The New York Times in an article Sunday highlighted the predicament and challenges faced by the makers of ebook readers in Japan in their battle against Amazon (s AMZN), which introduced its Kindle in Japan last year. From the report:
“Four months later, Amazon brought its Kindle e-reader to Japan. It quickly became Japan’s top-selling e-reader, gaining 38.3 percent of the market, according to the MM Research Institute, a data firm in Tokyo. Even though Rakuten’s Kobo had beaten Kindle to market by nearly five months, it grabbed only 33 percent of Japan’s e-reader sales during the same 12-month period. Sony, which had stated its goal of selling half of all e-readers by 2012, managed to hold only 25.5 percent with its devices.”
Amazon sells Kindle in 14 countries and it is a market leader in the e-reader business. It has trounced the likes of Barnes & Noble (s BKS) handily in the United States and is clearly not afraid to play hardball across the world. In Japan, it is selling the Kindle Paperwhite for about $80, about $40 less than its U.S. price. It helps that they have been able to put a lot more content on their platform.
Rakuten, which owns Kobo (a company it acquired in 2011) has countered by cutting prices. It might be the right strategy too. Rakuten, at least on paper, has all the attributes to take on Amazon. It has commerce, content and a screen. It also oodles of money to compete with Amazon.
Their ongoing battle, as highlighted by the New York Times story, reminded me of an essay I wrote in March 2011: Why the future of hardware is services.
Back then, I pointed that the future of hardware was a tight symbiosis of hardware, software and connectivity and content as a service. It was vital to ensure that we are constantly engaging with the devices. For instance, there’s Sonos, a wireless audio system that allows you to listen to Spotify and other music services and as a result finds constant usage. Without those services, the hardware becomes just dumb hardware and ends up in the back of the drawer.
The reason why Amazon wins is because it has coupled a service (books/content) to the device and made it dead simple to buy. There is a network connection built into the service as well and to purchase a book is simply a click because it has a pre-existing commercial relationship with customers. I for certain am not going to sign up for Kobo or Barnes & Noble — and I think this is the crucial difference. Amazon has a much deeper (and longer) relationship with consumers who use it to shop for more than just books.
I go to buy hand soap, toilet paper and a plunger and finish the shopping session by buying a Kindle single. I know there is an ironic/weird synergy in there — but you get the point. The non-books part of Amazon only adds to the appeal of the platform. It is a chance to engage with Amazon the platform more often. (And perhaps that is why Rakuten might be able to compete with them in Japan.)
On the other hand, the reason I haven’t even bothered with Apple’s iBookstore (s AAPL), even though Apple has a business relationship with me, is because Kindle is omnipresent on all screens and all devices I own or might own in the future. Apple’s iBookstore is available on Apple — which isn’t good enough in our cloud-centric, multiple device world. I am fairly open to using an Android phone or a Windows (s MSFT) PC, considering most of my content and services live in the cloud.
So what Amazon has done is reduce as much friction as possible in the decision-making process. It is an integrated experience. It is that tight coupling which makes Kindle so useful. It also helps that you can read those books anywhere, anytime — on your iPhone, iPad, Android (s GOOG) tablets, Android phones and your computers (via a browser). Amazon’s model is soup to nuts — it has the store, the wallet, the network and the screen. Sonos’ model has the hardware that is open to services that enhance platform’s appeal. Either way — they are both about connectivity and services. Something to remember next time you are buying something or building a hardware startup.