Government // Mobile & Wireless
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2/12/2010
11:53 AM
Bob Evans
Bob Evans
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Global CIO: Apple's Steve Jobs Torpedoes Another Stale Business Model

Jobs and the iPad are revolutionizing the book business while picking a big fight with Amazon. What can you learn?

Steve Jobs, just a few years after single-handedly shattering the music industry's sclerotic business model with the iPod and iTunes, has taken his revolution to the frumpy book-selling business with the iPad and an audacious new pricing model.

But revolutions always create enemies, and Amazon and Apple are squaring off for what is sure to be an entertaining clash of both technology and the legendary wills of their CEOs. And at this point, I can predict a winner with tremendous certainty: the consumer, the very same victor in the earlier donnybrook between Jobs and the glacial-paced music industry.

In much the same way that various desperate characters in "Casablanca" attempted to beg, buy, or steal salvation from Humphrey Bogart's Rick in the form of the exit visas he possessed, staid book sellers--for whom the introduction of the paperback was an almost life-threatening experience--are now rushing to secure favor with Jobs and Apple in the hope of not being left behind in what they are coming to view as the desolate pre-E-reader world.

The Wall Street Journal has a terrific story about that upheaval, and here's a sample from the article, which should be must-reading for every executive whose responsibility has anything even remotely to do with technology:

Aware of the threat, Amazon has been on its own offensive. In series of meetings in New York last week, the online behemoth made it clear to publishers that it is opposed to the Apple pricing model, according to people familiar with the situation. "This is as intense a situation as the industry has ever had," said one publisher.

It's pretty juicy stuff: for decades, booksellers exercised iron-fisted control over how and when consumers could sample their precious products. For example, Manhattan's former high-end bookstores along Fifth Ave. were the too-too outlets where only the best authors' wares were offered and the only pricing strategy was this: full. (Oh yes--I say "former" because they are all long, long gone, sucked deep into the tar pit that relentlessly summons businesses more concerned with preserving their past than with creating their future.)

It's exactly what Jobs did with (to?) the music industry: armed affluent and eager consumers with superb technology for consuming the industry's products, knowing full well that the industry itself was totally unequipped to play on the new tech-dominated field Jobs had established. And as the titans of the music business, already reeling from the kneecapping they'd received from Napster and other P2P guerillas, tried to grasp the possibility that a format beyond the CD was possible, Jobs offered them safety from the guerillas, protection from the unknown, and even a split of the revenue from the products and intellectual capital that the music kingpins themselves had held in a stranglehold for so long.

All they had to do was embrace Jobs' utterly brilliant--and utterly unprecedented and outlandish--iTunes format and business model. I can imagine that as the music honchos, with quivering hand, were about to sign the contract, they looked up at Jobs at the last second and stammered, "Is it o-okay if we k-keep selling a f-few CDs and 8-t-tracks, Stev--I mean, Mr. Jobs?"

And I'm sure he looked away and flipped his hand dismissively before saying, "Whatever." And the music business entered a dizzyingly fast-paced phase of innovation and growth unlike anything it--or most other industries--had ever seen.

Now, with the iPad in his hand and the music-industry lessons all too fresh in book-publishers' minds, Jobs is set to torpedo the stuffy ways of the book business. Here's how Jeffrey A. Trachtenberg describes it in his excellent piece in the Journal, headlined, "Apple Tablet Portends Rewrite For Publishers":

Apple's business model for books, which the company has kept under tight wraps, shifts the focus away from the bargain-basement prices Amazon has made popular, according to publishers that have met directly with the company. Apple is asking publishers to set two e-book price points for hardcover best sellers: $12.99 and $14.99, with fewer titles offered at $9.99. In setting their own e-book prices, publishers would avoid the threat of heavy discounting. Apple would take a 30% cut of the book price, with publishers receiving the remaining 70%.

Apple's vision is at odds with Amazon.com, which has shaken the book industry by slashing prices of e-books on its Kindle reader and making the $9.99 e-book bestseller a fixture.

The Apple tablet aims to reshape many corners of the media industry, just as Apple's iPod revolutionized the music business when it made its debut in 2001. Apple has been in discussions with television networks, magazines and videogame publishers about featuring their wares on the device. On the eve of the launch, it wasn't clear to some people briefed on the matter whether Apple had made a final decision about wireless connectivity or the carriers involved.

In closing, two thoughts: first, for all of Jobs' brilliance and persuasiveness and the awe in which he's held, it would be unwise to underestimate Amazon, which itself knows more than a little about technology-driven upheavals, consumer-centric thinking, and revolutionary business models.

And second, it's human nature for all of us to see something like this and think, "Wow--I'm glad that kinda craziness will never hit my business." But it's also terribly nave and short-sighted, particularly for CIOs charged with helping establish vision and innovation and fresh thinking and forward-looking business models in our increasingly tech-driven world.

Get together with your CEO and start asking the hard questions about what an upheaval in your business might look like, where you're vulnerable, and where you're underleveraged and could create some big opportunities with some aggressive and model-busting ideas.

Because when it comes to torpedoes, it's always better to give than to receive.

Bob Evans is senior VP and director of InformationWeek's Global CIO unit.

To find out more about Bob Evans, please visit his page.

For more Global CIO perspectives, check out Global CIO or write to Bob at bevans@techweb.com.

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