Wondering about B&N’s strategy, especially Nook Color, Nook Study, and Nook Kids

The Kindle might have won the first few eReader Wars (War for Book Readers in 2009, War for Book Readers in 2010) – However, a few recent observations have been making me wonder whether B&N has a more effective long-term strategy.

A strategy it has been forced into because of Kindle’s excellent success in books.

Is the Nook Color built specifically for Children’s Books?

If you look at the retail box of the Nook Color, you notice something rather interesting about the Nook Color displayed on it -

  1. There are 3 books displayed in the top row (on the screen of the Nook Color on the box). 
  2. The second row on the screen has 2 magazines and 1 newspaper.
  3. The third row is 3 children’s books.

That, in a way, signifies the focus of Nook Color – Books, Children’s Books, Magazines, and Newspapers. Or, to view it in terms of target demographics – readers, parents, magazine readers, and newspaper readers.

Nook Color is undoubtedly better for parents and magazine readers. It represents a big shift from Kindle and Nook, which were both great for books/readers and terrible for everything/everyone else.

Nook Kids highlights B&N’s focus on parents and children

It’s not just that B&N has built Nook Color with a view to capture the children’s eReader market. It’s also released an iPad app specifically aimed at children. It’s called Nook Kids and there are already 100 books available for it – all of the read-along and picture-book variety.

If you go to B&N’s NookKids section on its website, there are books for various age groups – Up to 2 years, 3 to 5 years, 6 to 8 years, 9 to 12 years. The books include classics like Curious George and Thomas the Fire Engine. There are both picture books and read to me books.

Perhaps most interesting is a section called ‘Mom Favorites’. B&N is clearly targeting parents.

Nook Color is the #1 eReader for parents

If you’re a parent, there’s little doubt what you’ll pick – either Nook Color, or Nook Kids for iPad.

B&N might be behind Kindle in books. However, in Children’s books it’s far, far ahead. Not only does it have an iPad app tailored for kids, its reading tablet, the Nook color, caters to parents and children as one of the main target demographics.

And all those kids will grow up with fond memories of Nook Color, and with their books locked into B&N’s special format.

Getting tired of writing this – If Amazon doesn’t release a Kindle Tablet soon, it’ll be in a lot of trouble.

B&N is going after the textbook market too

B&N has Nook Kids and Nook Color to go after parents. It also has Nook Study to go after the textbook market and students.

Nook Study = B&N going after another demographic Kindle has ignored

Amazon did do university trials with the Kindle DX. However, the DX wasn’t really built for students – note-taking was horrible, there were very few features built for students, there were no page numbers, there was no color or touch.

Nook Color is much closer to the type of textbook eReader students would want – although with a screen that’s too small. However, it isn’t Nook Color that B&N is using to go after students – It’s Nook Study.

The Nook Study hard-sell

Got an email from B&N about Nook Study, and here’s what they’re advertising -

  1. The 132 free textbooks from Kaplan.
  2. Save up to 60% on eTextbooks.
  3. Nook Study for PC and for Mac. Features advertised include – ability to take and share notes, search, customize highlights.
  4. Free $5 gift card if you rent a textbook by January 21st.
  5. Save 90% on used textbooks, and 30% on new textbooks.

Visit the site and more things hit you -

  1. B&N is offering eTextbooks free for 7 days.
  2. It’s offering access to 1 million free books.
  3. It’s offering a College Kick-Start Kit.

The software itself is pretty well done. In fact, it’s downright impressive. Nook Study is a very decent option for eTextbooks – All that’s needed is an iPad app and a 10″ Nook Color and B&N will suddenly be in prime position in the War for Students.

637 B&N College Bookstores

B&N has a great channel to advertise Nook Study, sell the Nook Color, and (in the future) sell the 10″ Nook Color- its 637 college bookstores.

Which means that all it has to have is a textbook Reader and a textbook reading app that are as good as the competition – From there its retail channels will give it the win.

B&N is better placed than Amazon in Children’s Books, and might be better placed than Amazon in Textbooks

Let’s consider three separate wars that are part of the larger eReaders Wars -

  1. The War for Readers and Books – Amazon is clearly the leader here.
  2. The War for Parents and Children’s Books – Nook Color and Nook Kids give B&N a lead here. In fact, Amazon isn’t even trying much in this area.
  3. The War for Students and Textbooks – Amazon tried to sell a general eReader to students. B&N is selling a reading app, and has 637 college bookstores. They’re about even. Whichever company is the first one to release a reasonably priced textbook reader, one that’s built from the ground up as a textbook reader, is likely to win.

These are 3 of the most important wars making up the greater eReader Wars. We have others like the War for Magazine Readers and the War for Newspaper Readers. However, these three are amongst the pivotal ones.

That does leave a fourth war and a fifth war – the War to replace Paper with an eReader+eWriter, the War for the Enterprise. Amazon and B&N are not fighting those wars at the moment. There might be others.

For the 5 huge wars that make up the core of the eReader Wars -

  1. Amazon has almost fully won one (books).
  2. B&N is set to win one (children’s books).
  3. There’s a third (textbooks) that’s just starting off.
  4. There’s a fourth (eReader+eWriter) which neither company seems inclined to fight.
  5. The fifth war (Enterprise) is still far off.

