Amazon Builds Kindle Revolution with Guerilla Tactics vs. Conventional Warfare by Publishers and Competitors

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There is a revolution taking place in what and how we read. Although it has been fired by movements and changes in technology that have been gathering for decades, it began in earnest on November 19, 2007 with the release of the Kindle. It might therefore be natural to think that this is a revolution about gadgets and technology, and which ebook reader or convergence device will win, but that would seriously miss the point.

In the long run, this revolution will be about what we read, our right of access to what we read, and the right of authors to connect with readers.

In most cases where there is a revolution, sooner or later there’s going to be a war, and it is now clear that there is a full-fledged war going on for the future of books, reading, and publishing. As is often the case, most of the participants would prefer not to be at war: for starters, readers would rather just read, and the big publishers and their most successful authors would prefer to return to some sepia-toned notion of the way things have always been. War is distracting and warlike behavior is unseemly, which is one of the reasons why it matters when New York Times reporters go all Judith Miller and regurgitate spoonfed publishing industry leaks that cast Amazon as the primary agent of threatening behavior in a controversy where, actually, all the players are playing hardball.

But while it is unfair to single out Amazon for "threatening" behavior, it would be silly not to realize that it is Amazon that is the revolutionary force here: it is Amazon that has taken the pulse of its current and future customer base and decided that we, those readers and customers, will insist on new ways to read, new forms of access to what authors are writing now and have been writing for centuries, and economic efficiencies that will better serve readers and authors (as well as Amazon itself). The Kindle is the magic that is making it possible for Amazon to deliver most, or much, of what it believes readers will insist upon, because it is, at once:
 

  • a reading device
  • an increasingly ubiquitous multi-device reading platform
  • an online bookselling and content delivery system
  • an astonishingly accessible and ultimately meritocratic direct publishing, distribution and marketing platform

By bringing out the Kindle and engaging customers with it well in advance of the existence of a mass appetite for its features, Amazon has achieved first-mover status and shaped an increasingly broad-based appetite for the Kindle’s benefits. At the same time, it has built a critical mass of customer loyalty and perhaps even turned the name of its device into the noun and verb by which we may know all ereaders and ereading in the future: I kindle, you kindle, we kindle, each of us on "one of those kindle things." If ever there was a trademark that its holder should be willing to set free, the Kindle® may be it.

None of that, of course, is very appealing to the big publishers or, in general, to Amazon’s bookselling competitors. The big publishers have not wanted ebooks, ebook readers, or any changes in the traditional gatekeeping and distribution channels for books. Barnes and Noble, late to every party, did not want to create and sell the Nook any more than it wanted, a few years after Amazon’s launch, to open an online bookselling website. And the extent to which Apple wanted to launch iBooks was pretty clear when Steve Jobs told the Times in January 2008 that the Kindle’s "whole conception is flawed at the top because people don’t read anymore.” Nearly all of these players have been dragged kicking and screaming, and unfashionably late, to the ebook party.

 

So the publishers and Apple and other Amazon competitors are fighting back hard with the most conventional and traditional tactics of business warfare, including:
 

 

  • price-fixing collusion
  • supply-chain manipulation and interruptions
  • duplication and cynical rebranding of products and features, and 
  • the use of fear tactics and disinformation to get authors and agents, with whom they actually share very little self-interest, to carry their water.

While it has also employed some conventional business warfare tactics along the way, Amazon’s fundamental approach to this war has been characterized by guerilla tactics, and guerilla tactics often win when the war is essentially a revolution. The most obvious area where these guerilla tactics are playing out involves authors and content.

Apple has been signing iBooks deals with (mostly) the big publishers, and those publishers may feel very confident in the short run to put their bestsellers up against scruffy upstart authors and indie publishers that bear, in some cases, the fading stigma of the self-published. But Amazon understands better than anyone else in the content business that nurturing "the long tail" can deliver significant revenues and occasional future bestsellers. The company that launched the Kindle is also supporting the expansion of the Kindle catalog by developing a remarkably diverse and potent infrastructure aimed at bringing authors, independent publishers, and other content providers directly onboard through a variety of channels including:
 

Not that Amazon is concerned only with the long tail of Kindle content sales. Kindle owners are not only Amazon’s best customers; we are, almost by definition, the book-buyingest people in the world. We buy a ton of bestsellers, and bestselling authors and their publishers who have made millions of dollars over the past couple of years on Kindle downloads are not likely to turn up their noses at those growing revenue streams.

"Amazon has built up a 90 percent share of the American e-book [content] market," according to the Times. That market share may fall to less astounding levels over the next few years, but it is likely to remain at high enough levels that many authors — from the very successful to the emerging — will be inclined to make direct or even exclusive deals with Amazon if they determine either that
 

  • their publishers are not playing nice with the Kindle, or 
     
  • the "10 to 25 percent of net proceeds" Kindle sales royalties offered by the big publishers look rather anemic next to the "70 percent of gross sales based on suggested list price" offered directly by Kindle’s Digital Text Platform (beginning in June). 

