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The Story Thus Far: Amazon’s Storefront

5 October 2014

Today, Amazon is Top Cat in the ebook world, having so far outpaced and outlasted most competition and obstacles raised by their enemies. The heart of their kingdom is their line of Kindle readers, seen as an instant success from their introduction. Except, it wasn’t. Instant, that is.

KINDLE – Amazon’s storefront

Kindle wasn’t Amazon’s first attempt at selling ebooks to the masses. Or its second or even third. Kindle’s “instant” success was simply their latest, most comprehensive attempt, rolling in everything they had learned over 7-plus years.

This was nicely documented at the Digital Reader blog:

Many remember 19 November as the day that Amazon launched the Kindle Store in 2007, but that wasn’t their first attempt to sell ebooks. It was their 4th ebookstore (at least), and the first one was launched on this date in the year 2000.

That first ebookstore sold PDF and Microsoft Reader format ebooks – worldwide. I’m told it stocked thousands of titles, an impressive accomplishment for the time. It offered an FAQ, links to sites where you could download Adobe Reader and the MS Reader app, and other useful info. It looked something like this:
amazon-ebookstore-2001

 

Those were the early years of Amazon, when they were still trying to find the best way to sell ebooks, and at times their customer support was a dismal mess. I can recall an incident in 2007 in which one reader was told tough luck when his PDFs wouldn’t open after he upgraded to Adobe Reader 8. That incident, which would be unimaginable now, was the final straw that made me vehemently anti-DRM.

Amazon killed that first ebookstore in February or March 2006, about 21 months before the launch of the Kindle Store, but that doesn’t mean that they had stopped selling ebooks during the interregnum.

Amazon’s second ebookstore,which sold e-Documents, launched in the Summer of 2001 (Wayback Machine) and was still around at the time the Kindle Store launched in November 2007.

Amazon wasn’t the only book retailer looking into ebooks. Alongside the independent vendors like Powell’s and Fictionwise, Barnes & Noble was also trying; first with the Rocket Reader, later with an open “bring your own device” approach parallel to Amazon’s.

Again, Nate remembers:

It’s easy to forget, but B&N was one of the first bookstores to get into ebooks. They sold the Rocket eReader, and as early as the year 2000 they were signing deals with Microsoft to sell ebooks.

That was during the dotcom bubble, so naturally spirits were high and everyone was optimistic that ebooks were the future.

And then Barnes & Noble got out of ebooks on 9 September 2003, citing “limited sales and limited technology”.

Frankly, I am not surprised. eBooks were a pain in the ass to produce at that time and they were a pain in the ass to consume; inadequately developed technology will do that to you. They were also expensive, with many publishers pricing their ebooks at the full retail price of a hardcover book.

Now where have we heard that before?
To be clear, the ebook business in those days was tiny, a concern of hobbyists and techies.

Chris Meadows at Teleread documented just how small the market was:

In an article from the June 10, 2002 issue of Newsweek, cited in this TeleRead post but no longer available online (I had to dig it out of my local library’s EBSCOhost MasterFILE Premier), Anna Kuchment writes

“E-books? Most of us haven’t given them a second thought since Stephen King’s digitally published “Riding the Bullet” was supposed to relegate paperbacks to the status of stone tablets. That was back in March 2000. After 400,000 fans ordered the novella in a single day, publishers like Time Warner and Random House raced to set up e-publishing divisions of their own, and analysts churned out rosy sales predictions. But King’s book was a one-time wonder. Today an e-book is considered a hit if it sells just 2 percent of that total. “We had this blip where people got really excited [about e-books],” says Kate Tentler, publisher of Simon & Schuster Online. “Now people are back in reality.”

Kuchment A. Not Ready For Prime Time. Newsweek (Atlantic Edition) [serial online]. June 10, 2002

Later in the piece, she quotes Forrester Research analyst Steven Yonish saying, a bit prophetically, “Something needs to happen on the supply side that will give consumers a fresh look at the industry. They need a reason to change their lifestyle.”

8000 copies was nothing to be ashamed of… for an Indie or small/medium publisher. For the big boys…? Not really interesting.

Something had to change indeed.

Amazon took stock of the situation and kept their stores open–if nothing else, to keep the buyers’ attention–well after B&N walked away completely.

Then they got to work and in 2004 started Lab126, their in-house hardware group.

In 2005, they bought Mobipocket, which had an established ebook format, store, and DRM system. Only publishers really like DRM but Mobi DRM was merely mildly annoying and generally reliable.

