Kindle format ebooks are a big lock-in factor for Amazon

Posted on December 8, 2012 by switch11

Had the chance to discuss the launch of the Nook HD and HD+ with someone in the UK. Got the following very interesting insight (courtesy Alex) -

Most readers aren’t willing to buy Nook HD+ because all their books are in Kindle format.

There’s something very interesting here.

Amazon’s Approach to eBook Formats and Lock-In

Amazon is saying -

  1. Get our device and you can read our format and nothing else.
  2. Get another device and if we can we’ll get you a reading app.

Any reader that starts with Kindle format books is basically locked in and has only two options -

  1. Getting a Kindle or Kindle Fire.
  2. Getting a device with a Kindle Reading App.

Any device manufacturer has two options -

  1. Support a Kindle Reading App and have people with Kindle format ebooks consider you.
  2. Don’t support a Kindle Reading App and lose any users with Kindle format ebooks.

As opposed to all other eReader companies that support ePub and each other and allow users to flit around like butterflies, Amazon keeps a lock-in. You have to stay in the Kindle ecosystem of Kindles and Kindle Reading Apps.

It’s like a Viral Strategy

Amazon says – no other company can infect our devices with their virus. We will infect as many devices as we can.

People who enter our ecosystem are locked-in and can only survive on devices infected with our virus.

If you think of it as a virus that is spreading slowly while not letting anyone infect its ‘super host bodies/head quarters’ the beauty of the strategy becomes evident. Sooner or later either we’ll have -

  1. Kindle format supported on all devices and Kindles supporting only Kindle format. Thus a complete penetration of the virus.
  2. Devices that don’t support Kindle format but they are completely surrounded by infected devices and ecosystems and start withering away.

At that point every road leads to Rome.

You will gravitate more and more towards Kindle Tablets and Kindle Phones because the virus is strongest in them. Special Features. Special Prices. Special Offers. Amazon will tilt things slowly until the virus in the various ecosystems starts pushing you towards the Super Host Bodies (the virus headquarters).

In Summary – Openness and ePub might be overrated

Companies that embraced openness and ePub had no lock-in. A Kobo owner can jump to Nook. A Nook owner can jump to Sony. It’s the United Nations of zero lock-in and lost profits.

The Kindle, on the other hand, has created tremendous lock-in. To the point that readers who own Kindle ebooks are limited to Kindles and devices that support Kindle Reading Apps.

In cases like UK where Kindle got an early lead, it’ll be almost impossible for other companies to break-in. B&N has said it’s going to expand to 10 international markets by end 2013. Well, it better hurry up or it will keep hearing the same refrain – But all our ebooks are in Kindle format.

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Apple gets an A, Amazon gets an F when it comes to App Intelligence

Posted on December 8, 2012 by switch11

Apple’s approach to App Support on its devices is drastically different from the approach that Amazon takes. We’re going to consider the three main elements of an ecosystem - Platform (Apple, Amazon, etc.), Users, Developers.

Apple exhibits a very high degree of intelligence about these three elements. Amazon – not even sure Amazon thinks about this stuff.

iPad Mini = iPad 2 Screen Resolution

Apple announced iPad Mini. It sacrificed Retina Display to keep the screen resolution such that it matched the iPad 2 exactly.

Result: All 270,000 Apps that work on iPad 2 work on iPad Mini.

This is very, very intelligent. It shows that Apple understands the value of a strong app ecosystem. It perhaps also reflects Apple’s experiences where it saw Microsoft beat it by having a richer desktop application ecosystem. This time around it wants to make sure it has the richer and higher quality ecosystem.

Why is this great for Developers?

They have to do nothing and just get more customers. I can’t even explain how beautiful this is. It’s like someone saying – Good Morning! Your Customer Base and Earnings just went up 10% and you have to do nothing. And it’ll keep going up.

Why is this great for Users?

Users who buy the iPad Mini get each and every app that was built for the iPad 2. Apps right from the start. No having to wait for Netflix to optimize or New York Times to sell or Twitter to tweet-twaddle-tattle.

Existing iPad owners that add an iPad Mini or upgrade to one – their apps all work.

It’s not a random occurrence

Apple made it a point to allow iPhone apps to work to an extent on iPad 1. That did help both users and developers. It wasn’t perfect, but it worked.

