Kindle, Nook Strategy Review – Can Nook catch Kindle?

With the Kindle 3 doing very well and B&N going with a Nook Color ‘reading tablet’ rather than an eInk based Nook 2 the obvious question is – Does Nook still have a chance against the Kindle?

Well, there are 5 avenues of attack – 5 weaknesses Nook could use to catch up with the Kindle and perhaps even beat it.

Kindle Weakness #1 – No Device for Casual Readers (only reading apps)

Amazon is currently leveraging Kindle for iPad, Kindle for iPhone, and other reading apps to reach casual readers – these channels perhaps account for 10% to 30% of total Kindle book sales.

With the Nook Color B&N is going after this exact segment – people who read but want a device that does more than just read. A device dedicated to non-dedicated readers is a big risk to Amazon which also faces a few other risks when it comes to casual readers – Apple can easily kill two of the most important channels, Amazon doesn’t have the advantage of being the default or the only reading app on these platforms, other companies can beat it, and it has little control over the complete user experience (resulting in oddities like users having to buy Kindle books through the browser).

We have the extremes – the hard-core readers and the ‘read once a year or less’ people. Nook Color fails for both.

However, there’s a broad stretch in the middle – People who don’t need an iPad or can’t afford one and people who don’t read enough to justify a Kindle. If we were to take this section of people (who read between 1 book a month and 1 book a year) – They are there for the taking. The Nook Color easily beats the Kindle for these people.   

Kindle Weakness #2 – Amazon’s position of power making it slow and unable to take risks

Kindle 3 is a very impressive eReader but Amazon has shown a remarkable tendency to be slow – It didn’t add PDF support until Nook arrived, it’s only now adding support for lending, and it’s taken 3 years to add Kindle book gifting.

As Amazon’s position grows stronger it also loses the ability to innovate – Why change a winning formula?

It continues to do well but it doesn’t know what parts of its ecosystem are liabilities – Is the lack of ePub support a danger? Is the store too overcrowded? Is the Kindle not catering to some sets of readers?

B&N can take a big risk like go with Nook Color but Amazon, mostly due to it success, can’t really experiment. Which means that when an Amazon competitor creates a very dangerous Kindle rival (we don’t yet know if Nook Color qualifies) Amazon’s only option will be to react to the threat after it’s gained a foothold.

Kindle Weakness #3 – Library Books and ePub Support 

Let’s set aside talk of openness and ePub – it’s something even most tech-savvy people don’t fully understand. The real danger ePub poses is that Library Books are usually offered in DRMed ePub format.

That means a relatively large number of people want an ePub supporting eReader so that they can get free library books. The actual benefit isn’t huge when you consider you have to wait for library books and that ebook choice at libraries varies wildly. However, people are trained to get books from Libraries and many depend on it.

This is probably the single most frequent reason people give for picking Nook over Kindle. No one ever says – ePub. They just say they want to be able to read library books on their Kindle or Nook.

Kindle Weakness #4 – Google and desperate Kindle rivals combining forces

The Kindle Store is a huge advantage for Amazon – both in book price and book range.

Nook is unlikely to migrate to a Google Books store but Sony Reader is very likely to. Most of the smaller eReader makers are also likely to migrate to using Google Books. At that point we might have a dozen eReaders with better book prices and availability than the Kindle.

On top of that you have Google’s ability to set their Google Books store and their partner companies’ apps as the defaults in Android and elsewhere.

This is probably the biggest threat to Amazon and a very immediate one.

Kindle Weakness #5 – Slowly growing Kindle App Store

The iPhone’s App Store stands as an insurmountable obstacle to rival smart phone makers. Microsoft recognizes this to the extent that it’s guaranteeing money to developers to develop apps for its new mobile platform. Android is becoming a credible threat largely due to a rapidly growing app store which uses openness and a no-review policy to appeal to developers frustrated by Apple’s restrictions and control.

Facebook used apps to beat out MySpace and become enormous. It went to the extent of offering app developers 100% of revenue – something it’s changing now. There are dozens of companies that have grown out of its app store with the biggest becoming more profitable than Facebook itself. Creating a monster like Zynga is a risk – But taking that risk allowed Facebook to become what it currently is.

With eReaders the first app store that gains traction is going to destroy every other eReader. There are no two ways about it. No company in the world can compete with thousands and thousands of hungry developers (hungry for success and freedom and a chance to prove themselves).

Quite simply – The eReader company that attracts more developers will win the eReader wars.

The current situation is intriguing and puzzling at the same time.

