Kindle Worlds – the Search for Cheap, Exclusive Content

A key philosophy of technology companies seems to be –

Let other people do free work for you. Let them generate content that you take ownership of. Then leverage that content to make money and beat your competitors.

Amazon is demonstrating a modification of exactly this philosophy with Kindle Worlds.

Kindle Worlds = An Amazon initiative where any author can write books and stories based on existing book worlds, TV shows, movies, and other properties/worlds.

Please Note: What Amazon is doing isn’t bad, like what social networks do. Social Networks let users create content (user-generated content), claim ownership of it, and make money from it. At the same time, they prostitute out users’ personal details to make more money. So they commit two sins – take ownership of content and photos that users have created, sell users’ personal data to companies and advertisers without telling users.

Amazon isn’t doing anything of the sort – to the best of my knowledge. Amazon is simply using the philosophy of ‘let others work for you, for free’. Which, actually, is quite smart. Kindle Worlds is an illustration of this.

Kindle Strategy is heavily based on Exclusive Content

One of the tenets of Amazon’s Kindle philosophy has been to get ‘exclusive’ content –

  1. It offers ‘5 days free’ every 3 months to indie authors – In return for exclusivity.
  2. It offers money to authors for new and back list books – In return for exclusivity.
  3. It is striking up deals with authors via its publishing imprints – then offering those titles exclusively through Amazon.

It’s a fundamental pillar on which Amazon’s Kindle strategy is built.

There are however, three problems –

  1. It’s very expensive to get exclusive content. Whether it’s striking up exclusive deals, or it’s publishing books, it costs a lot of money and time and effort. Amazon, even after all its efforts, has perhaps a few hundred exclusive titles from big authors, a few hundred Amazon published exclusive titles, and a few hundred thousand indie authors titles. Apart from the indie author exclusives, nothing is large enough to be significant.
  2. Current methods of getting exclusive content are very slow. Negotiate an exclusive deal. Sign an author. Publish a book and promote it. What’s the shared weakness? All these methods are incredibly slow.
  3. Current methods of getting exclusive content aren’t scalable. To go from a few hundred exclusive deals with top authors to a few hundred thousand would take tens of thousands of people and decades. The fast rise in indie author exclusives, on the other hand, shows the power of automating things. There is power in letting authors generate exclusives themselves. There is power in automating processes and letting people use a self-serve model.

How can Amazon get enough exclusives given these three constraints?

The answer, rather interestingly, involves initiatives like Kindle Worlds.

Kindle Worlds is just a way to gets lots of Cheap, Exclusive Content

What is a Kindle Worlds title?

  1. A work based on an existing successful book or TV series. That means the ‘product market fit’ is proven and there is a captive audience.
  2. A work that is exclusive to Amazon. That means it adds to Amazon’s list of exclusives.
  3. A work for which authors can find a market with a higher chance of success. A proven market means a higher chance of making money. It’s a win-win for authors and Amazon.

From Amazon’s perspective, the most important thing isn’t money. It’s exclusivity of content related to proven markets.

What Amazon is hoping for, is –

  1. Lots of authors/people write very good works based in Existing, Proven Markets/Worlds. Enough content to attract users and become a factor.
  2. All of this stays exclusive to Amazon.

The second part is the real thing Amazon is after. How much does Amazon care about exclusivity and using Kindle Worlds content as a weapon?

Amazon cares an inordinate amount about Exclusivity and Control of ‘Kindle Worlds’ Content

Just read the rules (underlined part and bolding is added by us) –

Exclusivity Provision: Stories will be available in digital format exclusively on Amazon.com, Kindle devices, iOS, Android, and PC/Mac via our Kindle Free Reading apps. We hope to offer additional formats in the future.

Controlled by Amazon Provisions:

1) Amazon Publishing will acquire all rights to your new stories, including global publication rights, for the term of copyright.

2) Amazon Publishing will set the price for Kindle Worlds stories. Most will be priced from $0.99 through $3.99.

 

Those are some pretty strong restrictions. Makes you think twice about participating in Kindle Worlds.

However, it illustrates our point. Amazon cares an awful lot about getting –

  1. Lots of content based in Proven Markets/Proven Worlds.
  2. Exclusive rights to that content.

Basically, Amazon wants to build the YouTube+ of Books. It wants to leverage all this Kindle Worlds content to create a very strong competitive advantage (since it’s exclusive to Amazon).

Why YouTube+? Because it’s YouTube except users are uploading content based around PROVEN markets and PROVEN worlds.

Will Kindle Worlds result in lots of Exclusive High Quality Content for Amazon

Perhaps.

