Who needs apps? Microsoft buying Nook Media would be a a brilliant move: Microsoft would add millions of e-books that consumers want, to supplement tens of thousands of apps that, well, they don't.

Is Microsoft About To Buy Nook For $1 Billion?

TechCrunch reported Thursday that Microsoft is considering paying $1 billion for Nook Media, the division of Barnes & Noble that includes both the Nook tablet as well as its e-book business. That works out to a discount of about $700 million to $800 million compared to what Barnes & Noble valued the Nook at just a few months ago. A deal at that level would be a clear indication that B&N wants out of the digital business.

So much so, in fact, that there have been rumors that Barnes & Noble plans to kill the Nook by the end of April 2014, instead selling its e-book content on apps from "third-party tablets" from an undisclosed manufacturer or manufacturers. That could mean Microsoft's own tablet, the Surface, steps in to replace it - and we're already getting reports of smaller, Nook-like Windows tablets in the works. Of course, Nook is already available on the iPad and non-Amazon Android tablets.

(See also Microsoft, Barnes & Noble Release Windows 8 Nook App: Is A "Nook Surface Next?)

TechCrunch's report suggests two key factors: developing, manufacturing and selling a tablet like the Nook isn't a profitable business. But e-books are. By itself, the Nook unit lost $262 million on $1.2 billion for the fiscal year ended April 30, TechCrunch's secret documents alleged. Meanwhile, B&N itself publicly disclosed that its Nook segment revenue dropped 26% last quarter, but e-book sales grew 6.8%. (Some 10 million Nook tablets and e-readers have been sold, and the service boasts more than 7 million subscribers.)

We also know that Microsoft has already forged ties with software developers, including game creators; has established relationships with the music business to create Xbox Music; and has developed a network of cloud servers which can serve that content up virtually anywhere. Adding book publishers to the list should be relatively simple.

Microsoft has already proved its interest in the Nook platform. In 2012, Microsoft dumped $300 million into Nook Media, which later generated a Nook app for Windows 8 and not much else. It certainly looks like Barnes & Noble isn't heavily invested into the relationship. It's time for Microsoft to take over.

Patching The Windows App Store With Books

People need a compelling reason to buy a new device, and Microsoft hasn't given them much of one. Microsoft's Surface is a terrific piece of hardware, but is overpriced compared to rival tablets. Meanwhile traditional PCs are on the decline, perhaps even being pushed down the slope by Windows 8. Microsoft's platforms simply lack the app support of iOS and Android.

Windows Store apps, as measured by MetroStore Scanner.

Moreover, if apps are now a key tablet selling point, Microsoft doesn't have that much to offer. Microsoft's app store is growing quickly - but that's due to the fact that it's starting from a very small base. As of Thursday, MetrostoreScanner, which tracks the apps that appear and are updated on Microsoft's Windows Store, showed a total of 70,182 apps in the Store - about double what it had at the end of December. Google and Apple, on the other hands, each claim about 800,000 apps in their respective app stores.

In the company's defense, Tami Reller, Microsoft's Windows chief, has argued that the Windows Store has aggregated more than the number of apps that iOS did during the same period. She also said that almost 90% of the entire app catalog is downloaded every month - a puzzling statement, meaning that either Microsoft is doing an excellent job promoting app discovery, based on its Mimvi technology - or that Windows uses really don't have that much to choose from. 

E-Books Complete The Windows Store 

Adding e-books won't make Microsoft's app problems go away. But they could provide a pretty big distraction. Not to mention that owning the Nook platform would dramatically broaden Microsoft's content strategy to include iPads and Android tablets. Microsoft has also hinted at plans to integrate Nook content in Office, putting its digital content in front of millions more users. That would be a welcome change from Microsoft's decision not to rush out Office for iOS and Android. 

(See also Why Microsoft Is Tying Barnes & Noble's Nook To Windows, Office And Bing.)

Finally, it may seem simplistic, but one of the more compelling reasons to add Nook content is simply what users see - or don't see - on the Windows 8 Start screen: Games, Music, Video - but not Books. It's a glaring omission, and one that Microsoft could solve with a single stroke of the pen - and a billion dollars.

Image Sources: Pearson Media (Nook App) Barnes & Noble (Nook)

Last week, Amazon bought the social book-discussion site Goodreads for an undisclosed sum. My immediate Twitter reaction was, well, cynical:

Basically, all of your book related social activity on Goodreads just became advertising fodder for Amazon. Congrats and good luck!

— Brian Ford (@brianericford) March 28, 2013

My second tweet was still snarky, but more on the money:

"Our goal is to be an open place for all readers to discover and buy books from all retailers..." - Goodreads 2012 paidcontent.org/2012/01/27/419…

— Brian Ford (@brianericford) March 28, 2013

Basically, those two tweets — about which more in a moment — are the two best reasons to think the Goodreads acquisition will be bad for the company and bad for readers... but very, very good for Amazon.

Your Diversity Will Be Assimilated Into Our Own

First and foremost, one has to question whether Goodreads' commitment "to be an open place for all readers to discover and buy books from all retailers, both online and offline" remains in place.

I contacted Goodreads, and Suzanne Skyvara, its global consumer communications executive, offered encouraging words: "Re: the links to other retailers, we have no immediate plans to change the Goodreads experience."

Let's be real, though. No one in Goodreads' position has ever responded to buyout concerns with "we totally expect [buyer] to subvert our pre-buyout goals" and it's simply not in Amazon's best interests (or DNA) to promote the content of other booksellers.

Jeff Bezos has been very open in saying that Amazon will make its money on content. Goodreads provides Big Book nothing if not a resource to promote and sell content.

To be clear, I'm not being critical of or calling anyone at Goodreads a sellout. When I was running Lendle, a Kindle lending startup I co-founded, it was always our goal to run a fair lending site on our own terms. If Amazon had offered us enough money we'd have sold in a heartbeat, even with the expectation that our terms would no longer be a priority for Amazon. In a lot of ways, Lendle as an Amazon property would have been a much better service.

With that said, we were an Amazon-only company by design and our goals never involved or promised support for multiple ecosystems. Unlike Goodreads, which links to many online retailers.

Once You Got 'Em By The Books, Their Hearts And Minds Will Follow

And that brings us to that second tweet. That was a Goodreads "company" quote from early 2012 explaining its decision to move away from Amazon's API — the software interface that lets sites like Goodread access Amazon's enormous book database — in favor of one over which it would have more control. Or, more to the point, one that couldn't be yanked away from it at a moment's notice, effectively on a whim.

At the time, I was still a co-owner of Lendle, which was also built on Amazon's API. We understood all too well the perils of relying on the dataset of a large corporation because, at one point, Amazon abruptly turned off the tap and with it, our entire lending service. 

Eventually we addressed the issue, our API access was restored, and lending resumed. Still, the damage was done. Every decision we made (or did not make) from that point forward was based around our lingering fear that Amazon could shut us down at any time, for basically any reason.

In the end, we sold Lendle to a 3rd party because we couldn't comfortably do anything we really wanted to do with it. Amazon's restrictions sucked the fun out of running our startup.

To say that we admired Goodreads' decision to go it alone would be an understatement. They were making a decision we weren't able to make, because they had the numbers to make it work and that meant they'd be able to take risks we simply couldn't take.

More from paidContent in 2012 about Goodreads and the Amazon API:

Goodreads’ situation illustrates the risks of building a site around any retailer’s API, since that retailer can change its terms at any time. Amazon’s Product Advertising API license agreement has not changed since April 2011 but “the terms now required by Amazon have become so restrictive that it makes better business sense to work with other data sources,” the company told me.

Specifically, Goodreads found two requirements of Amazon’s API licensing agreement too restrictive. Amazon requires sites that use its API to link back to the Amazon site exclusively. So a book page on Goodreads would have to link only to its product page on Amazon, and not to any other source or retailer. Amazon also does not allow any content from its API to be used on mobile sites and apps.

Going it alone was risky. Amazon's API gives sites access to a vast library of book covers, titles, authors, and even reviews. It's easy to see why sites put up with a restrictive environment to take advantage of that access. Walk away and you're suddenly facing broken links where book covers once existed, and that's just the start.

