How Amazon disrupted the book industry with the Kindle: a lesson in handling digital disruption
In the early 2000s, many believed that Apple’s iTunes had threatened Amazon’s CD sales. In response, they created their own new technology which became the Kindle. The new product/technology helped them to dominate online book sales across the globe. This is a lesson in handling digitization and technology by inventing instead of copying.
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In the book, Hooked: How to Build Habit-Forming Products, the famous American behavioral design expert Nir Eyal evaluates why do some products make us addicted whereas others are quickly left behind?
Nir Eyal has mentioned four critical aspects of making consumers get stick to a product and keep coming back.
1. Trigger - A trigger is the actuator of behavior.
2. Action - Following the trigger comes the action: the behavior is done in anticipation of a reward.
3. Reward - What distinguishes the Hook Model from a plain vanilla feedback loop is the hook's ability to create a craving.
4. Investment of time / connects / contacts etc.
In other words, a key component of user engagement is triggering the user's desire to act, followed by making them act, providing rewards, and ensuring that they invest their time and effort. User reliance on products is formed by following these four steps. The book Working Backwards: Insights, Stories, and Secrets from Inside Amazon, by Colin Bryar and Bill Carr, tells the story of how Amazon figured out what to do.
The Apple store made it possible for users to purchase audio tracks on a per-song basis, instead of purchasing whole albums. It allowed people to easily preview an entire album before buying it and purchasing individual songs was cheaper than buying whole albums. For example, if you have one song that you want from an album then you only have to buy that one track rather than the entire album. This had some great benefits for both consumers and the companies producing the music as it increased sales of songs without worrying about lowering profits on full albums.
iTunes was originally created for Mac computers, but in 2003 Apple made a version of iTunes for Windows. The original iTunes could only be used on Macs at the time, which left 90% of the computer-using population out in the cold. Now with iTunes for Windows, everyone could enjoy their favorite albums, movies, and TV shows. Apple's decision to create a Windows version of iTunes had far-reaching consequences. It had fundamentally changed the way we buy and access music today.
On the other hand, digital media was also seen as a threat by Amazon. Even though Amazon faced pressure to enter the music business, they decided to focus on the ebook business: they invented rather than copy.
Amazon Kindle disrupted the book industry because it changed the way people read books. Before, people would have to go to a bookstore, find a book they wanted to read, and then purchase it. Then, they would have to take it home and read it. With Kindle, people can find what they want to read, buy it, and then read it right away. It also allows people to buy books without having them shipped to their houses.
The book Working Backwards: Insights, Stories, and Secrets from Inside Amazon tells how Amazon built an equivalent of iTunes and the iPod for books—the Kindle app and e-reader. It took years and a lot of experimentation to get it right, but they managed to create a product that changed the world. Jeff Bezos's interest in history reminded him that if a company did not or could not change and adapt to meet shifting consumer needs, it would fail. He once said that you don't want to turn into Kodak, referring to the once-mighty company that missed the transition from film to digital.
During his six-month research of the digital media landscape, Bezos and his team learned a few key things. As piracy has rapidly killed off the CD business and Apple was selling millions of songs on iTunes to millions of iPod users, record companies were eager for Amazon to enter to ensure they had more retailers to deal with, other than just Apple. The second problem was that there was an existing e-book market, but the market was small, publishers didn't invest, and they released a small catalog of e-books that were priced the same as hardcovers. Lastly, digital movies and TV: Content creators were reluctant to partner with digital service providers like Amazon.
By 2005, Amazon realized that the Kindle project was taking much longer than anticipated and was consuming a lot more money than it had expected. As part of one finance review, a heated discussion was held about unexpected expenses. Sometime during the debate, someone asked Jeff, “How much more money are you willing to invest in Kindle?”
According to Colin Bryar and Bill Carr, Jeff looked to Tom Szkutak (CFO) and asked, “How much money do we have?” It was a way for him to signal the strategic importance of Kindle to the team and to assure the team that the investment was not at risk. He believed it was too early to drop the project.
The rest is history.
The book industry is a good example of how a product transformed the whole industry. In the past, the publishing industry was dominated by a few large publishers. This changed when Amazon released its Kindle e-reader in 2007 and allowed anyone to self-publish their work for sale.