Kindle Review – Kindle Fire Review, Kindle 4 Review

Let’s start off with two assumptions -

1. Every company is trying to do what’s in its best interests. 
2. Every company is trying to do what’s in its best interests while seeming to do what’s in the best interest of customers and its partners.

Obviously, there are times when 2. is mostly true – However, companies almost always pretend that 2. is happening. Some companies go as far as to pretend that they are doing what’s best for customers and partners while sacrificing themselves.

Take $9.99 Prices.

$9.99 prices are good for everyone – or are they?

$9.99 prices give Amazon a huge advantage and sell Kindles and also are good for customers.

Whether or not $9.99 prices are good for Publishers depends on whether sales increase or decrease – which we can’t really predict with 100% accuracy. It seems sales will go up enough to lead to more profits not less. So $9.99 prices are likely to be good for Publishers but there’s no way of knowing for sure.

Yet, it’s in the interest of readers and ebook sellers to sell Publishers on the idea that $9.99 is good for them. Publishers are told to just assume that lower prices will work out for them - even though it’s not a certainty.

Where things get really intricate though is when what’s best for one company is damaging to another.

It benefits a company to commoditize every other element in the eco-system

This is best illustrated with an example. Let’s say you’re a Top Publisher. The ideal situation for you is -

1. There’s lots of demand for the type of books you publish and very little supply. So readers really want your books and you can dictate prices. 
2. There are lots of distributors and stores fighting to sell your books and offering you better and better rates.
3. There are loads of authors desperate to have you publish their books. 

This situation isn’t ideal for authors, readers, or distributors – It is, however, great for Publishers.

Basically, it helps every company to create an environment where the service they provide is rare and valuable and they are the only provider.  

It also helps companies to create an environment where all the services they need are easy to find and there are so many competing providers that those services are commoditized.

A company always tries to make everything else in the eco-system a commodity

This is a subtle but important distinction. Not only is a company aware that it has to commoditize everything else it’s always doing so.

You have all sorts of approaches -

1. Companies that create win-win situations. Here we usually see one element of the ecosystem left intact and everyone else commoditized.  
2. Companies that lull their suppliers into complacency and then commoditize them.  
3. Companies that play well with others until they dominate their part of the eco-system (or supply chain) and then flip around and take advantage of their power.
4. Customers that play off companies against each other.
5. Suppliers that play off companies against each other.

Take content and getting it to customers. You could take three very different approaches and they yield almost identical results -

1. The Publisher model where you make it almost impossible for authors to reach readers and then dictate terms to both sides.
2. The App Store model where you control what gets in and more importantly let unlimited competition turn developers into commodities. It’s painful for developers to accept it (and it’s reflected in their anger about things like the review process) – However, if your app is selling for $1 and there are 200,000 other apps competing with you you’re already a commodity.
3. The Search Engine Model where you provide the service of helping customers find content providers and then gradually make the content providers powerless.

In each case the content provider, the author/developer/site owner, has been commoditized. There are millions (or hundreds of thousands) of producers and just one option for them to reach customers.

Regardless of what a company might claim it is both trying to create this situation and happy when it happens. It has to be – it creates more profit and it’s better for customers to get free or cheap content (for publishers it’s quality of the content that’s the selling point).

eBook stores are trying to commoditize eReaders

You see this in two ways -

1. Kobo which is trying to create an almost featureless $149 eReader and focus on selling books.  
2. Google which is trying to supply its million ebooks and its Android OS to every eReader and make them pretty similar.

It benefits eBook stores a lot if eReaders become nothing more than $50 devices that have no purpose other than to sell ebooks.

What would go hand in hand with this model?

Well, how about the eBook store having a Cloud and cloud based services that add value. Making the ebook store even more important and the eReader nothing more than a dumb terminal.

Not surprisingly both Kobo and Google are doing exactly that – focusing on the Cloud and selling those features.

eReader companies are trying to commoditize eBooks

The smaller eReader makers that are not trying to make money off of ebook sales are happy to provide lots of openness and let users pirate ebooks to their hearts’ content. They also are focused on providing lots of free public domain books and driving down the value of books.

