An American Editor

September 9, 2010

Surrendering to Amazon: The “Strategic” Decisions That May Give Amazon the eBook Market

In the world of eBookville, few decisions will stand out as more colossal blunders than two decisions, one made by Barnes & Noble, one by Sony, that may result in their giving the ebook market to Amazon on a silver platter.

Oh, I know — both B&N and Sony are still operating ebookstores. But at least one of them will not be standing in the not so distant future and when that happens, the reason(s) why will be traceable to “strategic” corporate decisions that even a sixth grade dropout would recognize as dumb strategy. It’s a good thing we don’t need to rely on either of these companies to lead our economic recovery!

“What are these decisions?” you ask: Barnes & Noble’s decision to adopt ePub and then add its own flavor of DRM and Sony’s decision to adopt ePub but not update its firmware to include the B&N flavor of DRM in its latest hardware release. