Amazon Kindle and the future of publishing - Whythawk

Amazon Kindle and the future of publishing

© 2009 Whythawk | All Rights Reserved | http://www.whythawk.com/

A Whythawk ThoughtStrike

April 2009

Market Evolution

Imp

act

� Google earns revenues of $ 16.6 billion from AdWords.

� Simon & Schuster make 10,000 titles available to Amazon Kindle; Amazon earns revenues of $ 14.8 billion

� 1.5 million people make a living via eBay; over 2.3 billion auctions earn revenues of $ 7.6 billion.

� Apple has sold 140 million iPods which contributes 42% of their revenue of $ 24 billion

© Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/ 2

Time

Imp

act

1995 2008

� Amazon and eBay launched at the dawn of DotCom

� Google launches

�Google introduces AdWords, quickly followed by AdSense

� 2.5 million auctions earn revenue of $ 47.4 million for eBay

� Apple releases iPod and iTunes store

� Amazon forms alliances with Borders and Target

Apple’s success is game-changing

• The stellar success of Apple almost leads one to believe that it was inevitable. It wasn’t.

• Apple had no history of involvement in the music industry. Prevailing wisdom had it thatdigital music downloads were a fragmented and distributed industry driven by people whohad decided never to pay for music again. The music industry was nervous, confused andattempting to solve their problems with litigation rather than innovation.

• It was hardly an auspicious time to attempt anew business model.

• Apple had a few things going for it, though:

• They were an established hardwaremanufacturer;

• They were not in the music industry and


• As Apple became the sole gateway to music it became obvious that customers were stillprepared to pay for music. It also became clear that Apple had been underestimated.

• Musicians and others began recording directly for iTunes, coining a new term: podcasting.

• In the past year, with the victory of digital downloading for profit clear, big-name musiciansare dumping their producers and going private. Music labels, having spent billionspromoting stars, are losing their assets.

• They were not in the music industry andso didn’t pose a threat of becoming amusic label themselves (more on thislater);

• They were offering a way to controldistribution of digital music.

Introducing the Amazon Kindle

• Amazon.com never invented digital books, but neither did Apple invent digital musicplayers. Steve Jobs, Apple’s CEO, tapped into a massive demand for a simple and legal meansof finding and listening to digital music. That it also came in a beautifully designed packagehas propelled the iPod to one of the world’s most sought-after fashion accessories.

• Everyone knows the price of a single digital musicdownload. It is 99 cents.

• Similarly, Amazon has set the price of downloadablebooks. It is $ 9.99.

• Like Apple, Amazon has a ready-made distributionsystem. Unlike Apple, Amazon has already gotmillions of customers who associate them with booksand publishing.


• Books themselves have resisted digitisation. Pirating them involves transcribing an entirecopy, not just recording music via software. Even automated software, designed torecognise scanned text, is tedious to use.

• By launching a comprehensive product without a ready-made market, Amazon will havelonger to work to generate interest. But that doesn’t mean that publishers can ignore it.

and publishing.

• Amazon’s approach to digital books learns fromApple but will evolve in a different and more game-changing way.

• For starters, the transition to digital books will beslower. The technology inside the Kindle is stillformative. The interface is clumsy and the device ishardly fashionable.

Music and books; the same, only different

• Apple’s success gives plenty of reasons to think that Amazon’s foray into digital books willbe similarly successful; however, there are differences between their approaches:

• 100 million books sold per year, of which6% are digital downloads;

• Amazon already stocks millions of print-on-demand titles and is said to demandthat publishers of PODs store the data atAmazon’s headquarters – the shift fromthis to publishing is minimal;

• The world’s largest digital musicdistributor, moving some 1 billion songsper year;

• Apple already allows individuals andproducers to publish their own work asthey wish, but Apple has shown littleinterest in becoming a producer in their


this to publishing is minimal;

• Amazon is becoming a distributionservice, both for data and for products;they rent time and space on their serversfor data processing; they allow others tosell products via their infrastructure; andthey’re very good at linking interests todriving consumer behaviour … the “longtail” of product supplies;