If you consider the huge importance of getting children and students on to your platform – the War for Parents and the War for Students might end up being far more important than the War for Readers.

Why Kindle, Nook are ahead of Sony Reader (Strategy Review)

The Kindle has sold millions of Kindles in the last 73 days. Nook Color is selling half a million units a month.

The Sony Reader – Well, for all practical purposes, it doesn’t exist. Most people don’t even consider the new Sony Readers when deciding which eReader to buy. 

This post will explore why Sony’s eReader, which was the first to arrive to market, is now an afterthought.

Disclaimer – This is a review of Sony’s US Reader strategy

This post is US-centric and only considers the US eReader market.

The Sony readers are, in my opinion, the best ‘electronic reading devices’ out of the Big 3 eReaders. The problem is – the Sony Readers are terrible when you consider the complete eReader ownership experience.

Sony Readers are suffering from terrible strategy decisions

This could be a never-ending post. To simplify things, let’s discuss 5 main weaknesses in Sony’s Reader strategy.

Sony tried for premium positioning without having a premium eReader

The two new Sony Readers came in at $229 and $179 at a time when equivalent eReaders were $30 to $40 cheaper. Sony tried to position the Sony Readers as ‘quality’ eReaders even though they were not very different from Kindle and Nook. It hoped people would pay for perceived quality.

That’s terrible strategy.

Here’s what the $179 Sony Reader Pocket Edition’s main strengths and weaknesses are -

  1. Strengths – looks good, very light and compact, touch screen, eInk Pearl.
  2. Weaknesses – No SD Card slot, no wireless, no good ebook store to back it up, no reading apps for other platforms, no browser, terrible use of touch capability, no speakers, no text to speech feature, no lending.

When you consider the total eReader ownership experience, the Sony Reader Pocket Edition is in no way comparable to Kindle WiFi and Nook WiFi. It might be shinier and tinier, and have eInk Pearl and touch – However, there’s nothing to back that up.

Sony expecting people to pay $179 when they could get Kindle 3 for $189 is madness. Kindle 3 comes with free store browsing, free Internet access, and both 3G and WiFi. It might not have touch, and it might not support library books, but in almost every other way it beats the Sony Reader Pocket Edition.

On the plus side, Sony has realized this and is offering its two new Readers for $150 and $199 now. It keeps doing promotions to maintain this pricing. It should just make things simple – Cut the prices permanently. Stop going for the luxury angle when you don’t have a premium offering.

Sony doesn’t get the fact that customers like things to be easy

Here are a few examples -

  1. You don’t have wireless on the device. So customers can’t reference the web or do wireless book downloads.
  2. You have to install a special software program that authenticates your Sony Reader before you can transfer books from your computer to your Reader. Not only do you need to use a computer, you need to use a terribly designed piece of software from Adobe to transfer books.
  3. There are different modes for taking notes, adding highlights, and turning pages. It takes a special kind of genius to decide that before being able to add a note, the user should go into a special mode.
  4. The Sony Reader Pocket Edition, which retails for $179 (currently $149 on discount), has no speakers, no SD card slot, and other unnecessary limitations. It’s as if Sony removed features just so that it could make the Touch Edition seem better than it is. In stark contrast, Nook WiFi and Kindle WiFi don’t have any artifical limitations.
  5. The range of books in the Sony Reader Store is terrible. To add insult to injury, the prices are higher than both Kindle Store and Nook Store.

Sony adds friction everywhere – friction when buying books, friction when getting them on to your Sony Reader, and friction in the reading process.

It even went the extra distance to figure out the most useless placement of page turn buttons. Every single time you turn a page – You’ll be wondering why Sony couldn’t just put page turn buttons on the sides like on Kindle and Nook.

Sony gave up after making the eReader

Sony didn’t think – After users buy our eReader, they’ll probably want to buy books and read them.

It assumed that once it sells a Sony Reader, it’s job is done.

Sony’s lack of focus on ‘the reading experience’ and ‘the ownership experience’ shows in a lot of ways -

  1. The Store is poorly done. Poor range, poor prices, and poor navigation.
  2. There’s no infrastructure. No services to provide additional value.
  3. There are no reading apps. If you want to read on something other than your Sony Reader – you’re stuck.
  4. It’s not as easy to get ‘lost in a book’.
  5. It’s not as easy to add books, or buy books.

Sony gets 9 out of 10 stars for the eReader itself and it easily beats Kindle and Nook. However, when it comes to reading books, and buying books, and support infrastructure – Sony fails miserably.

Sony’s eBook Store is an afterthought. The support services don’t even exist.

Sony took the easy way out and ran from the US market

In contrast to its total lack of concern for customers’ convenience, Sony is very concerned about making things easy for itself.

It was getting beaten on price, so it took the easy route of pretending to sell ‘quality’ eReaders. It was getting thrashed in the US, because it refused to add wireless and a proper ebook store, so it started talking about how it’s focused on the non-US market.

If you don’t want to compete in the US market – stop selling the Sony Readers here. There’s no point in making excuses.

