Amazon is trying to beat down the prices of eBooks sold on the Kindle:

Amazon appears to be responding to the Apple threat by waging a publisher-by-publisher battle, trying to keep as many books as possible out of Apple’s hands, while preserving as much flexibility as it can to set its own prices.

Apple meanwhile has signed up five of the six major publishers and is allowing them to set their own prices.  Apple is taking 30% of the price for acting as the go-between.  If the variable cost of producing an eBook is zero (a pretty good approximation!) then a publisher will set the same price for  a book as it would if the Apple “tax” is zero – if costs are zero, the publisher maximizes revenue and the “tax” charged by Apple just cancels out of its calculation.  So, Apple iPad book prices will be high and reflect monopoly power.

Amazon is taking a different approach: Sell the books for cheap, maximize volume and hence adoption of the Kindle.  Two different approaches so which one is playing the eReader game better?

I’m inclined to go with Apple right now.  Publishers want control over pricing and Apple is getting them on board by giving them flexibility.  Amazon has been playing hardball with the same publishers:

Amazon shocked the publishing world by removing the “buy” buttons from its site for thousands of printed books from Macmillan, one of the country’s six largest publishers, in a dispute over e-book pricing.

Eventually, Amazon climbed down and let Macmillan set prices.

A consumer not only cares about the price of a book but what the range of books being sold.  If Amazon isn’t getting a full selection because publishers are unhappy with its pricing policy, then you might hesitate to get a Kindle.  I’m thinking particularly of students in high schools and colleges who have to get books for their classes.  Electronic books are going to be cheaper than hard copies anyway, as the variable costs are lower.  And it’s way more convenient to carry an eReader than heave around a bunch of textbooks.  But if Macmillan textbooks are not on Kindle, you’re going to get the iPad.

So you’re not going to be able to trigger sales of the Kindle by having cheap books if your range of offerings is small.  This is the danger posed by Amazon’s strategy.