Goodreads, though, had built up a vast network of book lovers and was capable of weathering a temporarily weakened core to build something far more valuable: An in-house dataset subject to none of Amazon's restrictions. The numbers, according to Amazon's press release announcing the acquisition:

Founded in 2007, Goodreads now has more than 16 million members and there are more than 30,000 books clubs on the Goodreads site. Over just the past 90 days, Goodreads members have added more than four books per second to the “want to read” shelves on Goodreads.

Now consider Goodreads' existing developer API. As of last week, all of the data Goodreads had amassed since moving away from Amazon was available to developers via a public API. This meant you or I or anyone else could use that information in interesting ways, subject to Goodreads' terms which, presumably, were far more open than Amazon's:

The Goodreads API allows developers access to Goodreads data in order to help websites or applications that deal with books be more personalized, social, and engaging. The API can be used in many ways, including...

In short, an API attached to a relevant dataset is power. Prior to the switch, the power belonged to Amazon. After the switch, it belonged to Goodreads.

If You Can't Control 'Em, Buy 'Em

From that perspective, moving away from Amazon may have been the best way to ensure a buyout by Amazon. (What's that old saying? "If you love someone, set their API free?")

When I contacted Goodreads, I also inquired about the future of its API, and Skyvara offered no specifics: "We don't have more information to share at this stage."

I've been reading the tea leaves, and the days of Goodreads offering a powerful API that allows developers to "personalize an ecommerce store, power recommendations, show a widget of a member's favorite books, build a mobile or desktop client app, and more" are probably numbered.

In short: All that data was readily available and if Amazon does what Amazon tends to do, it won't be long before it simply doesn't exist.

Cogs In The Amazon Machine

Changes aside, millions of Goodreads members are about to become advertising fodder for Amazon. It's one thing to promote books on a site that doesn't sell them or even care where you buy them -- it may be another to do so for the largest bookseller in the world.

The most depressing aspect of all this is that Amazon probably doesn't care one way or the other. With Goodreads and its data swallowed up, where would you go, anyway?

There aren't many popular social sites for books that aren't in some way or to some extent under Amazon's thumb: Shelfari, Goodreads, AbeBooks, and LibraryThing are all owned or partially owned by Amazon. Amazon's brilliance is in allowing these purchased sites to run quasi-independently: The illusion of competition is there, but it's just that and, ultimately, all roads lead back to Amazon.

In the coming weeks, expect Goodreads to say all the right things, but pay close attention. Read between the lines, and lets revisit their post-buyout honeymoon optimism in a year or so.

Lead image via paul prescott / Shutterstock.com

If you've ever dreamed of becoming a published author, you could hardly have picked a better time to be alive. A full-blown revolution is afoot in the way books are written, published and distributed, and the playing field has practically been nuked. It makes for some feel-good, tech-democratizes-all type stuff, but just because the playing field is level doesn't mean it's easy to navigate. Guy Kawasaki wants to help. 

The entrepreneur and former Apple evangelist has published books using both the traditional and DIY routes, so he's familiar with the inner workings of both. He recently coauthored a book titled APE (Author, Publisher and Entrepreneur): How to Publish a Book, which is being released through Amazon's Kindle Direct Publishing program. (He'll be talking about his book at a ReadWrite Mix event in San Francisco this week.)

APE aims to be a sort of field guide for self-publishers, surveying the current landscape and laying out recommended tools for writing, publishing and selling a book. As the title suggests, Kawasaki advocates an approach that requires wearing all three hats: not just of a writer, but as a publisher and businessperson as well. Doing so, says Kawasaki, is the only way the DIY set can begin to compete with traditional publishers. 

After all, it's still big publishing companies that sell most of the books and have the advantage when it comes to professional editing, distribution and marketing. Self-publishing platforms like Amazon's are beginning to chisel away at that dominance, but it's really the proliferation of tablets and e-readers that's fueling this shift. 

The Explosion of Tablets and E-Readers

"You can get a tablet for a hundred or two hundred bucks now," Kawasaki says. "It has so many advantages over trying to buy stacks of books. When you walk onto an airplane, even in coach, everybody's reading a tablet now." 

Apple is well on its way toward selling its 100 millionth iPad (if it hasn't already) and it's now joined in the tablet arena by the likes of Amazon's Kindle Fire, the Nexus 7, Barnes and Noble's Nook and the brand new Microsoft Surface. Then there's the whole category of e-readers, a pack which Amazon's line of non-tablet Kindles leads (even if they're not forthcoming about the numbers).  

As this list of players grows, there's a seemingly corresponding drop in prices, which further fuels their adoption by consumers. The more of these gadgets land in consumers hands, the most e-books they buy. Indeed, during the first quarter of this year, digital book sales revenue surpassed that of hard covers for the first time ever.

Self-Publishing Is Easier Than Ever - But Still Hard

Finding and buying books may be easier than at any point in human history, but publishing those books isn't quite as simple as tapping the purchase button. There's a cobweb of platforms, tools, formats and strategies, a path which Kawasaki and Welch attempt to illuminate. With authoring tools like Adobe InDesign and Apple's iBooks Author, the act of publishing is getting far more user-friendly.

But for self-publishers, writing the book is the easy part. Where much of the hardest works comes into play is with editing, distribution and marketing - you know, all the things a traditional publisher typically cares of. That is, if you can manage to get a book deal. 

"It is just a stark reality that if you're a self-published author, you are responsible for your own marketing," says Kawasaki, who acknowledges that established authors like himself and Tim Ferriss have a unique advantage on this front. Not every self-published author will make six figures, or even make a living from their writing at all, but the opportunity they have to give it a shot is one that never existed before. 

The entrepreneurial skills self-publishers need to hone can go a long way for authors using the traditional method, Kawsaki adds. That's because big publishing houses only put a limited amount of time and effort into marketing a new book before moving on push the next one. 

"Even if you're with the best publisher in the world, it always helps to have your own platform," he says. That's something self-published authors will have to work very hard to build. 

With self-publishing, the trade-off is clear: Sure, it's easier and more democratic, while authors have more freedom and they earn more money per book. But selling those books is much harder without the backing of a traditional publisher and the whole process requires much more of the author than just sitting down and writing. 

It's a concept Kawasaki refers to "artisanal publishing," wherein the creators play a more hands-on role throughout the process of crafting and selling the product. In other words, it's more work. 

A new job posting from Barnes & Noble indicates that the Nook e-reader will be tied into the Microsoft platform, including Windows, Office and the company’s Bing search engine. It's an indication that e-books mean more than just another item to sell; they're now a broader part of the content ecosystem.

To date, little has been said about Microsoft’s $300 million investment into Barnes & Noble, which took place last June, to form a subsidiary company that would be jointly owned by both B&N and Microsoft. But the new job posting hints at least at what some of those “contractual obligations” might be.

Specifically, the new “director of engineering, Windows 8” posting includes the following: “As the Barnes & Noble leader of the Microsoft Alliance, you will be responsible delivering on our contractual commitments on Windows 8 applications, Cloud, commerce, content integration with the Microsoft ecosystem and for defining and delivering on product strategy of Nook integration with Microsoft ecosystem including Windows, Office, Bing... You'll lead a cross functional team of engineers in design, development, test, and deployment of a range of products on a Windows mobile 8 platform.”

The posting was apparently first discovered by the Digital Reader blog.

B&N’s New Family-Friendly Nooks

On Wednesday, Barnes & Noble launched the new 7-inch Nook HD for $199 (8GB) and $229 (16 GB) as well as the 9-inch Nook HD+ for $269 (16 GB) and $299 (32 GB). Both tablets feature high-resolution screens, capable of challenging the newlyreleased updates to the Amazon Kindle; the Nook HD+ is capable of displaying full 1080p video on its 1920 x 1280 display, versus the 1280x800 HD screen used by the 7-inch Kindle Fire HD.

The new Nooks also include a family mode, which can reconfigure the screen from user to user, and lock out kids from using apps and visiting websites that aren’t age-appropriate. Just as Amazon has recognized that services are what will sell the tablet, Barnes & Noble appears to have taken personalization to heart.

And just as Amazon’s cloud reader extends the company's e-book services beyond the Kindle, it’s obvious that B&N plans to bring its Nook app to Windows 8, among other platforms. Barnes & Noble chief executive William Lynch told ABC News:

“The most visible and first thing they [consumers] are going to see is a best in class reading application on Windows 8. Some of the things we are doing with our reading technology - the rendering of books, catalogs, magazines - we are going to bring that to Windows 8 form factors and the operating systems.”

Windows 8 Tablets: Possible, But Not Now

B&N’s new Nooks are all predicated upon the Android operating system; when asked if B&N would ever develop a full-fledged Windows 8 tablet, Lynch demurred, not surprisingly. And that’s probably the most appropriate response; a number of top-tier OEMs have already shown off their Windows 8 tablets, and Intel is gathering a number of partners in San Francisco on Thursday to essentially do it again. There’s still room for a true e-reader/tablet version of Windows 8, however, as Microsoft’s Surface boasts a 10.6-inch display, far larger than the form factors of the Nook.

The Future: Services Integration

What’s more likely, however, are closer ties between the Windows ecosystem and the Nook’s galaxy of e-books. The Nook app already allows a user to highlight a passage, add notes to it, or look it up on the Web. The latter is essentially a search function that will likely be tied to Bing. How that will occur on an Android devices remains to be seen - a standard webpage, perhaps.

Microsoft’s recent investment into Mimvi indicates that Microsoft is investing into app discovery, which could provide some advantages to B&N, as well. Google allows you to search for a term and pull up related images, maps, shopping, news and more. Microsoft can deliver all of that, too, and appears to be stretching to add “apps” and “e-books” to the list.

Incidentally, Google issued an update to Google Play Books on Tuesday which also added highlighting and notes, plus the ability to translate foreign passages. (Oddly, there isn’t a way to look up a highlighted passage on the Web or even cut and paste the information.)

The last possibility is the most intriguing: self-publishing. In effect, Word’s ability to “save as PDF” allows a writer to “self publish” an e-book, and Amazon goes into a great deal of detail about how e-books should be formatted for publishing on the Amazon platform. But there’s really no easy, integrated way to get from Word to an e-book marketplace in one simple step, including B&N’s PubIt tool, which requires converting Word files to the ePub format. Integrating Office with the Nook reader or marketplace could fill that gap.

What the Barnes & Noble job posting means is that e-books are no longer just a commodity to be bought and sold on a digital marketplace; they are a living, breathing form of content that can be searched, indexed and integrated into a broader content ecosystem. If Microsoft can in fact tie the Nook e-book marketplace to Word, then it can simply provide a quick and easy method of self-publishing. Microsoft truly will own the means of production.

Continuing our Social Books series, today I'm looking at book highlights. The increasing popularity of e-readers, in particular the Kindle, has made it common practice to highlight passages and quotes within books. There have been various efforts to make those highlights social and today I'll look at the two leading services. One is from Amazon itself, called Kindle Profiles. The other is a startup called Findings. As if to prove that not everything is social, this time the anti-social service is winning...

Last year Amazon launched Kindle Profiles, a kind of homepage on the Web for your Kindle reading. But while indie social network Goodreads has almost doubled its user base over the past year, to now boast 10 million registered users, Kindle Profiles hasn't captured the imagination of book fans online. That's because a lot of Kindle activity is private by default. In other words, Kindle Profiles isn't as social as Goodreads.

It's not that Kindle Profiles doesn't offer social options. It does, but they're usually turned off by default. What's more, the social options in Kindle Profiles seem almost half-hearted. Take its Facebook integration, for example. Compare the long list of things you can update your Timeline with on Goodreads, to the meagre "change the status of a public book" actions in Kindle Profiles:

Kindle Profiles: Geared Towards Private Highlights

Here's how Kindle Profiles works. It lists out all of the books you have purchased on Amazon, or that are on your wish list. These aren't necessarily Kindle books either - the paper-bound books you bought or wish to buy are included in your books list. Each book in your list has a reading status and rating, which is populated from your Amazon profile if available.

The most useful aspect of Kindle Profiles for me over the past year, since I last reviewed it in August 2011, has been the Your Highlights section. This displays all of the - mostly private - highlights I have made in Kindle e-books. I read a lot of non-fiction and highlight passages that interest me. So Kindle Profiles gives me a great archive on the Web of those highlights, for my future reference. I can also save them to Evernote (which I have done for a few recent books).

Why haven't I made my Kindle Profiles highlights public? Because I can't be bothered changing them from the default private. I see no need to either, since I'm not overly interested in what other people have highlighted in a book I just read myself.

Amazon doesn't seem that concerned about marketing Kindle Profiles as a social tool. In my review last year, I remarked that "as Facebook has done over the past couple of years with its initially private service, over time Amazon will likely prompt and tease you to make your private content public."

But Amazon hasn't done that. Judging by the Books with the Most Public Notes page, a relatively small proportion of Kindle users are making their notes public. The Steve Jobs biography by Walter Isaacson, number 5 on that list, has public notes by 485 people (make that 486, as I just made mine public too - what the heck). 486 Kindle readers with public notes is nothing to be sneezed at, but it's probably a small percentage of the total Kindle readers who made highlights in this highly quotable Jobs biography.

Findings: Goes Straight For The Public Highlights

While Amazon keeps Kindle Profiles a mostly private affair, a startup is making a bold attempt to turn book highlights and quotes into social objects. Findings was launched in October last year by writer Steven Johnson, BetaWorks Founder and CEO John Borthwick and developer Corey Menscher.

Findings can import your book data from Kindle, via a browser bookmarklet. Interestingly, Findings has opted to make your Kindle highlights public by default. The bookmarklet page warns:

"All of your Kindle highlights (regardless of whether they are marked public or private on Amazon) will be synced to Findings and default to public visibility."

While I can see the rationale in reversing the privacy settings of your Kindle highlights in bulk (to make Findings social out of the box), it's also quite presumptuous. Your Kindle Highlights may be private for a reason - for example, you are reading a job hunting book and don't want your highlights to be made public. Sure you can change the public setting for a particular book back to private, but it's easy to forget to do that.

Update: The day after this post was published, Findings announced that Amazon has requested the Kindle sync functionality be removed: "Another part of our service has been the ability to make your Kindle reading more social by importing and sharing your Kindle highlights. A few days ago, Amazon formally notified us that they believe this functionality violates their terms of service."

So are book highlights as social objects going to be a phenomenon? I'm skeptical. Highlighting and note-making in e-books is a personal thing. I make highlights in a book because I want to remember a passage or idea in it. While I am curious sometimes to see what other people highlighted from a book I read, it's far more valuable to me to see what books other people are reading - and Goodreads is the place to go for that.

So I think Amazon is doing the right thing by keeping highlights and notes private by default. Well, let's face it - Amazon doesn't stand to gain much by giving external parties (like Findings) that valuable reader metadata. So it's simply choosing the path of least resistance.

While I admire the gumption of Findings to try and make highlights social, it will be an uphill battle fighting Amazon's privacy settings and Goodreads' social momentum.

"The only thing more perfect than reading is more reading," declared Amazon in a TV advert for its new Kindle eReader device. At a self-hosted event in Santa Monica today, Amazon launched new versions of its eReader and tablet products. Founder and CEO Jeff Bezos spent over an hour on stage, extolling the virtues of the new hardware. But perhaps more importantly, King Jeff showed that Amazon's reign over the book publishing kingdom continues to advance.

While Amazon faces stiff competition in the tablet market, in the eReader market Amazon is dominant. The latest version of the Kindle eReader, named the Paperwhite, boasts a higher resolution, front-lit screen and will retail from $119. It's a compelling upgrade, but the real reason for Amazon's dominance in the eReader market isn't the hardware - it's Amazon's continued innovation and market power in eBooks.

On stage today, Bezos confirmed that sales of Kindle eBooks overtook paper books around the beginning of 2011. Kindle eBook sales have trended steeply upwards since then.

It's notable that paper books have also grown, which is evidence of Amazon's power in the book industry. As Borders and Barnes & Noble shut down more and more of their bricks-and-mortar stores, Amazon's e-commerce business continues to increase sales - in both paper books and eBooks.

Another reason for Amazon's increasing book sales is that people are buying more books. In a Guardian article last month, Amazon.co.uk described this as a "renaissance of reading." Amazon claims this renaissance was ushered in by the Kindle. The UK arm of Amazon told the Guardian that "British Kindle users were buying four times as many books as they were prior to owning a Kindle." That statistic was repeated by Bezos today.

eBook Sales Now 15% Of Total Book Sales

According to BookStats 2012, a mid-year report from the Association of American Publishers and Book Industry Study Group, eBooks made up 15 percent of all trade book sales in 2011. In particular, in 2011 eBooks became the number one format for adult fiction.

OK, most of that is 50 Shades of Grey, The Hunger Games and similar populist fare (says the snobbish english lit grad). But regardless, it's undeniable that eBooks have finally taken hold of the publishing industry.

Amazon is profiting mightily from eBook trends - whether or not it caused them. Its new eReader, the Kindle Paperwhite, will very likely increase its market leadership.

It isn't just eBook trends and new eReader hardware that is responsible for Amazon's prime position in the book industry. The company is also shaking things up in book publishing and formats.

Kindle Direct Publishing

Amazon's self-publishing service, called Kindle Direct Publishing (KDP), gives authors 70% royalties. In a remarkable statistic, Bezos revealed that 27 of the top 100 Kindle books are from the KDP program.

Kindle Singles

Kindle Singles are short-form books that typically sell for a couple of dollars each. Bezos positioned Kindle Singles as halfway between a magazine article (under 5,000 words) and a book (over 30,000 words). 3.5 million Kindle Singles have been sold to date, said Bezos, 35 of which have reached the Kindle Top 50.

Kindle Serials

Today Amazon introduced a new Kindle book format, which harkens back to an old literature publishing strategy: serials. Just as Charles Dickens used to publish his novels in monthly or weekly installments, Kindle authors can choose to release their books in serial form.

From the consumer's point of view, buy the first "episode" and you'll receive all future episodes as they are released.

Amazon is releasing eight serials initially, priced at $1.99 each (which includes all future installments). In addition, Charles Dickens' books being re-released as Kindle Serials.

All Hail King Jeff

Add to the mix other Amazon offerings - like Kindle Owners' Lending Library, Kindle-exclusive books and Kindle Highlights - and Amazon has a formidable service offering for books, of all kinds.

Amazon reigns in the book kingdom, which seems to be a good thing for readers and authors. For readers: books are cheaper than ever before, the eReader hardware is getting better (as evidenced by the Paperwhite Kindle launched today), Web services are becoming more flexible (serials, singles) and social (Lending Library, Highlights). For authors: there is an easy and attractive self-publishing option (KDP) and more flexibility in format.

Of course some of King Jeff's subjects aren't as happy: book publishing houses and competing book retailers probably see it more like The Spanish Inquisition, than a renaissance. But such is the price of progress. For now King Jeff reigns.

Photos: The Verge

Ebook fans in need of new reads have a new friend in StoryBundle.

In 2010, the Humble Indie Bundle started offering a pre-selected fistful of music albums or video games at a price determined by the buyer. That scheme proved wildly successful and now regularly grosses $4 million. Now StoryBundle is offering the same kind of deal for books. Customers can pay as little as $1 for five books, or $7 for seven books. Like other such bundles, profits go to authors as well as charities. 

“The indie bundles are a simple but ingenious idea,” said StoryBundle creator and former Gizmodo writer Jason Chen. “They’re low-risk for you, and whatever you pay, you feel like you’re getting a deal.”  

Chen describes himself as a lover of ebooks but a hater of their print forebears: “I hate turning pages and holding a book in my hand," he says. "It’s awkward.” He created StoryBundle after he browsed the Internet looking for an ebook bundle but couldn’t find one.

Offering discounts for buying books in bulk seems like a no-brainer for an industry suffering from declining profits, but publishers have yet to offer such multi-book deals; in fact, they've been slow to offer content for e-readers in general.

“The publishing industry will get there eventually,” Chen said, but he believes it will take the print industry a while to catch on because “[publishers] overvalue their books.”

StoryBundle's first offer is the science fiction-heavy Big Bang Bundle, which will be available until August 29. Titles include Undersea by tech journalist Geoffrey Morrison and The Heretic by bestselling horror writer Joseph Nassise. Chen would recommend Bypass Gemini by Joseph Lallo, though he was reluctant to name a favorite.

StoryBundle has sold roughly 2,300 bundles so far, but Chen is hoping for 2,500 by the Big Bang Bundle's August 29 expiration date.

Despite criticism of its actions from high-profile political figures, the Department of Justice is standing firm on its settlement with three publishers in the DoJ’s lawsuit against Apple and five publishers accusing them of conspiring against common enemy Amazon.

Under the terms of the settlement, the settling publishers are required to end their agency agreements with Apple seven days after the settlement’s final approval. The publishers can then sign new contracts but are forbidden for two years from using clauses that limit retailers' rights to discount.

Apple and publishers Macmillan and Penguin have not agreed to the settlement and are continuing to fight the suit in court. But Hachette Book Group, HarperCollins, and Simon & Schuster settled with the US in April.

Under the Tunney Act, the DoJ solicited public comments for the settlement, and it got them: “868 comments from individuals, publishers, booksellers, and even from Apple, a key conspirator in the underlying price-fixing scheme.”

That was the characterization of the public comments highlighted in the DoJ’s response to these comments released Monday. In that response, the DoJ took on many of the comments criticizing its efforts to prevent the alleged antitrust actions of Apple and the five publishers - and blasted Apple’s comments in particular as “self-serving and contrary to the public interest.”

Of the comments, only 70 favored the DoJ’s terms of settlement, while the rest argued against the terms, insisting (with variations on the theme) that the DoJ was enforcing one particular business model over another and was out-of-bounds to force settling publishers to end their “agency pricing” agreements with Apple.

What’s Up With “Agency Pricing”?

Agency pricing lets a publisher set the prices of an e-book, with the retailer getting a cut of the price as a commission. This differs from the wholesale model, where a book’s price is suggested, and retailers can discount books to their heart’s content. The wholesale model is what Amazon used.

According to the DoJ’s suit, the publishers entered into agency agreements with Apple - countering Amazon’s existing way of doing things. In response, Amazon blocked Macmillan’s books from being sold on its site, in a move that echoed the Cable TV wars seen in today’s headlines. Amazon eventually backed down, and the agency model became the norm across all e-commerce retailers. The other major publisher in the US, Random House, switched to agency pricing in 2011.

Many of the public comments about the settlement derided the DOJ as attacking the agency model, but that’s not actually the basis of the DoJ’s action. It has no problems with agency pricing, just the way that Apple and the five publishers named in the suit did it: they allegedly colluded to raise the prices on e-books with the express purpose of breaking Amazon’s deep discounting.

The DoJ takes great pains to insist repeatedly that agency pricing is not the problem - nor is discounting.

Conspiracy Theory

“Nothing in the proposed Final Judgment would force Apple or B&N to exercise discounting authority — they are free to carry out their own businesses exactly as before. What they may not do is continue to rely on a conspiracy to restrain their competitors,” the response read.

The response also slaps away any arguments by Apple that the settlement will reduce competition in the market.

“In fact, what the evidence does show, is to the contrary… Microsoft has made a significant investment in the industry. The investment is likely a boon to Apple’s largest brick-and-mortar retail competitor, [Barnes & Noble]. Google, too, rather than retiring from the e-book field, recently has announced a new investment in a tablet computer intended to promote its own ebook sales, through Google Play.”

Powerful Enemies

The comments for the settlement had drawn in some heavy caliber political opponents, such as Sen. Charles Schumer (D-NY), who made an impassioned plea on Apple’s behalf in the July 17 edition of the Wall Street Journal.

“While the claim sounds plausible on its face, the suit could wipe out the publishing industry as we know it, making it much harder for young authors to get published,” Schumer wrote. “The suit will restore Amazon to the dominant position atop the e-books market it occupied for years before competition arrived in the form of Apple. If that happens, consumers will be forced to accept whatever prices Amazon sets.” (For more, see Why Senator Schuman Wants the Apple E-Book Pricing Lawsuit to Disappear.)

The DoJ isn’t buying what Apple and its allies are selling, and it’s doubtful consumers will, either. “When Apple launched its iBookstore in April of 2010, virtually overnight the retail prices of many bestselling and newly released e-books published in this country jumped 30 to 50 percent — affecting millions of consumers,” the DoJ response stated. This was not due to agency pricing, the DoJ maintains, but to illegal conspiracies.

The DoJ reiterates that it is not out to kill agency pricing. And that’s good for book buyers. Agency pricing on its own is likely to keep prices more uniform than wholesale pricing, despite what Apple and its allies are claiming.

Lead image courtesy of Shutterstock.