Kindle Fire to Kindle Fire HD = Apps don’t always work

Amazon, when it built the Kindle Fire HD and Kindle Fire HD 8.9″, made it such that some/quite a few apps that worked on Kindle Fire just won’t work on HD and HD 8.9″ OR they will work badly.

Why is this terrible for Developers?

Forget getting customers for zero effort – with Amazon you have to make extra effort just to keep current customers. Developers have to accommodate three different screen resolutions and test on three different devices. If they don’t, then they are in trouble.

Why is this not ideal for Users?

The Apps they bought – some of them just don’t work on Kindle Fire HD and HD 8.9″. The range of Apps is less. Less developers will make apps because the effort to reward ratio is lower.

There also has to be a human factor. If you’re an app developer and it seems to you that the company went out of its way to make your life harder – Well, obviously your motivation will be less.

This Insane Approach to Apps isn’t a Unique Occurrence – Amazon is an expert at it

Kindle Fire with its three different devices and three different screen resolutions seems a joy when you contrast it with eInk Kindle App development -

  1. Kindle 2 with keyboard with number keys.
  2. Kindle 3 with keyboard with no number keys.
  3. Kindle Touch.
  4. Kindle WiFi with no keyboard and no touch.
  5. Kindle Paperwhite.
  6. Kindle DX.
  7. Kindle DX 2.

It’s like an exercise in how to make it difficult for people to make apps for your devices. Pretty sure it’s very difficult for magazine and newspaper publishers and authors and book publishers too.

Just consider the beauty of this – There are 4 Kindles that differ primarily in touch, keyboard, keyboard with no number keys, no touch and no keyboard. You would be hard-pressed to come up with a more efficient way of motivating developers to stop making software for your platform.

Also, please keep in mind that Amazon is asking for this at the same time as Apple is bending over backwards to ensure that ALL iPad 2 Apps just work on iPad Mini and that iPhone Apps keep working as iPhone updates.

It’s a drastically different approach. Amazon seems to think of App Developers as Onion vendors. Just use a different size box – now you need to have 1 kg and 2 kg and 5 kg onion boxes. Sorry, the 2.5 kg boxes won’t work.

By one measure Amazon has really improved

The glass half-full approach would be -

  1. Kindle eInk Apps have 6-7 different devices to support for a relatively small market.
  2. Kindle Fire Apps have 3 devices to support for a somewhat larger market.

At this rate, Kindle Phone Apps will get something that will make developers feel that Amazon actually put thought into how apps would fit into the overall ecosystem.

Are Apps just a tickbox on Amazon’s List?

It’s hard not to get the feeling that Amazon thinks of Apps as ‘something they should have available to get people to buy Kindles, so they can later buy other things’. As opposed to ‘Apps are a core part of the Kindle Value Proposition’.

Who knows. Perhaps Apps aren’t a core part of the Kindle proposition.

Whatever it is, it would be really, really nice if Amazon stole a page from Apple’s approach to Apps. When the next generation of Kindle Fire devices comes out, Amazon has two options -

  1. Add 2-3 new screen resolutions and turn Amazon Kindle App Development into a true nightmare.
  2. Put some thought into it so that life is easier for users and developers.

Making apps for different screens and different devices is not as simple as packing onions into different size containers. It’s tougher. Not to offend onion packing artists (are you crying because of what I said or is it the onions?) but it’s probably a lot, lot tougher.

This is an Android Device maker disease

It’s almost as if Android Device makers WANT to not have a good app store. They all make different types of devices with different screens and different resolutions. Consider this -

Between Kindle Fire HD, Nook HD, Kindle Fire HD 8.9″, Nexus 7, Nexus 10, Nook HD+ - There is only one MATCH when it comes to device screen size and resolution.

All the other combinations – they all have different screen resolutions and different screen densities.

Even in the one case where two devices have the same screen resolution and screen size (Kindle Fire HD and Nexus 7) they have other differences. That means apps still need to be modified and retested.

Not only do Android vendors go to lengths to make their devices different from each other physically, they sprinkle on software differences and eccentricities liberally and thus make porting over apps rather difficult.

I’m not familiar with Galaxy Tabs and Note 10.1 etc. However, I’d be willing to bet that Samsung is afflicted with the same disease.

