September 7, 2012
One Additional Thought On The Apple e-Book Case Settlement
I was rereading the opinion and this section caught my eye:
According to Kohn, the “e-books system” market, like the markets for many emerging technologies, is characterized by network externalities. This means to him that each additional user of a given e-books system confers benefits on existing users of that system. The more users of a system, the more each user can be assured that the system will continue to support a large number of programs or “apps” and a large variety of e-book titles. Markets characterized by network externalities tend to tip towards a single, dominant firm, resulting in monopoly. And once a monopolist establishes itself in such a market, such as Microsoft in the computer operating systems market and Apple in the digital music market, the result is inflated prices and retarded innovation.
Kohn further argues that because it is costly to switch from one e-books system to another, consumers expectations about the future of a given e-books system will tend to drive purchasing decisions. For example, the owner of a Kindle is unable simply to purchase e-books through the iBookstore if prices at the iBookstore are lower; to do so she must first purchase an iPad. Before investing in a given e-books system, then, consumers will try to anticipate the likely future success of the system vis-à-vis its competitors. This dynamic means that it may be difficult to displace a dominant firm in the ebooks system market once it establishes a monopoly.
None of this would be relevant if publishers adopted a device agnostic format for e-books. I doubt that Amazon or Apple would necessarily agree to this. Nonetheless, content is tied to these devices by the device manufacturers and not the technical limitations of producing that content. It is, at the very least, generic text. This may be a future market development.
One of the reasons physical media works so well is that standard devices by multiple manufacturers will read/play it. Say what you will about the viability of the CD as a music or data delivery system, but it doesn’t matter whether it’s played/read by Sony, on a computer, a boom box, or whatever. It works. Wrapping an e-book around Apple or Amazon DRM, related apps and the like is an artificial implementation of goods in the market. It doesn’t have to be that way. Imagine a physical book that can only be read using Google Glasses. That would be dumb. Must online always be proprietary?
The opinion is available as a link in my earlier post. [MG]