First, some background. In case you haven't followed the story, the Department of Justice filed a lawsuit against Apple and five book publishers in April that basically accused them all of secretly meeting up at fancy Manhattan restaurants and agreeing to stick it to Amazon by raising the prices on e-books by a few dollars. The agency pricing model that was agreed to would effectively allow the publishers to gang up on Amazon and force it to raise e-book prices above the $9.99 price point that was then common for Kindle titles. 

A few of the publishers settled with the DOJ out of court, but Apple and the other defendants have remained defiant. In late May, Apple filed a formal response to the DOJ's claims, in which the company denied wrongdoing. 

Schumer: Lawsuit is Anti-Innovation

In his op-ed, Senator Schumer echoes Apple's sentiments at certain points, claiming that the lawsuit "empowered monopolists and hurt innovators" and that it "could wipe out the publishing industry as we know it." 

At the heart of Schumer's argument is a concern that forcing Apple to change its ways would put Amazon back at the top of the e-book market, where it had previously maintained a 90% share. Then Apple came along, argues Schumer, and introduced some competition into the marketplace, thus eroding Amazon's market share. 

The result has indeed been increased competition in the e-book market, but at higher prices for newer books. It's this price increase that got the DOJ's attention in the first place, but Schumer argues that the short-term desire for cheaper new releases should be balanced with "a more pressing long-term interest in the survival of the publishing industry." 

In other words, the publishers' ability to charge a few dollars more for new releases has allowed them to grow revenues enough to pre-empt the kind of catastrophic demise seen in the music and newspaper industries. 

Interestingly, Schumer doesn't attempt to discredit the DOJ's core claim against Apple and the publishers, which he says "sounds plausible on its face." Instead, he asks readers and the DOJ to consider the broader implications for the publishing industry if the companies that make money from book sales are forced to sell new releases at a lower cost to consumers. 

E-book sales have been surging, thanks in part to the proliferation of devices including Amazon's Kindle and Apple's iPad. Yet while digital books are growing in popularity, they're a long way from outselling more profitable hardcovers, whose sales have been declining. Like other traditional mass-media industries, publishers are trying to build a sturdy enough bridge to the digital future without cannibalizing their legacy business model. 

Kevin Kelly, the brilliant technology theorist and author of the seminal books "What Technology Wants" and "Out of Control," has created his first graphic novel: "The Silver Cord" - and made it available as a free download. It takes the title of Ray Kurzweil's bestseller "The Age of Spiritual Machines" at face value and asks, what will happen when a robot reports that it has experienced an epiphany?

This 210-page visual feast is a team effort, drawing on talents from Pixar, ILM, Lucas and Electronic Arts, as well as the deviantART forum. Best of all, it's available free of charge. 

But there's a catch: To read the story's conclusion, you'll need to wait for "The Silver Cord, Volume 2." It's already in development with a $20,000 Kickstarter project to back it up. So if the initial offering hooks you, you can help make sure you get your next fix. Fans have seven days to subsidize the sequel.

Barnes & Noble remains a big player in a growing industry, and until Google changed everything this week, it made fantastic hardware for the money. But as with Nokia, a changing market and financial problems are driving a proud Number Two into a subordinate role that threatens to choke it out of existence.

The Basics

Barnes & Noble was the king of the book superstore. In the early 1990s, the company revolutionized the book industry by going big, wiping out the little guys with economies of scale. At the end of the decade, as Amazon lured users with its online logistics edge, Barnes & Noble clawed back to a strong second spot with streamlined operations and an online push.

And when e-readers hit the market, Barnes & Noble had the foresight to launch its own device, the Nook, while its closest competitor, Borders, sold third-party devices. The decision worked for Barnes & Noble, which built the Nook into a nearly $2 billion business, while Borders has stumbled into bankruptcy.

In April 2012, Barnes & Noble and Microsoft entered into an agreement to create “Newco,” a Nook-centric company that would combine educational and digital business lines, and create new, complementary products. Microsoft reportedly paid more than $300 million up front for a 17.6% stake, pledging an additional $300 million over time.

The Problem

Barnes & Noble is a one-trick pony in an industry full of device, platform and content convergence. For the most part, Barnes & Noble has remained a bookseller, and that narrow focus has relegated the former goliath to a bit player.

Microsoft’s infusion of cash into “NewCo” after yet another quarterly loss has helped the company deal with amped-up competition from the Kindle Fire and other e-readers. Still, like another prominent Number Two player, Barnes & Noble’s financial woes have forced the company into an unbalanced relationship with its Seattle benefactor. Microsoft gets a physical presence and access to the growing educational market – a traditional Apple stronghold. Barnes & Noble almost certainly gets pressured to build a low-margin Windows-based Nook, so Microsoft has something to compete with the Kindle Fire and the new Google Nexus 7 tablets.

Physical bookstores are dying, and content sales are becoming more device-dependent. Google and Amazon have deep enough pockets to aggressively market loss-leading tablets. Barnes & Noble doesn’t. Microsoft does, but who knows if it will cut its losses and run if the going gets rough - or if it decides to focus on Windows tablets like the Surface. For Microsoft, the education market is just a nice-to-have. Barnes & Noble doesn’t have that luxury.

The Players

Barnes & Noble CEO William Lynch gets digital retail. He’s run e-commerce for Palm, Gifts.com and HSN.com, and unlike the Riggio brothers (Founder and Chairman Leonard and Vice Chair and former CEO Steve), Lynch isn’t hamstrung by an emotional attachment to paper books. He also understands the opportunities of Barnes & Noble’s physical stores, like linking book reviews into Nooks via NFC chips. He has a rough road ahead, but Lynch may be Barnes & Noble’s greatest asset.

The Prognosis

The Nook, as an entertainment and collaboration device, is not on par with competitive tablets. That may be fine for consumers who just want to read e-books, but over time it’s likely to lose out to inexpensive yet full-fledged tablets. With Newco, Barnes & Noble and Microsoft might have a shot at capturing a solid chunk of the nascent educational e-book market, but they’ll have to demonstrate success relatively quickly or Microsoft could decide the push isn’t worth the effort. Barnes & Noble may not fold anytime soon, but it’s on a path toward increasing irrelevance.

Can This Company Be Saved?

Absolutely, but it’s going to take a lot of work and a bunch of luck. Google’s new tablet will hurt Nook’s direct sales, and Barnes & Noble will need to find new ways to get users into its ecosystem - for example, aggressive bundling of devices with textbooks. The company’s future may boil down to how much help Microsoft chooses to give. If the Surface and other products promote the Nook store, and if Microsoft cuts a licensing deal for low-cost Nook devices with the power to challenge Google, Barnes & Noble has a decent shot at long-term survival. If the competition gets ugly and Microsoft cuts and runs, as it has before, Barnes & Noble will likely fade away. Even if Lynch plays all his cards right, he might still lose the game.

DeathWatch Victims So Far

Research In Motion: Things are hurtling downhill even faster than expected. Massive losses - more than 11 times worse than expected - and new delays in its Hail Mary BlackBerry 10 operating system update have made the company's dire situation even harder to ignore.

HP: No change in status

Nokia: No change in status

38 Studios: No change in status

Kevin Kelly's book What Technology Wants was one of my favorite non-fiction books of 2011. In my April 2011 review, I gave it 5 out of 5 stars. It's fitting that Kelly's book is the first to be turned into an iPad app on a new iOS platform called Citia. The result isn't an ebook though, it's more like a condensed summary of the book's main ideas. So is Citia just a modern day CliffsNotes, or something more substantial?

The Kevin Kelly app is now available in the App Store for $9.99 (note: unfortunately geo restrictions apply). I obtained a review copy and checked it out.

Those of you with long Internet memories will immediately see the resemblance of Citia to HyperCard, an Apple application from the late 80s and early 90s that was a precursor to the World Wide Web. Like HyperCard, Citia uses the concepts of "cards" and "stacks" to organize information.

Of course, Citia is much more visually appealing. Founder and CEO of Citia, Linda Holliday, demoed the app at the All Things D conference a couple of weeks ago and explained that the goal of Citia is to "deconstruct it [the book] on a visual axis."

Kevin Kelly's book has been deconstructed into what Holliday called a "thesis." It's been divided into 7 topics, totaling less than 20,000 words - much less than the 400 pages of the original book. The app also includes multimedia, such as images and video.