It will be interesting to see how this migration away from publishers-as-middlemen unfolds, and there are a range of possibilities:
 

Amazon’s ownership of the long tail supports an ebook ecosystem in which an astonishing number of author’s success stories are blooming and then, in the evangelical retellings by authors like J.A. Konrath, inspiring other established authors to take note and consider new options. As Amazon becomes increasingly aware of the importance of luring authors to interact directly with its Kindle Digital Text Platform without the intermediation of corporate publishers, it would be wise to build on the promise of forthcoming 70 percent royalties and take further steps to level the playing field between its DTP and its offerings to corporate publishers, including parity in access to such things as zero-priced book promotions. Amazon could also do much to strengthen and protect its Kindle content market share by taking two steps that seem mind-numbingly obvious given the fact that the company already owns Amazon Associates and Shelfari:
 

  • restore Amazon Associates affiliate commissions to Kindle content (the only major part of the Amazon website where they are disallowed), even if at a lower percentage than the 10% that Amazon applied to Kindle content for the first year or so after the Kindle’s launch; and
     
  • integrate Shelfari, which bills itself as "the social network for people who love books," fully into the Kindle reading experience. (The most natural way to build on these two necessary features, of course, would be to provide ways for Kindle owners to receive account credits when their Kindle device and book recommendations to other Amazon customers result in purchases.)

 Meanwhile, publishers are fighting a conventional, old-school war to prop up their hardcover sales and their traditional wholesale and retail distribution channels, but as Michael Mace made clear in a brilliant speech at O’Reilly’s most recent Tools of Change conference, "the real threat to [publishers] is the likelihood that in the future authors will publish their books directly to the public, bypassing the entire publishing value chain:"
 

We’re likely to have a latency period of at least several years while the e-reader installed base gradually grows. During this time nothing terribly dramatic will happen to publishers, and they may think they have the situation under control. But then we’ll reach a tipping point, and suddenly established authors will have a financial incentive to go direct rather than bothering with paper publication of their books. Once that happens, all book buyers will have a very strong incentive to get e-readers — some books by bestselling authors simply won’t be available in paper form, or will be available first electronically. This will drive more rapid sales of e-readers, which will give authors even more incentive to bypass the publishers. 

Once the dam cracks, the water will move very quickly.

In making its (so far) largely successful pitches to publishers that they should sign ebook deals with its iBooks store for the iPad, Apple has built its argument upon what could be, for the publishers, a potentially fragile premise. This premise is that Apple’s iBooks store will quickly become such a serious market share competitor to Amazon’s Kindle Store, in actual ebook content sales to actual readers, that new iBooks revenues will replace lost Kindle Store revenues. The challenge for Apple becomes impossible if Amazon employs its "nuclear option" of deleting those publishers’ buy buttons across the entire Amazon website. Then, Apple’s new iBooks revenues (combined with other book sales displaced but realized somewhere) would have to replace the publishers’ lost Amazon Store revenues in toto, which might be as much as 20 percent of total book sales.

I do not mean to discount Apple’s truly impressive market power and digital ecosystem, but for Apple to deliver on either of these challenges would be a very tall order. Amazon already has an installed base of over 3 million Kindles, and the reports seem to have been that after over a year of delays, hype, and pent-up demand, there were somewhere around 125,000 first-day iPad pre-orders. That seems a little underwhelming, but I’m perfectly prepared to grant the possibility that the iPad and the Kindle will each finish 2010 with an installed base of 5 to 6 million units.

But who knows how many prospective iPad owners are serious readers or will be serious ebook buyers, and who knows how many of them will choose the iBooks store over the Kindle Store? As of yet, nobody has ever bought a book from the iBooks store, and nobody has ever read a book in the iBooks environment. Among those loyal Apple customers who are regular readers and book buyers — whatever percentage that is — it seems likely that a relatively large portion are also loyal Amazon customers. Prying those customers loose when they have had nothing but good customer experiences with Amazon will not be easy. Most people who buy expensive gadgets are not gadget zealots; they populate the great middle and are likely to own and use several different kinds of devices and numerous online websites and services.

Beyond the question of the device itself, of course, Amazon has been achieving brilliant success at another kind of guerilla warfare. While new-kid hardware manufacturers (and, believe me, I do not include Apple here) have been breathlessly copying and trying to improve upon the Kindle and its feature set, they consistently miss the point of the four Cs that have made the Kindle, so far at least, unbeatable: customers, catalog, convenience and connectivity. There are some very cool dedicated ebook readers being launched these days by companies that are not Amazon, but if you have found a way to imagine them taking over a large market share either of U.S. ebook devices or content, you are way ahead of me either in seeing or imagining the future. Meanwhile, among all the other devices that are not dedicated ebook readers — from PCs and Macs to the iPhone, the iPod Touch, the Blackberry, the iPad and various other tablets and Android devices — the Kindle for X app is either on the device or on the way.

So far, Apple and Steve Jobs have succeeded in getting most of the major book publishers to change the basic structure of their way of doing business so dramatically that it might be compared, to use an old metaphor, with getting them to turn around a super tanker. But if the customers do not line up to purchase what is on that super tanker, or if growing numbers of authors abandon the publishers’ ship in favor of their own dramatic changes in the way they, the authors, do business, the super tanker may prove to be an empty vessel and the navigational 180 a Pyrrhic triumph indeed.

This is a cross-posting from Stephen Windwalker’s Kindle Nation Daily.