Why Amazon won’t necessarily win the e-book wars

I got into a fairly heated debate with a friend (like I always do) today over recent developments in the e-book market. Namely, some industry analysts are making bold statements that Amazon will win the e-book wars (case in point, Om Malik’s post). I’m generally skeptical of such predictions, because the technology market evolves at such a rapid pace that “dominant” market positions are rapidly gained and lost. But I will attempt to develop this discussion a bit further.

I think when people talk about Amazon Kindle’s competitive position in the market, they usually compare it to two distinct set of competitors:

  1. “Direct” competitors, such as Barnes & Noble’s Nook, the upcoming Borders Kobo, Sony’s eReaders etc. The device play is a single-purpose device, hence directly competing with Kindle hardware.
  2. “In-direct” competitors, such as Apple’s iPad, and other future tablet devices. These competitors are in some sense “in-direct”, in that reading is just one of many key features, and Amazon can utilize them by providing Kindle apps, which to a large extent nullifies their threat and turns them into distribution channels.

If I may, Amazon’s competitive advantages against these competitors are usually seen as follows, in no particular order:

  • Brand power and experience in online retail.
  • First mover in driving e-books adoption, and hence enjoys higher market awareness as well as being further along on the learning curve compared to competitors.
  • Specifically against the iPad and iBooks, a much better book selection.
  • Again perhaps specifically against iBooks, cross-platform availability – PCs, Macs, other mobile devices. Or as some people say, Amazon gets it that it’s not about selling devices, but selling books.

I think people often discard brick and mortar players straight away (“what do they know about digital?”, “they are late to the game”), and then only focus on comparing Amazon and Apple. Probably most people in tech would see iPad as the Kindle’s biggest threat, and in that comparison, Amazon’s “it’s about selling books, not selling devices” mentality clearly gives people confidence in picking them as winners.

Frankly, my biggest concern with Apple in the e-book wars is how much organizational will they have in competing. How serious are they about it? After all, it is just one of many functions. If they are dead serious about it, they can do the following:

  • They will probably catch up in the size of the catalog;
  • they can definitely make a better user experience, by merit of tight hardware / software integration and far superior application experience;
  • They can also try to catch up in making iBooks available cross-platform, which is actually quite straightforward technology-wise since they use the ePub book format, so if the publishers allow it your books purchased in iBooks should be able to be viewed on any ePub reader on any platform – obviously this is the ideal world and there will be plenty of challenges;
  • And they can probably make “shady” moves like what they are doing with iAds – block Amazon as it is not an “independent” retailer, in the same way they are attempting to block AdMob because it’s not an “independent” ad network. I’m not suggesting I agree with this last tactic, but if they do something like that it becomes an aggressive device versus device play, which at the current sales rate, the iPad would have a far bigger installed base.

So it seems there’s plenty of strategies and tactics for Apple. Again, my biggest doubt is whether they have the bandwidth and the interest to compete with Amazon.

What about the brick and mortar guys? Well, interestingly there’s plenty of options here too, upon doing some research (frankly, I’ve ignored the Nook completely since its launch). I’ll focus specifically on Barnes & Noble, since in terms of market awareness they seem to be the most serious competitor to Amazon from the physical retail side. What are its competitive advantages, if any?

  • Perhaps surprisingly, more innovative features, such as the ability to lend a book to your friends (though severely limited, most likely due to publishers), and free in-store reading, to name a few. Obviously these aren’t killer features – yet – but they suggest that at least the Nook team is trying new ideas and not just playing catch up.
  • Physical retail presence. On the one hand, Kindle’s adoption has been severely limited by its lack of physical retail presence (which Amazon is finally addressing by moving into Target); on the other hand, B&N can seriously leverage its retail stores to sell Nooks – directly to the device’s target consumers. This is something that Amazon cannot easily match, and if done right, is a huge marketing vehicle – the obvious case study is how Apple uses retail.
  • Supporting the open ePub format. A huge fuss was made over this at the Nook’s initial launch – and while it might not matter that much yet (and plenty of proprietary formats have market dominance – e.g. Microsoft Office, or Adobe Flash), it is at least ammunition for marketing, and in the long run, the format wars may actually mean something (more on this later).
  • E-book retail experience through the Fictionwise acquisition. Fictionwise has probably been in the e-books business longer than Amazon, and prior to their acquisition was one of the largest independent e-book retailers. The Fictionwise team at least inspires some confidence in B&N’s capabilities in software and all things technology, and may bring them even deeper insight in the market landscape than competitors. And of course, Fictionwise understands how to support multiple platforms and have done so for a long time (much longer than Amazon in this regard? Since the Kindle for Mac app only came out recently) – it seems B&N needs to market this point a lot more.
  • Brand recognition. Sure, Amazon is one of the top brand in mind when it comes to online retail, but for book lovers B&N probably means a lot too – especially for mass-market to late stage adopters.