Android Device Makers should stop copying the design and UI and start copying the App Strategy

Users probably do not care very much for ‘lists that bounce back up’ and ‘animated page turns’.

They do, however, care a lot for having a good solid range of apps of high quality. That’s only going to be possible when the various Android Tablets stop trying to kill developers and users with small meaningless little differences.

It’s much, much easier to make apps for one market of 100 million devices.

Than to make apps for 7 different markets where each market is just 1 million to 5 million devices. It’s literally 10 to 15 times the work for a market that is 1/3rd the size.

Why change screen sizes from 8.9″ to 9″ to 9.1″. Does it really make that much of a difference? Make them the same and you’ll probably get economies of scale and get cheaper screens. There’s really little need to pick 1920 by 1280 screen resolution when someone else has picked 1920 by 1200. What is that 80 pixels going to get you (apart from fragmentation)?

If you’re starting off with a smaller App Store (Amazon, for example) then it makes ZERO sense to make it even smaller for your brand new Kindle Fire HD and HD 8.9″. However, that’s exactly what Amazon is doing. Unless Amazon changes its app strategy it’s just going to keep increasing Apple’s lead in Apps and Apple’s appeal to both users and developers. Same applies for all the other Android Tablet Makers – stop shooting yourself in the foot. Your only chance is if you make an app store that you can all share and devices that can use the same apps without ‘special taxes’ for each device.

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The metamorphosis of Kindle and of Amazon

Posted on September 30, 2011 by switch11

In celebration of the Kindle Fire and the new Kindle, the CEO of Amazon wrote a very interesting letter (which can be found on the main page of Amazon).

A particular section has been stuck in my head and tonight (thanks to reading The Strain for half the night) it finally struck me why. First, let’s consider what Mr. Jeff Bezos wrote:

There are two types of companies: those that work hard to charge customers more, and those that work hard to charge customers less. Both approaches can work. We are firmly in the second camp.

This is really, really interesting. Particularly when you take a look at the diagram in this article on why the iPad and Kindle Fire are Mirror Opposites.

  1. iTunes feeds the funnel for iPad. Apple makes most of its money from the iPad.
  2. Kindle Fire feeds the funnel for Amazon.com.

So, and we are taking major liberties here, we could translate Mr. Jeff Bezos’ statement into -

There are two types of companies: Those that work hard to create a very attractive ecosystem where the price of entry is a premium device, and those that work hard to create a very attractive and low-priced device that brings you into their ecosystem.

Both approaches work. We are firmly in the second camp because we think we can sell people everything.

Both approaches do indeed work. Amazon is certainly in the second camp.

Why else would it sell the Kindle Fire (whose bill of materials alone is around $191) for $199? Why else would it sell the new Kindle for $79 (an insane price no matter how you look at it)?

This strategy is a very dangerous strategy and my gut feeling is that it’s not going to work the way Amazon intends and it is going to cause a metamorphosis of Amazon.

The Coming Metamorphosis of Amazon

Going back to the excellent Apple/Amazon/Funnel article, we get this gem -

  • Apple can happily ‘just about break even’ on music downloads because of the way it helps sales of their high margin i-devices
  • Amazon can happily price the Kindle Fire so aggressively that it is priced more like an MP3 player (and expect to lose money for the near term at least) because of the volume of sales of content it expects / hopes it will drive

Notice the rather critical part -

… expect to lose money … because of the volume of sales of content it expects/hopes it will drive.

Hopes and Expectations don’t make a good bedrock for future profit. Especially when the Internet and the common people are busy driving the value of content to zero.

Amazon can’t let that happen (except perhaps in certain loss-leaders like music).

To Guarantee Profits, Amazon has to Build a Very Closed Ecosystem

If people start buying Kindle Fires and Kindles and buying/getting content elsewhere, Amazon will never make a profit.

This forces Amazon to do some interesting things -

  1. Amazon has to lock users into its ecosystem. That’s why we have no ePub support. That’s why there is unlimited Cloud Storage for Amazon content but just 8 GB storage on the Kindle Fire. That’s why Kindle Fire doesn’t have an SD Card slot. That’s why Amazon has to build a custom version of Android and its own Android App Store.
  2. Amazon has to figure out how to make money from content. Amazon has to ensure it makes money from content because it’s selling Kindles and Kindle Fires at a loss. It’s a painfully amusing situation - content owners themselves can’t make profits from their content and yet Amazon is expected to make a profit from its 30% cut.
  3. Amazon has to figure out how to sell more and more things to users. Since there is no guarantee that selling content will make up for subsidized Kindles, Amazon has to sell people everything it can (including kitchen sinks and designer shoes).

