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Amazon has caved to Macmillan's demands that it raise the prices it charges for Kindle books to as much as $15.

What does this mean for Amazon? 

In the short-term, it is actually positive: The move will increase the profitability of the Macmillan books Amazon sells for the Kindle.  Amazon had previously been losing an average of about $1.50 per $9.99 e-book it sold so it should make a modest profit if it sells Macmillan titles for anywhere from $2 to $5 more than it had been.

However, the move also sets a precedent that puts Amazon's current stranglehold on the e-books business at risk.  If other publishers follow in Macmillan's footsteps (and why won't they?), Amazon will lose the pricing advantage it enjoys over other ebook sellers.  This could lead to it losing market share in ebooks and slower sales of Kindle books overall.

Currently, Amazon sells 90% of all e-books sold.  This is in part the result of the Kindle's early lead in the market and in part the result of Amazon's being willing to sell Kindle books at a loss. 

This dominance in turn has strengthened Amazon's leverage in negotiating the best terms with publishers who have been loathe to sell e-books at much lower prices than hard copies.  Publishers are desperate to reduce this leverage and maintain high per-unit profits on book sales, which is why Macmillan insisted that Amazon raise prices.

Now that Amazon has caved in this instance, other publishers will likely demand that Amazon raise ebook prices.  This will reduce the value of Amazon's Kindle platform (the books will cost the same on all e-readers) and reduce the value proposition of e-readers in general.

The idea that e-book prices should be the same as hardcover physical book prices (with associated printing and shipping costs) is ludicrous, and we expect that publishers will eventually be forced to acknowledge this reality. 

In the near term, however, Macmillan's demand will mean higher prices for consumers and a smaller opportunity for Amazon.  It may also provide an opportunity for other e-readers, such as Apple's iPad, to make a dent in Kindle's monopoly market share.  The move is therefore a potentially big negative for Amazon.

See Also:

Here's Why Amazon Will Win The eBook War: Kindle Already Has 90% eBook Market Share

Bad News For Book Publishers: More Authors Selling E-Books Direct

Amazon's Latest eBook Deal Is A Watershed, Will Increase Pressure On Publishers

Amazon Making No Headway In Talks With Publishers About Cutting Kindle Book Prices

Kindle Fantasies Are Running Wild -- But, For Now, Amazon Is Losing Its Shirt