Cover of "Kindle Wireless Reading Device,...
Cover via Amazon

Amazon has taken two steps recently in their further pursuit of making books more lucrative to sell and accessible via their Kindle e-reader — first, creating an advertising-supported Kindle discount and, second, announcing a Kindle library lending program.

The Kindle library lending program is arriving more than a year after the Barnes & Noble Nook introduced a similar capability, but the Kindle’s clear advantages will likely have more of an impact. Those advantages include a larger marketshare (67% Kindle vs. 22% Nook) and the ability to deliver library books via their wireless Whispersync technology (Nook library lending appears to require attaching the Nook to a computer after Adobe Digital Editions has been installed, making borrowing a library book a tethered activity).

Amazon has partnered with OverDrive for the library lending program, so libraries don’t need to register their e-books again — whatever exists in OverDrive now will be ported right over. In a mini-FAQ, OverDrive enumerated the elements of the partnership from the library’s perspective:

  • The Kindle Library Lending program will integrate into your existing OverDrive-powered ‘Virtual Branch’ website.
  • Your existing collection of downloadable eBooks will be available to Kindle customers. As you add new eBooks to your collection, those titles will also be available in Kindle format for lending to Kindle and Kindle reading apps.
  • A user will be able to browse for titles on any desktop or mobile operating system, check out a title with a library card, and then select Kindle as the delivery destination.
  • The Kindle eBook titles borrowed from a library will carry the same rules and policies as all our other eBooks.
  • The Kindle Library Lending program will support publishers’ existing lending models.
  • Your users’ confidential information will be protected.
  • The Kindle Library Lending program is only available for libraries, schools, and colleges in the United States.

In addition to being able to borrow a book from a library, a patron will be able to add notes and highlighting, which Amazon will store in the cloud for the future. Combined with its marketshare advantage and wireless delivery of content, Mike Cane feels it’s “game over” for the other e-book platforms:

There is absolutely no reason for anyone to now buy a Sony Reader, a Kobo Reader, or a Nook. None. The public library edge they all had has now been wiped out — and not just replaced, but replaced with note-taking extras.

Cane also speculates that the drive for a universal e-book standard like ePub may end now. Amazon’s domination may create a de facto standard, stunting initiatives for an actual standard. Nearly simultaneously, Amazon created a Kindle that costs $25 less. How? By making the cheaper version part of a marketing platform, with special offers and sponsored screensavers. In short, by making the Kindle an advertising platform. Some of the offers users of the ad-Kindle will likely see include:

  • $10 for $20 Gift Card
  • $6 for 6 Audible Books (normally $68)
  • $1 for an album in the Amazon MP3 Store (choose from over 1 million albums)
  • $10 for $30 of products in the Amazon Denim Shop or Amazon Swim Shop
  • Free $100 Gift Card when you get an Amazon Rewards Visa Card (normally $30)
  • Buy one of 30 Kindle bestsellers with your Visa card and get $10 credit
  • 50% off Roku Streaming Player (normally $99)

So far, this seems like a way for Amazon to extend their storefront into the Kindle screen. In a world of screenspace, this is smart business.

Joe Wikert feels that this is just one step toward a future of in-book advertising. I agree. Advertisements in books are nothing new — they used to be quite common in cheaper paperbacks. I especially remember them in Louis L’Amour novels in the 1970s, for some reason, and Piers Anthony novels. In short, we’ve seen them before, and we’re about to see them again.

I have to applaud Wikert — he’s honest enough to say this:

As soon as the Kindle gets below $100 they’ll have a mass market hit on their hands.  I can’t believe I’m saying that, particularly since I gave up on the Kindle a year ago.  Amazon has done some smart things since then though and this is just one example.

The Kindle was laughed at by some when it first appeared. Who’s laughing now?

This all boils down to the strategic advantage Amazon has built by investing in hardware and connectivity for book content, throughout the value chain — from authors with CreateSpace, as an agent with Encore, to awards programs in conjunction with Penguin and others, to the form of books with
Shorts, to its storefront, to its reading devices. All this innovation — which did not only come from Amazon, but which has largely been mainstreamed through Amazon — has some observing that the definition of “book” is shifting beneath our feet.

The Kindle’s killer innovation is Whispernet, and what it unleashes. By creating a 1:1 network relationship with book consumers, Amazon has huge advantages for sales, advertising, and lending, and has created barriers to entry others — even Apple and Barnes & Noble — are finding difficult to surmount. Tying it all together into its storefront, adding the potential for advertising, and expanding its marketshare will cement Amazon’s place as the book (and e-book) power of the near future. So far, they seem to be earning that place through shrewd moves and some audacious gambles.

Of course, why publishers aren’t doing some of this on their own — especially advertising in books — is another question altogether.

I’m sure the momentum Amazon has achieved with its Kindle has Steve Jobs ruing the day he said this in 2008 about the device:

It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore. Forty percent of the people in the U.S. read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.