• Amazon is already beginning to set andcontrol the market for digital books; theirthreat is that they could become the onlypublisher in town …

interest in becoming a producer in theirown right;

• Apple is in the hardware business; theirobjective is to sell iPods and relatedproducts – music is simply a way to sellmore of them; 140 million since 2001;

• Apple wants to control every one of theirproducts, from the hardware design, tothe software that runs on it; they evenwish to control the way their products areused; their threat to the music industry isin setting price and distribution…

The eBay effect

• Digital music is now 15% of the total market, or $ 2.9 billion in 2007 – up 40% from 2006;however, the market as a whole has shrunk by 10% to $ 17.6 billion; for every song soldlegally, some 20 songs are swapped illegally;

• Book sales, on the other hand, are still rising by over 2.5% annually; in the US $ 25 billion ofbooks were sold in 2007; only $ 32 million of that was for ebooks;

• In 2002, only $ 5.7 million of ebooks were sold – 500% growth in just five years;

• Amazon sold 50,000 Kindles in the first quarter of 2008 and have 120,000 titles available fordownload.

• eBay is not really the best online auction platform, but itdoesn’t matter, network effects prevail;

• What “everyone” knows is that “everyone” shops at eBay, ifyou want to sell your wares, you must have a presence

© Whythawk 2009 | All Rights Reserved | http://www.whythawk.com/

you want to sell your wares, you must have a presencethere;

• The online world allows for consolidation like never before,it really is possible for winner to take all;

• Apple’s iTunes has 80% of digital music sales, eBay has 65% of total online auction spend,Google has 75% of online search;

• Owning the distribution channel for information or products is the route to owning themarket;

• Amazon owns both a distribution channel, the strongest online presence in book publishing,as well as the physical means for viewing books;

• Amazon is positioned to dominate the emerging market for digital books…

6

ThoughtStrike

Imp

act

Scenarios:

Conservative �

Radical �

� Book stores start to close and consolidate; publishers lose their main distribution channel and are forced to cut a deal with Amazon or lose their writers entirely; new

� Self-published e-writers find that they earn significantly more; Amazon is the recognised publisher of the top 100 writers.

� Publishers find it hard to attract good writers; Amazon prints the most popular-selling ebooks and distributes directly to book-stores.

� Amazon publishes 80% of ebooks and 25% of all printed books; they distribute to bookstores all over the world.


Time

Imp

act

2008 2015

� Open-source publishing tools released based on epublishing standards agreed by industry in 2007.

� Fringe writers start to self-publish direct to Amazon; one is likely to become a major seller, triggering tremendous interest in the medium.

� Established writers with publishing contracts notice that unknown, self-published writers earn more than they do; they start to express concern.

� Overall, book sales are up off the strength of lower digital book costs, now almost 40% of the market, but existing publishers are losing their most popular authors; sell-offs and consolidation are starting to hurt.

a deal with Amazon or lose their writers entirely; new types of publishing brands emerge.

� A group of highly popular authors announce that they will self-publish through Amazon.

publisher of the top 100 writers.

ThoughtStrike: it’s about the chaos...

• Whythawk researches emerging trends in a widerange of industries; we search for opportunities forcreative-destruction and game-changing strategiesthat will disrupt businesses or societies; then weproduce a high-level analysis of these scenariossummarising our findings ... the ThoughtStrike.

• No ThoughtStrike is ever released unless Whythawk

has already considered the opportunities unlocked


has already considered the opportunities unlockedby that disruption and developed a product to takeadvantage of that opportunity.

• If you are ready to ask the question, “So, now what?” contact Whythawk, and we willcontinue.

8

Whythawk

Gavin Chait | Risk Analyst & Strategist | Whythawk

[email protected] | M: +44 (0) 78 9495 7090 | http://www.whythawk.com/

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Amazon Kindle and the future of publishing - Whythawk

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