The HyperCard concept was used, Holliday explained, because they wanted the app to have modular content. This allows the reader to re-organize the information and consume it in a non-linear fashion. The reader can also theoretically share bits of it, via Facebook, Twitter and email. However, that part seems to be buggy, as neither Twitter nor Facebook worked for me in my tests. A really interesting concept that Citia hopes to introduce soon, when it has more books in its collection, is to show connections between ideas across books. If you have prior knowledge about a particular topic from reading another Citia book, the app will recognize that and you won't have to read about it again.

How Citia's Kevin Kelly App Compares to The Actual Book

Since I've already read 'What Technology Wants,' I was curious to see how the app would differ.

After the HyperCard-like novelty wears off, the next thing I noticed was that the Citia version isn't written by Kevin Kelly himself. In fact it's written in scholorly editor style, kind of like reading The Economist magazine. Each 'card' is a series of quotes from Kelly and interpretations of what Kelly wrote in the book (e.g. "Kelly doesn't accept the idea of evolution as a series of genetic accidents [...]").

One of the most powerful chapters in Kelly's book was one entitled 'The Unibomber Was Right'. It runs for 18 pages in the paper book, but is condensed into 4 cards in the Citia app. It's a powerful chapter, because it tackled the moral and ethical issues around an ever more powerful technium (a Kelly-invented term that means "a system of technologies"). The Unibomber was Ted Kaczynski, who wrote a manifesto about destroying modern technology before it destroys us. In the name of his manifesto, Kaczynski killed 3 people with mail bombs between 1978 and 1995. As a result, he's currently serving a life sentence in prison. In Kelly's book, Kaczynski's theories are explained and at first defended. However, Kelly ends the chapter by attacking Kaczynski's moral position:

"But despite the reality of technology's faults, the Unibomber is wrong to want to exterminate it, for many reasons, not the least of which is that the machine of civilization offers us more actual freedoms than the alternative [...] so far the gains from this ever-enlarging technium outweigh the alternative of no machine at all."

In the Citia version, the 4 cards summarize well the ideas in the chapter. But it also loses a lot of its impact, because Kelly's argument was deep and gradually unfolded over 18 pages of storytelling mixed with theory.

But perhaps that's part of the point of Citia: if you want to delve deeper into the ideas of a Citia 'book', then you'll need to buy the paper or ebook version and spend more time reading. Linda Holliday herself alluded to this, saying that Citia apps won't replace the books they're based on. Instead the aim is to complement the author's book and lead people to buy it, should they want to explore the ideas more deeply.

Why Non-Fiction and Not Fiction?

Citia is designed for non-fiction books, not fiction. Holliday explained that "we're working with non-fiction because the reader is more goal-oriented [and] they want the value of the content and not necessarily the duration of the journey [i.e. a long book]."

The company is targeting business and technology books to start with, because often those books are organized as a stack of ideas. Holliday said that the initial response from non-fiction authors has been positive: "most of them [the authors] say 'this is how I already work.'"

After Kelly's, the next book being released as a Citia app is Richard Florida's Rise of the Creative Class. For now each title is its own app, but Citia is working on a bookshelf type app to house multiple books.

Is This CliffsNotes, Or Something More Useful?

In a sense, Citia apps are like a modern day version of CliffsNotes - that is, explanatory summaries of full-length books. Like CliffsNotes, you won't get the full story with a Citia book-app. You'll have to read the paper or ebook version for that.

But despite that limitation, I can see Citia being very useful for non-fiction books. I'm an avid reader of non-fiction, but there are too many books I want to read and not enough time. With some authors or topics, I will want to read the whole book. Anything Kevin Kelly writes, for example. But for many other non-fiction books, I would rather "read" it in an hour via Citia than spend weeks on the full book. So Citia fills a need for me; and no doubt many others.

The inexpensive Kindle Fire took off when it was introduced in late 2011, giving Amazon 16.8% of the tablet market with 4.8 million shipments. Amazon's 7-inch tablet was the right product at the right price at the right time, that being the all-important holiday season. The Fire is an inexpensive tablet that offered many of the features that people want for less than half the price of an iPad. But the Fire didn't knock people's socks off, and many of the reviews were lukewarm, at best.

Amazon Still Trounces B&N

Apparently, the bloom is off the rose. Amazon's Q1 sales put it behind Samsung sales of Android tablets, but still comfortably ahead of Barnes & Noble's Nook tablets. Lenovo took the fourth slot, while B&N grabbed fifth place.

IDC predicts that Amazon will try to win back market share with the introduction of a "new larger-screened device... at a typically aggressive price point." IDC's Tom Mainelli, research director for IDC's Mobile Connected Devices group, also predicts Google will debut a tablet co-branded with ASUS.

Lessons Learned: Price Matters, to a Point

The lesson that Apple's tablet competitors should take from IDC's research is that price does drive sales - up to a point. The drop-off from the last quarter of 2011 to the first quarter of 2012 is far steeper than is easily explained by the end of holiday shopping. IDC had predicted overall tablet sales to be 1.2 million units higher than they were this quarter, with the shortfall mostly attributed to Amazon's slip.

Even though Apple introduced a new iPad this year, it's continuing to sell iPad 2s at a reduced price, fending off the cheap Android tablets and defending its market share while maintaining high margins on the rest of the iPad line. Apple owned 54.7% of the market in Q4 2011, and has bumped that figure back up to 68% in Q1 2012.

Tablet sales have grown 120% from last year, but were still lower than IDC's predictions. Whether tablet sales continue to slow in Q4 will be interesting to see.

Android Still Lags

Android vendor sales have not been able to catch up to iOS in the tablet market in the same way that they've been able to catch up with iOS phones. Despite two years and a slew of vendors chasing Apple's tail, Android has been able to glom on to only 32% of tablet sales in the last quarter. Android's fragmentation, poor customer reviews and pricing missteps have held it back.

It had looked like Amazon's Kindle Fire would be the breakout device for Android. And it was - briefly. But even Amazon's muscle and cut-rate pricing hasn't been enough to overtake the iPad.

William Lynch, chief executive of the New York-based company, told Fortune magazine Tuesday that he planned to have near-field communication installed in Nook e-readers as early as this year. The technology would make it possible for browsers to touch books in the store with Nooks to get more information, such as reviews, and then purchase titles in whatever format they want.

The company declined to discuss its strategy Wednesday. "We haven't announced anything further," a spokeswoman said in an email.

The success of Lynch's idea depends on convincing publishers that it's in their best interest to embed into their books information-storing chips that the Nook could read. If they agree, then Lynch would move a step closer to merging the physical and virtual words.

Barnes & Noble is in a unique position in having physical stores, an online store and an e-reader. "[The stores] remain a very important advantage for the company - the only retail player in the category with integrated three-channel distribution under one brand," said Peter Hildick-Smith, president of the Codex Group, a book market research and consulting company.

Even Amazon, which has about 60% of the U.S. e-book market to Barnes & Noble's 30%, understands the importance of having physical stores. The online retailer has been selling its Kindle e-reader through retailers since at least 2010 and is currently in chains such as Target, Best Buy and Staples (although Target announced Wednesday that it plans to stop selling Kindles).

Balancing Physical, Online Sales is Key to Success

Getting the right combination of the physical and online sales channel is key to survival. For example, Borders sold e-readers from Sony and Rakuten, maker of the Kobo, and had Amazon run its online store. With no connection to the online customer, Borders didn't have enough to survive. The bookseller went out of business last year.

Barnes & Noble has not made the same mistakes as its one-time rival, and its current strategy actually plays into the habits of book readers. Codex has found that people who own e-readers also buy physical books. "They're not just pure-play e-readers; they are living in the print world, as well," Hildick-Smith said.

In a February survey, Codex found that only 2% of book buyers bought only digital books. In general, people read nonfiction on e-readers and fiction in physical books, Hildick-Smith said.

Of course, Barnes & Noble still faces a number of hurdles in its online business. Nearly all Nook sales originate from the company's 691 stores, which are only in the U.S. The company needs to reach the international markets, which is why Barnes & Noble partnered last month with Microsoft. The software maker agreed to invest $300 million in a new subsidiary comprising Barnes & Noble's Nook and college bookstore businesses.

