The impending (ebook) war: functionality and experience, not price
Until the unveiling of Apple’s iPad, Amazon had an effective monopoly as a large ebook retailer with the Kindle tied to their online Store. This has allowed them to exert control over pricing because the publishers had no alternative options. However, that dominant position has now been challenged.
Apple is expected to recommend pricing at around $12.99 – $14.99 but publishers will have the final say on that. This is a different pricing model from the one currently operated by Amazon which involves a set price.
As a result of Apple entering the equation, a dispute arose concerning one of the big 6 US publishers, Macmillon, who wanted Amazon to provide the same variable pricing structure. This is interesting because Macmillon were getting their fee regardless – it was amazon that was taking the hit:
Amazon prices all its Kindle e-books at $9.99 or less. This becomes a selling point for Kindle, as new hardback books can cost up to $27. In some cases, Amazon is actually paying the publisher more than $9.99 per copy sold, and losing money. But Amazon has stacks of cash, and it’s a way to sell more Kindles and gain market share. – Amazon v Macmillan: free market fail, Guardian
Books already have pricing ranges. A new hardcover release is usually more expensive before the paperback comes out later at a lower price. So currently the big advantage of the ebook format is consumers can access the latest releases at a lower price than the hardcover. This is not only a lower price but means they can read it right now when they might otherwise have waited for the paperback. The new pricing introduces more pricing variability on a per title basis but probably more consistency across platforms.
Amazon attempted to fight back by removing Macmillon’s books from its entire site. The problem is that because this is essentially 1/6th of all books and consumers can just buy elsewhere, Amazon quickly gave in to the demands. Had this gone on, the other publishers may have become involved too. This is an interesting example of increased competition affecting the market, even where the competing product is not yet available.
This pricing structure is similar to how iPhone apps are priced with developers deciding how much to charge and Apple taking a 30% cut. Such a model provides more flexibility for publishers but removes the ability for the retailer to provide a competitive edge through pricing alone. However, there are a huge number of iPhone developers and they therefore have no individual power.
In adopting the Apple model, the balance of power would shift at least partly back to publishers, which regain control of pricing,” the report said. “In setting higher prices, they could provide a level playing field for all e-book retailers. The potential for publishers is that the device may generate greater volume for e-book sales.”
One publish executive surmised that book companies will be left with a choice to embrace Apple’s device and hope it attracts more people to e-books, or stick with Amazon’s model which offers greater revenue. – AppleInsider on WSJ report
The effect of this is that ebook manufacturers (namely Amazon and Apple, but also other companies who may enter the market this year) can no longer compete on price. Instead, they will need to look at other options. The Amazon Kindle is very much a single purpose device – reading – and it is said to do it very well. However, the iPad not only does ebooks but is a multi-purpose device – email, web browsing and all the apps currently available on the App Store.
Amazon knows that it needs to expand the abilities of the Kindle – it has recently announced the availability of a Kindle SDK. We have seen the iPod touch replace the general iPod range as a multi-purpose device and it seems that Apple are now looking to do the same with the iPad. People do not want to be carrying several devices, although there is an argument for carrying a couple of devices if each one is heavily optimised for its purpose.
Amazon still have a few advantages, namely the worldwide wireless access. It’s very convenient to be able to purchase and access content anywhere in the world for free (there is a small fee depending on your country of origin and the content you’re accessing), a convenience that the iPad does not have. It will be a pain if you’re required to have data subscriptions for each country you want to take the iPad to.
Aside from functionality, like other Apple products, the competitive advantage is in the experience. Anyone who uses the iPhone, iPod (and to a lesser extent OS X) knows how great the user experience is. This is because Apple control the whole system and spend a huge amount of time on the UI. The iPad will likely be the same when it comes to buying books – from the store to the reader application.
User experience is a competitive advantage. So many devices, software applications and websites have poor user experience and it really does matter. This is not something that can be outsourced and requires a deep focus on usability from the beginning. Everyone involved has to have great design and experience as the first consideration, not something that is added as an afterthought. It’s difficult to get right, particularly because users often don’t notice when things are done properly! But statistics show that improvements in usability have a real impact on important metrics.
We have yet to hear how good the iPad is for prolonged reading. The Kindle’s eInk display makes it much more like reading a physical book than reading from a screen, but that presents limitations in what can be achieved visually. If the war is going to be won based on visual experience then this will pose a big problem.
When book titles are priced the same, cost ceases to be a factor in choosing which device to purchase. This is especially so when the pricing differences between the two devices are minimal but one has superior aesthetics and functionality. It’s certainly going to be interesting to see how things develop and what Amazon does in the coming months.
Feedback from the users of our server monitoring service, Server Density, indicate that user experience plays a big role in decision making when it comes to choosing one product over competitors. Whether it is ease of use, a great looking UI or a tight shopping experience, user functionality and user experience are now the most important things, not price.
