Amazon and Macmillan battle over e-book pricing

By Ben Par for Mashable:

While the ebook war between Apple and Amazon has only just begun, this weekend’s drama between Macmillan and Amazon has ended decisively in the book publisher’s favor.

This weekend it was revealed that Macmillan and Amazon were fighting over ebook prices. Macmillan wanted to raise the prices and change pricing to an agency model. Amazon responded by yanking Macmillan books off the digital shelves.

Now Amazon has made its own statement on its forums. The gist of the message: you win, Macmillan.

As Motoko Rich and Brad Stone report for the New York Times, the dispute goes to the heart of publishers' and retailers' aspirations for e-books.

Amazon’s goal has been strategic: it aims to establish a low price for e-books that will have the ancillary benefit of helping it sell more Kindle devices.

Amazon’s decision is also a victory for Apple’s chief executive, Steven P. Jobs, who first pitched the idea of selling e-books under the agency model to book publishers earlier this year. Now Apple, whose iPad tablet is due in March, can compete on fairly equal footing with Amazon.

Book publishers, meanwhile, are volunteering to limit their digital profits. In the model that Amazon prefers, publishers typically collect $12.50 to $17.50 for new e-books. Under the new agency model, publishers will typically make $9 to $10.50 on new digital editions.

Update: A related article by Erick Schonfeld for Tech Crunch: Why Amazon Cannot Afford To Lose The eBook Wars To Apple

The coming battle between Apple and Amazon will occur on many fronts, but place where Apple can really hurt Amazon is on pricing. Just as Apple initially did with 99-cent songs on iTunes, Amazon imposed a uniform $9.99 price on bestsellers in the Kindle Store. A single price helps to establish markets for new product categories, especially when that price is at a discount to the physical alternative. While the 99-cent strategy worked well for Apple in digital music, in books Apple doing a jujitsu move on Amazon by allowing publishers to have more control over the pricing. Now Macmillan is demanding that Amazon sell its eBooks for $14.99, and News Corp’s Rupert Murdoch is making similar grumblings about HarperCollins.