We don’t see this with the bigger companies because they are too smart. They want to make money from eReaders and eBooks and that’s why they’re not commoditizing books like they could.

Amazon and Barnes & Noble are in a unique situation

They want to increase the value of eReaders, maintain the value of books (ebooks), and commoditize Publishers and distributors. Amazon and B&N only need the readers and authors. Every other layer is redundant.

They want to get the best of both worlds – profits on eReaders and profits on eBooks.

This means that they stay away from a lot of the strategies the ereader only and ebook only companies indulge in.

The Unholy Alliances

Apple and Google pretending to care about Publishers

Being late entrants they need the support of Publishers. If one or both of them get into a strong position they’ll turn on Publishers and commoditize them. For now, they are letting Publishers live under the illusion that they can keep their power and control even in a world of ebooks.

Their second opportunity is with readers. Apple is going the route of visual appeal and aesthetics and letting users access any ebook store from one device. Google will probably go with open and with a wider range.

It’s much tougher for them to impress readers because $9.99 prices are already established and the convenience and benefits of ebooks are already well known. Most of the real, meaningful things that could be done for readers have already been done – Luckily for Apple and Google some big problems are still unsolved.

Publishers are trying to play off everyone against everyone else

Publishers are perhaps in the most unique position. eBooks completely destroy their power and control and greatly reduce their value.

They therefore are doing three things in parallel -

1. Using published authors to pretend that they (Publishers) have value and traditional books are the way to go. 
2. Playing off Amazon and B&N and Apple and Google against each other to commoditize them. 
3. Kill the growth of eBooks any way they can.

It’s remarkable that even now some people labor under the illusion that Publishers are irreplaceable.

Readers – Lest we Forget

The customer is not always right.

In fact, the customer exhibits an inclination to get things without paying for them, asks for unrealistically cheap prices, and always attributes blame to others.

A significant portion of Readers want to commoditize the other elements of the ecosystem. Here’s the ideal publishing world according to them -

1. Books that are $1 or free. 
2. Ereaders that are $50 or subsidized.
3. They get books from their favorite authors with all the bells and whistles immediately without making any effort. The authors magically find even more time to write books.
4. They can do whatever they want to do with these $1 books.
5. eReader and eBook companies keep adding features and improving quality – They are getting the princely sums of $1 per book and $50 per eReader aren’t they.

This portion of readers tends to wish for unrealistic things. There is a portion of readers that want a win-win situation – However, they can’t sustain books all by themselves. 

The Internet has set a bad precedent. Companies were offering free services to get users to part with their personal information (for example, Facebook). Companies were offering customers free things and then scamming them into purchases (Zynga and Social Game companies).

This has trained users to be delusional about the true cost of poducing products and offering services.

The only Equilibrium is Constant Conflict or a Benevolent Dictatorship

If there’s a clear winner we’re bound to see a lot of things go wrong. When a single company (or a single part of the ecosystem) takes over – every other part of the ecosystem will be marginalized and will become unsustainable. That in turn will affect quality and lead to a decline in books.

This is true even if (and especially if) readers win out. Contrary to what believers in the doctrine of open think a truly open ecosystem would kill authors. The Crowd rationalizes its self-interest and doesn’t think about the future (something companies tend to do and they would treat Authors better).

The first sustainable solution is to always have a struggle between the elements. This would work because the different elements would keep evolving and improving things and forcing the other elements to keep up. It’d be quite a nice world – A world where Publishers produce better quality books, authors write better, eReaders provide more value and functionality, and eBook stores keep finding ways to be more efficient.

The second sustainable solution is a benevolent dictatorship like Amazon or Apple who take their 30% (or ideally 10%) cut and let the ecosystem prosper. Note that this system would eventually put Publishers and Authors at the mercy of the crowds. However, that’s pretty far off and the best would still be rewarded.

The downside of the latter is that evolution slows down to a crawl. Or to be more precise the focus shifts to staying in power. The bright new shining star that will replace Publishers and make things better for readers will end up becoming just as backwards-thinking and power-focused as publishers.

Filed under: publishing Tagged: | ereader strategy, kindle thoughts