In 2006, they must’ve concluded that BYOD–Bring Your Own Device–was not going to do it for them and closed the open ebookstore. Clearly they had chosen to go proprietary.

Then, in November 2007, they finally unleashed the Kindle.

Big mistake.

Oh, the device itself was fine. Reviews were generally positive.

Cnet, for example:

The Good Excellent high-contrast screen does a great job of simulating a printed page; large library of tens of thousands of e-books, newspapers, magazines, and blogs via Amazon’s familiar online store; built-in free wireless “Whispernet” data network–no PC needed; built-in keyboard for notes; SD card expansion slot; compatible with Windows and Mac machines.

The Bad Design is ergonomic, but not very elegant; pricing for nearly all the content seems too high, especially considering the periodicals and blogs are available for free online; black-and-white screen is fine for books, but less impressive for periodicals and Web content; lacks a true Web browser; included cover is clumsy and poorly designed; additional file formats need to be e-mailed to Amazon for conversion; yet another dedicated device you’ll need to lug around with you.

The Bottom Line With its free built-in wireless capabilities and PC-free operation, Amazon’s Kindle holds a distinct advantage over Sony’s Reader and is a promising evolution of the electronic book–but Amazon needs to bring down the pricing for both the device and the content to attract a wider audience.

One notable comment:

We’re not going to knock Amazon too hard for its pricing on books at this point, but it’s clear that $10 is still too much to pay for an electronic book, and ideally Amazon would move toward some sort of subscription rental service a la Netflix. Unfortunately, Amazon is handcuffed by publishers who charge upward of $10 for electronic versions of their books, but we expect–or at least hope–to see that pricing evolve with time. We also hope that Amazon will do more to promote cheap content, such as offering Ebook Classics with the purchase of the device as Sony does, or serve up some free content, like Apple does with its free downloads of the day in its iTunes Store.

In that vein, Amazon has launched something called the Digital Text Platform, which makes it very easy to upload your own manuscript or document to the Kindle Store and have it converted into a Kindle book. You can then put whatever price tag you want on the book and sell it on the store. Obviously, such a platform should appeal to fledgling authors and has the potential to revolutionize the self-publishing industry, which has seen a rapid expansion in recent years.

Fledgling authors? Heh. Little did he know what that would lead to.

The hardware was fine, the bookstore good, and the wireless system worked.
People loved the Kindle. What was the big mistake?

The mistake was that they didn’t plan for success.

Apparently, Amazon based their Kindle production on the market that existed before Kindle and didn’t consider that Kindle might sell beyond that pool of hobbyists already buying ebooks. They launched a product they hoped would revolutionize the market and then failed to account for the impact of the product itself.

Kindle sold out in five and a half hours.

That doesn’t mean they sold out the first shipment, as so often happens with new product intros: it means they sold out every last unit they had contracted to make. (They probably figured on sales similar to Sony’s projections for the Librie, something in the 5-10,000 units a month, and stocked up maybe 30-50,000 units.)

Ooops doesn’t begin to describe how bad it was.
Instead of introducing the hot new product of the holiday shopping season they had introduced a rumor. A ghost of a product people could read about but not touch. Sony had lots of product, though. Several second tier vendors like Bookeen and Hanlin had product. But not Amazon.

No easy fix, either. Production lines were spoken for, other products owned the factory slots; it would not be until late April 2008 that enough Kindles could be built, shipped, and stocked for a relaunch. Barely in time for Mother’s day.

After that, Amazon built Kindles and stockpiled Kindles. Bigger volume meant lower manufacturing costs so they planned a price cut and a stunt to promote it.

Yup, they went to Oprah. Oprah had loved the Gemstar. She adored the Kindle. In october 2008, she gave away a studio-full of Kindles and advertised a promo code for a $50 discount to everybody watching (or who heard of the code). Sales went up. And up. And…

The Seattle Times reported:

Stoked by an Oprah Winfrey endorsement in October, the Kindle quickly sold out. With Christmas a week away, used Kindles are listed on eBay, Craigslist and Amazon’s secondhand product site for as much as $1,500.

The run on Kindles ambushed Seattle-based Amazon, which had expected to have enough supply for the rest of the year. As the retailer struggles to get more in stock, it’s asking buyers to join a three-month waiting list. While the shortage risks alienating shoppers and leaving some sales on the table, the Kindle’s buzz may pay off in 2009.

