Amazon.com never invented digital books, but neither did Apple invent digital music players. Steve Jobs, Apple’s CEO, tapped into a massive demand for a simple and legal means of finding and listening to digital music. That it also came in a beautifully designed package has propelled the iPod to one of the world’s most sought-after fashion accessories. Amazon’s approach to digital books learns from Apple but will evolve in a different and more game-changing way.

1. Amazon Kindle and the future of publishing
A Whythawk ThoughtStrike
April 2009
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2. Market Evolution
Apple has sold 140 million iPods
which contributes 42% of their
revenue of $ 24 billion
Google earns revenues of $ 16.6
billion from AdWords.
Simon & Schuster make 10,000
titles available to Amazon Kindle;
Amazon earns revenues of $ 14.8
billion
1.5 million people make a living
via eBay; over 2.3 billion auctions
earn revenues of $ 7.6 billion.
Impact
Apple releases iPod and iTunes
store
Amazon forms alliances with
Borders and Target
Google introduces AdWords,
quickly followed by AdSense
Google launches
2.5 million auctions earn
revenue of $ 47.4 million for eBay
Amazon and eBay launched
at the dawn of DotCom
1995 Time 2008
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3. Apple’s success is game-changing
• The stellar success of Apple almost leads one to believe that it was inevitable. It wasn’t.
• Apple had no history of involvement in the music industry. Prevailing wisdom had it that
digital music downloads were a fragmented and distributed industry driven by people who
had decided never to pay for music again. The music industry was nervous, confused and
attempting to solve their problems with litigation rather than innovation.
• It was hardly an auspicious time to attempt a
new business model.
• Apple had a few things going for it, though:
• They were an established hardware
manufacturer;
• They were not in the music industry and
so didn’t pose a threat of becoming a
music label themselves (more on this
later);
• They were offering a way to control
distribution of digital music.
• As Apple became the sole gateway to music it became obvious that customers were still
prepared to pay for music. It also became clear that Apple had been underestimated.
• Musicians and others began recording directly for iTunes, coining a new term: podcasting.
• In the past year, with the victory of digital downloading for profit clear, big-name musicians
are dumping their producers and going private. Music labels, having spent billions
promoting stars, are losing their assets.
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4. Introducing the Amazon Kindle
• Amazon.com never invented digital books, but neither did Apple invent digital music
players. Steve Jobs, Apple’s CEO, tapped into a massive demand for a simple and legal means
of finding and listening to digital music. That it also came in a beautifully designed package
has propelled the iPod to one of the world’s most sought-after fashion accessories.
• Everyone knows the price of a single digital music
download. It is 99 cents.
• Similarly, Amazon has set the price of downloadable
books. It is $ 9.99.
• Like Apple, Amazon has a ready-made distribution
system. Unlike Apple, Amazon has already got
millions of customers who associate them with books
and publishing.
• Amazon’s approach to digital books learns from
Apple but will evolve in a different and more game-
changing way.
• For starters, the transition to digital books will be
slower. The technology inside the Kindle is still
formative. The interface is clumsy and the device is
hardly fashionable.
• Books themselves have resisted digitisation. Pirating them involves transcribing an entire
copy, not just recording music via software. Even automated software, designed to
recognise scanned text, is tedious to use.
• By launching a comprehensive product without a ready-made market, Amazon will have
longer to work to generate interest. But that doesn’t mean that publishers can ignore it.
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5. Music and books; the same, only different
• Apple’s success gives plenty of reasons to think that Amazon’s foray into digital books will
be similarly successful; however, there are differences between their approaches:
• The world’s largest digital music • 100 million books sold per year, of which
distributor, moving some 1 billion songs 6% are digital downloads;
per year; • Amazon already stocks millions of print-
• Apple already allows individuals and on-demand titles and is said to demand
producers to publish their own work as that publishers of PODs store the data at
they wish, but Apple has shown little Amazon’s headquarters – the shift from
interest in becoming a producer in their this to publishing is minimal;
own right; • Amazon is becoming a distribution
• Apple is in the hardware business; their service, both for data and for products;
objective is to sell iPods and related they rent time and space on their servers
products – music is simply a way to sell for data processing; they allow others to
more of them; 140 million since 2001; sell products via their infrastructure; and
• Apple wants to control every one of their they’re very good at linking interests to
products, from the hardware design, to driving consumer behaviour … the “long
the software that runs on it; they even tail” of product supplies;
wish to control the way their products are • Amazon is already beginning to set and
used; their threat to the music industry is control the market for digital books; their
in setting price and distribution… threat is that they could become the only
publisher in town …
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6. The eBay effect
• Digital music is now 15% of the total market, or $ 2.9 billion in 2007 – up 40% from 2006;
however, the market as a whole has shrunk by 10% to $ 17.6 billion; for every song sold
legally, some 20 songs are swapped illegally;
• Book sales, on the other hand, are still rising by over 2.5% annually; in the US $ 25 billion of
books were sold in 2007; only $ 32 million of that was for ebooks;
• In 2002, only $ 5.7 million of ebooks were sold – 500% growth in just five years;
• Amazon sold 50,000 Kindles in the first quarter of 2008 and have 120,000 titles available for
download.
• eBay is not really the best online auction platform, but it
doesn’t matter, network effects prevail;
• What “everyone” knows is that “everyone” shops at eBay, if
you want to sell your wares, you must have a presence
there;
• The online world allows for consolidation like never before,
it really is possible for winner to take all;
• Apple’s iTunes has 80% of digital music sales, eBay has 65% of total online auction spend,
Google has 75% of online search;
• Owning the distribution channel for information or products is the route to owning the
market;
• Amazon owns both a distribution channel, the strongest online presence in book publishing,
as well as the physical means for viewing books;
• Amazon is positioned to dominate the emerging market for digital books…
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7. ThoughtStrike
Scenarios:
Amazon publishes 80% of
Conservative ebooks and 25% of all printed
Radical books; they distribute to
bookstores all over the world.
Publishers find it hard to attract
good writers; Amazon prints the
most popular-selling ebooks and
distributes directly to book-stores.
Self-published e-writers find
that they earn significantly more; Book stores start to close and consolidate; publishers
Amazon is the recognised lose their main distribution channel and are forced to cut
Impact
publisher of the top 100 writers. a deal with Amazon or lose their writers entirely; new
types of publishing brands emerge.
A group of highly popular Overall, book sales are up off the strength of lower digital book
authors announce that they will costs, now almost 40% of the market, but existing publishers are
self-publish through Amazon. losing their most popular authors; sell-offs and consolidation are
starting to hurt.
Established writers with publishing contracts notice that unknown, self-
published writers earn more than they do; they start to express concern.
Fringe writers start to self-publish direct to Amazon; one is likely to
become a major seller, triggering tremendous interest in the medium.
Open-source publishing tools released based on epublishing
standards agreed by industry in 2007.
2008 Time 2015
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8. ThoughtStrike: it’s about the chaos...
• Whythawk researches emerging trends in a wide
range of industries; we search for opportunities for
creative-destruction and game-changing strategies
that will disrupt businesses or societies; then we
produce a high-level analysis of these scenarios
summarising our findings ... the ThoughtStrike.
• No ThoughtStrike is ever released unless Whythawk
has already considered the opportunities unlocked
by that disruption and developed a product to take
advantage of that opportunity.
• If you are ready to ask the question, “So, now what?” contact Whythawk, and we will
continue.
8
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9. Whythawk
Gavin Chait | Risk Analyst & Strategist | Whythawk
gchait@whythawk.com | M: +44 (0) 78 9495 7090 | http://www.whythawk.com/

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