This Price War May Actually Be Good

We’ve had some fun watching the battle of the retail titans–Amazon and Wal-Mart over books and toys for the Christmas season. The prime reason for the battle is that as Amazon encroaches into Wal-Mart’s retailing space, Wal-Mart wants to encroach back into books. Sure it makes sense. The current battle centers around top selling books that usually sell in the $20-$30 range. Both retailers are now locked in a race to the bottom to see how much money they each can lose–the current level is down to $9.00 and expected to go lower.

The book retailers like Barnes and Noble might be watching their demise as this dance of the titans is sure to crush at least some of the struggling book retailers. Ordinarily, I would say that this price war is a bad thing. Book sales are static–they actually declined a bit this year. As price competition heats up, it takes out profits and revenue. I like book stores–they’re great places to browse and buy books on a variety of interesting topics. I’d hate to see them go the way of the floppy disk. That is, if it weren’t for one thing—technology.

Though you couldn’t tell from the mountains of books I’ve got stuffed in different locations, they are actually quite inefficient. Once the author is done, they get type set, printed, stored, shipped, and stored again before we buy them. It costs a lot of money to do that. It burns trees, fuel, cash and patience. It’s tough to find subject areas or names in most books and they take up too much space when you read them–usually only once.

E-books, on the other hand, are quite efficient. They are easy to duplicate, store, transmit, research and read. In fact, it costs nothing to do any of that. The Amazon Kindle device holds the equivalent of 1,500 books in the space about the size of a comic book. It’s no wonder that between 1 and 2 million of them will be sold this year (including Sony!). While growth in books has stopped, growth in e-books roars on at 200% per year. Yet as good as that looks, their penetration in the overall sales of books is only 1%–they have a long way to go.

There are two things holding them back. The first is the book–I’m like a lot of people, I like to hold a book while I’m reading it. I’m proud of all of those books sitting on the shelf. There is a good story or an interesting insight in each of them. They are, to a certain extent, an indication of who I am–my interests and knowledge. Who am I going to impress with a Kindle sitting on my desk. But even this old dog is starting to realize that the day is going to come when I’ll be reading on an e-reader. I’ve already experimented with on-line newspapers and it’s not going to be long before the Boston Globe and The Wall Street Journal are going to loose a paper subscriber.

The Wall Street Journal will gain an on-line subscriber though. Due to news alerts and research capabilities, I’d be willing to pay the $1.99 a week for the on-line version, even though it’s only $.30 cheaper than the print version. The WSJ is smart because they’ve truly made their content e-friendly, unlike most of the other on-line efforts of the print publications.

It’s a bit different in books, and this is going to get me to my point. E-books from Amazon range in price from full price ($20-30 to a discounted $10). That’s not enough to make me switch and I’m probably like a whole bunch of other people. However, when e-books get down to the $2-3 range, this bad boy is going to rev up his electronics and move into this century. If I could do it with an I-Pod, I can do it with an e-reader.

My point is that the current price war between Amazon and Wal-Mart is about more than just retailing. It’s about a clash of technologies. It’s about getting more people to buy-on line–that’s efficient. Especially during the Christmas season where it saves time and gas. It’s also about moving away from printing presses, trucks, inventory and paper. This move is inevitable and it’s good for the economy and the environment. Traditional publishers are not going to be the ones to encourage us to make the move–they have too much money invested in printing presses. Their current pricing strategies are there to protect the sale of print books as much as to sell e-books. That’s too bad because it often limits access to knowledge. In text books for example, publishers for books for elementary school kids have found that demand for the e-books his tripled their book sales. More kids get to read, less money is spent inventorying old books–everybody wins here.

The current battle between Amazon and Wal-Mart is going to push the prices down of e-books to the point where we can’t help but adopt the technology. This is one price war that may damage the buggy whip manufacturers but it’s going to be good for the rest of us. Easier and cheaper access to the real thing of value–content and knowledge. The only question I have is what will I do with all those darn bookshelves.