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Amazon Kindle And The Future Of Publishing

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Amazon.com never invented digital books, but neither did Apple invent digital music players. Steve Jobs, Apple’s CEO, tapped into a massive demand for a simple and legal means of finding and listening to digital music. That it also came in a beautifully designed package has propelled the iPod to one of the world’s most sought-after fashion accessories.

Amazon’s approach to digital books learns from Apple but will evolve in a different and more game-changing way.

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Amazon Kindle And The Future Of Publishing

  1. 1. Amazon Kindle and the future of publishing A Whythawk ThoughtStrike April 2009 © 2009 Whythawk | All Rights Reserved | http://www.whythawk.com/
  2. 2. Market Evolution Apple has sold 140 million iPods which contributes 42% of their revenue of $ 24 billion Google earns revenues of $ 16.6 billion from AdWords. Simon & Schuster make 10,000 titles available to Amazon Kindle; Amazon earns revenues of $ 14.8 billion 1.5 million people make a living via eBay; over 2.3 billion auctions earn revenues of $ 7.6 billion. Impact Apple releases iPod and iTunes store Amazon forms alliances with Borders and Target Google introduces AdWords, quickly followed by AdSense Google launches 2.5 million auctions earn revenue of $ 47.4 million for eBay Amazon and eBay launched at the dawn of DotCom 1995 Time 2008 © Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 2
  3. 3. Apple’s success is game-changing • The stellar success of Apple almost leads one to believe that it was inevitable. It wasn’t. • Apple had no history of involvement in the music industry. Prevailing wisdom had it that digital music downloads were a fragmented and distributed industry driven by people who had decided never to pay for music again. The music industry was nervous, confused and attempting to solve their problems with litigation rather than innovation. • It was hardly an auspicious time to attempt a new business model. • Apple had a few things going for it, though: • They were an established hardware manufacturer; • They were not in the music industry and so didn’t pose a threat of becoming a music label themselves (more on this later); • They were offering a way to control distribution of digital music. • As Apple became the sole gateway to music it became obvious that customers were still prepared to pay for music. It also became clear that Apple had been underestimated. • Musicians and others began recording directly for iTunes, coining a new term: podcasting. • In the past year, with the victory of digital downloading for profit clear, big-name musicians are dumping their producers and going private. Music labels, having spent billions promoting stars, are losing their assets. © Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 3
  4. 4. Introducing the Amazon Kindle • Amazon.com never invented digital books, but neither did Apple invent digital music players. Steve Jobs, Apple’s CEO, tapped into a massive demand for a simple and legal means of finding and listening to digital music. That it also came in a beautifully designed package has propelled the iPod to one of the world’s most sought-after fashion accessories. • Everyone knows the price of a single digital music download. It is 99 cents. • Similarly, Amazon has set the price of downloadable books. It is $ 9.99. • Like Apple, Amazon has a ready-made distribution system. Unlike Apple, Amazon has already got millions of customers who associate them with books and publishing. • Amazon’s approach to digital books learns from Apple but will evolve in a different and more game- changing way. • For starters, the transition to digital books will be slower. The technology inside the Kindle is still formative. The interface is clumsy and the device is hardly fashionable. • Books themselves have resisted digitisation. Pirating them involves transcribing an entire copy, not just recording music via software. Even automated software, designed to recognise scanned text, is tedious to use. • By launching a comprehensive product without a ready-made market, Amazon will have longer to work to generate interest. But that doesn’t mean that publishers can ignore it. © Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 4
  5. 5. Music and books; the same, only different • Apple’s success gives plenty of reasons to think that Amazon’s foray into digital books will be similarly successful; however, there are differences between their approaches: • The world’s largest digital music • 100 million books sold per year, of which distributor, moving some 1 billion songs 6% are digital downloads; per year; • Amazon already stocks millions of print- • Apple already allows individuals and on-demand titles and is said to demand producers to publish their own work as that publishers of PODs store the data at they wish, but Apple has shown little Amazon’s headquarters – the shift from interest in becoming a producer in their this to publishing is minimal; own right; • Amazon is becoming a distribution • Apple is in the hardware business; their service, both for data and for products; objective is to sell iPods and related they rent time and space on their servers products – music is simply a way to sell for data processing; they allow others to more of them; 140 million since 2001; sell products via their infrastructure; and • Apple wants to control every one of their they’re very good at linking interests to products, from the hardware design, to driving consumer behaviour … the “long the software that runs on it; they even tail” of product supplies; wish to control the way their products are • Amazon is already beginning to set and used; their threat to the music industry is control the market for digital books; their in setting price and distribution… threat is that they could become the only publisher in town … © Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 5
  6. 6. The eBay effect • Digital music is now 15% of the total market, or $ 2.9 billion in 2007 – up 40% from 2006; however, the market as a whole has shrunk by 10% to $ 17.6 billion; for every song sold legally, some 20 songs are swapped illegally; • Book sales, on the other hand, are still rising by over 2.5% annually; in the US $ 25 billion of books were sold in 2007; only $ 32 million of that was for ebooks; • In 2002, only $ 5.7 million of ebooks were sold – 500% growth in just five years; • Amazon sold 50,000 Kindles in the first quarter of 2008 and have 120,000 titles available for download. • eBay is not really the best online auction platform, but it doesn’t matter, network effects prevail; • What “everyone” knows is that “everyone” shops at eBay, if you want to sell your wares, you must have a presence there; • The online world allows for consolidation like never before, it really is possible for winner to take all; • Apple’s iTunes has 80% of digital music sales, eBay has 65% of total online auction spend, Google has 75% of online search; • Owning the distribution channel for information or products is the route to owning the market; • Amazon owns both a distribution channel, the strongest online presence in book publishing, as well as the physical means for viewing books; • Amazon is positioned to dominate the emerging market for digital books… © Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 6
  7. 7. ThoughtStrike Scenarios: Amazon publishes 80% of Conservative ebooks and 25% of all printed Radical books; they distribute to bookstores all over the world. Publishers find it hard to attract good writers; Amazon prints the most popular-selling ebooks and distributes directly to book-stores. Self-published e-writers find that they earn significantly more; Book stores start to close and consolidate; publishers Amazon is the recognised lose their main distribution channel and are forced to cut Impact publisher of the top 100 writers. a deal with Amazon or lose their writers entirely; new types of publishing brands emerge. A group of highly popular Overall, book sales are up off the strength of lower digital book authors announce that they will costs, now almost 40% of the market, but existing publishers are self-publish through Amazon. losing their most popular authors; sell-offs and consolidation are starting to hurt. Established writers with publishing contracts notice that unknown, self- published writers earn more than they do; they start to express concern. Fringe writers start to self-publish direct to Amazon; one is likely to become a major seller, triggering tremendous interest in the medium. Open-source publishing tools released based on epublishing standards agreed by industry in 2007. 2008 Time 2015 © Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 7
  8. 8. ThoughtStrike: it’s about the chaos... • Whythawk researches emerging trends in a wide range of industries; we search for opportunities for creative-destruction and game-changing strategies that will disrupt businesses or societies; then we produce a high-level analysis of these scenarios summarising our findings ... the ThoughtStrike. • No ThoughtStrike is ever released unless Whythawk has already considered the opportunities unlocked by that disruption and developed a product to take advantage of that opportunity. • If you are ready to ask the question, “So, now what?” contact Whythawk, and we will continue. 8 © Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/
  9. 9. Whythawk Gavin Chait | Risk Analyst & Strategist | Whythawk gchait@whythawk.com | M: +44 (0) 78 9495 7090 | http://www.whythawk.com/
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