7 JUNE 2013
An old e-mail exchange between Steve Jobs and James Murdoch illustrates how savvy negotiation works.
A series of emails about ebook prices between Apple and HarperCollins, including ones written by Steve Jobs, were recently released as part of the Department of Justice price-fixing suit against Apple and a number of major publishers. As the site Quartz pointed out, these offer some great insight into how Jobs negotiated.
However, Zachary Seward at Quartz called it an example of “hard-nosed” negotiation at which Jobs excelled. I’d take a different view. This is not hard-nosed. The emails show how an excellent negotiator used a series of principles to create the best conditions for winning. Let’s look in greater detail at the exchange between Steve Jobs and James Murdoch, son of Rupert Murdoch and the ultimate decision maker, and see how Jobs ultimately got his way.
First, set the stage. Apple and HarperCollins had been discussing bringing the latter’s ebooks into the iTunes store for the launch of the iPad. Apple had presented its standard contract. HarperCollins wanted to address the following issues:
- flexibility to price on a title-by-title basis outside Apple’s pricing tiers
- no so-called most favored nation status, so Harper would not have to give Apple as good a deal as any other retailers in case the two companies disagreed on prices and HarperCollins wanted to make titles available through other outlets at higher prices and, potentially, higher income for those retailers
- a lower than 30 percent commission on new works
- six month windows on using an agency model (publisher sets the price and retailer gets a commission) instead of the 12-month window that Apple wanted
- concern that Apple wanted to set prices too high, meaning that competition with Amazon would be difficult
And yet, Jobs ultimately prevailed. Here is how.
1. Understand the importance of the negotiation.
According to one of the emails, Steve Jobs got on the phone with Murdoch right away. Jobs was a busy man, but he knew that some deals are critical. To have a credible showing of ebooks, he needed all the major publishers, including HarperCollins. However, there was another aspect of importance that didn’t pass him by. If he caved on what he thought he really needed with one publisher, others would eventually find out and push back. Not only was the deal important in and of itself, but also in terms of the effect it could have on other deals.
2. Show that you understand the context and why your proposition is better.
Jobs knew, as did everyone in the publishing industry, that Amazon was driving much of the ebook business. Murdoch verified that Amazon paid $13 wholesale for an ebook title and sold it for $9.99–a lost, but Amazon wanted market share. However, buying high and selling low wouldn’t last forever, as Jobs pointed out:
The current business model of companies like Amazon distributing ebooks below cost or without making a reasonable profit isn’t sustainable for long. As ebooks become a larger business, distributors will need to make at least a small profit, and you will want this too so that they invest in the future of the business with infrastructure, marketing, etc.
Furthermore, Jobs argued that the $9 HarperCollins would get per title was actually sustainable and that the only way to pay more, given that in retail a 30 percent margin is relatively modest, would be to raise prices, angering consumers.
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