Sony isn’t pushing the envelope

B&N released the Nook Color, and took a chance on the ‘Reading Tablet’ concept. It also released Nook Color for just $249.

Amazon released a $189 Kindle 3 that was measurably better than Kindle 2 in a dozen or more important areas. It also released a $139 Kindle WiFi.

Sony is neither pushing the envelope on technology, nor on price. Having touch seems like a big deal – But Sony has had touch for years. All it’s done in the latest Sony Readers is – get touch to finally work properly.

Sony is stuck in its old, pedantic mindset. It keeps trying to turn touch into a killer feature – even though it hasn’t worked in the past. It won’t add wireless because it thinks people don’t want the feature. Perhaps, at some level, Sony doesn’t even realize that it’s the only eReader company that is doing nothing with wireless and Cloud services.

Sony might not have an eReader strategy

It just struck me that it’s not out of the question that Sony doesn’t have a strategy.

  1. If it had any sort of competitive strategy, it’d try to match Kindle’s text to speech feature or Nook’s lending feature.
  2. Even a rough analysis would have shown it that wireless book downloads are a huge advantage for the Kindle and Nook. Instead, it’s claiming that readers don’t care about wireless downloads.
  3. It hasn’t figured out that there’s a lot of money in books. In fact, the lack of range in the Sony Reader Store, the prices, and the difficulty in getting books suggest it’s trying to avoid selling eBooks.
  4. It seems oblivious to the fact that people with iPads, iPhones, and Android smartphones would like to read books too.
  5. It totally under-estimated the importance of eReader pricing.

You could take an eReader strategy dart-board, and 3 darts thrown by a blindfolded Wall Street Hedge Fund manager, and you’d still struggle to come up with a worse strategy.

The Sony Readers have eInk Pearl and a touch screen and they’re light and pretty – Yet they’re getting zero attention and comparatively low sales. How is that even possible?

Things threaten to get even worse.

Sony Reader might slip out of the public’s consciousness completely

All the mis-steps mean that Sony Readers are fading out of the public’s consciousness.

How would you feel if a company said – We don’t really care about your market. We don’t really care that wireless makes things easy for you. We really don’t care that you’d like value-for-money.

At some level, customers have got to realize what’s going on.

If a company says wireless support doesn’t matter to its customers – Then the 98% of the population that loves the convenience of 60-second downloads decides Sony Readers are the wrong choice.

If Sony says it doesn’t care about the US market – then the US market stops caring about Sony’s Readers.

People won’t even review the new Sony Readers

Kindle is getting a ton of coverage. It’s either being played up as a ‘loser’ in Kindle vs iPad comparisons, or as a winner in the eReader wars. Nook is getting decent coverage. Nook Color is getting enormous coverage, with at least a dozen articles from reputable sources calling it ‘a good alternative to the iPad’ or ‘the best eReader available’

Sony Reader, however,  is getting very little coverage. Journalists didn’t even make the effort to review the new Sony Readers when they came out. There are no Kindle vs Sony articles being written.

Should we make excuses for Sony? Sony is focusing on the worldwide market, and the Japanese market, and that’s why it’s not getting coverage in the US.

Should we make excuses or should we point out the real reason Sony Readers are struggling. Sony Readers are struggling because Sony is messing up their potential. Sony’s eReader strategy is comically bad.

Sony has one year to figure things out – Perhaps less

Sony is ignoring the single biggest eReader market. It’s ignoring the fact that this market sets trends that the rest of the world often follows. It’s ignoring the fact that winning in this market makes the Kindle and Nook infinitely more dangerous elsewhere.

Instead of fighting the Kindle and Nook, Sony is running away to other markets. 

That’s not going to help – It’s still in the eReader business. Kindle is already being sold worldwide. Nook is going to be available worldwide eventually. By pretending there aren’t huge flaws in its strategy, Sony is setting itself up for even bigger failures.

All Sony needs to do is look at things from the user’s perspective – make it easy to get books, make the device better value for money, provide better services and features, make a better store. Sony already has an excellent eReader – it just needs to provide a great Sony Reader ownership experience.

eReader makers seem to be allergic to eReader profits

The Kindle and the Nook have fallen in price considerably over the last 3 years. From an initial starting point of $399 we now have a world where Kindles and Nooks are around $190 and where WiFi-only variants retail for $139 and $149.

If you think about it, cutting prices relentlessly is a rather strange strategy. In most electronics market segments we see constant innovations that keep prices high – things like Plasma TVs and 3D TVs and faster processors and new hard drive technologies.

With eReaders it’s the exact opposite – newer models come in at lower prices than the older models were selling for. We’re now close to the point where eReaders can’t sustain themselves. This slide to zero profitability has been triggered by eReader makers themselves.

eReaders are being sold mostly to sell eBooks

At the moment eReaders are being viewed by eReader companies as a means to sell eBooks – As a device that will make money from ebook sales and doesn’t necessarily have to make any money up-front.

This might turn out to be a huge mistake.

Consider what’s happening with smartphones – Except for Apple, everyone is in a race to zero profitability. The same is happening with eReaders with the exception of one painful fact – There is no Apple of the eReader world. There simply isn’t any eReader that’s very profitable in itself.

