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Misreading Apple and Amazon

Sometimes the market just doesn't get it.

Case in point: the so-called capitulation over the weekend between Amazon and big publisher Macmillan, and the purported nefarious role Apple played in all this.

Source: Amazon.com

The background, as you all know by now, is that Amazon had committed to selling books from Macmillan, and all other publishers at $9.99.

When MacMillan signed on as a partner with Apple to sell those same titles at a higher price, Amazon at first removed the titles from its online store, and then "capitulated," by essentially agreeing to raise the prices of those books.

The new model has best-sellers priced between $12.99-$14.99, with Amazon taking a 30% commission. That compares to the former model of $9.99 with Amazon paying publishers a 50 percent commission.

Somehow, somewhere this was taken as a competitive balk, that Amazon was caving to publishers, and to Apple ; that even though iPad and the iBookstore haven't even made it to market yet, they had somehow wrested control of the market from the Kindle juggernaut. And Amazon suffered the corresponding 5 percent haircut on Wall Street as a result.

I know, I know: Amazon relied on those $9.99 prices to give it a head start in the digital books market. And raising prices to the $12.99 to $14.99 being talked about could certainly slow sales if consumers don't bite. But here's the thing: it's not as if Macmillan is only raising prices for Kindle. All its digital books will be the same price. It's not as if Kindle users are somehow being punished. The books will cost as much on the Nook from Barnes & Noble and iPad from Apple as they will on the Kindle.

What's bad for consumers may not necessarily be bad for investors.

And for some reason, this is all Steve Jobs' fault.

The fact is, by establishing a new pricing threshold, Apple will become a rising tide of sorts and swell Amazon's profits margins in the process. Price won't be the competitive advantage Amazon might have been hoping for; instead the company might have to rely on *gasp technology and innovation to give it an edge.

On its conference call, Amazon says "millions" of people have already bought Kindles. Amazon's market head start is undeniable. Now the company gets to enjoy higher prices and higher margins, and blame someone else for the fee hikes. That's pretty cool. Consumers will still buy, Amazon gets to portray itself as the "good guy" for trying to fight the price increases, but privately they're wringing their hands together ala Mr. Burns from the Simpsons, counting their new-found fortune.

Yesterday's Amazon decline makes no sense on two key levels: One, the move to raise book prices will actually swell the bottomline; and Two, even if you don't buy that argument, Kindle represents only about 4 or 5 percent of the company's overall revenue. Even if there is increased competition from Apple, and the jury's still out on that by the way, the effect on Amazon's total business would be minuscule.

That wasn't "action" in Amazon shares on Monday, it was "over-reaction." Same goes with the the smacks and jabs at Steve Jobs. The music industry abhors the power and influence it itself bestowed on Jobs after iPod and iTunes came to fore. Apple came up with a pricing model that arguably saved the music business as we know it. Today, music labels want more elasticity and Apple and its "we-know-better" attitude has been, well, reluctant.

Now, Jobs and team are somehow to blame for once again setting the price in the publishing world. This time it's actually higher than what the market had already been paying. Markets can be a powerful force in this country. Consumers will decide whether this will work. In the meantime, investors missed the mark with Amazon shares on Monday.

Questions? Comments? TechCheck@cnbc.com