Amazon and Apophenia

TeleRead‘s Paul Biba has a useful critique of Amazon’s repeated poor handling of e-book and Kindle-related customer issues. I think, though, that he has gone from suggesting improvements to exercising the tendency people have toward apophenia. His conclusion that Amazon’s failure to staff its organization with publishing industry veterans is the cause of all these issues results from aggregating disparate events and imposing an overriding pattern to explain them. It’s not an accurate portrayal of Amazon’s organization. While few on the team have previous experience with e-books and e-readers few of those people exist (though Amazon hasn’t hired several legitimate e-book vets I know who have applied), the company’s problem is not that there is no publishing industry savvy on board.

However, the teams that run the Kindle business are split between the book sales side of the company, the book acquisition team and the Kindle development team. Contending perspectives and responsibilities that seem to be at cross-purposes sometimes result in the isolated and apparently boneheaded decisions Biba correctly identifies, all of which Amazon ultimately learns from and generally does not repeat.

Amazon could use some more experience with rapid innovation and publishing generally, but that’s the same challenge faced by every company that has stepped into a yawning chasm of opportunity to find early success.

Kindle 2 for $299

At its release, Kindle 2 was estimated by iSuppli to cost $185.49 to manufacture. Amazon’s top-line margin was $173 at the Kindle 2’s $359.00 list price. Today, the device has been repriced to $299, breaking a price barrier, $300, that’s still too high for many people. The change is significant, because it will force already profit-challenged competitors to price their hardware lower. The move could strangle some competitors before they find traction with readers.

The price of components is likely falling, because of the rising demand for E-Ink displays and growing volume of Novatel EV-DO modules sold for Kindle and other devices. For the most part, though, this is simply an offensive move against “less expensive” readers, such as the $250 Cool-ER and Borders £189 ($314) UK’s Elonex reader.

Amazon is in an excellent position to put price pressure on hardware competitors, reducing the competition it faces in e-book sales from formats the can be read on these devices. It can sacrifice hardware margin to drive content revenues. The danger, from publishers perspective, is the control Amazon seeks to exert over e-book pricing, which Bloomberg reports is increasing.

Unless Kindle opens up to other formats, I think the combined market power Amazon wields will backfire on Jeff Bezos. The publishing industry could shift their support to an alternative e-book device (Plastic Logic, for example) or channel (Scribd or Apple’s AppStore) in a stand against Amazon’s requirement that all books be priced at less than $12.50.

Of course, pricing is a powerful market lever, but it’s not the only factor in the creation and promotion of creative and intellectual works. At some point, quality and features—extending the book beyond the replication of a page in digital form—will become critical factors in the success of a work, and that will shift the entire market’s attention away from the cost of e-reader hardware.

Useless Info Dept.: Barnes & Noble’s iPhone app beats Amazon’s in first week

What does the fact that Barnes & Noble’s iPhone app, introduced last week, has been downloaded more than the Amazon Kindle for iPhone app during its first week on the market?

Nothing. It merely demonstrates that free applications enjoy a novelty bump, getting a try by readers interested in reading on the iPhone. Even as a horse-race statistic it means little or nothing.

The cumulative downloads of the Kindle for iPhone app far exceed those of the app, but the real question is how much revenue is being generated through the apps. Jeff Bezos has said that Kindle users read approximately 1.7 times as many books a month than paper book customers. If’s app performs the same over time, driving incremental e-book sales, then we’ll have something meaningful to consider.

Amazon’s in-book ad patent: Non-enforceable

I’ve seen a lot of conversation about how it will be awful or wonderful when Amazon presents advertising in its e-books. The fact is, contextual advertising has been patented for many years and designing it into “out of print and rare books” and the use of “advertising tokens” (essentially, tags that mark ad insertion points) doesn’t make the claim enforceable. There are more than 200 earlier patents of related functionality.

Contextual advertising can’t be protected, because it is a common business process today. Consequently, it is very hard to imagine these patents will be enforceable, though that doesn’t mean Amazon won’t place ads in books. It just means that anyone can place an ad in a book, in context or not. This has been one of the cornerstones of Amazon’s book project from the beginning—this is why the Google Books settlement explicitly includes shares of advertising revenue.

Just as Amazon once patented one-click purchasing features, which was overturned, this is merely a statement of potential business direction, not a significant move with regard to Amazon and its competition. Ads will support books in some cases, but in many readers will opt not to have them. It’s just another small step, not a particularly significant nor innovative one.

Soon, Amazon, Apple and Google will not be e-book competitors

Observing a market in development, such as the e-book business today, teaches the thoughtful analyst one thing above all else: No company is making investments that lead to failure. They only fail by mistake, by placing too large a bet on one direction the market might take. Amazon is no more at war with Google than it is with Apple. Yes, they are competing for dominance. But neither company would kill itself over this one vertical within either of their much broader businesses.

Amazon can drop the Kindle hardware to sell more books on an Apple device or through Google Books. Google could embrace the Kindle format, as well as the Mobipocket format that Amazon owns. Apple could provide hardware to serve up both Amazon and Kindle books. Microsoft, as the odd-man out and dominant operating system player is least like to control the high ground in any of these markets, because it holds the largest share of revenue generated by consumers today.

