Hindsight is a funny thing. Amazon's eBook/Kindle business is continuing to soar while Apple doesn't even mention iBooks anymore.
And then there was this, something believable only in the middle of a reality distortion field:
> Apple is proposing to give the cost benefits of a book without raw materials, distribution, remaindering, cost of capital, bad debt, etc., to the customer, not Apple. This is why a new release would be priced at $12.99, say, instead of $16.99 or even higher. Apple doesn’t want to make more than the slim profit margin it makes distributing music, movies, etc.
In Steve's world, Apple's raising the price by 30% and then taking 30% is a benefit to the customer and not Apple. Fascinating!
Classic negotiation says the other party will give in if he or she can so long as you hold your points as not for debate. Jobs did just that. Brilliant.
The price was already $12.99. The fact that Amazon was willing to eat a large amount of that price on a tiny volume of ebooks in the short term doesn't mean that would have favored consumers in the long term. Today, with agency pricing, the average price of an ebook is around $8. Hasn't that benefited consumers?
Thanks to the settlement, Amazon can now [again] charge what it would like and the result was an immediate drop for titles by publishers that settled. Consumers were hurt by Apple and have benefited from the DOJ's case against Apple's business practices.
http://www.politico.com/news/stories/0912/80961.html
> The settlement approved Thursday requires the publishers not only to kill their contracts with Apple within a week but also to end contracts with any e-book retailers that specifically place restrictions on a retailer’s ability to set prices on e-books. And the settlement also bars the publishers from granting a retailer “most favored nation” status for five years.
And: http://www.mhpbooks.com/amazon-begins-discounting-macmillan-...
That's true, but for a few idiosyncratic reasons, if anything.
The Kindle app is available for the iPad, and for a period of time an iPad user could buy the book directly in the app.
If Apple wanted to, it could coerce Amazon to pay 30%, regardless of where the books are sold.
I wouldn't be surprised if Amazon makes most of its money off iPad users. But there are no hard figures. Though if the opposite were true, I'm sure Amazon would be trumpeting everywhere how successful the Kindle is.
> The Kindle app is available for the iPad, and for a period of time an iPad user could buy the book directly in the app.
Are you sure you meant to use the word idiosyncratic here? Because being available on as many platforms as possible is the default behavior for a business that sells content. It's Apple that is idiosyncratic here, by choosing to not make its stores available on any device not made by them. It helps their hardware business, where the money is made, but it's a bad choice for consumers.
Just wondering, why do you think that?
Out of interest, where are those numbers?
That would be interesting to witness. Apple's second trial over their criminal behavior over eBooks would be a hoot.
1. Amazon sells every Kindle ebook at a loss of $3 -- they pay $13 wholesale and sell it for $9.99. I thought this was a typo, but then Jobs repeated the figure (though he said $12.50). It was my impression that Amazon also sells the Kindle itself at near-cost, so does that mean that Amazon's entire ebook business has been running at a loss the whole time?
2. Jobs certainly did win this negotiation, but ultimately they were both wrong. As Jobs says, "Heck, Amazon is selling these books at $9.99, and who knows, maybe they are right and we will fail even at $12.99." Amazon's share of the ebook market in the US is 65%, with Barnes and Noble (who also charge $9.99 for most books) another 25%. iBooks has the remaining 10%, nothing like the success of iTunes in the music market.
Books have traditionally been sold to wholesale at $14, then sold at retail for $28 MSRP. When Amazon started selling ebooks, they stuck with the same model - they were buying ebooks wholesale from the publishers at $14 each.
However, they proceeded to sell them to consumers at $9.99. Yes, they were losing money on every sale. Why? Because they knew this was their chance to dominate the books industry, just as iTunes had done in music. Amazon's MP3 store, despite launching with cheaper and DRM-free music, has never been able to make a serious dent in iTunes' market share. So Amazon knew there was a huge advantage in being the first to dominate the market.
Of course, as Jobs alludes to in the emails, this was unsustainable in the long term. The publishers knew that once Amazon became the dominant ebook seller, they would come back to the publishers and revise the terms of purchase. At that point, $9.99 would've become ingrained in consumers' minds and Amazon would've said they could no longer pay $14 wholesale, probably more like $7 wholesale instead.