Every eReader maker is waiting for the magic stream of eBook revenue even though it’s the hardest thing to guarantee – All users have to do is go online and get a pirated ebook and there goes your ebook profit.

eReader makers are only thinking about market share

There’s a strange lack of respect for profitability amongst current eReader makers. They have this belief that all they have to do is sell a lot of eReaders at cut-throat prices and then at the end of the rainbow there’ll be a pot of ebook revenue gold waiting for them.

You know what – It’s much easier to sell a tangible, physical, value-add eReader than it is to sell an in-the-ether ebook. All the arguments readers use about why eBooks should be cheaper than books apply to why eReader companies should be making profits from eReaders and not waiting for the Godot that is eBook profits. 

Think about the value eReaders provide -

  1. Instant store from anywhere.
  2. All public domain books for free.
  3. Changeable font sizes and in-built dictionary.
  4. Text to speech.
  5. Load up anything that’s DRM free.
  6. Lots of interesting features like syncing your place in a book and your notes and highlights.
  7. Reading across multiple devices at the same time.

The eReader is providing a ton of value. Yes, content has a lot of value too – However, there’s no way to guarantee profit.

eReader makers are throwing away the part that has the guaranteed profits – Readers can’t pirate an eReader. They can’t make a LCD great for reading. They can’t duplicate eInk with a single copy function. Yet, it’s that priceless eReader device that’s being given away without any consideration of profit.

eReader makers are depending on eBooks despite what’s happened with music.

eBook Profits are guaranteed to disappear

There’s no way to lock-in ebook revenue

All this DRM song-and-dance is based on users not fully understanding how easy it is to work around it.

You could buy a Kindle or Nook and never have to buy another book ever again – They are all available for free online.

Why will readers buy eBooks when they are all free?

Perhaps they’ll buy because it’s the right thing to do, because eBooks provide more value for money, perhaps for the convenience, or perhaps out of a sense of loyalty. Mostly, they’ll buy ebooks so that authors can keep writing and can get rewarded for their hard work.

However, authors don’t need very much – The army of authors selling their books for $1 and $3 shows that authors don’t really care about eBook profits.

Authors are just as allergic to making money from eBooks as eReader companies are allergic to making money from eReaders.

In a contest between authors trying to give away their books for free and eReader companies trying to price those books at $10 the authors will always win.

Even without the generousness of authors we have trouble.

We start off with $10 ebooks. Soon we’ll have someone offering ebooks a bit cheaper. Then someone else will go even lower. Before you know it we’ll have $3 ebooks as the standard. Then eReader companies that are making zero profit on $100 eReader sales will be trying to generate profits from $3 ebook sales.

There’s infinite competition in eBooks

You sell your $100 eReader. Then you’re happy because you can keep selling $10 eBooks to people who own your eReader.

Right? Wrong.

A company comes in and starts selling $9 ebooks and starts trying to work around your lock-in. Then another company comes in and tries to make money in another way and offers free books. Then some crazy author comes in and starts demanding books be free.

That ‘$10 per ebook for the lifetime of the reader’ image in eReader companies’ minds is pure illusion. There is NEVER going to be a stable state where ebooks sell for $10.

There’s always an anti-profit company dying to make 10 cents of profit where $5 of profit exists.

With eBooks it’s extremely easy for all the anti-profit companies to compete. They might not be able to invest $100 million and bring an eInk based eReader to market – However, they can invest $100, get a year’s worth of web hosting, and give away $0 ebooks.

The sustainable profits are in eReaders – not in eBooks.

The profit potential of eReaders is being wasted

eReaders could end up being a 50 million eReaders a year market.

10 million out of those could be $300, high-end eReaders – Built to provide the very best reading experience.

At the moment, no company is thinking about that market. That’s $3 billion a year in solid revenue and potentially $1.25 billion in profit. Yet, eReader makers want to throw that away. They would rather try and generate money from ebooks.

We have a $23.8 billion Books market in the US which is well on its way to morphing into a $10 billion to $15 billion Books+eBooks market. That’s the best case scenario. The advent of eBooks could mean that this $23.8 billion a year market shrinks to a $5 billion a year market. One that is full of tough competitors and where no single company makes more than $500 million a year in profits.

In fact, the way things are going with eBooks it seems very likely that some company will end up destroying all the profits and the market leader in eBooks will have annual profits of much less than $500 million a year.

The eReader Market holds a lot of potential profit

We’ve already mentioned the ’10 million high-end eReaders a year’ market that could generate $3 billion a year in revenue and $1.25 billion a year in profits.

We also have the ‘tens of millions of low-end eReaders a year’ market. That might generate anywhere from $1 billion to $5 billion a year in revenue, and perhaps as much as $1 billion a year in profits. However, eReader makers insist on throwing away that possibility.

eReader Makers don’t want to profit from eReaders

It’s almost as if they consciously ruled out any dependable source of profit -

$1.25 billion a year in profits from high-end eReaders?

Nah, that’s too easy.

$1 billion a year in profits from low-end eReaders?

Nah, that’s easy too.

These are markets that require hundreds of millions of dollars of investment – It’s unfair of us to profit from these.