Amazon’s Perfect, Perfectly Curated Kindle App Store

  1. Amazon is trying to be perfect. The Kindle App Store is like the prize-winning garden where not a single strand of grass is out-of-place. 
  2. Amazon is also being selective – there is a Beta with limited participants. Only two companies have released apps so far.
  3. Amazon is being deliberate – only 6 paid apps out so far and all are games. If we assume the Nook App Store will debut in March 2011 Amazon will probably have 40 to 60 apps available then – perhaps less.
  4. Kindle Apps embrace all Kindles except Kindle 1. They aren’t available internationally yet but, contrary to what international Kindle owners like to think, it’s not some grand conspiracy theory – Amazon is probably just testing the waters and will expand internationally in 2011 or 2012.
  5. It’s also Amazon’s own app development platform – completely separate from any other app platform.

Amazon is, in effect, striving for perfection – an app store where every app is 4.5 stars and perfect. An App Store that is carefully cultivated and blended into the Kindle ecosystem.

Well, the easiest way to destroy or beat perfection is through chaos. 

B&N’s Nook Color App Store – Cultivating Chaos

  1. B&N is building on top of Android though it has its own App Store and its own review process.
  2. B&N has no Beta and no Limited  appended to its App Store. Everyone who’s applying is being let in.
  3. Porting Android Apps should be easy which means a lot more apps than Kindle App Store which requires a lot more work to port over apps.
  4. Nook Apps work only on Nook Color. That means no restrictions due to eInk and there’s just one device to support. That’ll mean apps come out quicker.  
  5. B&N decides what goes in – However, from the long list of launch partners and the relaxed entrance policies it seems likely that B&N will go for quantity over quality and let Nook Color owners decide the winners.

The Nook App Store might debut with 10 apps or it might debut with a few hundred. It would, however, be a safe bet that due to its liberal policies and Android foundation it might soon have more apps than the Kindle App Store.

B&N, intentionally or unintentionally, is letting thousands and thousands of developers take a shot at providing value to Nook Color owners in return for the promise of a small to huge financial reward. That’s the best way to add value to a platform – let the developers in.

This presents a huge problem for Amazon – If it doesn’t attract developers and add apps at a similar rate it’ll turn its eReader Apps lead into a liability.

With App Stores the rich get richer

The more users on a platform the more developers want to make apps for it. The more apps for a platform the higher the chance a potential user will find a reason to choose the platform.

Let’s say Amazon and B&N continue with their current policies and in mid 2011 B&N has 500 apps out of which 50 are exceptional and Kindle App Store has 100 apps out of which 80 are exceptional. 

Does Amazon get an A grade and does B&N fail?

Actually, no.

An average user is more likely to find apps that cater to her/him when there are 500 choices than if there are 100 choices. In theory the Kindle App Store is more impressive. In reality, those 500 apps give Nook Color a big advantage -

Users care more about a platform having the apps they want than the average quality of apps on the platform.

Let’s say someone loves knitting and wants a knitting app. She’d probably pick a 3.5 star rated Knitting App on Nook over a 5 star rated Backgammon game on Kindle.

With 6 well rated games out for the Kindle so far the question worth asking is – Would Kindle owners be happier if they had gotten a simple Email Client?

Amazon has had a huge head-start in releasing apps – It’d be a huge mistake if it were to throw away that advantage because it’s chasing a mythical perfect app store full of 4.5 star rated perfect apps.

If B&N goes for sheer range it’s going to end up with apps that appeal to a broad spectrum of users and that will lead to a lot of sales. If Nook App Store ends up with 1,000 decent, 3.5 star rated apps by mid 2011 and the Kindle App Store has 100 perfect, 4.5 star rated apps with perfectly manicured nails it’ll be game over. Amazon will never be able to make up the difference and Apps will be an area it’ll just have to concede.

7 Responses

  1. “Facebook used apps to beat out MySpace and become enormous.”

    There is a winner-takes-all dynamic in the social networking arena, because of network effects. But that dynamic is lacking here.

    “With eReaders the first app store that gains traction is going to destroy every other eReader. There are no two ways about it. No company in the world can compete with thousands and thousands of hungry developers (hungry for success and freedom and a chance to prove themselves). Quite simply – The eReader company that attracts more developers will win the eReader wars.”

    Serious readers won’t give much weight to apps, because they don’t want an iPad Jr., they want a dedicated reader. The “extras,” like knitting apps, are very much a secondary matter. Amazon’s #1 concern, and thus its strategic focus, is properly on protecting its commanding role in the book-selling market. If an iPad Jr. outsells it to casual readers, that’s a minor worry. Customers lost to iPad Jr. devices are not the core customers Amazon most wants.

