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Does Amazon want to be in the Hardware Business?

John Federico

I found this post at iReaderReview about the need for the next generation of the Kindle (what the author calls the "Kindle 3") to have "Killer Features" in order to compete with the new threats to the Kindle's market success.

While it's an interesting analysis, there are some key points that the author fails to address - and others that probably don't need addressing at all.

Some of the "Killer Features" cited in the post include things like a Touchscreen, support for the ePub standard and better support for PDF's. Some of the more outlandish features include Speech-to-Text Transcription for note-taking, GPS and Google Maps and Social Networking.

Whoa! Slow down, cowboy!

The Kindle is an eBook Reader - it's not a computer, an iPod, an "iTablet" or transcription device. It does its job well - better than any other device that's been brought to market before.

Sure, social networking features might be a valuable benefit for readers (and Amazon, as it reduces friction in recommending books) but these services only add to the complexity of the device and the user experience.

That said, the reason for Kindle's groundbreaking success is not specifically about the hardware. The Kindle is a success thanks to: 

  • Great hardware at a reasonable price point with all the promised benefits of an eBook reader (lots of portable content, etc.)
  • Demand fulfillment from anywhere there's a Sprint wireless connection (Sprint powers Whispernet)
  • The backing of major publishers, small publishers and even self-publishers

With all that said, why does Amazon necessarily have to or want to be in the hardware business?

Let's look at Audible.com (now a wholly-owned subsidiary of Amazon) as an analog to the Kindle eBook business.

When Audible launched, to consumers it promised a large selection of audiobooks and lower prices thanks to digital delivery. To publishers it promised to grow the market for audiobooks and protect the publishers' intellectual property using Audible's proprietary file format (".aa") and DRM .

Customers were supposed to purchase the audiobooks, download the files, then listen to them on their computer or burn them to a CD for portable use. Neither of these consumption options was very practical. Listening on your computer require that you remain in close proximity to your computer and even with a laptop, wasn't practical for the car where most audiobooks are consumed.

Burning CD's in the late 90's still took an inordinate amount of time due to write speeds of most CD-R drives and the general speed of computers.

To improve on this relatively poor consumption experience, Audible produced a great (for its time) little MP3 player called the Otis that played both MP3 and Audible's proprietary file format. (I still have mine, somewhere. It still works.)

The debut of this device coincided with the AudibleListener subscription program. In exchange for committing to a year of the program, you received a free Otis player.

Over time, Audible licensed its software to other device manufacturers so that they could enable playback of .aa files on their portable media devices. The first was the Diamond Rio. Hundreds of others followed, including the big Kahuna, Apple, whose iPods and iPhones all play the .aa format.

Where's the Otis today? In the Smithsonian. (Literally. They have one as a part of their collection.) That's to say that Audible no longer makes the Otis.

Once portable media players took off as a product category, Audible no longer needed to expend its resources on producing its own - that was one part of the ecosystem that the market assumed on its own.

Let's return to the Kindle and Amazon's eBook business.

What's to stop Amazon from giving you a free Kindle in exchange for your commitment to a one or two year subscription plan? That would be a game changer even before Barnes & Noble/Plastic Logic got a toehold in the market.

For that matter, if you're Amazon, why manufacturer the Kindle at all? Amazon wants any manufacturer to play in their eBook ecosystem. The release of the Kindle source code and the Kindle App for the iPhone both support this theory completely.

As the market for eBooks gets bigger, Amazon benefits whether or not they continue to produce a reader. I hope they continue as I love my Kindle and expect the company to innovate for years to come, but when Amazon is satisfied that another manufacturer can produce an experience as good or better than they can themselves, I could envision them divesting themselves of their hardware business altogether and focus on content and services.