None of them will destroy the rest of their business to control the book publishing market, which is worth only $46 billion annually according to the most optimistic estimates. Mobile phone hardware, search engine marketing and advertising and PC operating systems are all larger markets than books, though one could argue that publishing has the greatest potential to drive revenue if managed perfectly. It is easier for any of these companies, however, to sell hardware, advertising and operating systems and development tools than to undertake the challenges of publishing.

Instead, these companies are jockeying for leadership, which will allow them to dictate their share of the resulting market for e-books, e-magazines and e-anything that generates revenue. Eventually, and I believe it will not be long, Amazon will yield to Google, making its book available on Kindle, or by licensing its formats to Google to sell independently of Amazon (but sharing revenue when the Google-scanned books are sold in Amazon’s Kindle Store). Apple will sell hardware, driving sales of e-books through any channel that provides books that run on its hardware. Likewise, Microsoft, which know it has lost the high ground in electronic publishing, will cede publishing revenues in exchange for support of its OS by the widest range of e-readers.

Only Google and Amazon are so decidedly at odds that they cannot work together. One of Microsoft’s most profitable divisions has long been and remain its Mac software unit. Everyone else in the e-books market has only their long-term survival at the center of their calculations, and none of them depend on dominating publishing.

Hachette’s got no problem with Text-To-Speech in Kindle, except….

The Hachette Book Group, parent of Little, Brown  and Co., Grand Central Publishing and other imprints, has embraced Amazon’s Text-To-Speech technology, introduced in the Kindle 2, which lets the device “read” the book aloud in a synthesized voice, according to Publishers Weekly. The publisher said in a statement that it will allow any book to be read, unless the author asks them to disable the Text-To-Speech feature (PW backgrounder here) or “books that fall within our audio publishing program or specialized circumstances like memoirs, where the author or character’s voice is an artistic element of the work. Under such circumstances HBG reserves the right to request that the functionality be disabled.”

That suggests that books available in audio format from Hachette imprints will not include Text-To-Speech capabilities on the Kindle. While it is good that Hachette is open to buyers using Text-To-Speech, this qualified position about when it is comfortable allowing it makes this a statement of a non-position. Books with Text-To-Speech disabled need to be labeled. It would be better, I believe, to offer an audio version of a book read by a narrator or the author when turning on the Text-To-Speech version. Publishers should go so far as to offer the first chapter in spoken word format for free, then, if the buyer wants to hear the book in a synthesized voice, let them.

Rather than raising barriers to use of a text by customers, turn the Text-To-Speech option into a selling opportunity that will be perceived as greater service by readers.

Borders UK introduces a £189 e-reader

Borders UK today introduced a lower-priced e-book reader, the Elonex, which it will offer alongside the £400 ($665) iRex Iliad e-book reader. The £189 ($314) Elonex, manufactured by the British PC maker of the same name for Borders UK, is a basic e-Ink screen e-reader with no wireless or other network connectivity. It supports the ePub and Adobe PDF formats and comes pre-loaded with 100 books (presumably out of copyright classics) and an SD memory slot. (A brief, not very informative review is here.)

Borders offers a catalog of 45,000 e-books, which can be displayed on the Elonex or iRex Iliad. Borders executives had previously told the Bookseller they did not consider the iRex, which includes annotation and handwriting recognition technology, “sustainable” at £400.

The dichotomy between the basic e-reader, which does little more than display pages, and a multi-purpose e-reader, like the iRex, is evolving to be the simple distinction made in this market. Amazon’s Kindle 2, however, splits the difference, doing more than a basic reader (notably with the WhisperNet delivery service, but also an increasing range of applications), at a price that, at this point, is so close to the “basic” models, it is poised to crush competitors that try to compete from the low-end. Now, if only Kindle supported ePub documents.

Asking the wrong question about Kindle

The Salt Lake Tribune, with a Denver Post article by John Wenzel, asks the wrong question about Amazon’s Kindle (or any e-book reader device, including software readers): “Is Kindle the right device to put books behind us?” It’s the kind of provocative headline that gets readers, but it gets readers thinking the wrong way about the subject, which is a deeper problem than the question of replacing books with e-books. Steve Ballmer, CEO of Microsoft, relies on this kind of bellicose statement to make headlines, too, but I expect better of newspaper editors.

Media succeed one another in importance, but a new medium does not wipe out previous generations of media in a zero-sum game. New media and old find roles that redefine the media environment. Books are so pervasive and serve a unique role with regard to authority in our society that e-books will never replace them entirely. Humans will always memorialize some things in books, just as we still occasionally produce scrolls, calligraphic invitations and diplomas on vellum, or produce music on vinyl records.

List your book on Mobipocket, Amazon or both?

Steve Weber has a good primer on why it is advisable to publish an ebook to both Mobipocket (owned by Amazon) and through Amazon’s DTP service. The Amazon registration will get your book on Amazon’s site faster than Mobipocket does. You’ll also get enhanced reporting and U.S. royalty payments from Amazon that aren’t available through Mobipocket.