The reason the publishers acquiesced to Jobs so quickly was because they knew 70% of $12.99/$14.99 would be better than 70% of $9.99 in the long run.
(Because of most-favored-nation clauses in the contract, publishers forced Amazon to also increase prices to $12.99+ and switch from the wholesale model to the agency model once the iPad went on sale. Amazon pulled HarperCollins books from their site briefly, hoping a groundswell of consumer backlash would force HC and Apple to revise their contract. It didn't happen and now ebooks are sold just like apps - publishers set the price and Apple/Amazon gets 30%.)
The bottom line is that Jobs knew that he was offering HC a fair deal. For HC to argue that they needed a bigger cut was based on smoke and mirrors. "Gee, if you want to make only the same amount of money you could just give the authors, um, more money, right?" That is an elegant way of calling a bluff.
Maybe because iTunes selling DRM'ed music for so long helped them gain that market lock-in, just like it helped Amazon get the same lock-in with DRM ebooks.
If publishers knew what's best for them, they would force Amazon to offer DRM-free books before it's too late, and the process can't be reversed anymore.
I cannot fathom that the publisher performs any function possibly worth this much money. How, since we no longer have to ship dead trees, have we not evolved a system that gives authors 75% of the sale price?
Because the dead trees are only about 10% of the cost of publishing a book (and since the tax laws for ebooks are different in many countries that saving is often immediately eaten up by higher taxes).
Because many (most?) authors want to spend their time writing - not publishing. Because producing a book takes time and money. Because publishers also essentially act as the VCs of the book market. Most authors don't earn out their advances.
Take a look at the breakdown of the cost of a bestseller http://journal.bookfinder.com/2009/03/breakdown-of-book-cost... for some vague evidence on how much money publishers actually make out of a book.
(The slice taken by marketing in the above seems high from what others have told me. Its also a somewhat simplistic breakdown since it ignores some of the long-term costs from publishers that aren't related to "books" directly. e.g. the advances to authors who never get published, etc. - so the potential publisher profits aren't quite as large as they appear here - there's other overhead outside the printing/distributing/selling books bit)
Also see http://ireaderreview.com/2009/05/03/book-cost-analysis-cost-...
It's also something Charlie Stross has posted about a fair bit see this collection of posts http://www.antipope.org/charlie/blog-static/2010/04/common-m...
TL;DR - people think about book prices being related to cost of producing media. That's like thinking software costs are mostly about the price of printing DVDs or shifting bits. It's mostly about book development costs - not media costs.
Publishers are actually about relationships, not dead trees. They can get your book to the customer, which is where the value is. From the consumer point, you only care about the producer, but the producer cares about the publisher a lot more than the customer.
Publishers are who "make" the writers in the first place (unfortunately) by shouldering the distribution, marketing, etc. Without them (or without the author being e-famous(tm) already), an author can't hope to sustain himself through writing.
Maybe things would change if we were more willing to "pay" for discovering content creators through our own time investment, but this is doubtful.
Sort of like the music market, from the sound of it - massive rip-off. But if they're the people who control the majority of the publicity....
That's in the US. Worldwide Apple is estimated to have around 24%. Not great but not too bad either.
2) Reading in the dark requires a light and the attachments for the kindle have all seemed a kludge to me. That said, the iPad is imperfect here are the screen doesn't dim enough.
I personally still prefer the PDF for e-books, as it maintains original design, layout, and typography, as well as page numbers. I'd like to see Apple and Amazon both start selling these formats DRM free, with watermarking.
Amazon's Kindle has e-ink, and a great selection for fiction, but not too many text books. And honestly I would not want to read a programming book, or other text book, on the kindle for the reasons stated above.
That's great if your device happens to match up with the size of a book, but it's far less flexible when it comes to devices of different sizes. I want to read books on whatever device I have, phone, small tablet, large tablet, computer, whatever. And I want the ability to adjust the size of the text. I don't want to lose that just because some books might not have that flexibility, and most do.
Also, Kindle and iBooks have page equivalents, that solves the page number issue.
And thanks, Dan. Much love to DocumentCloud for making the OCR of those PDFs super easy.
Jobs's strategy is to jump all over this and make the argument clear: here's what we're offering, here's why it's good for you, here's why we can't budge, and it's out of my hands.
Murdoch comes back and says, well, how about some concessions. Jobs says no, sorry, no concessions. Do you want this deal or not?
But he already knows how Murdoch's going to answer. Once Murdoch started chasing, all Jobs had to do was keep backing up until the both of them were right where Apple wanted them.
Great negotiation case study here from Quartz.
* (I’d appreciate it if we can keep this between you and me)
* Maybe I’m missing something, but I don’t see any other alternatives. Do you?
>>4. $9 per new release should represent a gross margin neutral business model for the publishers. We are not asking them to make any less money. As for the artists, giving them the same amount of royalty as they make today, leaving the publisher with the same profits, is as easy as sending them all a letter telling them that you are paying them a higher percentage for ebooks. They won’t be sad.
This was the moment when he won, IMO. He's very deftly showing that he knows the publishers are screwing their authors on ebook commissions (which should be much much higher than for paper books). He's also subtly threatening Murdoch by reminding him that he doesn't control the means of production anymore.
"Gee, you could make the same amount of money by giving the authors, um, more."
"price-points you don’t like."
"does that give you enough comfort?"
"we are worried more about the absolute holdback of product elsewhere... than we are about the actual haggle over what the price will be" (read, you are haggling)
So here we are, Apple has sold a bazillion iPads, and yet Amazon dominates ebooks. And there's absolutely no threat on the horizon coming from Apple in the ebooks market.
> So here we are, Apple has sold a bazillion iPads, and yet Amazon dominates ebooks.
[1]: you can't purchase books from inside the app because amazon doesn't want to pay appleI think he was determined to create the best iPad he could, not the best ebook reader. So his goal was to optimize the ebook experience for the iPad (not optimize the iPad for ebooks). And given that goal, he negotiated a good deal.
"Apple is the only other company currently capable of making a serious impact, and we have 4 of the 6 big publishers signed up already. Once we open things up for the second tier of publishers, we will have plenty of books to offer. We’d love to have HC among them."
If Harper-Collins was a "second-tier" publisher, and 4 of the 6 biggest publishers already agreed to these terms, did Harper-Collins really have much wiggle room?
The subtlety, though, is that sometimes it's about creating the illusion of strength, or even of future strength, when the present reality doesn't fully demonstrate that strength. Jobs did that masterfully here.
I'm confused. You agree with the parent that Apple was in a position of leverage, then you suggest the subtlety is that sometimes it's about creating the illusion of strength.
Either the position of leverage was an illusion or it wasn't. Maybe Jobs was a master at gaining leverage by creating an illusion of strength, but (if you agree with the parent) this isn't a good example of it. This was someone who had leverage acting as if he had leverage.
http://www.theverge.com/2013/1/23/3906374/email-exhibits-in-...
(sorry, couldn't find original documents)
Then he probably sprinkles in some of his own language and gets to it. Shablamo, profit.
Its not a negotiation if one of the parts has no intentions of changing his position. This was a sale.
Although I appreciate the article, this is not a pinnacle for negotiation. I'd like to see a better case of conflicting demands and creative/collaborative solutions.
You can see that the decisions were made too quickly and for the impending announcement.
I understand that I can't force the companies who produce a book, movie, or album to make it legally playable on my TV, computer, tablet, or streaming service of choice. No store has all the content, and in some cases DRM schemes make the content unplayable. There's no guarantee that I can read a particular book on my iPad legally, or put a Britney Spears song on the device in my pocket, or play my movies off a network share on my LG TV. Too bad; the company that paid for the content owns it. However, extortive contracts from the delivery companies add a deleterious force on top of that, like when Netflix or Hulu get exclusive streaming rights to a show and shut the other out.
At some deep level, the players in the content game are fighting instead of cooperating. In the future, I hope content producers learn to exploit monetization models where they don't have to be so overbearing about exactly how content is delivered, and in general they promote rather than inhibit distribution of their content. The Internet provides unlimited ways to discover, consume, and purchase content, so rather than a vision of the future, I expect "digital storefronts" like we have now to look archaic.
That is, if the customers really do have the power to "demand" a good experience, as Jobs puts it. Otherwise, we're just along for the ride, occasionally pelted by shrapnel from wars between giant corporations.
