The iPad Impact

The iPad Impact

The iPad launch was a classic bit of business theater. In what may prove to be one of the great product launches of his fabled career, Steve Jobs  unleashed his unique alchemy of stealth, spectacle and awe to lay his pearls before the impatient masses. The public played its role fervently, at once being swept up into the rapture of the Apple hype machine and then recoiling at being manipulated so skillfully.

This is the device that is purported to save the publishing world. Cynics among us snickered at this notion, both before and after the launch. It’s a pretty tall order for a device to single-handedly transform an industry. (Although I suppose the iPod did.) The real significance of the iPad event is that it represents a significant step forward in the evolution of the e-book marketplace by signaling the end of the prevalence of electronic ink and the wholesale distribution model.

The Waning of Electronic Ink

Electrophoretic displays—or electronic ink, such as used on the Kindle—involve significant trade-offs. While electronic ink’s ability to generate a reflected display makes it optimal for extended daylight reading, some crucial shortcomings are disadvantageous to content providers. The inability for electronic ink to support media types such as video and software applications relegates the world of e-books to a beige, text ghetto, while all the other media types—rich, social and otherwise—are happily cohabiting on LCD-based displays. The launch of the iPad clearly illustrated the advantages of having e-books delivered with other media on the same LCD-based device.

Soon after the iPad launch, Amazon announced its acquisition of Toucho, a very early stage New York University startup that has developed some intriguing and lower-cost, force-sensitive resistance technology for multi-touch screens. While it is theoretically possible for Toucho’s technology to be overlaid on Kindle’s e-ink display, Toucho’s work to date has been with LCD-based displays. This may signal the adoption of LCD displays for Kindles, especially with color electronic ink a year way and, even then, not able to support video.

The iPad launch and Amazon’s Toucho acquisition may well signal the beginning of the end for electronic ink as an e-book standard, although it may continue to be used for some niche markets. This is good news for publishers, as e-books will be delivered on the same platform as other media. And there is an added bonus: Publishers will have a robust display technology for which they can design e-books with the same artistry and differentiation as they do on the printed page.

The End of the Wholesale Model

Another industry practice advanced by the Kindle program is the use of the wholesale sales model for e-books. In the wholesale model, publishers sell books to retailers at an established price, typically 50 percent of retail. Retailers can sell the title at whatever prices they like. Amazon used the wholesale model to try to drive both Kindle device and e-book sales by pricing e-book titles at $9.99, even if that was less than the wholesale price Amazon paid to the publisher. Amazon subsidized the marketplace. This tactic indeed proved successful in the short-run at driving sales and giving a kick-start to the Kindle program and the e-book marketplace.

The wholesale model is a cause of concern in the long term, however. By setting e-books at a standardized and arbitrarily low price point, it signals to the marketplace that these offerings are less differentiated and of less value. In addition, the lower price point e-books threatened hardcover sales for simultaneous e-book/hardcover releases. This has the potential to become a downward spiral of reduced e-book expectations in terms of availability, quality and revenue. The wholesale model compromises the long-term prospects of this marketplace.

More ominously, Amazon could, at any point, decide to stop subsidizing the e-book market, and offer to pay the publisher only $5 on a $10 sale.

Apple will instead employ the “agency model” for e-book delivery on the iPad, in which publishers can set the sales price and Apple gets a 30-percent cut. The significance of the agency model is that the publisher and the consumer can engage in a more direct market dialog to establish e-book price points driven by the dynamics of the marketplace, not set arbitrarily by an intermediary. This may assist the evolution of a greater diversity of e-book offerings, supporting a variety of price points.

Seemingly triggered by the iPad launch, both Macmillan and Hachette have indicated their intent to adopt the agency model with e-book trading partners, including Amazon. This likely signals the end of the wholesale model as an industry standard for e-books.

iPad-Kindle Slugfest

Is the iPad a Kindle-killer? Hardly. Kindle is not necessarily tied to electronic ink or the wholesale model. The Kindle device and program can adapt, and this process—painful though it may be—has already started, as evidenced by Amazon’s Toucho acquisition and apparent rapprochement with Macmillan.

Further, there is nothing particularly proprietary to Apple about good-quality touch screens and agency model content distribution. With any luck, there will be a variety of devices and services available to consumers. However, what Apple has shown time and time again is that it has a unique ability to take existing technologies and seamlessly integrate hardware, software, interface design and transaction services to create uniquely compelling user experiences. That is the iPad’s real edge, and that is why it will succeed as a product. Along with the Kindle.

The real significance of the iPad moment is not about new earth-shattering technologies contained in the device, or anything proprietary to Apple, but the sweeping away of electronic ink and the wholesale model from the e-book marketplace. This benefited the publishing industry, perhaps as much as it did Apple.

I guess Steve did come down the mountain with his tablets for our salvation after all.