I suspect Amazon is making the same mistake it tends to make very often – Sacrifice the Highest Chance of Success in return for Furthering Its Own Personal Motives.

We see examples of this with Kindle Fire HD (where the Camera App is ignored/hidden) and Kindle (where the keyboard was removed and where the folders feature is rudimentary).

Rather than –

  • Create the absolute best product. Sell the absolute best devices. Make the best possible Kindle Worlds universe.

Amazon always tends to choose –

  • Create a good product that serves Amazon’s needs. Sell good devices that also lead to customer acquisition. Make a Kindle Worlds universe that is focused around creating exclusive content for Amazon’s Kindle Store.

It’s a strategy that is fundamentally flawed.

Why?

Because Apple made it work only AFTER making an absolutely excellent device with very easy to use, well-polished software.

It’s a strategy that might still work.

Why?

Because Amazon has a LOT of customers and a lot of advantages.

Kindle Worlds shows that Amazon is worried

At some deep level, Amazon understands that by destroying the current Publishing Hierarchy, and by removing the existing Publishing Guarded Gates, it’s creating an almost-free market. A market that anyone can take over.

It’s now begun to think seriously about creating exclusive content and other competitive advantages that will allow it to prosper in this new, almost-free, highly competitive market.

The problem is that it’s incredibly difficult to build real barriers. Now it’s just authors and readers and everyone else is unnecessary. Kindle Worlds is a smart attempt to strengthen Amazon’s Mini-Gate of Exclusivity. Will it work? Perhaps. Perhaps not. It does, however, reveal a part of Amazon’s long-term intentions with Kindle books and a part of Amazon’s long-term Kindle strategy.

Amazon vs Microsoft? Microsoft explored Amazon rival ‘Brazil’

While Microsoft has invested in B&N’s Nook division (it owns 17.8% of Nook Media), and there are rumors that it might even buy Nook Media from B&N, it seems it was looking for a far more direct Amazon vs Microsoft contest.

Wall Street Journal reports on Project Brazil – Microsoft’s eCommerce venture to take on Amazon. It has supposedly been scrapped, but it’s hard to believe that the project is actually dead.

The key facts –

  1. Project Brazil would aim at Amazon and eBay.
  2. Microsoft held discussions with retailers and technology companies.
  3. Microsoft planned on subsidizing prices using Bing revenues. Not sure how that works given Bing isn’t very profitable.
  4. Not sure what this means, but it’s what Amazon thought of Project Brazil –

    Project Brazil was an incubation to enable a more direct commerce model between customers and brands and merchants

  5. Microsoft wanted to create a more direct and task-oriented approach to online retail and advertising. Not sure why/how both online retail and advertising factor in.
  6. Project Brazil would start off on Windows OS and then expand to Xbox, Windows Phones, and Windows Tablets. This is why Amazon needs Kindle Phone and Kindle Fire HD and Kindle TV. If it doesn’t build its own channels, then companies like Apple and Microsoft and Google, which have very large ecosystems and lots of channels, could just gradually take over online retail.
  7. WSJ says Microsoft scrapped Project Brazil for unspecified reasons (perhaps they realized it would never take off with a name like that).

I think a lot of companies like Apple and Microsoft and Google should be thinking of getting into retail and will. If you have a huge customer base, with hundreds of millions of customers already trained to buy things from you, then might as well sell things to them. Imagine a world where Microsoft sells pretty much everything to Businesses, Apple sells lots of fashion and luxury items (not just ‘electronics’), and Google sells all sorts of ‘free stuff’ in return for showing you advertising.

It’s one way for companies to add a strong new revenue stream.

Amazon vs Microsoft Wars are already in full-force

Here are some areas in which Amazon and Microsoft already compete –

  1. Cloud Computing. This is going to be one of the biggest wars between Amazon and Microsoft. Amazon is the runaway leader in Cloud Computing. Microsoft is a very strong challenger. Both are especially interested in the lucrative big business cloud services market. Amazon recently struck a deal with the CIA to provide the CIA a secure cloud. Good luck to the CIA if they think a ‘cloud’ can ever be secure.
  2. Books. Microsoft, via its 17.8% ownership of Nook Media, is an indirect competitor to Amazon. This will perhaps become a more direct contest if Microsoft buys Nook.
  3. Phones. Amazon is rumored to have a Kindle Phone in the works. Microsoft is rumored to be in talks to acquire Nokia. Microsoft also has Windows Phone.
  4. Tablets. Microsoft has Surface and also sells Windows 8 software for Tablets. Amazon has Kindle Fire HD.
  5. Search. Amazon has its A9 search engine, which never really took off, while Microsoft has Bing.
  6. Advertising. Amazon has its secret advertising business, which it is quietly building up. Microsoft, obviously, handles advertising for Bing and Yahoo Search.
  7. Music. Microsoft has Zune, another product that never really took off, and its music service. Amazon has its MP3 store which is a distant second to iTunes.
  8. Videos & Movies & TV. Both Microsoft and Amazon have a digital videos service. Microsoft, with Xbox, has a huge advantage here.