Amazon wants to become ‘The One Shopping Destination’. However, it is taking such big risks to achieve this that it is putting itself into a position where it MUST become The One Shopping Destination.

A closed ecosystem is one way to try to guarantee things don’t go to Hell. Amazon is, perhaps to a larger degree than it realizes, trapping itself into this ‘Closed Ecosystem’ requirement. It’s already at a stage where it needs the Closed Ecosystem just to make a profit.

What if the Profits from Content don’t materialize?

Amazon has been delaying gratification and growing bigger and reinvesting into growth. There are a few possibilities:

  1. It doesn’t want gratification. It’s OK with forever delaying gratification. In that case all bets are off.
  2. It expects that all this delaying will lead to amazing gratification at a future point of time.
  3. It expects gratification at a slow but steady pace for many, many decades.

If Amazon is trading instant gratification for constant gratification over a long period of time, or even if it is trading instant gratification for huge gratification at a future point of time, it needs to find a way to profit from existing customers.

Every customer getting a subsidized Kindle or Kindle Fire has a ‘Delayed Gratification Tax’ attached to her. What happens if the Content Strategy fails? What if all these customers turn around and say – We never signed up for the ‘Delayed Gratification Tax’.

The funny thing about us (as humans and as customers) is that you can almost guarantee that all of us will forget we got a subsidized $199 Kindle Fire  as soon as we get it. As soon as Kindle Fire is in our hands we will simply want content for free or for ridiculously cheap prices (perhaps not all of us, but enough of us to make profiting from content sales rather difficult).

Update: Thanks to gous for a wonderful comment. First, this gem -

What strikes me is how vulnerable to disruption the digital content side of Amazon looks. The Google that created Android would scent blood and attack by attempting to drive the selling price of that content to zero so as to sell ads. Whether that Google still exists is another story.

And then this great link: Musings by Michael Mace on Amazon and Apple.

Gous’ comment above really is what I meant to point out and didn’t do a good job of.

Amazon must either make the Content Strategy work or a Metamorphosis will happen

We don’t know what the metamorphosis will be.

We do know that if all this ‘Delaying Gratification’ and ‘Taking a Hit on Kindle and Kindle Fire’ doesn’t get rewarded down the line, Amazon will be in some amount of trouble. Companies in Trouble do very interesting things.

If its Content Strategy works, Amazon will rule the retail world – to an extent that makes Wal-Mart seem trivial. If its Content Strategy doesn’t work, Amazon will be in a rather interesting conundrum.

We don’t know what the metamorphosis of Amazon will be (in case its Content Strategy doesn’t work) but we do know what might be the facilitator.

The Metamorphosis of Kindle and the Metamorphosis it will facilitate

Kindle and Kindle Fire play a very critical part in Amazon’s Content Strategy, and they will play an even more critical part if the Content Strategy fails.

Consider another section from Mr. Jeff Bezos’ letter:

 We are building premium products and offering them at non-premium prices.

Again, we’ll take some liberties (we aren’t good at denying gratification), and restate it as -

We are building premium mini-Amazon stores and making them very compelling by offering them at non-premium prices.

The Kindle and the Kindle Fire are not exactly devices -

  1. They are mini Amazon.com tributaries. It’s the perfect analogy – tens of millions of little tributaries joining into the great Amazon.com river and turning it into something vast beyond comprehension. What happens when there are 27 million Kindle device owners and they all are gifted Amazon Prime and do 80% of their purchasing from Amazon.com? What happens when the number grows to $100 million?
  2. They are a direct channel from customers to Amazon. A channel where Amazon doesn’t have to pay Google for traffic or CBS for advertising slots.
  3. They are an emotional and physical connection between Amazon and Customers. We only have to look at devotees of the various tech religions (Android, Apple, etc.) to see how powerful this could be.
  4. They are behaviour capturing devices. We don’t mean ‘in an evil way’ – just in a ‘what does she buy, what does he wish for, what do they covet’ sort of way.
  5. They are a defence against competitors.

