Evolution Shift
A Future Look at Today
November 30th, 2007

It Now Starts with the Kindle

Amazon’s introduction of the Kindle electronic book reader feels momentous. It is the first time that the long anticipated, much debated future of the ‘ebook’ feels ready to begin in a meaningful way.

During the past ten years there has been great debate about the ebook.  Generally speaking there have been three points of view on the subject.  The first one comes from the true believers that the ebook is inevitable and that it would ultimately gain a noticeable and then sizable market share of publishing.  The second viewpoint is that while there would be a market for the ebook it would never really capture more than a marginal market share.  The third viewpoint was that the physical experience of reading an actual book is such an integral part of the reading experience that the ebook would never really catch on.  I am one of those that hold the first point of view.

In a column here last summer I wrote:

“e-books will ultimately gain significant market share.  This will occur when there is an ‘iPod moment’; when a device comes out that is low priced, wonderful to use and perceived to be cool or hip.  Once this occurs there will be a rapid increase in the percentage of books sold digitally, probably leveling off around 40 — 50% by 2025. Impulsive buys, such as at airport book stores will become “purchase, plug-in and download’. While those of us who have grown up with the wonderful tactile experience of ‘curling up with a good book’ may intuitively resist e-books, the younger generations who have been in front of computer screens since early childhood will intuitively embrace e-books.  “What’s on your e-reader?” will replace “What’s on your iPod?” 

The Kindle may not be that low in price, and the verdict is yet to be rendered as to how wonderful it is to use, but it does feel like a game changer.  Let’s take a look at why it might actually begin the rapid growth of the ebook market.

Price:  At $399, the Kindle is not cheap.  What we all know of course is that all new technologies come to market at a price that ultimately drops, sometimes quickly. Electronic calculators, PCs, laptops, and cell phones are all devices that had initial high prices that dropped dramatically.  Early adapters buy at the first price.  Once the early adapter market gets saturated, scale economics begin to kick in and the price drops and more people buy.  If the technology is transformative, as all those mentioned above are, then the viral aspect of word of mouth fuels further growth.  At that point the market segments due to features.  Recall the brief history of the iPod, which also premiered at $399.  Now there is a model at that price but with ten times the storage capacity of the original model.  There is now a line extension, categorized by size and capacity that goes down to $79.  People buy the iPod that suites their needs.  In the case of the Kindle, the price will go down in general and then the market will segment.  Some will continue to pay the top price because instead of 200 books, they can have their entire library of 2,000 books on the player.  Other buyers will purchase a cheaper model that might only store 10 books at a time.  So, price is only a temporary impediment.

Selection:  The Kindle is a breakthrough in this area, offering 90,000 titles available for downloading.  Even the most recent eReader, the Sony Reader has only 20,000 titles available.  This is a key point, as it relates to perception of value along with purchase price.  If one enjoys a certain genre or an author that is not available, why buy the eReader?

Price of product:  The cost of an ebook for Kindle users is starting out at $9.99 for new titles.  That compares to a $20-30 price for the traditional hard cover version of the book.  That seems to be a good price value proposition.  In this regard, consumers have been conditioned by the digital transformation of music and video.

Wireless downloading:  This is the game changer.  Prior to the Kindle, all eReaders worked in conjunction with a computer which meant a location based two step process.  The Kindle allows a user to purchase and download a book via cellular technology in a minute. This means that one can buy a book anytime, anywhere.  It also means that someone with wide ranging interests will never be disappointed by limited selection.  Bookstores have physical limitations.  Think about the last time you were stuck in an airport and went to the book store to buy something to read.  The selection is usually limited to current best sellers or books whose publisher paid for shelf space. All books are at full price.  The Kindle allows the traveler to sit at the gate, browse an almost limitless selection of titles and purchase a book for the price of two magazines.

Name:  Kudos to Amazon for coming up with a name that does not have a small e or i in front of it.  The small i is now an Apple brand, and the small e always conveys that the product is the electronic step child of the offline or analog product.  In fact, we may stop using the word ebook and start using the phrase digital book.  

Business model:  The Kindle is the logical extension of the Amazon long tail business model.  We have all become accustomed to knowing that we can usually find any book we want at Amazon and find it from the convenience of our home or office.  However, even if shipping is free, there is a wait to receive the book.  Soon, Amazon will be able to deliver the product immediately to where we are with our Kindle.  Of course Amazon wins big if they can be the dominant purveyor of digital books.  It is a bold move by Amazon to expand their market dominance.  The publishers of course will ultimately weigh in on this.

So the Kindle feels to be the game changer in the long anticipated but yet to be realized world of digital books.  In the year 2015, when we look back at the history of the digital book market, there will be the generally accepted  view that the launch of the Kindle in November 2007 was the event that created the mass market.   

 

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