The eBook Wars: Agency & Winners

As the dust continues to rise from the dispute that originated with Macmillan’s demand to Amazon to switch to an agency relationship, and to which Amazon quickly caved, I began wondering who are the winners and whether there are any losers. Contrary to popular perceptions, I think ebookers are the winners.

There was, of course, an instigator to this mess. That award goes to Steve Jobs and Apple. Seeing an opportunity to give Amazon a black eye, returning the favor from the music days, Apple grabbed it, offering publishers the “agency” model. Although Macmillan and cohorts portray this as a battle for the soul of publishing, it really is a game of comeuppance between Apple and Amazon. But in doing so, I think Jobs, unwittingly, gave power to ebookers for the first time — a power that may ultimately haunt him and Apple, at least if they are serious about becoming a major player in the ebook-selling world.

I know that seems counterintuitive, but let’s look at the situation carefully. Before the agency model publishers were insulated from consumers by interveners, the wholesale distributors like Ingram and the retailers like Amazon. In one fell swoop, that protection, those insulating layers, were swept away, creating a direct link between publishers and ebookers. Now when ebookers squeeze, publishers will squeak.

When the intervening layers existed, consumer complaints about quality and price were directed at the bookseller, who could do nothing about the former and little about the latter. The idea of an ebook being unreturnable for any reason was tenable because the seller with whom the ebooker had a direct connection had no way to warrant anything to the ebooker. Retailers were insulated other than hearing low-key griping because there was nothing they could do; publishers were insulated because their “customers” were the retailers, not the ebookers.

This has now been turned topsy-turvy. Now it is the publisher who is directly warranting (even though impliedly rather than directly in so many words) to the ebooker that the product is reasonably fit for the purpose for which it is intended — not that the story is one that the ebooker will enjoy, but that there are minimal numbers of errors and that the ebook is readable and properly formatted. There are now implied warranties of merchantability and of fitness for use that go directly from the publisher to the ebooker, warranties that didn’t exist before because there was no direct connection between publisher and ebooker.

It won’t be long before a sharp lawyer sees the class action possibilities and starts circling. And even if this doesn’t become a matter of litigation between ebookers and publishers, raise enough noise on the viral Internet about how poorly edited or formatted a particular book is and you will see the author and the author/agent circling, because the publisher owes a duty to the author to produce a quality product.

Will this happen overnight? No. But it will happen because of the viral nature of the Internet. No publisher can afford to defend against the deadly combination of poor quality and unreasonably high price, when the combination spreads across a publisher’s line. Poor quality and high pricing seem to be more the rule than the exception in ebooks; it is easy to defend an exception but not rules — just ask Toyota.

Publishers defend high price by pointing out the extraordinary quality of the book; but when one is lacking the other has to give. Publisher margins are thin to begin with; imagine how much thinner they will be when the publisher has to start answering directly to ebookers about pricing and quality disequilibrium. Returns will become acceptable, although some mechanism will have to be worked out for it to occur. After all, the idea of a return is that the buyer gives up all possession of the returned item, something that is not so easily done with a digital file.

eBookers are probably less unified about pricing than they are about quality. I am more elastic about pricing than about quality. I am not opposed to paying a price higher than $14.99 for a high-quality ebook that I want, although I am unwilling to pay $5.99 for a poor quality ebook regardless of my interest in it. I believe that is true of most ebookers. There will always be a group who cannot be satisfied, but most ebookers are more middle-of-the-road — that is, more elastic about pricing than about quality.

Of course, as long as ebooks are greatly burdened with restrictions and as long as there is no assurance that the ebook purchased today will be readable on tomorrow’s ebook device, pricing is not as elastic as publishers would like (and it doesn’t help that publishers constantly ignore ebookers and refuse to address in open dialogue ebooker complaints).

eBookers are the winners under the agency model. They now have a direct connection with the publisher and can insist that price and quality be in equilibrium. Under the previous model, booksellers like Amazon didn’t care whether a particular ebook sold or didn’t sell — they had no investment in it. Under the agency model, the publisher who does have a direct investment in whether an ebook sells or not is the decision maker and is directly connected to ebookers and subject to ebooker pressure. Publishers need look no further than Toyota for a wakeup call.