You know what.

We could make $300 million a year in profits from eBooks. It wouldn’t last very long and almost anyone could compete. We also wouldn’t have a defensible position.

Yes – that sounds perfect.

It really is amusing that eReader makers would invest hundreds of millions of dollars into making eReaders and then decide they should try and profit from something else.

Wouldn’t it make more sense to profit from a product that very few companies in the world can make?

Why aren’t eReader makers trying to profit from both eReaders and eBooks?

The standard arguments are all hollow – eReaders have to be cheap because they do one thing. eReaders have to compete against multi-purpose devices.

Actually, it’s a choice. You have some phone makers sell a $600 phone and some phone makers sell a phone with similar functionality for $100.

We aren’t saying that there shouldn’t be cheap eReaders – Just that there’s a lot of profit in eReaders and at least one company should be trying to wrap up that profit instead of throwing it away for the siren song of ebook revenue.

There are people buying $250 Nook Colors and $379 Kindle DX 2s. There were people buying $399 Kindles and $259 Kindle 2s.

Why are eReader makers moving everything to $100? Why isn’t there a Kindle for around $299 with technology that merits the price?

That market for high-end eReaders is there for the taking. Yet, Amazon and B&N are consciously ignoring it.

It’s understandable that there’s a Kindle WiFi at $139 for people who don’t think an eReader or reading can be worth $300. It’s also understandable that the Kindle 3 is $189 and is trying to reach the mass market. However, there’s a solid market for $300 eReaders which is being ignored. Additionally, eReader makers are destroying the profits in the lower-end market segments. They are making the poisonous assumption that eBook profits will sustain them.

The Kindle could be very profitable for Amazon. Nook Color could be very profitable for B&N. By exchanging current eReader profit for the promise of future eBook revenue both companies are digging a hole for themselves.

2010 Kindle Strategy – Reviewing Amazon’s Kindle strategy

As the Kindle finishes off a very interesting year it’s worth taking a look at the major kindle strategy decisions and doing a rough review.

Kindle 3 and Sticking with eInk

Kindle 3 represented a huge move for a variety of reasons -

  1. It was a commitment to readers. Sticking with eInk is the surest sign Amazon is serious about serious readers.
  2. It was a much-improved device – It improved over the Kindle 2 in a multitude of ways (and also made a few mistakes).
  3. It came in at $189 despite having the new eInk Pearl screen.

Amazon did exceptionally well in terms of improving the Kindle – it kept the price low, it stuck with eInk, and it made improvements across the board.

Kindle 3 probably allowed Amazon to keep wrapping up a large portion of serious readers – not to mention lock-up the ebook revenue stream they represent.

This was brilliant.

Kindle Strategy Grade: A+.

The $139 Kindle WiFi

Another brilliant move. Kindle can be encroached on in two directions – by the ‘do-more’ Tablets at higher prices and by the ‘do-less’ bargain eReaders. Amazon released the $139 Kindle WiFi and effectively destroyed the latter threat.

It also probably wrapped up a large portion of people who couldn’t afford the Kindle 3 or thought a reading focused device wasn’t worth $189.

Kindle Strategy Grade: A+.

Not expanding the Kindle family with a Color screen device + Depending on eInk

These are actually two interdependent strategy decisions and both are terrible.

By depending on eInk Amazon tied the Kindle to the rate of progress of eInk’s technology. That left a lot of room for LCD based Tablets to attack Kindle. By not expanding the Kindle family with a Kindle Tablet or a color eInk Kindle Amazon let an apples vs oranges comparison (Kindle vs iPad) flourish – much to the Kindle’s detriment.

Basically, when Apple came out with the iPad and leveraged the Press to create an illusory Kindle vs iPad showdown Amazon should have gotten a Kindle Tablet ready – Whether the Tablet lost to the iPad or did OK – it would free Kindle from unfair comparisons.

Amazon will face this problem again when the iPad 2 comes out (it’s rumored to come out in February 2011). At that time, hopefully, Amazon can quickly release a color screen Kindle or Kindle Tablet – which would leave the black and white eInk Kindle free to focus on books and reading.

Kindle Strategy Grade: F.

Not going for a revolutionary Kindle device

It’s hard to say whether this was a good decision or not.

Kindle 3 and Kindle WiFi capture the exact type of customers Amazon wants – people who will keep buying books and provide a super valuable revenue stream.

At the same time the mind share is going to devices that try new things like iPad and Nook Color.

Could Amazon have found the time to release a Kindle that was very revolutionary? Would that distract Amazon from the Kindle’s core mission and from eBooks?

This area of strategy is completely lost to me – There’s always a huge risk when you veer away from your core competency and perhaps it’s not the most sensible thing for a market leader to change things drastically when it’s winning.

Kindle Strategy Grade: Incomplete.

Kindle for the Web to match Google eBooks

This is actually going to be announced today. It highlights how Amazon is the King of reacting to competitors.

We knew a long time ago that Amazon would have to do this when its biggest eBook Store rival launched. All Amazon did is release a web preview feature. Instead of going all-out and letting people read Kindle books in the browser and letting any site in the world sell Kindle books Amazon made it a gutless preview feature.

Now that Google eBooks has launched Amazon, within a day, is announcing that it will match these two features i.e.

  • You will be able to read Kindle books from a browser. Not sure of the details – should be clear after today’s announcement.
  • Any site will be able to sell Kindle books. Again, the announcement today should provide the details.

By announcing this a day after its rival ebook store’s announcement Amazon has missed out on the chance to steal its rival’s thunder. On the plus side, it’s instantly neutralized two of a competitor’s differentiating features.

Matching two out of the 4 main strengths of its biggest eBook Store competitor is a great, smart move.

Kindle Strategy Grade: B.

The focus on Kindle Reading Apps

This is brilliant strategy and pointless strategy at the same time.

At one level it seems like daylight robbery – All these other companies invest billions into their devices and take big risks and finally get customers. Then you make a tiny little app that takes you one month and you steal all the ebook revenue. It almost seems too good to be true.

It seems too good to be true because it is.

Sooner or later these device makers will have their own offerings. Then they will use the power of the default and customers’ natural loyalty to the device maker to steal back the ebook revenue.

Making a bunch of Kindle Reading Apps is a great strategy for a divided market. It’s also great if the device makers aren’t interested in eBook revenue. However, it has to be accompanied by a Kindle Tablet so that Amazon can get customers it can lock-in.

Now that both Google and Apple are interested in eBook revenue it’s only a matter of time before it becomes much harder for Amazon to get a free ride from Android and iPhone. Then the lack of its own Tablet will come back to haunt it.

Kindle Strategy Grade: A in the short term, F in the long term.

Kindle App Store

Deciding to go with an App Store is a brilliant decision.

It has been a bit of an experiment so far so it’s only next year when we’ll know what happens with the Kindle App Store.

Kindle App Store will probably compete with Nook App Store as each tries to add value to its associated eReader devices. It’s quite a delicate balance as Amazon knows it can’t get left behind on apps. You never know when a particular app makes one eReader a favorite over another eReader for a particular user. At the same time you don’t want to let apps overrun your eReader and destroy ebook revenue or its utility as an eReader.

This is an open item – At least Amazon is in position to react to B&N. Perhaps that’s what’s needed before Amazon gets serious about apps – a competitive threat.

Kindle Strategy Grade: Incomplete.

Spurning ePub’s advances

This is a very smart decision.

While every other eReader company is throwing away its lock-in, and in effect its ebook revenue stream, the Kindle has stayed far, far away from ePub and kept its ebook revenue stream safe and secure.

Where it has hurt Amazon is in lack of support for library books. There you could make an argument that customers who prioritize library books aren’t ideal customers and that adding library book support hurts revenue from existing Kindle owners.

A good business decision – not sure what all the strategic implications might be.

Kindle Strategy Grade: A for profit, F for popularity/perception.

An uneasy compromise with the Agency Model

Amazon has fought the Agency Model for a bit in both US and UK and then adopted it. It’s been an interesting tussle – Amazon didn’t really have an option since it needs the content. 

Now that we know the Agency Model hasn’t slowed down eReaders and eBooks much it’s remarkable to see how much better off Amazon is – it’s no longer losing money on every Kindle book sold.

Agency Model definitely increased Amazon’s take per book, it might have weakened Publishers and strengthened indie authors, and it has done precious little to slow down eReaders. It’s had the almost exact opposite effect of what Publishers intended.

Kindle Strategy Grade: Hard to say. The end result has been an A but the strategy (i.e. give-in) was probably terrible.

Trying to avoid the race to Zero

This is the most delicious piece of the strategy puzzle.

Amazon has to balance two things – It has to come in with eReaders and eBooks and destroy the existing Publishing model and the entrenched Publishing Mafia. At the same time it has to avoid the anarchy of free and make sure there are still enough profits in eBooks.

It’s done a lot of very under the radar things (such as channel immense power to the Bestseller lists) and a few very obvious things (such as offer 70% to authors who price their books between $3 and $10).

It’s also stayed far, far away from free. Consider how most other eBook stores have a million or more free books and just a few thousand new paid books. Amazon is the opposite – it offers just 20,000 or so free books and 700,000 paid books.

The Kindle Store is a store of good intent.

Kindle Strategy Grade: A+. This is very impressive balancing and if it keeps working it’ll really, really pay off for Amazon.

Openings that Amazon’s Strategy has created for its Rivals

In around 50% of areas Kindle strategy has been excellent – a solid A. There’s also a solid B and a few things have turned out well despite questionable strategies. So Kindle strategy, overall, has really paid off.

We do have one obvious long-term weakness and two incomplete areas.

The Lack of a Kindle Tablet and Over-reliance on Kindle Reading Apps could destroy the Kindle

By not releasing a Kindle Tablet and by focusing on reading apps the Kindle ecosystem has been exposed to Tablets in general and Reading Tablets in particular. There was quite a gap in price and focus between iPad and Kindle – The Nook Color has waded into that gap and set itself up to steal enough Kindle sales to be a problem.

The other problem is the reliance on a bunch of devices and platforms Amazon doesn’t control.

This seems to be the only huge strategic mis-step – Which isn’t bad given there were a lot of areas Amazon could have stumbled in.