    If Amazon can add a few good PDA-type features, a shopping-list app, etc., it will satisfy 80% of what its desirable (book-buying) customers want. That’s plenty good enough to hold onto its crown. There would be more risk in being too open and undermining the security and stability of its system. So I think Amazon’s perfectionistic approach will serve it best in the long run, and in the intermediate run as well.

    • Roger, you’re assuming we’re excluding reading related apps.
      Here’s a short list – Additional Fonts, An app that tracks your reading history, Multi-level folders, An app that compiles all the words you look up in the dictionary.

      Amazon hasn’t even made it possible to create such apps let alone encouraged them.

      Plus just the way you would value a shopping-list app and PDA type features other Kindle owners would value a knitting app.

      We are going to find out in the next 6 to 12 months anyways. If a Kindle Tablet based on Android with Amazon’s own Android App Store doesn’t appear than we’ll have Kindle with its app store taking on Nook Color with B&N’s app store. Then we’ll figure out how important apps are to readers.

      • “Plus just the way you would value a shopping-list app and PDA type features other Kindle owners would value a knitting app.”

        No, those aren’t on an equal footing at all. The first two a very mainstream, the last is very niche. (And it’s the sort of thing that probably benefits from color, too.)

        “Here’s a short list – Additional Fonts, An app that tracks your reading history, Multi-level folders, An app that compiles all the words you look up in the dictionary.”

        Ah, that’s more like it. I definitely agree that Amazon should not rest on its laurels, and that there’s lots of room for improvement in the K3, despite its excellence. Amazon must relentlessly seek to extend its lead and fix all its flaws, even minor ones, Kaizen-like, or it will be nibbled at from behind and abeam, no matter how far ahead it thinks it is. There’s always a risk of complacency when a company is in the lead. I’ve sent Amazon a couple of dozen suggested improvements already. (Maybe you could start a thread where you and your readers compile a wish list, to nudge Amazon out of its dogmatic slumber?)

        But taking a few dings is one thing. “the first app store that gains traction is going to destroy every other eReader” is another. The Kindle won’t be destroyed by an app-gap relative to the Nook. That’s an uncharacteristically extreme statement from you. Most users aren’t panting for additional features. They’re unaware of lots of the basic features that already exist.

        “Amazon hasn’t even made it possible to create such apps let alone encouraged them.”

        But this may be because its architecture is so monolithic that such plug-ins can’t be accommodated, at least not with a lot of coordination with developers. Like KindleLover below, I worry: “Start throwing too many apps and you will have security issues, performance issues …”

        If Amazon can make, say, about 100 mainstream-oriented improvements, half of them (say) in coordination with developers, it will have nothing to fear from knitting apps and their ilk.

      • A good idea – to have an improvements thread. Let me think about how to make it so it isn’t constantly getting buried somewhere.

        Well, we’ll find out soon enough whether or not lots of apps will cause problems for Kindle. B&N’s store might not get traction and then the entire discussion is moot. If B&N’s store takes off then we’ll know how much of a difference it makes.

  2. I agree with Roger; Jeff Bezos has been pretty clear in stating that the Kindle will not provide the user experience, the books will. So he will concentrate in delivering books and not applications.

    Start throwing too many apps and you will have security issues, performance issues and the Kindle will be seen as a Pad imitation, and then the ugly comparisons will start popping up. Let’s face it, the Kindle is the greatest e-reader on the market, but in its current form it couldn’t compete on the Pad arena vs Apple, RIM, HP, etc.

    And, I might be wrong, but my guess is Amazon is more interested in delivering books, no matter to which device they do, than selling devices. My take on the future is that some day Amazon will give Kindles away almost for free. The Kindle will become only a selling channel for them and not a source for revenue. The business for them will be selling books and not a proprietary device.

  3. I sure hope you can get that Konstant Kindle Kibitzer (aka “improvements”) thread up, switch. I’m glad you’re open to the idea.

    Correction: I meant to say “… at least not withOUT a lot of coordination with developers.”

  4. An “Improvements” thread is all well and good, but I wouldn’t expend too much energy requesting Apps or Features that the platform can’t handle elegantly. I mean, the last time I played Backgammon using my keyboard was on an amber VGA monitor attached to my IBM PC. K3 is toast if it thinks it’s gonna compete in the App arena with Apple and Android – remember Intellivision before Nintendo? We should all write “K4″ on our Christmas lists and hope Santa Claus is still delivering wishes to all the good little girls and boys in the spring.

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