L'Ombre de l'Olivier

The Shadow of the Olive Tree

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15 March 2009 Blog Home : March 2009 : Permalink

Kindlepid and the Amazon Business Model

I wrote my initial post about KindlePID.py on Friday because it seemed to me to be important that mirrors of the program show up swiftly to point out the idiocy of Amazon's actions. This seems to have worked because there was quite a lot of coverage in the online trade press. E.g. at The Register, Techdirt, engadget, cnet and PCworld as well as at /. . In addition, I was clearly not the only person to think that spreading the this was a good idea, amongst other efforts, someone decided to twitter the kindlepid source. Over at Teleread, Chris Meadows has a thoughtful post about what this says for the future of non Kindle mobipocket DRMed ebooks. It's a read the whole thing article but I think this is the key:

So, let’s review. Amazon has “embraced and extended” the Mobipocket format so that the Kindle is not compatible with other Mobi-DRM-selling stores without the aid of certain Python scripts. It has DMCA’d those Python scripts, indicating in no uncertain terms this was no accident.

Amazon has apparently prevented Mobipocket from releasing an official, Mobi-DRM-compatible client for the iPhone—while it has itself released a Kindle-DRM-compatible client for the iPhone.

Amazon owns both its Kindle-DRM, and (through its subsidiary) everybody else’s Mobi-DRM. Amazon has already shown it does not want Mobi-DRM being read on its Kindle hardwae platform. It has begun to expand beyond that hardware platform into other hardware platforms (the iPhone is only the first) that already have their own e-book apps.

I think that, as a format for DRM-protected e-publishing, Mobipocket’s day is basically done. Just as with iPhone, I do not expect to see Mobipocket apps released for Android, or the Palm Pre, or any of the other new platforms that people are asking about on the Mobipocket forums. I don’t expect to see much further maintenance of Mobipocket apps for existing platforms. I do expect to see (Mobi-incompatible) Amazon Kindle clients come out for all of them.

I expect Amazon will weasel out of renewing the Mobi DRM contracts with Overdrive and other such licensees just as soon as it reasonably can (if it can) without inciting anti-trust scrutiny. And given how widespread the Mobipocket format is in stores that use encryption, and given the print publishing industry’s widespread insistence on encryption, if this happens it could be a major blow to non-Amazon e-book stores.

What I also find interesting is that there is a thread on Amazon's Kindle forum about it and, as elsewhere, the majority seems to be against Amazon although there are quite a few who seem content to live in an Amazon walled garden. This walled garden could well be what Amazon is aiming for, much as Apple aimed for the same with iPods and iTunes. Basically they pay lipservice to the idea that you can get your content from some other source but they make it hard to do so and trust that most consumers will stay with the easy path. Evidence that this approach may work comes from comments on the Amazon thread and from a question that has popped up a few times at Baen about whether Baen books will be available for the Kindle (answer hell yes and has been so since the launch of the Kindle).

To me this implies a potential bifurcation of the ebook scene, much as iTunes led to a bifurcation of the music scene. On the one hand we'll have Amazon and its Kindle store and on the other hand we'll have everyone else. There are however differences. Firstly, for a variety of reasons, the Kindle is a US only product. True the US is probably the largest single market for (English language) reading but the non US market for English language reading is not insignificant and the non-US market for non English language reading is even bigger. It is worth recalling that India has some 200 million middle class professionals who can read and write very good English and that there are over a billion people who read Chinese. The iTunes websites and the iPod were quickly rolled out to the rest of the world. Amazon is not yet showing signs of doing the same with the Kindle. There may be good technical/business reasons for this - for example the non-US Kindle would need a WCDMA/HSPA interface instead of the CDMA2000/EV-DO one in the US and handling roaming charges would be a bugger - but it does seem to indicate that Amazon will not get the global mindshare that Apple has.

Now Amazon's top management are not stupid so why would they apparently decide to ignore a large chunk of their potential market? I think the answer to this is simple. It is a question of content suppliers and margins. Publishing, especially outside the US, is very fragmented whereas, for Apple, the same few record labels could provide content pretty much everywhere. Hence for Apple it was just as easy to sign up content worldwide as it was for the US alone, but for Amazon it will be a lot harder.

More importantly I think it may also be a question of how the retail price gets divvied up between the publisher and Amazon. I recall reading that Apple doesn't get a large chunk of the $0.99 that an iTunes track retails at. In fact IIRC it gets no more than 20% and more like 10%. Apple therefore makes its money in large part on the hardware - selling a $200 iPod that costs it $20 to manufacture. Amazon on the other hand seems to be demanding 30% or more of the price of an ebook sold in the Kindle Store while, thanks to the price of eInk screens, the cost of the WhisperNet and so on, the margin to Amazon of each Kindle is far less than the iPod margin is to Apple. Hence, in order for Amazon to get maximum revenue from each Kindle purchaser it needs to ensure that they stay in the walled garden.

This also makes sense given the scarcity of eInk displays. Amazon may have decided to forego global sales until both the Kindle BOM is reduced and it actually has an oversupply of Kindles in the US. Currently it seems that US demand is outstripping Amazon's ability to supply so there is no need for them to look at the non-US market. Instead Amazon keeps its Kindle customers on the reservation and entices US-based iPhone users (and perhaps in the future other trendy gadget users) onto the same reservation while making it as difficult as possible for them to leave. It probably won't work in the long run, but in the short to medium term it seems like the best way to maximise Amazon's ebook revenues.