We are way beyond the stage where Kindles were eReaders. The Kindle has metamorphosed into an Amazon.com tributary.

Ask any shopkeeper what he would give to have mini-stores in customers’ hands. Ask grocery stores why they hand out those points cards and membership cards. Ask any marketer what she would give to get a full history of customers’ purchases and customers’ explicit and implicit wish lists.

All of that is dwarfed by what the Kindle and the Kindle Fire promise to deliver to Amazon.

In the end it will come down to Kindles and Kindle Fires

Pick whichever path you like - Each ends with there being a hundred million Amazon.com tributaries in people’s hands.

If Amazon’s Content Strategy works then each is a steady source of profit for Amazon. And that’s just from the content.

If Amazon’s Content Strategy fails it might still be able to profit by ramping up the mini Amazon store aspect.

If everything else fails, Amazon still has a hundred million direct channels to customers. Companies are willing to pay for Search Ads and even for Ads on sites where people have zero intent to buy anything. What would companies be willing to pay for a channel where customers’ main intent is to buy?

We haven’t considered all the aspects and all the possibilities. Once you have Kindles in enough users’ hands there are a lot of different things that can be tried.

Amazon, if it is forced to metamorphose, will almost certainly base the transformation on the hundred million Kindles and Kindle Fires it will have in circulation. At its core, Kindle is a hedge of a spectacular kind – it plays an absolutely vital role no matter what happens. It’s gold and stocks at the same time. It’s emerging markets and developed markets in parallel. It’s the Schroedinger’s Cat of retail.

If Amazon’s gambles pay off, Kindle and Kindle Fire will be the channels delivering consistent and comforting gratification to Amazon. If Amazon’s gambles fail, they will morph into devices of resurrection.

That letter from Mr. CEO is genius. Perhaps explaining exactly why Amazon is in the second camp would be overkill. However, it would certainly be interesting to hear more on exactly why Amazon is working hard to charge customers less and why/how it is able to sell premium products at non-premium prices.

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Kindle vs Ad Kindle vs Groupon Kindle

Posted on April 14, 2011 by switch11

The recent release of Kindle with Special Offers seems to suggest Amazon is considering having a family of Kindles comprised of three distinct types of members -

  1. Kindles in a pure and unadulterated form.
  2. Groupon Kindles. The basic Kindles transformed into a means of offering deals on everything Amazon sells (and on lots of things it doesn’t).
  3. Ad Kindles (thanks to Mickery for the name AdKindle – it’s perfect). The basic Kindles transformed into an advertising vessel.

If you consider Amazon’s long-term approach to everything, it’s pretty obvious that Kindle with Special Offers isn’t where the journey ends – it’s just the first step.

Why would Amazon want to add deals and/or ads to the Kindle?

For lots of reasons -

  1. Amazon can cut down on price and increase sales. While the $114 AdKindle isn’t impressing too many people, a $99 version would have a big impact.
  2. There are people who want Groupon type offers. Tens of millions of people follow deal sites like SlickDeals and subscribe to Groupon and Living Social. Quite a few of them would want a deal delivering Kindle – even ones who don’t read very much.
  3. Rather than challenge other niches like phones and tablets head-on, it makes a lot of sense to expand the Kindle’s functionality and market gradually.
  4. Amazon is making a concerted push in advertising. It’s been showing ads on Amazon.com and it’s probably begun thinking of the Kindle as a means to add to the advertising push.
  5. Groupon and Living Social are threats to Amazon in the long term. They are the #1 and #2 destination for group buying deals on ‘events/experiences’ - they could easily expand into deals of all sorts. Imagine Groupon having deals on computers and books. It’s not very far-fetched.
  6. Google is bound to bring advertising to books. Perhaps Amazon wants to do it before Google does. Perhaps Amazon is just beefing up its advertising in books patent defence by introducing a product that uses ads to an extent.
  7. There might be a very big market for people who want to use Kindle as a shopping device for everything.
  8. Perhaps ebooks going to $1 (or even zero) is looking like a strong possibility. Amazon might need to figure out a way to make profits from the Kindle in other ways.
  9. Amazon might have hit a wall in its attempts to increase Kindle sales (or perhaps it expects to). If so, then the only way to further increase sales would be to expand what the Kindle can be used for.

