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Amazon, get out of the e-book pricing business

In the Macmillan-Amazon battle, one thing has become clear: it's time Amazon got out of the way of e-book pricing and let the market do its thing.

Molly Wood Former Executive Editor
Molly Wood was an executive editor at CNET, author of the Molly Rants blog, and host of the tech show, Always On. When she's not enraging fanboys of all stripes, she can be found offering tech opinions on CBS and elsewhere, and offering opinions on everything else to anyone who will listen.
Molly Wood
4 min read

I can't believe I'm going to say this, but Amazon needs to stop meddling in e-book pricing and let the free market do its thing.

Over the past few days, a major skirmish in the e-book pricing wars erupted between Amazon and book publisher Macmillan. After a nearly yearlong dispute over electronic book edition pricing, Amazon stopped all sales of Macmillan titles, even print copies, in a pretty shocking display of brinksmanship. Macmillan responded with a full-page ad detailing the fight with Amazon and its hoped-for pricing model. And finally, Amazon released a statement saying it was capitulating to Macmillan's demands and selling the books "even at prices we believe are needlessly high for e-books."

Amazon Kindle: you're not helping
Guys? You're not helping.

Now, before I go any further, let me clarify one thing: I absolutely believe $15 is too high a price for e-books. I believe and have said many times that the publishing industry threatens to strangle the baby e-book market in its crib with everything from DRM to refusing to allow text-to-speech features in e-readers to trying to impose antiquated release windows for e-book editions, and that includes the idea that a digital copy of a book should cost $15. That said, it's time to let the market decide what it's willing to pay.

Amazon is, finally, doing the right thing (albeit passive-aggressively in the extreme) by getting out of the way of publisher pricing and letting consumers decide what they'll pay for e-books. What Macmillan is asking for is the same thing the music industry eventually demanded from both Apple and Amazon: variable pricing for digital goods. Yes, Macmillan wants to price new and major titles between $12.99 and $14.99, but they're also talking about a pricing floor of $5.99. They're trying to maximize revenue on the top sellers, but also retain the flexibility to drop the prices as the market demands. That's actually how it should work.

Now, you could argue that Apple launched digital music sales into the stratosphere by turning digital music into a loss leader with the 99-cent track. But in truth, we had no idea what the market was willing to pay for digital songs. That consumers snapped up those 99-cent tracks could be proof that the price was too low. The variable pricing scheme may not be as popular with buyers, but it is generating revenue for the labels, and business is all about finding that perfect balance of sales and revenue. In the digital music world, labels are testing the price elasticity of demand for their product in the reverse order it normally happens. Starting low and raising prices over time is, higher revenues notwithstanding, not the standard way of things.

So, the book industry is basically saying they'd prefer to proceed in the more generally accepted capitalist format: you charge a lot up front to recoup initial marketing or R&D or production costs, and the price diminishes over time--or, as I think will be the case with e-books, you charge too much at first, figure out no one's going to buy the darn things at 15 balloons, and settle in at $9.99 within a few years. But just as it wasn't Apple's place to dictate the 99-cent price to the music industry, it's not Amazon's right to tell the publishing industry what to charge for their books.

Again, seriously, I can't believe I'm saying this. But put succinctly: sometimes you've got to let people make the mistakes they're going to make, even if you know they're wrong. And if the publishers, the music industry, the film industry, and anyone else wading into digital distribution can get the mistakes--DRM, restrictive prices, idiotic release windows, and the like--out of the way up front, the market will much more quickly settle into something we can all live with.

Look, Amazon's not the hero of this story, and neither was Apple. They're insisting on price points that are beneficial to them, because they've got serious business models built on moving digital media. (And it's not like Amazon is the savior of authors and the publishing industry overall, either.) But if resalers are allowed to fix the prices for entire industries, it's not good for those industries. Period. Yeah, the music industry biffed it big time by resisting digital distribution for all those years. God only knows how much revenue they lost over time (I once tried to calculate it and came up with about 100 quadrillion dollars). But we also don't know how much money they lost while their goods were being sold at an artificially low price. The point of the free market is to let the market decide what it's willing to pay for goods and services. Amazon's the money-making middleman that's actually prolonging the fight by preventing the market from doing its work.

So, go crazy, Macmillan. Put up your $15 e-books. I'm probably not going to buy very many of them, because honestly, $9.99 just feels right to me. But I might be wrong, and it's about time we found out so we can all just settle down and create the future of book publishing together, OK?