apple offered a different business model in which they would take a 30% cut of all e-book sales. This put pressure on Amazon to lower their prices in order to compete. As a result, Amazon’s margins were squeezed and they were forced to sell e-books at a loss.
This had a ripple effect on the entire e-book market. Other providers such as Barnes & Noble and Kobo were forced to follow suit and lower their prices. This led to a race to the bottom wherein everyone was trying to undercut each other on price.
The main implication of this is that it will be harder for any single player to control the e-book market in the future. Apple’s entrance has created a more competitive landscape where no one player can dictate terms.
How could things have been different?
In late January 2010, Apple announced its newest creation, the iPad. This device was immediately compared to Amazon’s Kindle, which was then the most popular e-reader on the market. Manyanalysts believed that the iPad would spell the end of the Kindle because it offered a more versatile experience with color and multimedia. However, Amazon had a secret weapon up its sleeve – the e-book business model.
The Kindle uses a “freemium” business model for its e-books. This means that customers can buy an e-book and then have the option to purchase additional content, such as bonuses or extras, for a fee. For example, an author may offer a chapter from their next book as an incentive for buying their current book. This business model has been extremely successful for Amazon because it allows them to make money from both ebook sales and content sales.
In contrast, Apple uses a “pay-per-use” business model for its iBooks. This means that customers must pay for each individual item they download, such as an individual chapter or bonus material. While this model is less expensive for consumers in the short-term, it is not as profitable for Apple in the long run.
So why did Amazon choose a different business model than Apple? There are two main reasons. First, Amazon wants to encourage customers to buy more e-books so that they will become repeat customers. Second, Amazon knows that most people do not read an entire e-book in one sitting; they may read a few chapters and then come back later to finish it. By offering extras and bonuses, Amazon can keep customers engaged with their product even when they’re not reading it.
It’s still too early to tell who will win the battle of the e-readers, but one thing is certain – the way each company has chosen to monetize their product will have a big impact on theirsuccess or failure.
What does the future hold?
As the e-book business model continues to evolve, it will be interesting to see how Amazon and other major players adapt. One thing is certain – the e-book market is here to stay, and it shows no signs of slowing down.
The introduction of the Kindle Fire and its accompanying Appstore disrupted Amazon’s e-book business model and forced them to abandon their strategy of selling digital content at cost. The new model, which sells digital content at a profit, has been successful for Amazon and has allowed them to expand their reach into the tablet market.
Apples adoption of the agency model for its iBookstore in 2010 led Amazon to follow suit with its Kindle e-books. The agency model allows the publisher, not the retailer, to set the price of an e-book. This change in the business model caused tension between Amazon and some of the publishers that it had been doing business with.
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