It would be interesting to see how Jobs negotiated in a case where the other party had the upper hand.
This negotiation was too easy for Apple, and HC was just attempting to haggle. I doubt they expected Apple to cave on much of anything.
Being able to say "We already sold 4 of your competitors" and "we have 120M users that have paid for 2B products" is something any asshole worth their salt would use as leverage this way.
I'd love to see his negotiations in a more precarious position.
>Throw in with Apple and see if we can all make a go of this to create a real mainstream ebooks market at $12.99 and $14.99.
Basically Jobs is saying "Hey, we can be in this together. Let's just give it a try." - which is rather humanizing in a way, and masks the negotiation as a soft sell.
Jobs and Apple didn't have Murdoch backed into a corner here. Reality (and eventually Amazon) did. Jobs was just leading him to realize that.
"Today he [Jobs] had a wide range of observations on the industry, including the Amazon Kindle book reader, which he said would go nowhere largely because Americans have stopped reading." [0]
'“It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore,” he [Jobs] said. “Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.”' [1]
Note the conspicuous lack of interest in using Apple's power to promote books and reading.
[0]http://bits.blogs.nytimes.com/2008/01/15/the-passion-of-steve-jobs/index.html
[1] http://mssv.net/2008/12/28/the-long-decline-of-reading/The lesson is to convince someone reading the negotiation that you have all the leverage, and Job's certainly seems to have done that. So much so that you dismiss any lesson as all.
That or an unlimited book (library) subscription fee. Like job says piracy is going to occur if you don't make content accessible, and in the country I reside in (Canada), it's largely inaccessible.
Sentimental value of looking at the shelve and resale/lending are the only advantages physical books have. When I'm near Foyle's in London I buy any signed edition of authors I like, but other than that it's Kindle + Safari Online for me.
The author's work is the valuable part. I wouldn't support lowering the prices anymore for any established authors.
However the eBook market is a great opportunity for new artists -- take the "Hunger Games".
Just because they are doing something illogical doesn't mean they are stupid; they are doing it to make more profits.
On the softer side of things, the language choice really shows the positions of power, the yielding tone of HC, contrasted with the very unyielding Apple position.
I was in a position of negotiation yesterday. Nothing anywhere near as grand as this, and i wonder if creating the perception that my position was stronger would have helped, or if it had to be ridiculously obvious to the other party.
3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started there will be no stopping it.
Publishers must realise that all books are already available in pirated variants, right? Their worst nightmare - everybody being able to download any book without paying them, is already a reality.
So HC had a lot to lose. And Steve knew it - all he had to do was to let Murdoch know that he Steve knew.
It's good to have a good hand.
> 3. Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them. This will be the start of piracy and once started there will be no stopping it. Trust me, I’ve seen this happen with my own eyes.
2. All the major publishers tell us that Amazon’s $9.99 price for new releases is eroding the value perception of their products in customer’s minds, and they do not want this practice to continue for new releases.
[Edit to add: This section implies a collective (amongst competitors) view/wish to shift prices being communicated by Apple. It isn't proof of illegal action but it doesn't look good and if there are other communications indicating how Apple acquired the understanding of the industry view they may be in trouble.]
So given from what I've seen, that Apple takes 30-40% of each song sale, Steve is trying to say here that 30 cents per song sold barely covers Apple's costs? I have trouble believing that. I would imagine that many companies would kill for the profit margin Apple has on iTunes sales.
What gives?
Edit: I end up on
the-steve-jobs-emails-that-show-how-to-win-a-hard-nosed-negotiation/#87589/china-manufacturing-contracts-in-may-leaving-policymakers-with-few-good-options/
I'm browsing with IE9, I assume the JS is borked.
- you have leverage and the other party needs you more than you need him
or:
- you can make the other party think you have leverage and the other party needs you more than you need him
It's all about psychology and understanding the situation and the customer..let me explain:
Notice how Murdoch uses "I" and "we" (referring to NewCorp/HC) all the time, while Jobs almost entirely uses "you" or "we" (as in HC and Apple).
Take a look at Murdoch's language: " I thin[k] I have a handle on this now" - he's not sure "we we would like to be able to get something done with Apple" - done what exactly? very vague statement, no specific. blah. "The economics are simple enough" - are they really simple?
