Amazon on iPhone
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(Editor’s Note: This is the final entry in a three-part series on the topic of how digital players in the consumer space — especially Amazon — may factor into the future of STM publishers.)

Publishers and librarians concerned with scholarly materials should pay attention to what is developing at Amazon, as it may play a very large role in future developments for all kinds of publications.

In its first stage, Amazon brought online bookselling to center stage.  It wasn’t the first online bookstore, but it rapidly became the largest, a position it still enjoys.

In stage two, Amazon set off the ebook market like a rocket with its Kindle.  Here again, Amazon was not the first ebook manufacturer (I have a pile of discarded ebook devices in my office), but Amazon characteristically got in early in an effort to dominate the market.  And Kindle does dominate at this time, with some publishers reporting Kindle book sales in the millions of dollars, in some instances approaching 3% of those publishers’ total volume.  Overall, Kindle books are probably poised to cross the 1% of revenue for all books, which is stunning considering that the device has been on the market for just one year.

The stage two device was proprietary:  Kindle could only be used for books formatted for the Kindle, and those books could only be purchased from Amazon.  There was a facility for getting other formats onto a Kindle, but it was not easy to use, and even Amazon termed it “experimental.”  Naturally industry observers assailed Amazon’s proprietary strategy, screaming about monopolistic practices.

A further development of this stage came when we saw Amazon aggressively protect its platform dominance through the acquisition of, an audiobook download service that had an exclusive arrangement with Apple’s iTunes; and, more tellingly, the acquisition of the company that released the Stanza ebook reader, which was rapidly converting the iPhone into a credible ebook platform.  In these actions we saw Amazon stop, or at least slow down, the possibility of any Apple platform becoming a rival to the Kindle.  These actions gave Amazon some breathing room as it continued to build market share for e-books.

Stage three was more of a surprise, however–Amazon released a software version of the Kindle to run on the iPhone, effectively supplanting Stanza.  Of course, the important distinction between Kindle (as software) and Stanza is that Kindle is a virtual storefront for Amazon’s e-commerce business.  Importantly, the iPhone-based Kindle is not an iPhone application, which would require that Amazon share revenue with Apple.  Rather, the Kindle for the iPhone brings the user directly to Amazon’s own Web site.  Even as it contemplates platform domination, Amazon is still thinking of margin.

Now we are in stage four, with the recent announcement by Amazon CEO Jeff Bezos that Kindle will eventually be able to work with other ebook formats.  This is a stunning comment, as it means that the proprietary nature of stage two is proving to be more nuanced.  Yes, make the Kindle your preferred reader; yes, make Amazon your preferred vendor; but, no, to dominate a market does not mean to have complete control over it.  It will be interesting to see how publishers respond to this–most likely by working with formats that Kindle supports, thus allowing a user to view non-proprietary formats on a device with a one-click button to purchase additional e-books directly from Amazon.

The question now is, What will stage five be?

Amazon’s pattern seems to be to leap into something, take control, then gradually relax that control as circumstances require while never yielding the dominant position that accrues to the player who jumps into a market first and with both feet.

One clue to Amazon’s next step perhaps comes from Barnes & Noble’s recent announcement to match Amazon’s low e-book prices (“insanely low,” as Crazy Eddie used to say).  This will at best be a stopgap measure on B&N’s part to slow the advance of Amazon’s market share, a measure that Amazon no doubt anticipated.  As other vendors–booksellers and device manufacturers alike–attempt to get traction in this market, Amazon may drop the other shoe and license the reference specification for the Kindle to other device makers.  This would put the Kindle architecture (with a royalty to Amazon) in the hands of the same manufacturers who brought us the $50 cell phone and the $200 Netbook.  Such manufacturers would rapidly drive the price down for Kindle clones through the use of cheap labor, scale, and other low-cost infrastructure.  From $400 for a Kindle, we could see clones for $200 or less, until the cost of the device becomes an unimportant consideration.  Each of these clones would be linked to the Amazon store.  What Amazon would give up in licensing the Kindle architecture, it would more than make up by creating a wide selection of Kindle clones, each of which is a storefront for Amazon.  Amazon may choose to stay in the device business by manufacturing top-of-the-line devices and continuing to expand the reference specification.

With much of scholarly communications going digital, I wonder what strategies publishers and libraries have for the actual way digital content is likely to be consumed at the edge of the network. Most scholarly communications seems to be set up for reading a PDF on a desktop PC or laptop.  Meanwhile, the world is going mobile and the race to control the reading interface is already well along.  Librarians talk about Elsevier and open access, publishers talk about the NIH, but the future of scholarly communications has more to do with the mass infrastructure now being developed in the consumer market.

Why start thinking about scholarly communications in the consumer market?

Because that’s where the money is.

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Joseph Esposito

Joseph Esposito

Joe Esposito is a management consultant for the publishing and digital services industries. Joe focuses on organizational strategy and new business development. He is active in both the for-profit and not-for-profit areas.


10 Thoughts on "Amazon’s Fifth Stage"

Do you have a link to the Bezos announcement about allowing other formats on the Kindle?

There’s a compelling argument to be made that so few people read books that you’ll never reach the economies of scale in manufacturing that you see for things like cel-phones. It doesn’t matter how many companies jump in, the problem is the lack of customers–as Kent notes 55% of Americans didn’t read a single book last year. Although they did just cut the price on the Kindle 2 by $60. Not sure if this is enough to make a difference to those waiting for a low-priced device.

Another interesting Amazon development is that they’ve just closed their API (and all the data it supplied) to all mobile applications, so perhaps something new is afoot.

Adam Hodgkin just pointed out to me that the Kindle for the iPhone is in fact an application. The proper distinction is that it is a FREE app, and hence does not share revenue with Apple.

Apple makes a distinction between apps that are one-time purchases (or free) and apps where you can make purchases through the app itself (Apple takes a 30% cut of sales through the app). Which is why you can’t buy books directly through the iPhone Kindle app, you instead get directed to the Amazon web page. Though it would be more convenient, Amazon does not want to pay Apple a cut of their revenue.

Very nice summary. I would add these thoughts:
1. Shortcovers, from Indigo of Canada, is also a free app for the iPhone that offers very quick and easy shopping and downloading of additional titles without Apple getting a piece.
2. Rumors are that both Indigo and B&N will release proprietary readers this Fall. Borders UK has done so already.
3. Sony’s Reader, which has sold something like 300,000 units, didn’t make the discussion!
4. Personally believe that AMZN grabbed as much market share as they could as early entrant but, unlike physical books, will find that edge eroding rather than consolidating as new players come into the market. They are about 75% or so of ebook market now (according to 1 large publisher); I think that will prove to be the high water mark. They will remain the single biggest player, but with eroding share and with real risk that mis-steps could hurt them.
5. The proliferation of alternative paths to the ebook consumer — and soon even to the KINDLE consumer — will make it difficult for AMZN to force publishers to sell them ebook files at lower prices. So they’ll eventually have to raise them because loss-leading is not a sustainable strategy.

minor correction?

i think kindle for iphone is an app. it will sync with amazon’s website, but i don’t have an iphone — i have an ipod touch, and i am reading a book offline on my device.

also, the kindle iphone app is different than the amazon app, which allows one to order *anything* amazon sells. i am fairly sure that i would not be able to purchase a deep-fat fryer using the kindle app — just more kindle titles for my personal kindle-cloud library.

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