There are actually a lot of very good reasons for adding in Groupon style deals and iAds style advertisements.

It’s very interesting that Amazon is going about it in such an incremental fashion – All it is, is a minor software upgrade.

Economies of Scale

Amazon has brought the Kindle price down to $139 (for the Kindle WiFi). The next big milestone is $99.

How does it hit $99 quicker? One option is Kindle with Special Offers.

What does it do after hitting $99 (to expand further)? One option is a Groupon Kindle that offers deals in addition to ebooks.

To develop eInk and Kindle further Amazon needs money. To get money it needs lots of sales. To get sales it needs to offer lots of value for money and low prices. To lower prices and increase value for money Amazon needs a better Kindle. It’s a bit of a cyclical problem. One way out is to sell AdKindles and Groupon Kindles.

Amazon is stuck – It needs to compete against devices like phones and tablets that are evolving very quickly. It doesn’t yet have the economies of scale to do so - So, it has to figure out a way to get similar economies of scale. Increasing Kindle sales is the only option.

Why would Amazon want to create a Groupon Kindle?

Because it sells everything.

Amazon always talks about how people buy a lot more books from Amazon once they own a Kindle. It never mentions another possibility – That Kindle owners buy more ‘things that are not books or ebooks’ from Amazon than they used to.

The last thing it wants is for WalMart and brick and mortar retailers to know that it’s found the next big magical step in customer loyalty and increased sales.

It probably has.

Kindle with Special Offers is a tentative step. Trying to get one step closer without anyone realizing what this is really about. Once Amazon has gotten a Kindle into a customer’s hands, and gotten that customer onto Amazon Prime, it’s game over – other companies can’t touch that customer 90% of the time.

Its enemies are probably using lobbyists to attack Amazon via the sales tax movement (just conjecture). Meanwhile, Amazon is building up two channels/advantages (Kindle and Prime) that will more than make up for the lost sales tax advantage.

Why would Amazon want to create an AdKindle?

The signs are clear that ebooks are migrating towards very low prices. Water for Elephants is at #1 and it’s priced at $4.17. There are lots of $1 indie author novels, and quite a few sub-$5 published author novels, in the Top 100. In just a few years we’ve gone from $5 books being considered deals to $1 books being deals.

All along, the premise has been that low-priced Kindles don’t make much profit but ebooks do. What happens if ebooks drop in price to $1 and $3?

Perhaps an AdKindle is a hedge. A device for a world where eReaders are $99 and ebooks are $0.99. It might not be a very far-fetched scenario given the speed with which ebooks are spreading and the rate at which ebook prices are dropping.

The other possibility is that Amazon knows, and it should be pretty obvious, that Google will burn up yet another market to protect search. Google could care less whether ebooks are $0 or $1 or $10 – As long as it owns one more source of content and can channel those readers into Google search and show them ads. The Book Settlement was struck down so one of the two golden pillars is gone – the other is ads in ebooks.

Amazon can’t fight ad-sponsored books with purity – because there will always be a non-trivial number of readers willing to bear ads for a 50% discount. Amazon has to be prepared to sell actual ebooks with ads. Which means that AdKindle and Kindle with Special Offers are necessary releases – a pre-emptive defence against the Destroyer of Profitable Markets.

Where does that leave us readers?

In an unsettling place. Amazon might not have very much choice. In the end it will have no option but to offer -

  1. Regular Books for $9.99 and $4.99.
  2. Ad-sponsored Books for $4.99 and $1.99.

AdKindles and Groupon Kindles are a given. AdKindles to preserve Amazon’s place in selling books and Groupon Kindles to preserve Amazon’s place in retail.

Hopefully, there will always be pure Kindles and pure books available.

Filed under: kindle 4 | Tagged: , | 14 Comments »

What the Kindle was meant to be, and what it’s turning into

Posted on March 1, 2011 by switch11

Please Note: This post is all conjecture. By Kindle it means eReaders in general – Kindle is the best example because it had the most thought put into it.

Most of this post will revolve around the assumption that empowering customers wasn’t really what the Kindle was about. It was about freeing customers, and Amazon, from Publishers. It’s a very important distinction because things are beginning to get out of control – in good ways and bad.

