Amazon has just announced that it now sells more Kindle digital books than paperbacks--to be precise 115 digital books to 100 paperbacks. "This is remarkable when you consider that we've been selling hardcover and paperback books for 15 years, and Kindle books for just 36 months," said Steve Kessel, senior vice president at Amazon. Indeed, Amazon's willingness to challenge its own business model and its relationship with it main suppliers--book publishers--and to do so successfully in face of increasing competition is quite unparalleled. Amazon made the change from within, facing the risk of cannibalizing its own revenues by creating an increasingly open business model.
To some extent, the Kindle success goes counter to the dominating model of music-loving teenagers as the most successful example of digital content monetization model. Amazon is a tight-lipped company when it comes to sales of both devices and books, but we can comfortably assume that most Kindle users are past their teenage years and are not in the primary demographic group for wireless downloads of digital content. And yet, digital music still accounts for less than a third of record company revenues, despite the fact that digital players are ubiquitous and have been around for a long time. Obviously the fact that Amazon sells more digital books than paperbacks does not imply that the same is true for the publishing industry as a whole, but it clearly points to an extremely fast expansion. It remains to be seen whether the current growth rate will be sustainable or not, but the increasing competition in the digital book (e.g., Barnes and Noble's Nook, or Sony's Reader) and tablet market suggests that at least the marketing departments in the publishing word believe the long-term prospects are solid.
As books are arguably not the prime candidate for a move to digital content, what does explain Amazon's ability to single-handedly create the market, and retain a strong market share as competition grows? Amazon has been able to resist the temptation to seize its first-mover advantage to create a walled-garden, proprietary environment where subscribers are kept hostages by a powerful brand name, as in the Apple case, or from which they will escape as soon as they have an alternative.
In truth, Amazon tried the proprietary approach at the beginning. It controlled the device and the format of the digital book--they could not be read on any other device, nor common document formats could easily be accessed on the Kindle. To read PDFs on the Kindle, users had to send the file to their Kinde's email address to be reformatted--not exactly convenient. The air interface was also tightly controlled--initially it was Sprint's EV-DO network, later Amazon moved to AT&T. In 2009, the announcement for the Kindle 2 had the "Still Wireless, Still No PC, Still No Hunting for Wi-Fi Hot Spots" as a major selling proposition. During the 2010 holiday season, customers indicated that looking for Wi-Fi was not too much trouble, and the Wi-Fi Kindle had become the top-selling Kindle model (and also the absolute top seller in the Electronics category).
After a year and half, Amazon took the important decision to move out of a comfortable position where it could tightly control the digital content value chain to expand its support for Kindle books in an increasing number of devices, starting with the iPhone and iPod, all the way to Android, Blackberry, and Windows smartphones, PCs, Macs, and eventually to Web browsers. The new marketing message is "Buy once, read everywhere". If you leave your Kindle at home, you can always read a chapter from a book you own on your smartphone. Customers can download their books on multiple devices and read them wherever they want to without having to pay extra fees for it.
Amazon may eventually pay a price for giving freedom to their customers--increasing smartphone and, especially, tablet sales may put a dent into the sale of Kindle devices. But this may actually be to Amazon's long term advantage--Amazon sells books and electronics, and getting into manufacturing is not part of its DNA and may put it in an undesirable competing position with better position device vendors. Initially Amazon had to build the Kindle to sell books, and to some extent the sale of the hardware was used to subsidize book sales. Now alternative devices are available, Amazon may find more profitable to focus on books sales, as prices for Kindle devices have gone down, the price for digital books has gone up, and publishers are likely to offer better terms for digital content now that they see the market potential.
The Kindle has demonstrated that it is perfectly possible to monetize digital content, even when it is of the not-so-sexy type, and even without the need of advertisement, as long as the content provider works hard to create a service that is valuable and easy to use, and it is willing to listen to what the customers want. When I got the Kindle, I was shocked to find out that in a couple of minutes I was able to select my first book, pay for it, download it, and start reading it. Three years ago, this was revolutionary. And it is still remarkably rare today.
P.S. Despite all of Kindle's glory, there is some room for improvement, so let me make a modest suggestion to come full circle. Why not tie back the digital content with the old-fashioned paper, and offer a discount to Kindle owners towards a paper copy? Or give a free or discounted access to book owners or magazine print subscribers? (For instance, The Economist has started to give print subscribers free access to the digital version of the magazine to iPhone and iPad users.) This may attract some of the readers who do not feel ready to go fully digital yet, may be willing to give it a try.