Mark Coker, CEO of Smashwords, wrote a blog post yesterday and he explained why Smashwords had decided to adopt the agency model. Somehow I missed it yesterday (still trying to figure out how).
It's quite long, so here is an excerpt of the most important part:
...around July, Amazon increased their royalty rates for direct publishers to match the Apple 70%. For the authors who chose to work directly with Amazon, they had to agree that their books would not be sold elsewhere for less, and if Amazon discovered the book priced elsewhere for less, they had the right to discount the author's book to price-match the competition.
This is when the proverbial fertilizer hit the fan for some Smashwords authors who publish direct with Amazon via DTP and then use Smashwords for all the non-Amazon retailers. I recall receiving one especially frantic email from a Smashwords author on disability retirement who was faced with the prospect of seeing his Amazon sales slashed due to discounting at our retailers.
This isn't the first time I've heard this story, sadly.
I wonder if anyone expected Smashwords to go down this path when the A5 announced their cabal with Apple? I didn't.