So I would say that from these points, B&N is at least a legitimate contender. Sure, they are playing catch up, and they are currently stumbling on execution somewhat (just from what I’ve casually read), but I wouldn’t discard them that easily. Two minor data points for consideration: the first is the somewhat suspect report from DigiTimes that Nook shipped more units than Kindle in March (via Crunchgear); and the second is the fact that they have released four firmware updates in roughly half a year – of course it means patching up lots of bugs, but you can also read it as the team being snappy and energetic about refining the user experience and adding features. Amazon on the other hand has been somewhat slow (at least in my personal feeling) in rolling out cross platform applications (Kindle for Mac seemed to take forever) and updating the device with new software features – of course, this is just based on my anecdotal experience.

Fundamentally, my problem with claiming “Amazon will eventually win” is that e-books are really just going through early adoption (and perhaps reaching the first stage of mass adoption), and there are still plenty of big problems that nobody has figured out yet. For example:

  • Technology wise, how do you address the use case of lending books? How can I lend you the book I bought on iBooks to your Nook? And it’s not just personal to personal lending, but even more importantly, how do libraries shift to e-books – how do they manage their database and support myriad devices? Would the format wars have a huge implication here? I’ve read somewhere someone comparing Amazon’s azw format to Betamax and ePub to VHS – I don’t think it necessarily holds, but it does highlight potential issues.
  • Business wise, what are the differentiating factors for e-book retailing, besides price and availability (catalog size and cross-platform support)? If we compare this to the evolution of physical retail, obviously we are at a very early stage: right now players are mainly competing on price and availability, which is perhaps similar to the early days of retail, where the player that had better distribution won – simply because its consumers could access its products. Surely there is vast unexplored space in how to create differentiated shopping experiences.
  • What is the function of current physical retail space, when more and more books are consumed digitally? Will players like B&N simply close its shops, or is there room for transforming the stores of physical bookshelves into socialized book shopping hubs (tied to the previous point)? Are there any other functions they could play?
  • Also, from an industry value chain perspective, are there alternative models with potential to disrupt? For example, currently players pursue a hardware + software strategy; would we see the rise of independent device makers that can support any e-book retailer (not just multi-purpose devices through apps)? Would we see specialist application developers that support multiple retailers and offer a superior user experience?
  • Moving further up the value chain, how do e-books dis-intermediate publishers? Amazon and Apple already support self publishing; it’s not too far-fetched to see them as replacing traditional publishers completely in future. If that happens, we would see a lot more exclusives – e.g. one author’s books are only available on Kindle, another one only on iBooks. And combining this with the previous point, can we envision specialist device makers as the new “retailers” and the Amazon et al as the new “publishers”? Conversely, the existing traditional publishers can obviously step into this role themselves and retain their position in the value chain – if Amazon, Apple and B&N all become cross-platform, it ironically opens up the door for exclusive deals, since the consumers can still get the books they want on their devices, just from different retailers for different books. This is just one of many potential ways retailers can differentiate.

Looking at these open questions, I think it’s safe to say that this market still has a long, long way to go. I do not challenge that Amazon is the leader in this space currently, but I dare say the market is still up for grabs, and different competitors bring different competitive advantages to the table. Amazon is certainly well positioned – hence the conservative title of this post – but to say it’s game over and Amazon will definitely be victorious, well, is premature. And really, critics do it all the time – remember how many doubters of the iPad there were in January? And another one of my favorites – techies talking down Hulu when it was first announced back in 2007. Do people even remember the other online video startup that the whole tech world was going crazy over back then?

Holding off from buying iPad 1.0; eager to buy iPad 2.0?

I think I qualify as an Apple fan. I bought an iPod in 2004, back when it was still black and white displays. I also have bought two different generations of iPod nanos, an 2nd gen iPod shuffle, a 1st gen iPod Touch, and I finally made my first MacBook purchase last year. I’ve also bought an iPhone 3G and now use a 3GS. I have an iMac at home back in Beijing; my dad is thinking of buying an Apple server for his office (though I strongly discouraged him about it).

When the iPad was first announced, I quickly made the decision that I wanted one, and I justified my decision by telling myself that it would be an laptop replacement for school. I’m pretty big on paperless, and prefer reading cases on my laptop instead of printing them out; so the dream product for me (for this purpose) would be a tablet with a stylus to take notes. The iPad doesn’t support a stylus, but from the original announcement, and the fact that there’s plenty of iPhone apps that support PDF viewing, I thought I could justify splurging $500 on the iPad. (And yes, I decided fairly early on I only wanted the $499 version. I don’t need 3G access and from my previous usage statistics I don’t need big storage.)