What the Kindle was meant to be

iTunes with $10 books. An Amazon Store in everyone’s hand.

Longer Version:

Amazon saw a future for books where physical books would be replaced by digital. That meant two things -

  1. Amazon had to move to ensure its stream of book sales revenue was preserved.
  2. Amazon had the opportunity to become the platform for all of Publishing.

The latter goal is really what the Kindle was about. Amazon probably has a wall map with the Kindle bubble slowly growing to encompass all of Publishing.

Once the Kindle began to show it was more than just an eReader, Amazon probably realized a few things -

  1. Kindle owners bought nearly all their books from Amazon.
  2. Kindle owners became Amazon customers and bought lots of things from Amazon – pots and pans and cauldrons and brooms.
  3. Kindle owners would buy any other device Amazon produced.
  4. Amazon/Kindle could become the platform for all of Publishing much quicker than Amazon had thought.
  5. A Kindle owner had an Amazon store in her hand.

Just like the iPod helped turn iTunes into a monster and helped lay the foundation for the success of the iPhone and the iPad, Amazon had found a means to build a Publishing Platform and start something truly big.

Of course, since Amazon sells EVERYTHING, the Kindle is far more important to it than the iPod was to Apple. Imagine if Apple also sold shoes and jeans and kitchen sinks and wireless plans. How much more important would iPod and iTunes be?

Kindle is potentially that important.

The wall map was probably updated soon after Kindle 3 was released – the Kindle bubble was now slowly growing to encompass all of retail. At this point the wall map probably became an exact match of the 2003 Kindle blueprint in Jeff Bezos’ journal.

What the Kindle is turning into

The Internet with $1 books. A store that isn’t yet fully defined.

Longer Version:

Here are just a few of the Publishing related things Amazon probably neither expected nor is prepared for -

  1. The Race to $0. It starts with The Race to $1.
  2. The Democratization of Publishing. The speed and extent of this have probably taken Amazon by surprise. It doesn’t have Encore ready. It doesn’t have the right controls in place.
  3. The impending destruction of the $9.99 price point. It’s truly stunning that from $15 hardcovers we are going not to $10 ebooks, but to $1 and $3 ebooks.
  4. Competitors willing to kill themselves and books. If you consider the moves competitors have made, i.e. supporting library books and lending and browser-based books – it’s madness.
  5. Users constantly raising their expectations. Everyone seems to have forgotten the world we were in just 2-3 years ago. Now, $1 and $3 and $5 ebooks seem like a birthright to readers. On top of that readers also want lending and reselling rights.

When an existing power structure gets destroyed there’s always the chance the void will be filled not by a kinder, gentler power structure, but by utter chaos.

In terms of the Kindle being the Trojan Horse that helps Amazon take over all of retail the possibilities are still strong. In fact, Amazon might stick with books even if the book market goes to $1 and $3 books – solely to keep its millions of tiny, powerful storefronts humming along.

Kindle as Store is still mostly undefined. The direction Amazon takes the Kindle in will be very, very interesting. Will there be a Kindle Tablet? Will the Kindle become something you get free with Amazon Prime? Will a Color Kindle be added on as the premium, non-free Kindle?

If Amazon really is thinking of the Kindle as a direct, powerful channel to customers, it’ll make nearly all of the following moves -

  1. Release a Kindle Tablet that addresses music and movies and games.
  2. Drop the Kindle WiFi to $99 soon. Six months after that – bundle it free with Amazon Prime membership.
  3. Drop the Kindle 3 black and white model to $125. Release a color Kindle at $199.

Companies regularly pay $100 to $300 per customer in customer acquisition costs. If a free Kindle translates into an Amazon customer who buys books, ebooks, movies, digital movies, kitchen sinks, games, clothes, diapers, carpets, car tools, and garden chairs from Amazon - then giving away Kindles makes a ton of sense.

Every Kindle owner’s path of least resistance is buying from Amazon – not just ebooks, everything. Amazon will probably realize in a few years that the book market is likely to be destroyed. However, it knows that the Kindle is its golden channel to customers - a direct channel so lucrative and important that the lost book market will be a trivial price to pay in return for an excellent shot at taking over all of retail.

Filed under: evolution | Tagged: , | 11 Comments »

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