Will the Kindle win the e-reader war?

In a two-part post, I’ll show why the Kindle seems set to dominate the e-reader market … perhaps driving all its competitors out. And then I’ll explain why, despite the advantages of consolidation, we may have reason to fear an effective monopoly.

Taking the publishing world entirely by surprise last week, Amazon announced that it had signed a deal to make its Kindle list available to 11,000 US libraries later this year.

Commentators, like TeleRead’s Paul Biba, are still busy piecing together the implications of the news and its impact on the market. But essentially the agreement seems to be between Amazon and OverDrive, the major supplier of books to US libraries.

On the face of it, this is good news. If you’ve been following this blog, you’ll know I’m a big supporter of book-lending and library systems. Most of the authors I love today were first introduced to me as recommendations from other people; very often I was first a borrower, then a convert, and finally a regular purchaser. That’s why through my own Author Associates scheme, I’m allowing those who enjoy my writing to gift an e-novel to their friends. Although I’ve chosen not to publish in print, libraries are very much in my plans.

Most libraries will probably welcome the announcement as well. Librarian Andy Woodworth wrote recently of the difficulty explaining to a would-be ebook borrower why a book might be incompatible with a reading device. Or if the book could be downloaded, how to organize all the permissions and programs needed. ‘I am the de facto technical support,’ he grumbles. How much easier it would be if, as Amazon no doubt intends, there was only one reading device to worry about. Particularly if it’s probably already the most popular e-reader available for seriously committed readers. (Don’t start growling, iPad fans. I haven’t forgotten you.)

Until now, the Kindle and libraries haven’t seen eye to eye. The Kindle’s proprietary AZD publishing system will not run ebooks published as ePub files, the free and open e-book standard. Other devices don’t read Amazon’s special AZD files. OverDrive meanwhile has always distributed ebooks to libraries as ePub files, using Adobe formatting to set borrowing terms. So Kindle books were out in the cold. (If this all seems too technical, bear with me and just think of it like this: the Kindle won’t read non-Kindle books, and non-Kindle devices won’t read Kindle books. It’s just like trying to run Mac software on a PC, or vice versa.)

But with the new agreement, the whole Kindle library will be accessible. Are you worried, libraries, that your previous investment in non-Kindle ebooks might be wasted? You needn’t be: OverDrive assures you that existing arrangements will be honored and you won’t have to re-purchase books that you already hold.

So, this author is happy that his book can be borrowed; the library is happy that ebook lending will become so much easier – and therefore that libraries can keep up with the digital times; the borrower’s happy that the ebooks she wants will now be available. Everybody’s happy.

Aren’t we?

Let’s look closer at where the Kindle seems to be going in the longer term. A good starting-point is the announcement from OverDrive’s’ manager for content sales, Karen Estrovich:

Your library will not need to purchase any additional units to have Kindle compatibility. This will work for your existing copies and units.

A user will be able to browse for titles on any desktop or mobile operating system, check out a title with a library card, and then select Kindle as the delivery destination. The borrowed title will then be able to be enjoyed using any Kindle device and all of Amazon’s free Kindle Reading Apps.

So, she’s saying existing copies of library ebooks (published in an ePub version, remember) will work on a Kindle. Does this mean that the Kindle will soon be able to read ePub files? I suppose it’s a possibility. But I’d be very surprised. Why would Amazon want to help promote ePub when its own best interests are served by delivering books in its proprietary format? Much more likely is that a major conversion program is underway to get existing OverDrive-distributed titles available in the AZD format.

Estrovich’s assumption seems to be that the Kindle will quickly become the library’s e-reader of choice. I think she’s right, because the Kindle has three important competitive advantages:

1. It’s easy to download and use. Most readers and writers aren’t especially technical, and librarians are tired of explaining.
2. Amazon has spent years building its book catalog. Back in 2005, Tim O’Reilly in his landmark article ‘What is Web 2.0?‘ advised: “For competitive advantage, seek to own a unique, hard-to-recreate source of data.” That’s exactly what Amazon has done. Virtually any title will be available.
3. The Kindle will cost next to nothing.

OK, perhaps I’m jumping the gun on Kindle pricing. True, there’s been web speculation that the reader will be free by Christmas, but Amazon have stated nothing of the sort. Yet all the indications are that further price reductions are in the offing. Already in the last 18 months, Kindle prices have halved, and there was another important announcement last week. Users in the States will be able to buy at a price as low as $114 if they’re prepared to accept advertising.

My view? The price slide won’t stop there … because Amazon, unlike Apple, is essentially a sales and marketing operation, not a hardware manufacturer. They make their money taking a cut on the sales of 900,000 books to a few million readers. But suppose they could drop the price of the hardware low enough so that, say, every school kid and college student carried their text-books on a Kindle? Suppose it became just as indispensable to us as a calculator? Suppose they do exactly what the manufacturers of ink-jet printers did, selling the hardware cheap and maximizing their profits on ink cartridges, selling to a captive market. Because of the strength of their catalogue, that’s exactly what Amazon could do. And their competitors would be left floundering.

If that’s the plan, the libraries initiative makes absolute sense. It’s not the sales of hardware to the libraries that Amazon are interested in. It’s another step towards establishing the Kindle and the Amazon brand as the only viable e-reader in the market. To create an unassailable monopoly.

But of course the Kindle won’t eliminate the competition, you say, you technistas. How could it, when The iPad is packed full of features, offering so much more than the Kindle?

If you were around at the end of the 80s, maybe you’ll remember those feature-full, multimedia-capable home computers, the Commodore Amiga and the Atari ST. Alongside them the clunky IBM PC, with only 16 colors and a few beeps – fine for business applications, but also trying to push into the home market with pricing at less than $1000. I remember attending a conference of leading British leisure software publishers as late as 1990 and debating: Was the PC a serious contender? The answer was a resounding ‘No’.

Yet a couple of years later, the PC was almost the only show in town. Not the IBM model though. Manufacturers in the Far East managed to reverse-engineer the machine and flooded the market with cheap clones, with prices at or below the cost of the best home computers. The combination of keen pricing and a wide, versatile software range – including proven business and productivity applications as well as games – made the PC clone the perfect family computer.

What happened back then seems to be characteristic of emerging technologies. In the early days a number of manufacturers struggle for pre-eminence, each of them with a slightly different system and standards. Before the PC clones, there were at least half a dozen serious contenders for home computer leadership, all with their own operating systems and their own software. But eventually a point is reached where one of them wins out, and a single standard emerges. It happened with home computers. It happened with video – when JVC’s competitively-priced VHS machines eventually triumphed over Sony’s technically superior but more expensive, Betamax. And I think it’s about to happen with e-readers.

I’m not saying that the iPad isn’t a wonderful machine, or that its success will be short-lived. It offers tremendous potential for so many different activities, which users love. But if we’re talking specifically about the world of digital books, it’s the Kindle which seems poised to assert its supremacy and consolidate the market.

Which will make a lot of people happy.

And which fills me with concern.

Next time, I’ll explain my concerns, drawing on my experience as an independent software publisher working with another company that built a monopoly – Microsoft.