Friday, March 20, 2009

The Race for Digital Books and Apple's Lack of Strategy

The three biggest players in the digital editions or eBooks space may have already announced their presence in the market: Amazon, Google and Apple. Apple did it this week and I am not sure that onlookers have yet understood the Apple position. There has been a persistent view that Apple may be planning to develop an eBook or a digital books strategy. I think it is now clear that their very clever strategy is based on the insight that they don't really need one.

Amazon and Google have been shaping up for a tussle for a while, and seem to be pulling the book market from opposite ends like a giant Christmas cracker waiting for it to come apart in their hands. With a bang. Apple, on the other hand, has been sitting coyly on the sidelines, with Steve Jobs publicly and sceptically wondering whether there is going to be a market for digital books.

The announcement earlier this week about Apple's iPhone OS 3.0 made it at last pretty clear how Apple is going to become a player and the strategy is so simple and solid that I am surprised that more of us did not see it coming. Apple has taken the very sensible position that it doesn't need to be a big player in the digital books or the ebooks market to win the game hands down. Apple is going to let authors, publishers and developers get on with their business and work out how the digital books market is going to work and Apple is just going to collect the market-maker's fee for letting it happen, on and in the iPhone arena. Apple is being quietly agnostic about the way that digital books should work, it is just inserting itself in the situation with the proposition, that if they are to be sold on the iPhone platform, Apple will take a 30% commission.

To get back to the Christmas cracker that Amazon and Google have been pulling at: Google thinks that the future of books is a future of digital editions in a global digital library (managed of course by Google). This is a world in which books are in a database in the cloud. Amazon thinks that the future of digital books is a future in which we all have, Kindle-shaped eBook readers in our pockets in which we store the books that we own. From the Google end of the cracker we are talking about massive databases where most usage is surely going to be free. From the Amazon end of the cracker we are looking at file formats where a lot of books, certainly new books, will be downloaded and probably sold, mostly by Amazon. Google has recently been showing some mild indecision about its own vision, first in producing a new type of re-flowable file format for its GBS Mobile offering, and then by offering half a million 19th century eBooks to the world via Sony. I dont think Google is really going down the eBooks road but it does look a bit like backtracking. Amazon has also shown some mild indecision by producing a virtual Kindle a Kindle 'environment' for the Apple iPhone which means that you do not need to have the actual bit of Amazon kit to read the proprietary file format. Amazon may have wobbled, but Amazon seems to be sticking to the view that it is in the bookselling business rather than the library business. Interestingly enough both these bouts of indecision took place on the iPhone platform. What is this telling us?

The position that Apple have announced for themselves is stylish, decisive and agnostic. Apple doesn't mind whether books are based in the cloud as web resources, or shipped around the internet as book-specific file formats. Web-based books, digital editions and ebook file formats can all run easily on the iPhone if that is what is needed: "Open house, come over here and play". That is the message from Cupertino. But Apple is also saying that if you want to trade these new booky gizmos on the Apple platform and sell them through the Apple e-commerce system, you will be expected to pay 30% of the gross to Apple. While you are at it you might as well call them Apps. In consideration for this courteous invitation, Apple will handle the transaction and any strictly necessary hosting fees.

Since Amazon have a track record of obtaining 55-65% discounts from book publishers, and since Google's terms have trade for the Settlement have been announced at 38% (plus a bit more), the Apple share does not look too greedy. But for the daily expense in running the Store it is a fat margin. Apple will thus appear to most publishers and authors as a reasonable partner, a less monopolistic partner, than either of the other West coast web giants, and since Steve Jobs is quite agnostic about the way in which the books will work Apple has a good chance of coming up with the prize hidden inside that cracker. If this is a race, I am tempted to call it for Apple. But there are quite a few laps to go yet.

5 comments:

Avinash Meetoo said...

Interesting.

But I fail to see why Amazon or Google would pay 30% of the gross earnings to Apple. I can understand that for the application being run on the iPhone (but I believe it's going to be free if released) but the books themselves will come over the wire...

Gareth Jones said...

And whilst all this has been going on I have been using eReader for years on my Palm(s), and now on the iPhone. Some companies are talking about it, some companies have been doing it for years!

John Broughton said...

As Avinash said, the posting seems to have a fatal confusion between an application (one-time download to an iPhone) and transactions on that application. Apple charges 30% for the first; the second is just bit-streams. A proprietary book-selling app is likely to be free (30% of which is nada). Apple still profits from selling iPhones, of course, and that's almost certainly enough to go home happy. Plus a satisfied iPhone owner is always a potential buyer for other iPhone apps.

Adam Hodgkin said...

Think Avinash and John B have missed out on what Apple are offering developers and publishers with their SDK. If a publisher wants to sell content within the App store (various upgrade or subscription models will be supported), but Apple will take 30% of the gross. Recommend that you look at the video of the announcement (link in post), where Scott Forstall makes it clear that the 30:70 will also apply to subscription renewals and upgrades. Various business models will be supported and the App store will be considerably more varied in transactions than say the iTunes environment. There will be plenty of advantages from using the App store, though it will still be of course possible to remain outside the e-commerce system, offering merely a free App. I dont think its v likely that Kindle will work within the Apple ecommerce system, but conceivably Google will. It will be interesting to see how strong the iPhone is in comparison to Android.

Eloisa said...

I disagree. I think Apple is on the mark with its new and planned 3.0 OS. It could very well turn the iPhone into something stronger than it is now. I just hope they do leverage this into the digital books market and we'll have to see where it takes them.