Under the deal, Microsoft will develop a Nook application for Windows 8, which is expected to ship this year, Lynch told the financial news agency Bloomberg. The app will take Barnes & Noble's digital books to consumers in Europe, Asia and Latin America, according to Lynch. Along with selling e-books, Barnes & Noble will also have to sell Nooks, which it hopes to place on the shelves of retailers in other countries.

If successful, Barnes & Noble could become a stronger competitor to Amazon, which has a tremendous head start. The online retailer sells its Kindle e-reader in stores in the U.K., Germany, France, Canada and Australia, and through its website in 175 countries. Amazon also sells books in seven languages.

Despite being the underdog, Barnes & Noble seems committed to putting up a fight by proving that the physical and virtual can coexist and prosper.

The terms of the deal have Microsoft settling its suit with B&N, giving the company a royalty-bearing patent license for the Nook line. Microsoft is putting a $300 million investment into "newco," an as-yet-unnamed subsidiary, in exchange for a nearly 18% equity stake in the company. B&N will own the rest of the company, which will have an "ongoing relationship" with B&N's retail stores. The company will also include the B&N college business. There will be a Nook app for Windows 8 as part of the deal, as well.

Last March, Microsoft sued Barnes & Noble, Foxconn and Inventec, claiming that they were infringing on five Microsoft patents. Rather than caving, as many other companies have done, B&N went on the offensive, describing Microsoft's strong-arm tactics (PDF) for wringing licensing fees out of companies using Android.

The case was stayed last June, (PDF) pending the outcome of an International Trade Commission (ITC) decision. That decision was expected on April 27th, and didn't look good for Microsoft.

Microsoft Saves Face, B&N Gets a Boost

So, despite the fact that the deal took many industry watchers by surprise, it shouldn't have been a total shock. Microsoft wasn't about to let a losing case go to trial that might jeopardize its Android cash cow.

By settling with B&N, Microsoft avoids an ugly court battle that might not have been decided in its favor. Like most companies that wield patents as weapons, the goal is to prevent competition and maximize royalties. Microsoft has no dog in the e-reader fight, so the partnership with B&N makes sense for Microsoft anyway.

Since Microsoft's patent license for B&N is a royalty-bearing one, it means that Microsoft may well make back its investment and wind up with a portion of the Newco to boot.

Winners and Losers

The big winner here is Microsoft, make no mistake. While the ITC decision was not a lock for B&N to win the case, it should have carried quite a bit of weight.

Barnes & Noble avoids a protracted legal battle with a company with much more legal firepower. The best case for B&N was to fend off Microsoft's suit, which still meant spending a lot of time and money when it's busy trying to compete with Amazon and Microsoft. Having the Microsoft suit cleared off the deck, with some cash to boot, is a win for B&N in the short term. Investors certainly seem to like the deal: Barnes & Noble's stock price is up by more than 60% since the news hit the wires this morning.

This is a loss for Android, though. Once again, patent FUD remains strong in the absence of actual legal decisions. Microsoft can point to the deal and claim, once again, that another company has found its patent claims compelling. It also doesn't have to deal with trial testimony that echoes its back-room patent negotiating tactics, which B&N seemed very willing to disclose.

Whether this helps B&N compete more effectively with Amazon is open to interpretation. So far, Amazon's results with college students have been weak. There's a lot of room for improvement for educaional uses of e-books.

Is it a win for users? It's hard to see how. As usual in patent cases, nothing in the announcement points to any innovation taking place, just two large corporations trying to decide how to carve out market share and avoid real competition.

The question at issue with respect to e-book retailing is literally this: If an unquestionably dominant retailer - in this case, nondefendant Amazon - specifies a fixed sales price for general e-book titles (borrowing a model created, ironically, by Apple), do publishers have a right to use a competitive retailer's leverage to set higher market prices for what they produce? Put another way, is a counter-price the same as a price fix?

"We allege that CEOs of the publishers bemoaned the 'wretched $9.99 price point,'" stated acting Antitrust Chief Sharis Pozen this afternoon, referring to Amazon's single set price. Citing from other emails in the Government's civil complaint, Pozen continued: "One executive said that 'the goal is less to compete with Amazon as to force it to accept a price level higher than $9.99.' And yet another: 'We've always known that unless other publishers follow us, there's no chance of success in getting Amazon to change its pricing practices.' Our complaint also quotes Apple's then-CEO Steve Jobs as saying, 'The customer pays a little more, but that's what you want anyway.'"

During today's price conference, Pozen was asked if she was concerned that adjusting the market conditions back to the way they were would, in effect, reestablish a pre-existing dominant player - in this case, Amazon. "This lawsuit and the settlements that we reached are about opening up the competitive marketplace and the competitive landscape," she responded, "and not dictating a business model, but allowing competition to flourish. We have talked to many participants in this market; we have obtained lots of information about the marketplace. And here we're taking action to stop what was an illegal conspiracy among five publishers and Apple."

"Agency Pricing"

Today's action by the Justice Department follows a March 2011 raid by European Union investigators into the offices of various publishing companies, presumably including the five named today. That action led to a series of private, class-action lawsuits in several states last August, as well as a civil action in U.S. District Court in Southern New York.

"As you can see," Pozen stated, "we allege that these executives knew full well what they were doing: that is, taking steps to make sure the prices consumers paid for e-books were higher."

Indeed, the five publishers named in the lawsuit did institute a so-called agency pricing model. With the typical wholesale model, a reseller purchases a product from its producer at a price point that's a certain percentage (usually 50%) of its suggested retail (list) price. The reseller then sells it with the markup percentage of its choice.

Contrary to the wholesale model, the agency model has the reseller into an agreement to sell at a fixed price, with the implicit understanding that no other reseller would be allowed to sell at a different price. Pozen told reporters today that the five named publishers initiated this model during a three-day period in January 2009.

According to the original civil suit upon which today's Justice Department actions were based, each of the named publishers followed up their agency pricing model with coercion policies aimed at punishing Amazon for its fixed price point. First, the original suit alleges, publishers actively "windowed" the release of their e-book titles to Amazon until a fixed number of days following the general release of the corresponding print editions. Then on a certain date following Apple's launch of the iPad and its iTunes Book store in January 2010, the suit continues, publishers allegedly withheld up to 85% of their fiction titles from Amazon.

The narrow window of implementation - the near-simultaneity of their actions - may be enough to imply the existence of collusion between the publishers and involving Apple, according to the Justice Department. Indeed, a 1939 Supreme Court decision involving the apparent collusion of theatrical film distributors, establishes precedent for the notion that the obvious appearance of near-simultaneity for companies' actions is enough to establish evidence of collusion.

Is the Evidence Self-Evident?

If the Government's case boils down to the validity of a single argument, it will be the notion that the publishers acted together to establish a pricing scheme against Amazon, and worked together to buttress it with policies that benefitted a competitor. It's this near-simultaneity which Pozen referred to during a press conference in Washington this afternoon, emphasizing the impossibility of coincidence.

But the case against Apple, specifically, may be harder to prove. If time is the only indicator of collusion here, then Apple and the other remaining defendants could make the case that the iPad release was a milestone date known to the publishers - as well as the world at large. That their actions centered around launch dates could also aid in the publishers' defense, giving them a clear reason for their actions (which may not be illegal taken unto themselves) to have taken place within such a short period of time.

What may also aid the publishers' defense, if it can be clearly demonstrated, is the possibility that they didn't directly benefit from a price hike. In fact, technically there may not have been a hike at all: As e-book publisher Mike Shatzkin explained on his personal blog in November 2010 - long before any legal actions commenced - adopting the agency pricing model made publishers responsible for sales taxes. So perhaps the entire $2- to $3-per-copy price hike alleged by Pozen this afternoon, and perhaps more, may have been usurped in taxes. And more still may have been claimed by authors' agents, as Shatzkin went on to explain.

This could eliminate financial gain as a motivating factor. In an open letter published today, Macmillan CEO John Sargent made exactly this case: "When Macmillan changed to the agency model we did so knowing we would make less money on our e-book business. We made the change to support an open and competitive market for the future, and it worked. We still believe in that future and we still believe the agency model is the only way to get there."

With respect to the timing of his move to the agency model, Sargent said the idea came to him "on January 22nd, 2010 a little after 4:00 AM, on an exercise bike in my basement. It remains the loneliest decision I have ever made, and I see no reason to go back on it now."

