An Introduction to the Future of Books

Amazon's Kindle has become one of the most popular e-readers.

The book world is facing a systemic reorganization. The electronic-book’s climb into public acceptance has forced nearly every publishing company to consider an e-book future, and two distributors — Amazon and Apple — (possibly three including Google Books) are currently vying for dominance in this emerging market. The implications for one of man’s oldest media traditions are massive, and to a large extent, the outcome remains speculative. However, examining contemporary power struggles between e-book publishers and retailers and recent market innovations provides a glimpse of what the e-book market may someday become.

Conventional book production has become a well-known formula: publishers sponsor and collaborate with writers before passing on the finished product to retailers, who ensure they reach customers. However, as with nearly all innovations, e-books have disrupted the status quo.

E-books and e-readers (devices that display e-books) eliminate many of the costs associated with distributing books, such as shipping, printing and storing. Similar to news media’s current transition to online content, in theory e-books remove the need for massive retailers and thus empower publishers.

Paradoxically, however, e-book retailers have shown they still exert plenty of power over publishers—though publishers have begun to fight back.

The recent pricing battle battle between Macmillan and Amazon last January illustrates this relationship perfectly. Since beginning to distribute them, Amazon has reserved the right to price e-books, typically at $9.99. Many publishers have pressured Amazon to raise the price in order to increase profit margins and avoid devaluing physical books; however, Amazon’s massive market power enabled it to resist. In addition, publishers themselves relied too heavily on Amazon for book sales to risk damaging their lucrative relationship.

Macmillan’s victory over retail giant Amazon could start a trend of publishers fighting back.

Finally, Macmillan CEO John Sargent saw a leveraging point. Shortly after announcing it would enter the e-book market with its new iBooks store for the iPad, Apple met with publishers to discuss a new pricing model now called the “agency model.” This model affords publishers much more power by enabling them to set the price of a book. In exchange, the retailer, i.e. Apple, takes a cut of this price for sales much like an agency would get a cut of commissions. Sargent saw the new model would give his company the power it needed and approached Amazon with an ultimatum: either Amazon follows Apple’s lead and adopts the agency model or Macmillan would restrict the publications of its e-books.

Macmillan CEO John Sargent

“The agency model would allow Amazon to make more money selling our books, not less. We would make less money in our dealings with Amazon under the new model. Our disagreement is not about short term profitability but rather about the long-term viability and stability of the digital book market.” — John Sargent, Macmillan CEO.

Amazon refused, ceasing all sales of Macmillan books. Two days later, however, Amazon caved after rumors spread that several other big publishers —  Simon & Schuster, HarperCollins, Penguin, and Hachette — were planning to follow Sargent’s example. The retail giant could not afford to lose so many titles and had no choice but to capitulate.

Apple released the iPad primarily as a media-consumption device.

While certainly dramatic, the Amazon-Macmillan battle is most likely a harbinger of bigger struggles to come. Since then, Apple has taken more steps to erode Amazon’s market dominance, including releasing the iPad primarily as an e-reading device.

Here, critics will disagree, but its functionality suggests the iPad was conceived of primarily as a media-consumption device, which fits right into the e-reader market. Up for debate is whether the iPad’s other functions will give it an edge on competing e-readers. Its higher price could also serve to fracture the market into tiers in much the same way as laptop computers — separate sub-markets for cheep, low-end readers and high-powered expensive readers.

Steve Jobs annouces iAd, an app-based advertising service.

Perhaps even more exciting for true media geeks was Apple’s announcement of iAd, an app-based advertisement service that could revolutionize the e-book revenue model. Some bloggers have already discussed the implications embedded advertisements could have in e-books — and not all are bad. In fact, this new revenue source could open up more flexibility and innovation. For example, ads could allow authors without an expansive infrastructure to finance a book through ad revenue. It could also lead to multi-version e-books  — ad supported versus consumer supported — displacing or decreasing the price readers are currently required to pay.

These revolutions in both corporate power structure and media functionality have far-reaching implications for the future of media consumption. However, current day-by-day advances and struggles are plowing the ground for that future today.