Amazon Coming To Grips With Their Legacy

I was reading an article about Amazon’s on-going battle with publishers on pricing for electronic books for the Kindle (in Ars Technica). More publishers apparently want more control over pricing, and specifically want to keep prices higher than Amazon would like. The publishers also don’t want to make long-term commitments to Amazon on pricing and distribution.

Basically, Amazon is having to come to grips with the fact that it has been, up to this point, a distributor for commodity items. It has tried to get into a less commodity-like game with the Kindle, where it has a device and their store is the only place for content. In essence, they are trying to do what Apple has with the iTunes Store and the iPod: if you want to get the goodness of the iTunes Store inventory on the go, you need an iPod. You can only get an iPod from Apple. The two are closely intertwined. It seems that Amazon would like to make sure that you will want to get your electronic books from Amazon, and once you are “committed”, can only get your electronic books from them.

What’s amusing is that Amazon essentially forced Apple’s hand on music distribution and pricing when they opened their own MP3 store. Amazon let the music labels set the price, and Amazon relaxed the DRM. When it came time for Apple to renew deals with the music distributors, Apple didn’t have the same strong position it had originally. There was a viable competitor in Amazon, and electronic music distribution went from being an exclusive game to being a commodity. By encouraging the removal of DRM, it also made it easier for people to move from an iPod to other devices because at least you didn’t have to abandon your music library, because your music was no longer tied to your iTunes account and machines authorized to use it. There is still the hurdle of abandoning video and apps, but for people who only have or want to have music, leaving the iPod isn’t as onerous. Amazon helped make that happen, and it turned electronic music into a commodity and made Apple a commodity distributor, not an exclusive one. Apple continues to excel as a distributor of music, simple “rolling with the punches” and modifying the pricing model. They accepted the fact that their product was now a commodity. Had Apple tried to stand its ground, it faced the prospect of a much smaller inventory of available music, and that would have hurt the iTunes Store and its ability to stay at the top of the game.

What is a bit ironic is that Apple has turned the tables on Amazon by allowing the book publishers to set their prices for books on the iPad, and by supporting the EPUB standard. That means that I can buy electronic books on various different e-book stores and read them on my iPad (or Sony readers, or other EPUB-compatible readers). In essence, the electronic book market could become a commodity sooner than than electronic music did, and Apple is trying to encourage this. The opportunity to keep it exclusive and tie people to a single device that the content retailer sells and controls may disappear in the early stages of the market, rather than later like it did in music.

I think that this is a fight Amazon can’t win. They would be better off to embrace the commodity-like aspects of the market and do what they do best: move large volumes of product. They’ve been able to succeed at that on a number of fronts (books, music, electronics, etc). Rather than trying to change the company and take a direction that is ill-suited to them, they should play to their strengths. They are a recognized brand, and they know how to make money off of selling in volume. I know for me, when I want to look up a book, the first place I go is Amazon, and unless I need the book “right now, today”, I generally buy from Amazon over others that I could use.

Amazon isn’t a hardware company, and people generally don’t think of them as being a place for exclusive services. Amazon is a distributor of commodity products. They offer good selection and product availability, and their prices are reasonable. I think if they stick to that, they could be the leader in electronic books. If they continue to try to make an exclusive market where one doesn’t seem to want to form, they risk falling behind other retailers in this space and will have to play catch-up as a result.


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