If Amazon Is Succeeding In Spite of Fixed Pricing, Then What Good Was It?
Late yesterday afternoon I was sending out some emails, trying to find out how my various contacts were responding to the news. One of the people I emailed was Mark Coker, the founder of Smashwords.
Smashwords will be holding to the fixed price model, and Mark offered a rather thought provoking reason as to why. Here’s what he told me yesterday:
We intend to vigorously defend agency as a superior pricing model that’s in the best long term interests of authors, readers, retailers and publishers. As my data demonstrates, ebook prices are dropping. If a publisher prices their book too high, let the marketplace punish that author. Our 40,000 authors and publishers at Smashwords price their books just barely over $3.00, and they collectively publish nearly 15,000 ebooks priced at FREE. Agency has been a godsend to our authors and publishers, and it forces our retailers to compete on customer experience rather than the depth of their balance sheets.
I will admit that this is a point that I had not considered, and to some degree Mark is correct. I can even give you an example which proves his point.
Consider the US airline industry. There was a point (before my time) where the ticket prices were regulated by the US federal government. The airlines could petition for an increase but they were by no means guaranteed one. As a result of the regulations, they all charged the same prices and the main way they competed was by offering the best customer experience, much like Mark says above.
The interesting point here is that for the past 2 years the US ebook market has been competing under much the same conditions. While it was the publishers setting the price and not the government, the effect was the same as in the airline industry. eBookstores have been forced to compete on service, not price.
I’m not sure that was a very good idea. The thing is, blocking Amazon from competing on price doesn’t do anything to inhibit their services. And if there is anything that Amazon knows how to do, it’s get customers to like them. While the fixed price component of the agency model might have tied one of Amazon’s hands behind its back, the other hand is still free. And when it comes to the customer experience, Amazon has a mean left hook.
Amazon has a 60% share in the US market, according to the latest Bowker data. They’ve held this percentage since at least May 2011. If the goal of price fixing was to stop Amazon from dominating the market, it doesn’t seem to be working. What’s more, let’s look at how little of an effect the agency model has had on the UK ebook market. Amazon is now estimated to have around 66% of that ebook market (Bowker). And agency was adopted in the UK specifically to stem the tide of Amazon.
We’re 806 days into agency in the US ebook market, and well over a year into it in the UK market. It is clear at this point that it has had only a marginal success in slowing down Amazon.
What good is it?