If a judge finds against the defendants in this case, is the Government afraid of publishers possibly retaliating by reducing the number of available e-book titles across the board? That was a question raised by NBC News Justice Correspondent Pete Williams; and Pozen's answer teetered dangerously close to the edge of making the publishers' case for them - stating that companies will do what it is within their means to do to remain competitive: "This enforcement action is about opening the playing field so that it's open and fair, and that competition can flourish at the retail level. We want that competition to take whatever form it's going to take."

While it may frustrate many hobbyists and hackers, this approach is simply a cost of being one of Apple's millions of otherwise satisfied customers. It's rare that the company crosses over the line between closed and alarming. But that's exactly what just happened.

The trouble started shortly after Seth Godin submitted his latest e-book to Apple's iBookstore. The marketing pundit and super-prolific author penned a book titled "Stop Stealing Dreams" and sent the finished copy along to Apple for approval. Much to his shock, the book was rejected.

The reason? An email from Apple identified "too many links to Amazon store" as the prime offense. Yes, simply linking to one of Apple's competitors is a bold and forbidden enough gesture to cause a book to get banned from its digital storefront.

As Godin himself outlines on PaidContent, this is pretty disturbing stuff. "What's inside the book shouldn't be of concern to a bookstore with a substantial choke on the marketplace," Godin writes. "If it's legal, they ought to let people read it if they choose to."

On the iPhone, Apple has certain obligations to the carriers and its own market dominance, which sometimes lead the company to forbid certain features from finding their way onto the iOS platform. In many cases, this is understandable.

But this is different from free mobile WiFi tethering or other app features that directly compete with Apple or the carriers. These are books. You know, the things that have historically been banned and burned when the powers that be don't appreciate their contents. Books contain ideas and information. You know, the stuff that's supposed to be much more fluid and accessible thanks to technology.

Of course, the book-burning analogy has its limitations. Anybody who really wants to read Godin's book can go get it from Amazon or in another format outside the iBookstore. But there's something unsettling about a dominant player in a information-centric marketplace such as this refusing to offer a piece of content strictly for competitive reasons. How would we feel if Barnes and Noble refused to carry a book about the history or corporate philosophy of Borders or Amazon? Or if they wouldn't order a book written by the CEO of a competitor, simply because doing so would inadvertently aid the enemy? Many people would rightly be freaked out by that.

All is not well in the e-book market. Amazon and Google have each scaled back some e-book programs in the past week because business was weaker than expected. Both e-book sellers are having trouble doing business with publishers.

Amazon has pulled more than 4,000 books from its e-shelves after publishers wouldn't budge for lower prices. Google is cutting off partners in its e-book affiliates program because sales referrals are too low to be worthwhile.

What's going on here? E-book sales passed print in all trade categories last year, and e-book library lending is huge, but print still brings in more revenue for publishers. The problem is that consumers expect e-books to be cheaper, so publishers can't charge as much for them as they might like. In other words, it's a problem of business models, not of demand.

Meanwhile, Amazon's profits are sagging, and Google Books trails far behind in terms of sales. They're both getting tired of the middlemen, i.e. the publishers., and the squeeze they put on e-book sales.

Amazon is not shy about its efforts to get authors comfortable with self-publishing of e-books. Meanwhile, when publishing houses can't meet its price expectations, Amazon pulls the plug on their books. Google's affiliate program for e-books gave partners a better deal than Amazon's affiliate links, but it's cutting off the partners who can't perform.

The author and the reader are hamstrung by the presence of not just one but two middlemen. Something's got to give.

Inevitably, it will. It will be the publishers.

It's getting amazingly easy for authors to publish their own books, and Amazon, Apple and Google are all working on ways to let authors expand the idea of the e-book itself. Amazon is poised for a big Kindle push in Brazil. There's no question that the future of the book business is in the hands of these tech companies, not the publishers who can't keep up.

See also: Books Continue to Evolve - Check Out E.O. Wilson's 'Life on Earth' iBook

UPDATE 7:44 p.m.: RWW tipster Porter Anderson just passed along the news that Google has changed its mind and will now reinstate its independent affiliate publishers:

From Publishers Weekly:

"After notifying some independent bookseller Google eBook affiliates late last week that they will be removed from the program as of March 15 and their links deactivated, Google is now working to reinstate all indie affiliates. A Google spokesperson told PW that the company expects to add back those affected soon. She suggests that booksellers who sent e-mails but haven't heard back yet recontact Google."

Once we figure out why Google changed its tune, we'll let you know.

Do you read e-books? Which store(s) and device(s) do you use?

Last month Apple announced iBooks 2, the next generation of its e-book app for iPhone and iPad. iBooks 2 was notable for the launch of a new breed of interactive digital textbooks, designed for the iPad. The books feature videos, photos, diagrams, rotating 3D objects, "Study Cards" for notes and highlights, and more. Among the first iBook 2 offerings is a free preview of a new book by famed biologist E.O. Wilson, called Life on Earth. It's an intriguing glimpse into the future of textbooks.

Life on Earth is a digital biology textbook for high school students. It's currently "under development" (it isn't being written, it's being developed) by the E. O. Wilson Biodiversity Foundation. The free download offers a preview of the book and a sample chapter about ecology. New chapters will be "released" (not published) over the next 2 years to the Apple iBookstore.

After a brief introductory video by Wilson, the colorful textbook opens. It's best viewed in landscape mode, where the photos and animations are larger and more vivid. Viewing it in portrait mode creates a more streamlined version, which is less colorful but can be read quicker.

The animations are probably the most impressive thing about Wilson's iBook. Using a variety of swipe and tap gestures, students can explore how things like cells and DNA work.

The videos are typically short, 1-2 minutes long. So while they interrupt the flow of reading a textbook, they don't distract for too long.

The "Study Cards" feature allows students to make notes and highlights. Students are also prompted to do pop quizzes. However, as Ars Technica pointed out in its review, there is limited sharing with third party apps like Dropbox and Evernote.

Publishers can create this new type of iPad textbook through a separate iOS app called iBooks Author. The big benefit of e-textbook projects like this is that the book can be constantly updated and new versions are released through the App Store. Life on Earth is a 2-year development process, but after that it will be ongoing iterations as new scientific discoveries come to light.

There are some downsides to projects such as Wilson's iBook. They're costly to both produce and consume. For producers, the animation and video effects don't come cheap. For consumers - in this case students - iPads are expensive and many schools can't afford them.

Regardless, this is an impressive iBook preview by the E. O. Wilson Biodiversity Foundation. Encouraging kids to interact with their textbooks and follow scientific process through animations and video is a great way to engage young minds.

Textbooks have evolved, it's as simple as that.

It was born last month, after a group of writers and scientists had started gathering at Science Online to discuss the rapid growth of e-books. They saw a blissful future for science books - but how would readers be able to find out about them? If you spend too much time on the Internet, you've probably noticed that science e-books do not get reviewed often, nor are they picked up by blogs.

On Download the Universe, these 15 smart scientists have dedicated their time to reviewing books about science that only exist in the digital universe. Those may include self-published PDF manuscripts, Kindle Singles about science, or even apps with games in them.

But why a website dedicated to only science e-books? And why now?

The idea of a scientific e-review comes from Carl Zimmer, who writes about science for the New York Times. He also authors the blog The Loom.

In his introduction to the site, Zimmer raises important points about the nature of the traditional publishing industry versus the infinitely malleable digital publishing industry. Zimmer has an answer to that question.

"E-books are once again redrawing the boundaries. Walk into a book store and look at the science section. Most of the books are between 200 and 400 pages. Most are created by large publishing houses. There's nothing fundamentally wrong about a 50-page book, of course. It just doesn't fit comfortably into the publishing business - a business that has to contend with costs for printing books, storing them in warehouses, shipping them to book stores, and accepting returned books. E-books create an economic space for the very short book (and the very long one). They also allow authors to reach readers without having to persuade a publisher that their book will earn back an investment."

The first review is already up. Pulitzer-prize winning science writer Deborah Blum evaluates the popular iPad app The Elements.

Because Download the Universe includes texts and apps that are not quite packaged as "e-books," one could argue that these items are not "books." Zimmer sees this argument, and assures readers that perhaps this is true. But nonetheless, there is "something missing in between," as he writes. Download the Universe fills that space online where the science inbetweenness lives.

Image courtesy of Shutterstock.