However, when the iPad reviews came out last Friday and the product shipped last Saturday, I realized that this 1st gen device does not pass as a laptop replacement, even for the relatively lightweight usage of school (email, PDF, and some basic Office apps). Then again, I’m thinking of using the device in the sense of a traditional computing paradigm, whereas from the onset Apple was looking at the device as an iPhone-esque paradigm, a closed system and a tightly controlled user experience.

The tradeoffs are numerous and huge in implications. Jobs and Apple criticized netbooks for being a device of compromise which doesn’t really excel at doing anything; they claimed that the iPad is “magical” and “revolutionary” in that it sets out to accomplish what netbooks were originally intended to do – convenient access to basic computing tasks (email, web, video) – without sacrificing the user experience. What was sacrificed was an open file system; multi-tasking; flash; multiple channels to access and purchase software. To state the obvious, the iPad copies iPhone’s user environment, rather than that of the MacBook.

This makes the iPad, as it is, primarily an entertainment device. There is nothing wrong per se with this positioning; Jobs’ hyperbole that the product is “revolutionary” still has some merit, in the sense that the device is beautifully intuitive to people with little prior experience with computers. The iPad to computing is akin to the Flip to video recording, or compact cameras to photography. It’s an entry level device (albeit a luxurious one) designed for the mass consumer.

Interestingly, this design philosophy has sparked a philosophical debate among heavyweight bloggers: Doctorow from Boing Boing fears that the iPad era means an era of stifled grassroots innovation and creativity (users are “infantilized” – kids can only play with it, but are restricted from exploring it and programming it – unless you hack it first), while Gruber argues that there will still be creative kids. I’m more inclined towards supporting Gruber’s position. The proportion of users who are interested in programming may decline, but that’s more due to computing becoming accessible to all rather than there being fewer aspiring programmers. I would even argue that the App Store, closed and arbitrary as it is, has leveled the playing ground a lot more for new programmers (ease of distribution and access to users), and therefore there should be more aspiring programmers than ever before.

That being said, the geek in me craves for a more open product than the iPad. I want the flexibility of having access to the file system, of having more than just the App Store to go to find software, and I need multitasking. I need to be able to type up a word document while also doing some web search. Apple has a pretty good history of improving its products – just look at the 1st gen iPhone and see how much it has improved (no 3G, no App Store – in hind-sight can you imagine people actually bought it?) – and give it ten months and I might be seriously tempted to get a 2nd gen iPad.

Will Flash ever work on mobile?

There’s been a couple of interesting posts on implementing Flash on mobile devices in the last few days. First, An Adobe Flash developer on why the iPad can’t use flash looks at the issue from a UI perspective – namely how some of the UI design elements we take for granted on desktops / laptops, such as mouse hover-over, are not native to the touch paradigm, so that even if Flash can run on the iPad / iPhone, a lot of Flash usages still would not function properly. Instead, either the mobile OSes come up with ways to emulate a mouse interface (or introduce a lot more complicated input methods), or existing Flash apps have to be redesigned with the mobile audience in mind. The first route goes against the touch paradigm, while the second route means a lot of work for developers (so it can almost be argued they might as well forego Flash altogether).

The second post shows a fairly slick youtube video of Flash on Android, through a Farmville demo:

If you look closely enough, you can see that 1) there is an issue with mouse hover-overs; 2) for a intensely interactive Flash app, there is “money left on the table” in the sense that it is not customized for touch and the controls feel clumsy (or maybe it’s just the demo person…).

Which leads me to the provocative title of this post. The whole demand for Flash on the iPhone and other mobile platforms is based on how it gives consumers the “real web.” However, if you think about the main uses of Flash, which is 1) video 2) games 3) ads, I would say that consumers don’t care about whether ads can be displayed, and as the above example illustrates, games (and other forms of highly interactive Flash usages) probably need to be redesigned anyway (which calls for custom apps). Which leaves video – and this is where the competitive landscape plays an interesting role. The biggest video site, Youtube, is owned by Google, and Google is definitely going for HTML5 + H.264 and moving away from Flash. (Tangent: Google is also getting some criticism for not truly supporting the open web, as H.264 is a licensed technology.)

So the bottom line is, while Flash has dominance on the web now, it definitely faces the danger of becoming completely irrelevant in the mobile space. This may not be a terrible thing – moving to a unified standard such as HTML5 and away from proprietary codecs – except of course for Adobe.