"we are worried about setting prices to high" - again, he doesn't sound confident or sure of himself
"Feel free to call or write anytime over the weekend to discuss if you like" - he is making himself available to Jobs over the weekend, giving Jobs the power to interrupt him "anytime", he takes a subservient/beta position in the negotiation, and gives the lead to Jobs.
Same sentiment here: "we would much rather be working with apple than not"
And this is quite painful:
"If we could offer to you that a certain percentage of releases (>50%) would be available within your pricing structure (< or = 14.99), does that GIVE YOU ENOUGH COMFORT?" - Murdoch is actually trying to "comfort" Jobs, really? it crossed my mind, that he is almost trying to "please" Jobs here. Psychologically (probably reading too much into his story), his need to please a (fatherly) authority figure (Rupert), impersonated by Jobs. Too bad for Murdoch.
More worries: "I think we are worried more about the absolute holdback of product elsewhere, and our ceding of pricing to Apple, than we are about the actual haggle over what the price will be." - This sentence sounds extremely vague, nothing is clearly qualified or quantified. Jobs just comes across as infinitely more knowledgeable on publishing and economics than Murdoch...
"I haven’t shared this with HC directly—so this is only hypothetical." - HYPOTHETICAL? He sounds like a time-waster, almost asks to be hardly negotiated with? Also, do we know who makes decisions here? Murdoch or HC?
"Please let me know."- again...PLEASE
"Is it worth considering in the round, over the next few months or weeks, whether or not some of these loose ends can be tidied up?" - Weeks or Months? Which one is it, James? More vague language...
Then contrast this with Jobs, "you" focused language and clear and simple arguments:
"The current business model of companies like Amazon distributing ebooks below cost or without making a reasonable profit isn’t sustainable for long. " - Jobs qualifies and frames Amazon's tactic in a sentence. Boom!
"All the major publishers tell us that Amazon’s $9.99 price for new releases is eroding the value perception of their products in customer’s minds, and they do not want this practice to continue for new releases." - ALL THE MAJOR publishers are on our side...i.e. NewsCorp/HC side too...
And some more clear, concise and action-oriented language: "All the major publishers tell us" "Apple is proposing" "Analysts estimate" "Customers will demand"
Person A does action B etc etc
Jobs sounds like a man who has done his research, both among other publishers, his competition (Amazon), and knows what customers want. Murdoch has done NONE and only "worries" about NewsCorp, coming across as weak and vague. Pathetic.
Jobs' language is "YOU" focused ("focus on your customer and their pains / benefits mantra" used in copywriting, advertising,etc).
"you will want this too"
"If you stick with just Amazon, Sony, etc., you will likely be sitting on the sidelines of the mainstream ebook revolution."
"You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99."
"Once we open things up for the second tier of publishers, we will have plenty of books to offer. We’d love to have HC among them." - here Jobs almost frames HC as a second tier publisher...urging HC to move to first tier or else they are going to miss out...
Jobs gives reasons behind his statements, e.g.
"Our proposal does set the upper limit for ebook retail pricing based on the hardcover price of each book."
Why?
"The reason we are doing this is that, with our experience selling a lot of content online, we simply don’t think the ebook market can be successful with pricing higher than $12.99 or $14.99. "
Jobs offers reasons, solutions, analysis. Murdoch brings nothing, but "worries" and woolly arguments to the table.
And finally, to win Murdcoch over to his side, Jobs does a fair amount of fear-mongering:
"the current situation is not sustainable and not a strong foundation upon which to build an ebook business."
"You will make a bit more money in the short term, but in the medium term Amazon will tell you they will be paying you 70% of $9.99"
"Hold back your books from Amazon. Without a way for customers to buy your ebooks, they will steal them."
Kudos to Jobs! What a great display of: - Framing - Focus on the customer (YOU language) - Appeal to other's needs - Understand and address their fears - Provide reasons and analysis in support of your arguments
And many more little gems, that I most likely have missed out!
Jobs had truly been one of the bests (if not THE BEST) marketer/negotiators/CEO of our era.
Like others have said, this was not a difficult negotiation for Apple. Maybe Murdoch could have used the other verticals (video and newspapers) in a better way or tried to leverage an upcoming big release. I don't think they had reason to give in either way though.