Also:

Amazon has probably sold 400,000 Kindles in total, said James McQuivey, an analyst at Forrester Research. Jeffrey Lindsay, an analyst at Sanford C. Bernstein & Co., puts that number higher, at about 450,000. Amazon will sell about 500,000 Kindles in 2009, estimates Colin Sebastian, an analyst at Lazard Capital Markets.

“That ability to grab a book electronically from wherever you are is very powerful and had generated a lot of word-of-mouth,” said McQuivey, who originally thought the Kindle wouldn’t be well received because of its high price.

A market that considered 8000 copies of a title a bestseller, where Sony had aspired to move 5000 Libries a month, saw Amazon move half a million in six months and fall far short of the demand.

Yes, things had finally changed.
And they would change even more.

In February 2009, Amazon introduced the Kindle 2 with a better screen, way more onboard memory and text to speech built-in. Nobody else had text-to-speech. The Big Publishers and the Authors Guild took exception. Amazon gave the publishers the option to block it, book by book, for their titles. It was just the first skirmish: Amazon was moving into overdrive.

(The Kindle 2 had a manufacturing materials cost estimated at $185.49 by iSupply. Remember that number.)

March 4, 2009: Amazon introduced Kindle for iPhone. A free reading app that turned any iPhone into a Kindle reader. Synchronization between the app and the reader worked well.

May 6, 2009: Amazon introduced the Kindle DX with a 9.7 in screen for $489.

July 8, 2009: Amazon reduced the price of the Kindle 2 from the original $359 to $299.

October 7, 2009, Amazon announced an international (GSM) version of the Kindle 2 at $279 with the ability to download new titles in over 100 countries. It also dropped the price of the original CDMA model to $259.

October 22, 2009, Amazon stopped selling the original CDMA Kindle 2 in favor of the international (GSM) version and priced the new unified model at $259.

November 24, 2009, Amazon released a firmware update for the Kindle 2 that it said increased battery life by 85% and introduced native PDF support.

And then, to cap the year off, Amazon introduced Kindle for PC to counter the Adobe camp’s PC-based reader. OVERver time they added versions for Macintosh, Android, Blackberry, and even HPs aborted WebOS tablet. Amazon was investing serious effort into the Kindle ecosystem.

How many Kindles that frenzy sold is unclear. Low estimates say one and a half million, others go as high as three Million. Amazon CEO Jeff Bezos would only admit to “millions”. The analyst projections for half a million in 2009? Roadkill in the rearview mirror.

All that, on the hardware side. On the ebook side, their store launched with 90,000 titles in 2007, ended 2008 with around 290,000, and ended 2009 with over 500,000. They look to end 2014 somewhere around 3 million titles, about a third of them Indie titles, maybe a quarter of the total exclusive.

The most common disparagement of the Kindle from its early days has been that it is “nothing but a storefront” for Kindle books. And Amazon’s reply has effectively been “Yes. And this is bad because…?”

Kindles are first and foremost book selling devices.
They sell books by helping their owners to find books and to enjoy them.
And they are very good at it.

By October 2009 Kindle was on a roll, mostly because they were the only player with a tightly coupled ecosystem and a strategy addressing all three legs of a content delivery systems. Their competition had coalesced around generic Adobe epub but the biggest hardware challenger had barely started selling epub in December. Their biggest challenger on ebooks, Fictionwise, who had moved 1.5M ebooks in 2008 was bought by Barnes&Noble for $15M.

When people in the publishing world talk about Amazon having 90% ebook market share, this is the time they are referencing: February to October 2009. The short period when Amazon was firing on all cylinders and the what competition they had was scrambling to figure out how and why Amazon was so successful. Eventually, the word got out and the game finally got going. B&N released their Nook in November, with a tightly coupled ebookstore and free wireless. Google was looking for a piece of the pie. Kobo was lining up a partnership. And Apple was getting their ebookstore ready.

The real ebook market was still in its infancy: adoption ran in the single digits.
Amazon was the first to realize that to sell ebooks in volume you needed to put your storefront right in the buyer’s hands and that storefront bought them a big early lead.

But that alone does not explain all their current success.
To explain the rest of Amazon’s success, we need to look at the deeds of their opponents in early 2010. Because, like it or not, 2010 totally reshaped the ebook market.
In Amazon’s favor.

That will be the subject of the final installment of this series.

