APRIL 15, 2011 • The International Game Developers Association (IGDA) warned its membership in a letter to be wary of contracting with Amazon’s digital Appstore, which reserves the right to pay developers, “the greater of 70% of the purchase price or 20% of the List Price.” While noting many retailers exert control over the price of products, the IGDA said it was not aware of any other retailer having a formal policy of paying a supplier just 20% of the supplier’s minimum list price without the supplier’s permission.
Impact: Amazon’s Appstore for Anrodi applications has gotten off to a somewhat dubious start. For one, Apple has filed suit against Amazon for the use of the term Appstore. More importantly, Amazon’s control over the pricing structure highlights a key problem with the long-tail theory as it applies to content creators. Under the long tail theory a retailer like Amazon can profitably sell products that have very few sales because they are aggregating a large number of products and in the digital age much of the inventory costs go away. Unfortunately it also means, a distributor like Amazon does not really care how much any one product sells for. As long as they have the best prices and broadest distribution reach consumers will come to them. If content creators can bear the cost of price slashing that works even more to Amazon’s benefit.