Thursday, April 08, 2010

Kindle, iPad, and Switching Costs

I'm quite intrigued by the Kindle app designed for the iPad. Several months ago, my wife purchased me a Kindle. I love the device, particularly when I travel. With the introduction of the iPad, I began thinking about the issue of switching costs. Would I be reluctant to buy an iPad because there would "costs" associated with switching platforms. Specifically, I worried that I would not have access to all the books I've purchased from Amazon on my Kindle. Well, with the Kindle app, those switching costs go away. You can read your Kindle e-books on the iPad with no trouble at all. iBooks purchased from Apple's e-book store cannot be read on the Kindle at this time. It's relatively rare to have situations such as this one, where the switching costs are not symmetrical. Clearly, this situation may make it much easier for folks to abandon their Kindles and adopt the iPad.

This conclusion about switching costs leads to one obvious question: Why would Jeff Bezos and Amazon decide to make it so easy to switch? Clearly, Amazon wants to be a big player in the e-book market. While they would like to also be a key player in the e-reader market, they don't want to lose out on the e-book market of the future simply because they are trying to protect the Kindle device sales. By making the Kindle app for the iPad and iPhone, they insure that they can compete on multiple platforms for e-book customers. They avoid simply forfeiting all iPad consumers to Apple.

How about Jobs? Is he happy about the Kindle app? Sure, he's quite content in many ways. After all, Apple's iStrategy involves making hefty margins on each of these devices. The broader the array of apps and digital content (music, books, movies), the more likely consumers will purchase high-margin devices such as the iPad from Apple. Since Amazon's e-book library is larger than Apple's at this time, the Kindle app can be helpful in increasing adoption of the iPad.


Jagadeesh Venugopal said...

I see Amazon's strengths to be customer relationships, order taking, and order fulfillment. It stands to reason that their strategy ought to be to move as many ebooks as possible with pricing that allows them to turn a profit. Such a strategy would dictate that Amazon sell ebooks to all comers, whether they have a Sony reader, a Kindle or an iPad.

Amazon has completely turned this around by selling the reader at a profit and taking a loss on the ebooks. The $9.99 books on Amazon end up costing Amazon somewhere around $12-$14 to purchase wholesale. Therefore, any non-Kindle-hardware users are essentially being subsidized by Amazon.

I still haven't understood why they want to do this. When they started selling the Kindle, it could be argued that they had to have their own device because there were none available. Now that the marketplace seems to have many more players, the rationale for the hardware Kindle eludes me. Especially considering that with the hardware Kindle, Amazon is going head to head with established manufacturers like Sony and Apple.

I'd suggest a new strategy/slogan for Amazon: "The world's biggest ebookstore, regardless of your reader".

Michael Roberto said...

This is right on the money. To me, they should have been pursuing a razor-and-blades business model. Instead, they tried to mimic Jobs' blades-and-razors model that he has used so successfully for the iPod and iPhone. That may have been a mistake, given that Amazon's strength does not lie in developing hardware.

Itsy Bitsy said...

IPad is not intended to replace computer in anyway.It however does a lot of things which a computer does and surprisingly it does better and faster.Ipad is an amazing invention from apple.It has many flaws and drawbacks too.Apple should consider those things.It doesnt have camera even.I usually shop on this online shopping site for ipad when i came acros with different blogs.Do check it out for many other products.Ipad and blackberry books are both the same.Blackberry book comes with many new feature while ipad lacks sum functions.