These are some important markets in which Microsoft and Amazon are already competing. We are going to see more and more of this – Apple, Microsoft, Google, and Amazon competing with each other across the board.

As these companies become bigger and bigger, they will look for new revenue streams. Soon, they won’t just be stepping on each other’s toes, they’ll be standing on each other’s feet.

The Amazon vs Microsoft Wars are very interesting for a few key reasons –

  1. Both companies are based in Seattle. That makes the rivalry a lot more direct. Imagine all the recruiting battles and spying and subterfuge.
  2. Microsoft has the highest profit margins out of all the big technology companies. Amazon perhaps has the lowest profit margins.
  3. Microsoft is almost completely based in software, with a few hardware products. Amazon is almost completely based in selling real, physical items, with a recent shift to selling digital products and devices.
  4. You would think that two companies located so close to each other, and facing many of the same enemies (the Silicon Valley Tech Giants), would band together. It’s strange they are fighting each other.
  5. Cloud Computing is going to be a very, very big cash cow. If Microsoft wins, or becomes a strong #2, then it greatly strengthens itself. Same for Amazon. The stakes are perhaps higher for Amazon as Cloud Computing could become its first actual cash cow.
  6. If Microsoft goes into online retail, it would strike at the very heart of Amazon. Microsoft is one of the few companies that can fight a long, brutal war with Amazon over online retail (the only other companies are perhaps WalMart, Apple, and Google). These 4 companies are very dangerous for Amazon because they could use their cash cows to fund a never-ending war, something Amazon would not survive since it doesn’t really have any cash cows.
  7. Microsoft is a very, very brutal competitor. People forget what happened to Microsoft’s early enemies like Netscape.

Amazon is probably hoping that Microsoft really has killed Project Brazil. It might have a 18-20 year head-start. However, Microsoft has multiple cash cows and a very large user base. It would prove a tough competitor. Amazon already has to deal with WalMart. It will almost certainly have to deal with Google. If Microsoft and/or Apple also jump in, it might be Death by a Thousand Cuts for Amazon.

Lessons for Publishers, Amazon, B&N, Kobo from Microsoft’s Xbox DRM about-turn

Hell is beginning to freeze over. Microsoft today announced that it’s doing an about-turn on two big DRM decisions it had made in Xbox One –

  1. Earlier, Microsoft had said that there would be an ‘always-on’ requirement to play games. Now it’s saying there won’t be.
  2. Earlier, Microsoft had said that there would restrictions around used games and there would be a fee involved. Now it’s saying there won’t be. Used games will work just as they do now.

Of course, a lot of this has to do with Sony’s Playstation 4 not having these twin DRM restrictions.

Sony had won a lot of plaudits and Microsoft had gotten a ton of criticism. Preorders for Xbox One and Sony Playstation 4 are live now, and perhaps Microsoft got more direct feedback from the preorder rate.

Whatever the reason, Microsoft has made two very good changes. These changes might very well be what save Xbox One. It had seemed, based on users’ reactions to the DRM restrictions on the Xbox One, that Microsoft would lose the console wars even before Xbox One arrived.

Now it has as good chance to win as Sony Playstation 4, perhaps better because we tend to value people/companies who correct mistakes more than those who don’t make mistakes (yes, strange but true).

Lessons for Publishers

You have four categories of readers (roughly) –

  1. Readers who won’t pay for books and will pirate them. No matter what.
  2. Readers who won’t pay for books if it’s easy to pirate them. These will also not pirate if there is some penalty attached i.e. they might get caught and punished.
  3. Readers who won’t pirate.
  4. Readers who don’t know the option to pirate exists.

The first category can never be ‘converted’. The second category of people are what Publishers are hoping to ‘protect’ from piracy by having DRM. There’s also the rather interesting idea of having ‘variable’ books that allow Publishers and Stores to find who started the piracy – I LOVE that idea.

DRM greatly inconveniences the third category and also somewhat inconveniences the fourth category.

If Publishers drop DRM, it does two big things –

  1. It makes the 3rd and 4th category happier and MORE likely to buy books from Publishers.
  2. It makes the 2nd category likelier to steal books. Unless Publishers attach some ‘you might get caught’ qualifier like water-stamped/word-stamped digital books.

