Apple’s legal team has been waging a war for years now against Android OEMs, and if Reuters sources are to be believed , they probably should have spent a bit more time reviewing e-book negotiations instead. Word on the street is that the Justice Department is close to reaching a settlement agreement with Apple, and several of the major book publishers will probably be on the hook as well. The allegations began several years ago when Apple launched iBooks, and Steve Jobs boldly declared to the world how he planned to take on Amazon.
The idea at the time was to switch the industry to a “wholesale model” where discounts to bulk purchasers of content such as Amazon would be based on volumes, to an “agency model”, where the publishers sets the price themselves, and the retailer simply takes a commission. This transition was key to Apple’s plans since, as far as we know, they never deviate from the standard 30% commission. Nobody knows for sure what Amazon was making on average per e-book sale, however it’s doubtful it was anywhere near 30%. Without this shift Apple would have been forced to charge more than the ultra-aggressive Amazon, and could jeopardize adoption of the iBook platform.
By allegedly colluding with book publishers to switch to an agency model where the publisher set the price, they could also enforce a “most favored nation clause” that would prevent publishers from selling e-books at a lower price anywhere else on the web. Even if Amazon wanted to give you a better deal than iBooks, they couldn’t do it. Jim Friedland, an analyst at Cowen & Co estimated that the switch back to a wholesale model could increase Amazon’s revenues by $1.1 billion this year and $1.6 billion in 2013. This assumes Amazon would go back to offering big discounts, a move that consumers would no doubt welcome.
Just to be clear the agency model itself is legal, however working with Apple and rival publishers to make it the new standard for e-book is not. In the Steve Jobs Biography written by Walter Isaacson it seems pretty clear what the goals are, and it seems the justice department might agree. Isaacson quotes Jobs as saying: "So we told the publishers, 'We'll go to the agency model, where you set the price, and we get our 30 percent and yes, the customer pays a little more but that's what you want anyway.' ... So they went to Amazon and said, 'You're going to sign an agency contract or we're not going to give you the books.'"
When the iBooks platform launched on iOS two years ago Amazon controlled 90 percent of the e-book market. Today the hold about 65 percent market share, with Barnes & Noble sitting at 20 percent, and Apple at 10 percent.