discussions

  In order to response to professor questions and other students’ posts, using the following files • Apple e-books case file (pages 10-44 only). • My Apple case. I must make three posts to answer each of the three questions below, and also reply to any two students. Total of five posts. My posts and replies should be in good quality and: • Show that I have read and thought about the case • Show that I have analyzed the case • Show that I have read other students’ posts Each of three pages below include the questions that I must answer and other student’s posts. I must answer the three questions, but I can reply to any two of students’ posts. *Please reference your work, so I can know which paragraph an answer to which question is, and which paragraph is a reply to which student. Question #1 * How does the agency model change the structure of the industry? * Having lost the case, what should Apple do? Other Students’ Posts: 1. The agency model changes the structure of the industry as it essentially allows the publishers to set the price of the ebooks instead of in the wholesale pricing model, where the retailer got to set the price of the ebooks. Furthermore, this served as an alternative to Amazon’s pricing policies and again gave publishers more control over pricing and long-term stability in the industry. Additionally, this new agency model meant that publishers had to sacrifice revenue in the short-term. Even though Apple lost the case, I believe that Apple should continue to operate in the industry. This is firstly due to the fact that the industry is still growing (the market in ebook sales grew by 4 times in 2 years), so there is potential for more profits to be generated. Furthermore, Apple could continue to work with the publishers, but with the wholesale pricing model; this would not be beneficial for both parties (especially the publishers), but would avoid the allegations of Apple continuing to raise, fix, and stabilize the retail price for newly released and bestselling trade ebooks. 2. The agency model changes the structure of the industry because it shifts control from the retailers to the publishers. Publishers, in the agency model, are able to set prices and then pays the retailer a fixed percentage of each sale. Publishers gain more freedom and domination under this model. Having lost the case, Apple should revisit their pricing model, determine where the complication was, and revise the plan, if they decide to continue to compete with Amazon. One of the issues with their business model was that in order to be effective, the publishers had to change all of their retail relationships from wholesale to agency relationships, known also as the MFN clause. Cue only had eleven days for the Big Six to agree with the MFN clause which increased pressures. Apple put heavy stress on the Big Six to agree to their clause and change their relationship with Amazon. Had Apple had more time to efficiently plan out their model, circumstance would've been different and there would have not been as much pressure. Question #2 • Look at the timeline – Eddy Cue had only 2 months to (a) decide on the business model for the iBookstore and (b) implement it by getting the Big 6 on board • What did he propose? Other Students’ Posts: 1. Eddie Cue firstly proposed that if Apple were to pursue the ebook market that they would be able to become a powerful player in the market because consumers would be able to do many tasks on the iPad (including reading ebooks), and would not want to carry a separate Kindle for reading alone. Furthermore, the business model that Cue eventually proposed for the iBookstore was called the agency model, where the publisher would actually set the price of the ebook and the retailer would receive a fixed percentage of each sale. Cue also proposed that Apple would not open the iBookstore if it could not make money on the store and compete effectively with Amazon; this resulted in an MFN clause to be included in the deal. Apple's new business model ensured that publishers would have much more control over pricing and would gain long-term stability in the industry again. This aided in getting 5 of the Big 6 publishers to sign the agreement of doing business with Apple in the ebook market. 2. Eddy Cue saw an opportunity in the marketplace for an ebook on the iPad. Cue believed that Apple would be a powerful competitor in this segment. He argued that people would be able to carry one device with multiple uses, such as the ebook and completing other tasks, rather than carrying a separate device that could only display books. With only two months to establish a business model, Cue and his team focused on the Big Six publishers because they held the most dominance in the market. Cue and his team learned that publishers were not fond of Amazon's wholesale pricing model and they were willing to work together to find ways to pressure Amazon to raise the price from $9.99. Apple was willing to agree with higher prices but it would not open the iBookstore if it could not compete with Amazon, which they needed the Big Six to effectively do so. While discussing new business models, Cue realized it would be difficult to negotiate wholesale prices down far enough to compete with Amazon. Cue then suggested an alternative to Amazon's wholesale pricing model, the agency model. In the agency model the publisher sets the list price and the publisher pays the retailer a fixed percentage of each sale. This gave control back to the publishers. However, there was still one problem: the Big Six publishers would sell ebooks at higher prices than the $10 set forth by Amazon and Apple would generate little profits from the iBookstore. Cue then implemented price caps and a MFN clause which also aided in controlling prices. Eventually, five of the Big Six agreed with the new pricing model. 3. Eddy Cue is Apple's Vice President of Internet Software and Services and saw that Apple could become a very powerful player in the ebook market. He felt that people would gravitate towards using the iPad more with ebook features compared to the Kindle because that did one task while the iPad can do multiple. After talking with Steve Jobs, he created the iBookstore in 2010 and it was time to reach out to the Big 6 to get on board. They found out that the Big 6 was not happy with Amazons prices and that is what Cue and his team focused on. Apple started that the pricing has to be similar to Amazon's prices, and created the agency model which allows the publisher to set the list price and the publisher pays the retailer a fixed percentage of each sale. This allowed the publisher to have full control rather than the retailer. 5 out of the Big 6 agreed to become apart of the iBookstore after creating the agency model and also creating other restriction on pricing to make sure they were competitive with Amazon. Question #3 • What is the wholesale pricing model? How are profits split here? Who wins and who loses out here? Other Students’ Posts: 1. The wholesale pricing model involves when publishers recommended a digital list price and received a wholesale price for each ebook that the retailer sold. In exchange, the retailer could sell the publishers’ ebooks and determine the retail price. In this model, the profits were split such that the retailer was able to set the price of the publishers' ebooks and the publisher would receive a fee (the wholesale price) for every ebook sold. In this model the retailer usually wins, as they are able to set the price of the ebook depending on the wholesale price they have to pay for each ebook sold. Therefore, the publisher can lose out as they do not have long-term stability and the retailer has more over control of the pricing. 2. In the wholesale pricing model, when a book is ready to be released, publishers sell copies to retailers at a wholesale price while recommending a resale price to consumers. Retailers then determine the list price, usually marked higher than the wholesale price, and the publisher receives a profit from each book sold. Profits are split based upon the price set by the retailer. While publishers recommend a list price, they only receive the wholesale price for each book sold. Ultimately, the retailer wins in a wholesale pricing model because they determine and set prices. The prices are usually marked up by retailers and the only profit the wholesalers receive are from the wholesale prices when a book is sold. In the end, the retailers possess more control than the publisher. 3. The wholesale pricing model is when a new book is ready to be released by the publisher to retailers at a wholesale price, they are normally hardcover copies. These copies are marked up to create the list price which is what the consumer buys the product for. Profit from this is determined by the list price that the retailer creates. The retailer wins this model because they are truly the ones that determine the price. Sometimes books are marked up 30 dollars more than the wholesale price, then after time the price will go down, and also tend to be soft cover books.