Amazon Temporarily Stops Selling Hachette E-Books as iPad War Looms

Now you see it, now you don't: That may be the new mantra of Amazon.com (AMZN) as it retools its digital book agreements with publishers and fights back against the looming competition from Apple's (AAPL) soon-to-be released iPad.

Amazon this morning warned its Kindle e-reader community that there will be a temporary halt in purchasing e-books from the Hachette Book Group, home to Little Brown, Grand Central Publishing, Center Street and other publishing groups.

"We recently signed an "agency" agreement with Hachette, and we are working with them to offer their books under these terms in the coming days," Amazon stated in the Kindle forum. "This means we will not be selling Hachette ebooks in the interim. Update: Hachette has disallowed the sale of ebooks except on agency terms effective as of 12:01 am this morning. We came to terms late last night but we cannot be operationally ready to sell their ebooks on agency terms until two days from now -- April 3 -- when we will also cut over for the other publishers that are switching to agency. If we can get a two day extension from Hachette to continue selling their ebooks under the prior terms, we can have the Hachette ebooks promptly back for sale today. If not, then they will be back on April 3."

April 3, of course, is the day of Apple's highly touted iPad release. The iPad will be a direct competitor to Amazon's popular Kindle, which debuted in late 2007. If Amazon plays its cards right, it can avoid a Yahoo- or Palm-style disaster: being an early market leader only to later become marginalized.

"Agency" vs. Wholesaler-Retailer Arrangements

Hachette has been in talks with Amazon for the past 30 days about switching from a wholesaler-retailer agreement to an "agency" agreement, says Maja Thomas, senior vice president of digital media for Hachette.

Under a wholesaler-retailer relationship, a bookstore decides the number of books it wants to buy from a publisher and takes possession of them. As a result, the bookstore can set any price it wants for the books because it owns them. This is the business model that Amazon has been using.

With an agency agreement, the publisher uses the bookstore as a distributor and makes the sale directly to the consumer. This allows the publisher to set whatever price it feels it can get but also saddles the publisher with the risk of holding any unsold books. That potential problem is borne by the bookstore under a wholesale-retailer relationship.

In addressing the issue of their disappearing books from Amazon's site, Thomas says: "This isn't about a philosophical problem. It's about a logistical glitch. We told them they could continue to sell our books today under an agency model, but they wanted to wait to move everyone over on April 3. We've also been talking to Sony [SNE] and Barnes & Noble [BKS], and they were able to start today."

Kindle Readers Weigh In

Amazon is apparently hard at work appeasing other publishers. The online retailing giant reportedly entered into agency agreements with Simon & Schuster and HarperCollins that would allow most of their recently released best-sellers to get price bumps to $12.99 to $14.99 versus Amazon's $9.99 standard e-book pricing, according to a report in The Wall Street Journal.

In addition to Hachette, Amazon is also reworking its agreements with Penguin Group, The Journal reported. Apple, meanwhile, apparently struck a deal with both publishers, along with Macmillan, Simon & Schuster and HarperCollins, according to the report.

Amazon's supporters weighed in on the Kindle forum, issuing such comments as:

"Here's to hoping that all this "agency" "no agency" stuff is settled soon, and that the publishers realize that they made more money with you guys before, than what they are trying to do now. I myself have been very happy with your pricing, and I know you will do the best you can for your loyal customers, like me." - Mystery Lover

But dirtymc was more direct: "I hope that they do not come with back with disgustingly over-priced e-books."

A More Competitive Future

Hachette, however, has a different view. "Some people get used to a certain price point, but e-books is a pretty new baby," says Thomas of Hachette, noting the number of people affected by this change is relatively small in comparison to the number of buyers who prefer to feel the pages leaf through their hands.

Market forces will soon be at play. Buyers have always had the option of voting with their feet or, in the digital world, with their fingers. On April 3, a new candidate joins the fray, and the race begins in earnest.