Tuesday, November 20, 2007

Kindling a feeling of deja vu all over again

Despite his mangling of the English language, Yogi Berra's aphorism has captured an eternal truth that applies to business history. This week's example is yet another e-book reader: in one of the worst-kept secrets ever (too many discussions with gossipy publishing-types?), Amazon's Jeff Bezos finally unveiled the Kindle.

Attempts at establishing e-books date back a decade, with at least a dozen failed efforts. The big names have included Sony, Microsoft and Adobe. Yes, the technology is getting better — the E-ink reflective screen rather than a backlit LCD screen, and Amazon is using Sprint's 3G wireless network rather than sideloading for content access. It also includes limited e-mail and browser capabilities.

These information goods have high returns to scale, hence both the incentives for success and the inability to survive as a niche product. The question still remains: will someone pay $400 ($100 more than Sony's product) for a book viewer when he/she was born with the necessary equipment to view dead trees? Unlike newspapers, electronic delivery has displaced less than 0.1% of book sales.

Here Amazon is trying to use its distribution might (the upsurge of traffic during the Christmas shopping season) as well as its content relationships to succeed where others have failed. But the business model is fatally flawed.

I'm shocked that they didn't try to do more to solve the angry orphan problem. The device's only native format is its proprietary AZW, requires conversion to open .DOC and .html files, and doesn't do PDF at all. Books from AZW are only available from Amazon and only viewable on an Amazon device, so when Amazon throws in the towel there will be no way to view them. At least the iPod value proposition was primed through use of unprotected MP3 files, so that most of the iPod content (initially) could be played on any PC, MP3 player or other device.

There are clever attempts to make money off of newspapers, magazines and even blogs. I think they mortgaged their soul to provide ubiquitous connectivity (which today is still expensive in the US, unlike telecom commodities like e-mail and international long distance). They need free user-generated content to fuel ubiquity and adoption, but their connect fees won't allow it. Take a cell phone, add e-books, improve the MySpace/Facebook/YouTube web access, and stand-alone book viewers are toast.

Theoretically the COGS should be less for e-delivery, but the book pricing does not appear to be terribly aggressive (given the manufacturing and distribution savings), perhaps because the publishers fear cannibalism. Meanwhile, I get a book I can't lend to a friend, can't sell to a used book store and can't donate to my local library. Thanks to Amazon's inept strategy, many more trees will have to die needlessly.

The spin is that this is an iPod for books, but's only spin. John Paczkowski of the WSJ blog mercillessly lampoons it as "the Zune of reading."

Brad Stone of the NYT claims the problem is features, but I think it's all the business model. If they asked me what to do (they won't) to fix the business model, I'd make three changes:

  • Support open document formats (HTML, RTF, even PDF) and then like the iPod, make those the native formats for public domain (no-DRM) content.
  • Offer a monthly subscription that makes unlimited e-mail, web browsing, public domain works and free Internet content (like blogs) available at no additional cost.
  • Get publishers to offer aggressive discounts for impulse purchases, such as 1-day specials for novels trying to build word-of-mouth to get onto the NYT bestseller list.
Stone also suggested advertising, which makes sense given the NYT.com's recent captitulation to the Google-ization of paid media.

I know one reader who today is certainly reciting Yogi Berra — the former COO of NuvoMedia, makers of the Rocket eBook, which exited through sale to TV Guide's parent. The Rocket eBook lasted less than three years, the Apple Newton not quite four, so I'll bet $50 (giving 2:1 odds) that Kindle is off the market by the end of 2010.

1 comment:

Doug Klein said...

Yes, we've seen this act before :) Very little about the Kindle makes any sense, unfortunately. In the end you still suffer from the same problem - reading doesn't lend itself to the use cases that justify a dedicated device. Unlike music, which is as useful when you're doing something else (running, walking, driving, etc), reading requires your full attention (or at least should :). This generally means you're in a position where some other device either works better (e.g., your PC) or an existing device is simpler/more convenient/better (e.g., a cell phone or an actual dead tree object :). Combined with the fact that a vast majority of the content we read is actually free, this thing makes no sense. (I must admit to complete astonishment at the very concept of attempting to *charge* for free stuff!

I wonder how much of this is due to Jeff's fascination with gadgets. He loves toys. Consider his presence at a recent event that I attended (ironically with the founder and former CEO of NuvoMedia, who spent a bunch of time explaining electric cars to Jeff that day :):