Of course, dropping DRM does one more thing –

  1. It kills the ability of ereader makers to use DRM as lock-in. It effectively equalizes book stores. Why? Because if there’s no DRM, then any book store can sell Kindle format books without DRM. They would work and then users would not be restricted to buying just from Amazon.

This is very important. Because then it blows a giant hole in the closed Kindle ecosystem and it allows ANY author and ANY ebook store to sell directly to Kindle owners. Currently, only indie authors can sell DRM-free books to Kindle owners. Quite a few do.

The downside is that we don’t know the size of the 2nd category (people who will pirate ebooks if it’s simple to do so). If that’s large, then dropping DRM would be madness unless Publishers could introduce the threat of a penalty for stealers.

Lessons for B&N

B&N is already making some aggressive moves –

  1. Huge price drop on Nook HD and Nook HD+.
  2. Periodic sales on Nook Simple Touch.
  3. Huge price drop on Nook Simple Touch in the UK.
  4. Adding Google Play Store to the Nook HD and Nook HD+.

If it were to somehow convince Publishers to drop DRM, it could start selling books to Kindle owners.

The downside is that B&N probably likes the lock-in it gets by using a variant of Adobe DRM that Kobo and Sony don’t yet support. So it has just as much to lose as Amazon if DRM is dropped completely.

Dropping DRM is a move B&N really should consider.

Lessons for Amazon

Amazon is in a tough situation. It definitely does not want to unlock its ecosystem and let everyone easily buy books from elsewhere to read on Kindles.

The lesson for Amazon is to be prepared for this to happen. Publishers and B&N and Kobo and Apple could team up and drop DRM (it’d be funny if Apple helped drop DRM on books, given that Amazon caused DRM on music to get dropped).

In a world where ebooks are sold without DRM, anyone could buy from any store. Would Kindle owners still buy from Amazon? Perhaps they would. What if some crazy new start-up started offering books for cheaper? What if it started offering Publishers and authors 90%?

Keep in mind that an ebook store would not have all the infrastructure costs that Amazon has i.e. free 3G downloads, all the services, delivering data to all these Kindles. It would just be a website selling ebooks that users would download to their PC via their standard Internet connection, or to their Kindles using WiFi.

Amazon would be in a bit of a bind if DRM were to be dropped from ebooks.

The opportunity for Amazon would be to sell ePub format books to owners of non-Kindle eReaders. The downside is that Amazon probably wants them locked into its ecosystem and buying Diapers and Pink Tutus.

Lessons for Indie Authors

Sony was going to win the Console Wars just on DRM and used game sales. Think about that for a minute.

Microsoft was forced to rescind its two big DRM measures.

Indie Authors have the advantage of being able to sell their books without DRM and for all the stores. There has to be some way to leverage that. There’s also the set of people who are anti-DRM. If Indie Authors can reach those and sell them DRM free books, they can get one competitive advantage Publishers would be reluctant to match.

Lessons for Kobo

Very similar to the lessons for B&N.

Kobo has to be thinking about how much money it could make if it could sell to Kindle owners. If the war came down to ‘selling the cheapest books’, Kobo can fight with Amazon far more effectively. The entire market share lead for Amazon is based on locked-in users. If all those users could suddenly buy from any store, a large portion of them would buy from the cheapest store.

Kobo’s problems would be reduced to – Become the ebook store with the cheapest prices. Kobo already does this well by using coupons and catering to quite a few Nook owners.

At best – removing DRM lets Kobo sell to Kindle owners. At worst – it kills profit margins for Amazon (if it matches Kobo) and thus makes it somewhat meaningless that Amazon has larger market share.

There’s a certain beauty in it – Kobo could cut prices to the point that it makes zero profits. Amazon would be forced to match. The loss for Kobo is perhaps $20 to $40 million. The loss for Kindle is $300 to $400 million.

If Amazon doesn’t price-match, then people start buying from Kobo.

DRM is going to decide the eReader & eBook Wars

People fixate a lot on things like convenience and customer service. They are discounting human nature.

Everyone wants to eat their cake and have it too. If readers get a chance to get an eReader from Amazon and get Amazon services and customer service, and then turn around and get cheap ebooks from Kobo – 90% of them will take it.

90%. Not 10%. Not 25%. 90%.

Sooner or later, Publishers will be forced to drop DRM. At that point a lot of possibilities open up – There’s always someone crazy enough to try things the market leaders never would. Readers, due to being human, will gladly embrace any company willing to take losses to give them better prices. You could argue that’s the entire Unique Selling Proposition of Amazon. That might very well be the best way to compete against Amazon.