From Baldur Bjarnason:
By and large, a disruptive technology is initially embraced by the least profitable customers in a market. Hence, most companies with a practiced discipline of listening to their best customers and identifying new products that promise greater profitability and growth are rarely able to build a case for investing in disruptive technologies until it is too late. (Clayton Christensen – The Innovator’s Dilemma)
Unlike most disruptive innovations, ebooks were very quickly adopted by the publishing industry’s most profitable customers, people who buy the most, spend the most, and talk the most about books.
Disruptive innovations start out by addressing the needs of a small unprofitable market. They address a customer base that non-disruptive products do not. Those who buy a disruptive product at the outset are customers who are less likely buy the disrupted predecessor. Disruptive innovations are usually a viable but small business from the outset, create new markets, small at first, and then they grow them. The makers of disruptive innovations then iterate and scale into the incumbent market. That is, it’s only once the disruptive innovation begins to mature that it begins to target the customers of the disrupted product, and it goes for the segment with lowest profitability first.
Ebooks, on the other hand, when they first became an even remotely viable business by most standards (i.e. when the Kindle was launched) they directly addressed the industry’s most valuable audience. Their customers were heavy readers who bought mainstream books. This audience is the core of the industry’s profitability.
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Ebooks are to books not what tablets are to PCs but what laptops are to desktops. For a long long time laptops were a sideline in the PC business, but iteratively they improved until PC manufacturers began to make laptops that were viable as desktop replacements while retaining their portability. Laptops now dominate the market and are generally made by the same firms as those that made desktops. Much in the same way, ebooks have existed alongside the publishing industry for more than a decade (version 1.0 of EPUB’s predecessor, the Open eBook format, was released in 1999).
Amazon’s release of the Kindle was like the iteration of the Thinkpad or the Powerbook that first made them viable as desktop replacements, not a disruptive innovation but a discontinuous sustaining one.
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The tech-oriented online retail side of the publishing industry didn’t get a lead on publishers in ebooks because ebooks are disruptive. As I’ve written above, they aren’t. Publishers failed because the skills and expertise at format transitions they had built up during the various paperback/hardcover/trade paperback format revolutions weren’t applicable in the digital context.
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Ebook retailers, Amazon and B&N, were the primary retailers in print books. Kobo was launched by Canada’s biggest book retailer and bought by Japan’s biggest online retailer.
Kobo, Amazon and B&N are all classic examples of publishing industry incumbents, not disruptive new entrants.
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What absolutely is a disruptive innovation, however, is the self-publishing programme Amazon pioneered. A self-serve self-publishing service for ebooks is a disruptive innovation where ebooks as a platform aren’t. It’s also the one part of the Kindle platform that hasn’t received any update to speak of in the platform’s history.
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If ebooks, which aren’t a disruptive innovation as defined by Clayton Christensen, are disrupting incumbent businesses then we’ve either discovered a completely new type of disruptive innovation (unlikely) or these companies weren’t well-run, well-capitalised, or healthy before ebooks came onto the scene.
Given the state that booksellers were in before ebooks arrived, I think there’s a strong case to be made that they were very unhealthy businesses.
The timeline of bookseller crises worldwide doesn’t fit the thesis that the crises are caused by ebooks. They may well be exacerbated by ebooks, but ebooks are more playing the role of the pneumonia virus killing an AIDS patient than they are a lethal pathogen on their own.
For example, throughout the 2000s, booksellers (in fact, the entire offline retail sector) have been facing problems in many countries. Borders UK collapsed in 2009 but Amazon didn’t launch the Kindle UK store until mid–2010. Ebooks simply didn’t have enough of a presence in the UK for them to be the cause of the crises Borders, Blackwell, and Waterstone’s had been facing prior to the 2010 launch.
Healthy businesses quite simply aren’t rumbled this quickly by a change in the market. Even disruptive innovations take time. Ergo, booksellers were a dying business even before ebooks entered the market.
PG enjoys Baldur’s analysis and thinks he makes some good points, particularly that Amazon’s self-publishing platform is a classic disruptive technology.
PG suggests a couple of additional thoughts.
First, he believes the combination of ebooks and ecommerce and self-publishing are a disruptive technology because they disrupt the roles of publishers, book distributors and physical bookstores and the expensive technology which accompanies that legacy system.
Despite occasional lip service, publishers have never treated readers as real customers. The customers were always physical bookstores. Product decisions in traditional publishing were focused on what Barnes & Noble wanted. Publishers’ sales reps called on buyers for bookstores. A publisher’s sales department could and did kill any book it didn’t like.
Publishers worried about what bookstores wanted. Barnes & Noble and Borders worried about what readers wanted. Hence the lack of consumer marketing skills among traditional publishers.
Additionally, access to the physical bookstore sales channel (and the book distribution system that services that channel) was the key gatekeeper advantage of publishers, one that allowed them to charge exorbitant fees to authors (in the form of low royalties) for access to physical bookstores. It was simply not possible for an author, even a bestselling author, to effectively access retail bookstores in an economically reasonable way.
The import of ebooks to the disruption of the physical book creation and distribution system is that ebooks are ideal goods for ecommerce (as are digital files of musical performances and motion pictures). Once the infrastructure for ecommerce is in place (not a trivial task), each incremental ebook sale is essentially costless for an etailer. This allows etailers to pay the authors of ebooks much, much higher royalties than publishers do.
One of the reasons that Amazon spent so much money developing its own low-priced ereader in the days before widespread adoption of tablets together with an ebook publishing and distribution system to feed products to its ereader was to encourage the adoption of ebooks by readers and, thus, to become the premier destination for readers to purchase ebooks.
PG suggests that, in the absence of Amazon or someone like Amazon, traditional publishing and physical bookstores would never have created meaningful ebook ecosystem. The same can be said for Apple and the traditional music business.