The $9.99 best seller that helped Amazon.com Inc. build a dominant position in the now-thriving e-book market was at risk of extinction Sunday after Amazon capitulated in a battle sparked by the launch of Apple Inc.'s new iPad.

Amazon conceded defeat Sunday evening after halting sales of all books published by Macmillan in a dispute over higher e-book prices. Having made the $9.99 e-book a fixture, Amazon now faces the prospect of raising its prices to match new terms Apple is offering publishers.

"Ultimately we will have to capitulate and accept Macmillan's terms because Macmillan has a monopoly over their own books," Amazon said. Amazon's statement suggested it would resume selling Macmillan books, but didn't offer a timeline for doing so.

Amazon's flip-flop exposes how seriously Amazon is taking Apple's challenge to its position as the market leader in e-book sales. It is the first of what is expected to be a series of upheavals as Amazon and Apple square off over the digital future of book publishing and retailing.

The picture is likely to get more complicated when Google Inc., the search-engine company, later this year launches its own e-bookstore, Google Editions. Google says it intends to allow publishers to set their own prices -- while reserving the right to discount at its own expense.

"The future of e-books, the future of publishers' control over their own destiny, and the future of retail pricing, is being forged right before our eyes," said Richard Curtis, a New York literary agent and e-book publisher.

The issue came to the forefront after Apple unveiled the iPad last Wednesday and disclosed that five major publishers, including Macmillan, will begin selling their own e-books for the device. Publishers will set prices themselves on Apple's iBooks store and many of the new e-book best sellers are expected to be priced at $12.99 or $14.99 -- terms that the publishers are expected to ask Amazon to match.

Under the Apple model, publishers will receive 70% of each sale, or $10.49 on a $14.99 e-book. This compares unfavorably with what they were receiving from Amazon per title. However, publishers believe that Apple's customer base represents a vast new market and that they will make up the difference on volume. They also believe Amazon's $9.99 price tag doesn't reflect the true value of their books.

Whether consumers will be willing to pay more for their e-books remains to be seen. After a news conference announcing the iPad, Apple CEO Steve Jobs told a Wall Street Journal columnist that "the prices will be the same" for books on the iPad as on the Kindle.

The Macmillan fracas came to light after Macmillan Chief Executive John Sargent flew to Seattle to discuss "new terms of sales for e-books" with Amazon last Thursday, the day after the Apple announcement. By the time he returned to New York on Friday, he had been informed that Macmillan's books would not be for sale on Amazon.com directly. By late Friday evening, many of Macmillan's titles had already been removed.

Mr. Sargent said late Sunday that Macmillan is now "in discussions with Amazon on how best to resolve our differences.They are now, have been, and I suspect always will be one of our most valued customers"

Macmillan, a unit of Germany's Verlagsgruppe Georg von Holtzbrinck GmbH, boasts such top sellers as "Wolf Hall" by Hilary Mantel. On Saturday it published "The Politician," an account of the John Edwards scandal by former Edwards aide Andrew Young that on Sunday afternoon ranked No. 1 on the best-seller list at Barnes & Noble.com, a unit of Barnes & Noble Inc.

Neither of those titles was available from Amazon, either in e-book or hardcover versions, over the weekend. Kobo Inc., a Toronto-based e-book retailer, sent out messages on Twitter promoting a page on its site titled "Can't Get These on Kindle" that features 13 Macmillan titles it sells.

"This isn't really about Macmillan. It's about Amazon fighting for its life with Apple," said Dominique Raccah, publisher of Sourcebooks Inc., based in Naperville, Ill. "Up until now, Amazon has had a significant hold on the future of the book industry. Now a lot of new devices are coming down the pike, the most important of which is the iPad."

In its statement, Amazon said it doesn't believe that "all of the major publishers" will follow Macmillan's position. Amazon didn't rule out others offering cut-rate prices: "We know for sure that many independent presses and self-published authors will see this as an opportunity to provide attractively priced e-books as an alternative."

The new pricing demands could have benefits for Amazon. Instead of losing several dollars on new e-book best sellers -- which Amazon was willing to do to push sales -- it stands to make a profit on each title. And publishers are expected now to make their new e-books available on the same day as their hardcovers, a position Amazon has long advocated.

One publisher that signed up with Apple said it is uncertain what will happen in the next few weeks. "Conversations have only just begun," said Brian Murray, chief executive of News Corp.'s HarperCollins Publishers. News Corp. also owns The Wall Street Journal.

Other publishers involved with Apple, including Pearson PLC's Penguin Group and Lagardere SCA's Hachette Book Group, declined to comment Sunday. Efforts to reach a spokesman for Bertelsmann AG's Random House book arm, the only major house that hasn't signed on with Apple, were unsuccessful Sunday.

Doug Miller, a 45-year-old information-technology consultant in Indianapolis, owns two Kindles and dozens of Amazon e-books, but was so frustrated by the removal of Macmillan books that he has put his e-book purchases on hold indefinitely. "It was Amazon that was acting monopolistic. That seriously damages my trust in them," he said. "I'm very leery of further investing in any e-book platform until I see some sort of standardization. In the meantime I'll buy paper books -- but probably not from Amazon."

Courtesy of iReaderReview, we have created a very simplistic view of how the pie is currently divided:

Author: 10% (This in fact ranges between 8% and 15%, depending on the author's clout -- e.g. Stephen King does better than most. If the author has an agent, the agent's cut comes out of this. It is indeed tough for new authors.)
Publisher: 30% (This ranges between 25% and 32%, again depending on the author's clout -- e.g. their percentage is less with Stephen King because the risk is lower too. Note: this is their net revenue, after deducting author royalties and printer fees.)
Printer: 10%
Distributor: 10%
Retailer: 40%

Will authors get more than the 8 to 15% share of the pie that they currently get? That should be possible, because a few big pie-sharers have been eliminated by the Kindle, namely:
Printer: 10%
Distributor: 10%
Retailer: 40%.
Unless Amazon is giving a bigger percentage to publishers (which is unlikely, but possible), 60% of the pie is available to be shared between Amazon, publishers, authors, and readers.

Based on published reports, here’s the way Macmillan envisions the ebook sales should be divided.

20% author
30% retailer
50% publisher

They can’t seriously expect that division to stick, so obviously this is just an opening negotiating gambit.
[this was followed up by another contributor who wrote]
I think your figures are wrong for the Kindle. Publisher gets 35%, out of
which publisher pays author royalty. So it would be more like:

Author: 10%
Publisher: 25%
Amazon: 65%

It is worth noting that Scribd and Smashwords are destroying Amazon's assertion of the 65% cut to the retailer. They are only charging about 15% -- which leaves 85% for the Publisher and Author. I think that is closer to where this will all be after the dust settles. So the publisher will actually make MORE on ebook sales than on printed book sales!