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Commentary: Apple Could Own the Ebook Category

A recent discussion on the Reading 2.0 list examined Amazon’s place within the ebook universe and the threat Apple poses if it enters the same space. In the following excerpt, John Conley looks at the fundamental differences between Amazon and Apple:

The debate as to how successful Apple is in selling music through iTunes and its impact on the music industry provides insight into Steve Jobs’ strategy. People speculate that iTunes is contributing significant incremental profits to Apple even though Jobs says that it is not. Since the total results as far as costs and sales are really buried in the detail none of us may ever really know.

What is going on is that Apple is determined not to make the mistakes they made when they first came out with the Apple I in the ’70s. They are using Mac, iPod and now iPhone to incubate a user base that is growing at a remarkable rate. They own the mind share of the next generation of power users, which is this generation. I have five children, age 27 to 13. When the oldest went to college he went with a PC, as did the next child. That was before iPod. My third child will be a senior in college this year and has been a Mac user since 14. The 13 and 15 year old are Mac users. The two oldest, one who is a PhD candidate, have converted to Mac. As this generation ages to the point of conspicuous consumption they will be all Apple in their information needs. They look at my briefcase with its multiple chargers for numerous devices and laugh. They know that Apple will provide them with the ultimate device. They have a level of loyalty to Apple that speaks of the incredible consumer power that now exists with the brand.

Whatever the current functionality of any Apple device the user belief that the next generation of iPhone will continue to innovate and provide the functionality that this next generation of users will require is why the Kindle will never have the success required to make it the mainstream device for end users.

The law of numbers will apply here in that if you have the largest installed base and strong brand loyalty you will provide the most desirable sales channel for those companies that are looking to sell product. Consumer product companies may not like dealing with Wal-Mart because they set all of the rules, but they do it anyway because they are the most powerful channel. Amazon desires to be the Wal-Mart of Web distribution, but they have no value added other than price. Apple provides the connectivity, software, platforms, and most important, loyal customers. If and when they decide that ebooks are a viable driver or requirement to meet the needs to their tens of millions of incubated users they will dwarf the efforts of any other ebook service provider in the market and the publishers will readily come to them with content. (They will also not make the mistake of asking the publishers to provide the content in some proprietary format.)

Apple’s profit model is dependent on selling hardware and software. They bring more value added to the equation then a company like Amazon who, is only a distributor and a technology wannabe. Hardware is not Amazon’s core competency and they do not have the infrastructure or money to fight a technology war. In the end they will be happy to be a partner in distribution of ebooks to an Apple device that meets the needs of e-readers and without a doubt be more functional than any device that Amazon would attempt to market.

Distribution is what Amazon has as its core competency. The Kindle, like all of its predecessors, will not rise in success beyond the early adopters because Amazon does not own the brand loyalty within the consumer electronic market segment that is required to make the next big step in creating meaningful demand.

(Excerpt reprinted with John Conley’s permission.)

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  • http://burningbird.net Shelley

    According to Steve Jobs, none of us reads. I don’t think this bodes well for Apple suddenly swooping in and taking over the eBook market.

    Additionally, when you think of Jeff Bezos and Amazon, what comes to mind? If it’s anything other than “books”, I’d be amazed.

    On one hand you have a man who seems to despise, either the consuming public, or books. On the other, you have a man who has revolutionized how we buy books over the years. Not only that, but expects, assumes, we love to read. Now, seriously, who is in the better position to truly make a go of the ebook marketplace?

    Just because the device doesn’t have rounded corners, isn’t considered “sexy”, and doesn’t regularly burst into flames doesn’t mean the Kindle is dead on start.

  • http://www.cyclelogicpress.com Partners in Grime

    Looks like a few books are already available at the App Store for the iPod touch and the iPhone.

  • http://gravitationalpull.net/wp/ Aaron Pressman

    Couldn’t disagree more. Short version: publishers will never sign up with Apple; Amazon is the one that actually has the great big existing base of customers WHO ARE READERS; Amazon is a great tech company that has created a great web site on proprietary software, the Kindle too. Much more on my blog: http://gravitationalpull.net/wp/?p=390

  • veggiedude

    What is Pressman smoking? Amazon does well with selling books, but e-books is not exactly the same crowd. And the Kindle is so ugly and with such bad user interface, it makes me wonder if they have any UI designers. The statement “publishers will never sign up with Apple” is odd, because they never signed up with Amazon or Borders or Barnes and Noble. Those are just stores to sell their products.

    If Apple made a larger iPod touch, that would be the end of Kindle, but I bet Amazon could sell a zillion e-books to Apple customers.

  • http://gravitationalpull.net/wp/ Aaron Pressman

    @veggiedude I’m not sure you understand how publishing works or what’s required for sales of digital goods with DRM.

    Amazon cannot sell a print book if the publisher doesn’t agree, Apple cannot sell a downloadable song or movie if the publisher doesn’t want them to, Best Buy can’t carry Apple products unless Apple agrees and so on. Apple could not launch its own e-book store without support/consent from publishers. They won’t get get much.

    Likewise, Apple would be unlikely to allow Amazon to sell e-books to its customers. Book publishers required Amazon (and almost all other e-book sellers by the way) to lock down books with DRM. Apple would have to do the same. Apple has not licensed its Fairplay DRM to anyone that I know of. The whole lack of cross-licensed DRMs is a major headache for consumers and a bad deal but a reality of the marketplace so far.