Choosing Evolutionary over Revolutionary and Hesitation on the Kindle App Store front are also exploitable weaknesses

These are unknowns but interesting -

  1. Will Kindle be taken down by an eReader that tries something revolutionary? Perhaps. If enough companies try bold new things one of them is likely to hit upon a winning formula. The Kindle will continue on the path of incremental improvements and just hope that no one conjures up a magicReader.
  2. Will Nook App Store generate apps that make Nook Color more compelling than the Kindle? It’s unlikely but not impossible. Often, a Kindle vs Nook Color comparison hinges on a few features – eInk, LCD, library book support, ebook selection, folders, custom screensavers. It’s not impossible that a developer creates an app that’s impressive enough to feature on that list and sway decisions. At that point the App Store that generated this killer app has paid back the device manufacturer several times over. What’s more – It could be 20 killer apps. There isn’t an upper limit.

For a market leader to choose revolutionary over evolutionary isn’t the safest option. It’s almost as if Amazon’s #1 position forces it to play it safe and be much more cautious than its competitors.

My overall grade for Amazon on its Kindle Strategy would be A- with one huge weakness and two areas of concern. It sets things up very well for 2011 – Enough intrigue and possibilities to keep everyone involved.

Could a new eReader take on Kindle 3, Nook 2?

With the Kindle 3 doing well, Nook 2 presumably around the corner, and rumors of new Sony Readers swirling it seems a particularly bad time to enter the eReader market.

At the same time there’s a huge opportunity because eReaders are poised to truly explode with prices finally hitting a level at which selling tens of millions of eReaders a year is no longer a dream. If there’s a time to enter the market it’s now. It brings up an important question -

Could a new entrant take on Kindle 3, Nook 2, and the new Sony Readers?

Well, let’s start by considering the concept of the Minimum Viable eReader.

Minimum Viable Reader – the essential features to compete with Kindle 3, Nook 2, Sony 650

Here are the features a new eReader must have to be taken seriously -

  1. eInk screen or another reading specific screen. It has to be a screen optimized for reading (none of that transflective LCD nonsense). If it’s eInk it has to be eInk Pearl.
  2. Support for the major formats – Support for prc, PDF, ePub, Word, and txt. The more formats supported the better.   
  3. Good PDF support.
  4. Light and Compact. There’s a very strong trend of eReaders going small and reducing their weight and new eReaders have to be light and compact to compete.
  5. Connectivity – There has to be either WiFi or 3G. Ideally both.
  6. eBooks – A solid connection to a good ebook store. B&N has shown a readiness to share its ebook store and Google Editions will probably also be available.  
  7. Very good Battery Life. At least 2 weeks.
  8. Decent Storage and storage options. 2 GB or more of storage or an SD card slot.
  9. Good Customer Service. eReaders and ebooks tend to generate lots of support issues and handling these well is critical to be able to compete.
  10. Very usable interface. Including a very usable physical keyboard or a good on-screen keyboard if it has a touch screen. 
  11. Close to zero learning curve.
  12. Language Support. It doesn’t have to include CJK font support but it should support multiple languages.
  13. Font Options like changing the font size and line spacing.

To compete for the top 2-3 spots an eReader has to have at least these qualities.

It’s possible for an eReader that lacks one or more of the above qualities to still carve out a valuable piece of the eReader Market. It can do this by targeting specific niches.

The Add-on NicheReader – A supplement to the Big 3

There is a very valuable niche a new entrant could occupy – that of the add-on eReader.

  1. For Kindle 3 owners it would be a very basic eReader that can handle library books and ePub and all the other DRMed eBook formats. 
  2. It should include a SD card slot and a replaceable battery to further help fill the Kindle’s gaps.
  3. For Nook and Sony Reader owners it would be a very basic eReader running Android or Windows and capable of running Kindle for Android or Kindle for PC. 
  4. It should have text to speech to further fill the gaps of the Nook and Sony Reader
  5. It’s quite possible, and probably a good idea, for a niche eReader to include both of these features.

Lots of Kindle and Nook owners would consider such a device. If it managed to come in at $75 to $100 lots of them would get it as a second eReader to supplement their Kindle 3 or Nook 2.

The Super Cheap, Large Screen eReader Niche

The Kindle DX 2’s price of $379 leaves a huge gap and an eReader could sneak in if it had -

  1. A price around $200.  
  2. A screen that is 9″ or 10″ and eInk.
  3. Good Support for PDFs.
  4. Good format support.
  5. WiFi to ensure some sort of connectivity.  

It would ideally also have a majority of the features mentioned in the Minimum Viable eReader list. However, its main draw would be being a large screen eReader at a very low price.  

