Second, was the question of digital standards. The very idea of having their copyrighted content in the digital wilderness—a hacker’s dream—sent shudders down the publishers’ spines. Sony’s proposed digital rights management (DRM) solution, the BBeB format, was just one more unproven option in a crowded field. Publisher red light number two.
Turning any one of these lights green would not be enough. Sony would need a clear path to turn all of them green before publishers would come on board in a meaningful way.
In the excitement of launching the PRS-500, it was clear that Sony was focused on delivering great hardware as the key to unlocking the potential of e-books. But while the hardware was certainly a cornerstone, it was not the whole structure.
The Kindle Conquers
As the publishing industry haggled over how to make e-books a winning proposition, Amazon entered the fray in 2007. Described by one analyst as “downright industrially ugly,” it was larger than the Reader, weighed more, and had an inferior screen. Moreover, it was a very closed platform that was able to load content only from Amazon , and which precluded users from transferring the books they purchased to or from any other device, sharing with friends, or even connecting to a printer.
How could Amazon engineer a triumph with a weaker product? The company did it by engineering a superior solution.
Presenting the Kindle, CEO Jeff Bezos announced, “This isn’t a device, it’s a service.” Unlike Sony’s Reader, the Kindle offered a complete experience for the customer: an expansive library of books and the ability to download the book instantly using Amazon’s wireless network.
Often overlooked, but critical to its success, is what Amazon changed on the back end to create its offer. In order to create this seamless experience, Amazon changed the way critical elements of the ecosystem were configured by both extending its successful position in retailing and simplifying the value proposition for all the other parties involved. A few yellow lights, yes, but a clear plan for turning them all green.
Amazon’s powerful retail platform gave it enough leverage to approach publishers with several innovations that would encourage the creation of digital books for Kindle. But Amazon did not simply bully publishers into supporting the Kindle. Amazon created conditions in the ecosystem that made joining the long-awaited e-book revolution a more attractive proposition for publishers than any previous attempt.
First, Amazon tackled the DRM issue. The Kindle was both closed and proprietary, meaning users could not print their e-books, read them on another device, or share them with other people.
While this restriction was a turnoff for consumers, it was critical to reducing publishers’ perceptions of risk and total cost in making their adoption decision. In looking at the total ecosystem, Amazon made the wise choice to reallocate value to its weakest link, the publisher.
Amazon also increased the relative benefit for publishers by effectively subsidizing their participation through a counterintuitive retail model in which Amazon paid the publisher 50 percent of the list price of the print version but then sold the e-book for $9.99. To jump-start the e-book ecosystem, Amazon sacrificed its own e-book profits. In the short term, everybody was a winner: the publisher received the same amount it would have earned from a print version and saw a boost in sales; the customer enjoyed a cheaper, and some would say better, reading experience without sacrificing breadth of book choice; and Amazon emerged as the leader in the electronic book revolution. It was a position worth fighting for.
Amazon’s and Sony’s efforts to conquer e-books were the inverse of one another: Sony enjoyed competence in its hardware but was a stranger to the ecosystem; Amazon was well positioned in the ecosystem but was less competent with its hardware. The e-book ecosystem—like so many of today’s innovative efforts—is ultimately a system of interdependencies. Success is not determined on the basis of a winning effort at any single point; it requires moving the entire cohort of partners in the same direction.
Excerpted from "The Wide Lens: A New Strategy for Innovation" by Ron Adner by arrangement with Portfolio Penguin, a member of Penguin Group (USA), Inc., Copyright © 2012 by Ron Adner.
About the author: Ron Adner has been studying the causes of innovation success and failure for over a decade. A professor of strategy at the Tuck School of Business at Dartmouth, and previously at INSEAD, he is a speaker and consultant to companies around the world.
Email me at bullishonbooks@cnbc.com — And follow me on Twitter @BullishonBooks
