Apple iPad Leads to Amazon Folly

Amazon.com should brush up on lessons from The Art of War.

"He who knows when he can fight and when he cannot will be victorious." -Sun Tzu

Amazon.com execs should have fired up their Kindles and spent the weekend reading an electronic copy of The Art of War. Instead, they reacted foolishly to the iPad, played a childish game of tit-for-tat, and their folly made Amazon.com look like a second-rate bookstore.

It all started last week when Apple CEO Steve Jobs trotted out the iPad, dubbed by some as a Kindle killer. Major publishers voiced their support for the iPad, including Penguin, HarperCollins, Simon & Schuster, Hachette Group, and Macmillan.

Then Jobs showed off one of the iPad's critical apps, the iBook e-reader, and flashed prices for e-books at around $15. It was a swipe at Amazon.com because publishers (Macmillan being one of them) had been trying to get Amazon.com to raise its e-book price from $10.

With the iPad, book publishers had leverage which set in motion the strange reaction from Amazon.com.

"Tactics without strategy is the noise before defeat." -Sun Tzu

On Friday, Amazon.com stunned the publishing world by pulling Macmillan books, both Kindle editions and printed books, from its shelves in an apparent strong-arm tactic to show Macmillan that Amazon.com continues to set the rules. At the very least, Amazon.com wanted to show that Macmillan, which is among the biggest publishers in the U.S., still needs Amazon.com.

One would have hoped that Amazon.com had spent considerable time weighing this decision. Instead, it looked like a giant company suddenly deciding to play chicken with another giant company—and Amazon.com flinched. On Sunday, only two days after pulling Macmillan books, Amazon.com relented.

According to the New York Times, Amazon.com has now agreed to raise prices of e-books as well as return Macmillan books to its virtual shelves. As of Sunday evening, however, the "buy" button still did not appear on Macmillan books.

Amazon.com said on its website: "We have expressed our strong disagreement and the seriousness of our disagreement by temporarily ceasing the sale of all Macmillan titles. We want you to know that ultimately, however, we will have to capitulate and accept Macmillan's terms because Macmillan has a monopoly over their own titles, and we will want to offer them to you even at prices we believe are needlessly high for e-books."

The New York Times continues: "Under Macmillan's new terms, which take effect at the beginning of March, the publisher will set the consumer price of each book and the online retailer will serve as an agent and take a 30 percent commission. E-book editions of most newly released adult general fiction and nonfiction will cost $12.99 to $14.99."

It's ironic, of course, that Apple is playing the role of spoiler of Amazon's $10 price point. Apple, as you might recall, dictated the $1 song on iTunes despite pleas from the music industry to be more flexible on pricing. (Apple eventually moved to a tiered-pricing scheme.) So maybe Amazon.com was simply following Apple's lead.

Then again, the Kindle is no iPod—and Amazon.com is no Apple. All of this has me thinking of another quote from The Art of War:

"You cannot stop innovation." -Sun Tzu

Got a different take? Send me an email at tkaneshige@cio.com. Or follow me on Twitter @kaneshige. Follow everything from CIO.com on Twitter @CIOonline.

Copyright © 2010 IDG Communications, Inc.

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