Beating the Incumbents – Features that would give an eReader an advantage over Kindle 3, Nook 2, Sony 650

To go from Minimum Viable eReader status to contender status an eReader would have to steal and copy the Big 3’s best features -

  1. Low Price. It would have to come in at under $200 and get as close to $150 as possible.
  2. ePub support and support for Library Books like Nook and Sony Reader.
  3. Text to Speech like Kindle.
  4. An equivalent of WhisperNet would be nice though it might be too expensive.
  5. 3G with Free Store Browsing and Free 60 second book downloads like Kindle 3 and Nook 2. 
  6. Really fast page turns like Kindle 3 and Sony.
  7. Very wide range of available books and good prices like Kindle Store.
  8. Steal the openness idea B&N and Sony are trying to push.
  9. SD Card Slot like Sony Reader and Nook have.
  10. Touch like Sony Reader Touch Edition has. Only do this if you can do it without compromising readability. It isn’t OK to start with an eInk Pearl screen, add touch, and make it look like a Kindle 1 screen.
  11. LendMe or a feature like it. If you can get Publishers to expand from 1 loan per book to 2 or 3 loans per book that’d be a big win.

If a new eReader is able to incorporate 70% or more of these features (in addition to the features on the Minimum Viable eReader list) it would suddenly become a worthwhile contender.

Gaining an Edge – Features that the Big 3 don’t have 

After you’ve hit contender status by including 70% of the killer features found across the Big 3 eReaders you can start looking at improving on them –  

  1. Remove all lock-in. Kindle doesn’t support ePub and B&N doesn’t let you take your ebooks with you to another eReader. Make your eReader totally open to whatever readers want and you gain an instant advantage.
  2. Perhaps team up with Google Editions.
  3. Use Android for its promise and unlock Android Apps. Android Apps would instantly provide a new dimension.  
  4. Very good note-taking. No eReader has a satisfying note-taking experience and no eReader comes close to being an eWriter. If a new entrant provides this while keeping the price under $200 it has an instant, huge advantage.
  5. A very good keyboard – The Kindle 3’s keyboard is small and lacks a numbers row. Nook and Sony Reader Touch Edition use strange on-screen keyboards. An old-fashioned physical keyboard would be a huge bonus.   
  6. Add a full-fledged browser. eInk might not be made for browsing but let readers make up their own minds. Let the browser work freely with WiFi and users and developers will figure out ways to make it work.
  7. Free Books. Figure out a way to get 10,000 indie authors’ books and 10,000 published authors’ backlist books (one for each author perhaps) for free and on the device by default. Figure out a way to load up a 2GB SD card with the 2,000 most popular public domain books and include it.
  8. Make genre specific features – Privacy and Auto-Hide for romance and erotica. Predictions and character clue-books (or character dictionary) for mystery novels.
  9. Add eReader tracking so that if someone loses their eReader you can help them figure out where it is.

There are lots of things that can be added to help readers. Perhaps you add-in 3 to 4 solid features that no other eReader has and find half a dozen smaller features that are very helpful. Combine them into one package (on top of the MVR and Contender feature-sets) and you suddenly have the edge over Kindle 3 and Nook 2.

Optimal Strategy to take on Kindle 3, Nook 2

The best way would be to identify a niche the Big 3 aren’t serving well -

  1. The Add-on niche for Kindle and Nook owners.  
  2. An eReader for really young children that’s damage proof and unbreakable.
  3. A waterproof eReader for reading in the tub, by the pool, and on the beach.
  4. An eReader optimized for school.
  5. eWriter + eReader for college.
  6. Large screen eReader for under $200.
  7. eReader optimized for a profession like medicine or law.
  8. eReader optimized for comics or manga.
  9. eReader for academics with exceptional PDF support and features like two column reading.
  10. An eReader for business with enhanced privacy functions and print to eReader function (print to eReader from your PC or phone). Also, easy sharing and editing of documents.

Create something that meets the needs of a reasonably sized niche perfectly. Out-Kindle the Kindle by cutting out everything that niche doesn’t need and making extraordinarily focused decisions on what features and capabilities the device has.

Once you’ve conquered that particular niche you can think about expanding to related niches and eventually to the entire eReader market.

It makes little sense to attack Kindle 3 and Nook 2 head-on

Kindle has all the eReader brand recognition i.e. eReader = Kindle. Kindle 3 sets an exceptionally high bar. Amazon will undercut you on both eReader and eBook prices. B&N has physical stores. Kindle, Sony Reader, and Nook have strong brands and customer loyalty and (except for B&N) lots of money backing them up.

It seems madness to compete. Luckily you don’t have to compete head-on.  

The best way to compete is by focusing on a niche and winning it and then expanding to the nearest/easiest niche. You start with an eReader that’s optimized for business. After that you feel Doctors and Engineers seem the most promising niches that would require the least modifications – So, go after them next.

If the eReader market really is going to hit tens of millions of eReaders per year then there will be niches like business and young kids that will be under-served. They will be niches with sales of a few million eReaders a year in 2011 and perhaps much more down the line. Niches that will want their Kindleized Kindle i.e. an eReader that was dreamt up specifically for them with exactly the features that they desire and an uncompromised approach. To them the Kindle 3 will seem much like the iPad seems to us readers – We are surprised that a LCD screen device is pretending to be a dedicated reading device and they would be surprised that a device that doesn’t allow writing is trying to replace businesses’ use of paper.

eReaders might soon be such a huge market that it creates an opportunity for new entrants to focus on a sub-market and do exactly what the Kindle has done – create a device that is so perfect for its audience that it makes generalist devices seem poor in comparison.

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