References:

Amazon’s early stores: http://the-digital-reader.com/2013/11/14/amazon-ebooks-14-november-2000/

B&N’s early store: http://the-digital-reader.com/2013/07/20/today-is-the-4th-anniversary-of-bns-march-into-oblivion/

Market size pre-Kindle: http://www.teleread.com/ebooks/amazon-e-books-born-in-a-bubble-from-a-bullet/

Kindle Review.: http://www.cnet.com/products/amazon-kindle-first-generation/

Kindle Scalping: http://seattletimes.com/html/businesstechnology/2008537675_hotkindle19.html

Ebooks

9 Comments to “The Story Thus Far: Amazon’s Storefront”

  1. I’ve been enjoying your series on the history of e-books. I was doing a little e-reading as far back as the heydey of the Palm III, with its sideloading, tiny screen, and extremely limited selection. My husband bought one of the original Kindles through the Oprah promotion. I thought it was a waste of money until I actually used Whispernet to download a book, and realized that Amazon was on to something. (At that point, my husband’s Kindle became MY Kindle.) I rarely buy hardcopy anymore unless it is a book about crafts or something I pick up in the used book store.

  2. Good stuff! Keep it coming. I’m looking forward to reading the next one.

  3. Wow. I sell most of my work through the Kindle marketplace and I didn’t know half of that struggle. I was gifted an original generation 1 Kindle by my family; I think I’ll have to ask then if they had trouble buying it.

  4. I seem to remember as well that before the Kindle was introduced, there were only about 20,000 titles available and Bezos wanted close to 100,00 by launch. There was a lot of work to get publisher cooperation and Amazon also helped digitize some.

  5. Interesting history, I didn’t know most of it. Sounds like BN’s biggest mistake was giving up too soon.

  6. Thanks for the citation of my TeleRead article. Great stuff.

    Putting in my usual little word about how the mobile device reading side was affected by all of this, Amazon’s purchase of MobiPocket happened right at the time when all the remaining Palm PDA e-book old guard were coming out with new readers for the iPhone and iPod Touch so people could read their old documents (including the ones purchased with DRM) on these shiny new color devices.

    eReader and Fictionwise had done it, even iSilo had done it. The only remaining major e-book storefront without an iPhone app was MobiPocket, but it was working on its own iPhone app and it was expected to be out by the end of 2008.

    And then Amazon bought the company and quashed the iPhone app release, and ended support for the MobiPocket reader and DRM format on all its other platforms too. The subsequent iOS Kindle release would only read books bought under Amazon’s DRM. (In fact, you couldn’t even sideload DRM-free Mobi books to it.) Books that customers had bought and paid for from the old MobiPocket storefront, or had bought in MobiPocket DRM format from another shop like Fictionwise? Unless they’d bothered to crack the DRM so they could convert the books into another format, those e-books were as dead as an eight-track tape. Oops, sorry about that, guess you’ll just have to buy them again!

    It should have been the e-book-buying public’s first major lesson about the biggest drawback of walled gardens, but given that it only affected the geeks and early-adopters who’d read e-books on their Palms in the first place, almost nobody noticed. It presaged Barnes & Noble’s similar shutdown of the eReader/Fictionwise format and reader, a couple years later.

  7. Amazon and Kindle, Apple and iPod, Apple (again) and desktop computers…

    Making “the first x that doesn’t suck” is a lot more important than making “the first x”.

    • Or at least the first one that endures.
      The ancient greeks had computers but their tech went nowhere.
      Took a few millenia and dozens of attempts to find an approach that stuck.

  8. “In 2006, they must’ve concluded that BYOD–Bring Your Own Device–was not going to do it for them and closed the open ebookstore. Clearly they had chosen to go proprietary.”

    When this happened, there was a fair amount of concern at the self-publishing forums I was on. Until then, self-publishers could get their e-books onto Amazon, albeit after jumping through several hoops. Suddenly self-publishers were locked out.

    Thankfully, the doors reopened when the predecessor to KDP was unveiled. The good news: It was easier than ever to get a self-published work onto Amazon. The bad news: Amazon now had sole control over how great a percentage you received from the sale (which, back then, was 35%, less than you’d likely have made under the older self-publishing arrangement with Amazon).

    So I’ve never had blind faith in Amazon. I’m immensely grateful to Amazon for the ways in which Kindle has benefitted self-publishers and the world of e-books in general. But I’ve no doubt that Amazon would give self-publishers a mere pittance if they thought they could get away with it. It’s our good fortune that there’s enough competition against Amazon that they’ve treated us self-publishers fairly decently so far.

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