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Kent Anderson

Kent Anderson

Kent Anderson is the CEO of RedLink and RedLink Network, a past-President of SSP, and the founder of the Scholarly Kitchen. He has worked as Publisher at AAAS/Science, CEO/Publisher of JBJS, Inc., a publishing executive at the Massachusetts Medical Society, Publishing Director of the New England Journal of Medicine, and Director of Medical Journals at the American Academy of Pediatrics. Opinions on social media or blogs are his own.


12 Thoughts on "Amazon Continues to Push Book Innovation With Library Lending and Ad-Supported Kindles"

To answer your final question, no, I don’t think Steve Jobs has any regrets about what he said. If he did, Apple would be putting more effort into their languishing iBookstore.

While I agree with pretty much everything else you’ve written here, let’s not get carried away. Jobs’ comments explained why the market for stand-alone ebook readers was limited as compared with a convergence device like the iPhone or iPad. We have seen no evidence to date that this is an inaccurate statement. Put simply, whose profits would you rather have, Amazon’s Kindle device profits or Apple’s iPad/iPhone profits? It’s still unclear if Amazon has sold as many Kindles in four years as Apple sold iPads in the first year alone. Given that the majority of Kindle sales are likely the lower end cheaper models with smaller margins, Jobs’ strategy continues to look like the right one.

I have seen no evidence that the growing eBook market is increasing the number of people who regularly read books. Rather, I think we’re seeing it provide a better experience for already dedicated readers. And that’s a vastly smaller number than the number of people who own cel phones or computers. If your profits come from selling hardware, as Apple’s do, then the choice is obvious.

Amazon has done a tremendous job with their “read anywhere” strategy of dominating the eBook sales market, no question. But let’s not get overexuberant. The total book sales market is but a fraction of the revenue generated by sales of video games as but one example. Yes, there is a tidy profit to be made from book sales, but Apple seems to have set their sites higher.

I wonder, nonetheless. Jobs could have a hold on both ends of the market by now if he’d been more proactive. His approach to music with the iPod was to go both high-end (full iPod) and low-end (Shuffle and Nano), to expand the market for music and hardware. He’s done the same with the iPhone, creating a low-end device (iTouch) and high-end devices. If Apple were producing both the high-end e-reader (iPad) and low-end (Kindle), he’d be in a more natural place for Apple’s strategies, one could argue. Right now, Amazon has him boxed out of the low-end, and is using his high-end device as a place for their storefront. It must be a little frustrating, especially because high-margin items are not Jobs’ only source of revenue — high-volume, low-margin items like apps and songs are quite similar to books as far as sales profiles and margins.

I think you’re mixing up two separate things, the high end/low end market and creating devices for niche markets. Apple is addressing the high and low ends of the mainstream market, through the iPhone 4 (high end) and iPhone 3GS (at $50 it’s an awful lot cheaper than the cheapest Kindle). The iPad is still the cheapest tablet on the market, so they’re essentially the low end there as well.

The Kindle, while cheaper, is not in the same market. It is a niche device. The iPad/iPhone do include the same functionality, but they’re swimming in a much bigger pool of customers. I’m sure Apple could turn out a cheap and limited device solely for reading books as well. But it likely would not be as profitable as their current line-up because they would lose the advantages of scale seen in manufacturing mainstream devices for larger markets. It’s still unclear if Amazon is making any profit whatsoever on the sales of their Kindle devices as far as I’ve seen.

I’d also love to see a breakdown of Kindle book sales to get a sense of what portion are purchased on and used on iPads and iPhones. Jobs may not be getting his cut of Kindle book sales (at the moment, this may change as Apple’s terms change), but Kindle books are certainly helping sell his very profitable devices.

Apple is, and has always been, highly selective in the types of devices they bring to market. Their strategy with consumer devices has been to create devices with the widest possible market. Just as they don’t produce a device specific for motorcycle enthusiasts or ballroom dancing afficionados, they have similarly declared the dedicated reader population to be smaller than they want to address. This is not an abandonment of the low end of the market, but an abandonment of niche products, instead favoring the mainstream. And as the numbers show, it’s pretty hard to find fault with Jobs’ strategy.

When you look past the numbers that can obscure fundamental performance (like sales in units or various per-unit gross profit measures), it’s interesting to note that when you compare Apple and Amazon stock over the past 5 years, they are essentially mirror images of one another on a percentage-increase basis. Apple’s stock has risen about 400%, while Amazon’s has risen about 420%. They track very closely on this basis.

I think both strategies are working.

Agreed, but a wise company does not try to be all things to all customers. Amazon is a retailer, re-selling goods, the online equivalent of WalMart. Their strategies must necessarily differ from that of Apple who are at their heart, a hardware manufacturing company.

A “razor blade” strategy might work for Amazon (give away the handles, make money on selling the disposable blades) but be less appropriate for Apple (who make the majority of their profits from “handle” sales).

I can’t remember the source for the videogames, though this one gives the same figure of $18.6 Billion (though that’s for the US alone):

For books I used the numbers from the AAP (US figures as well) $11.67 Billion:

I could certainly be wrong here, but I’d still rather get the profits from a device that sells to both of these markets rather than having to choose only one.

Also note that as far as I can tell, the videogame figure is just for the console market, and does not include iPod and other types of non-dedicated gaming systems.

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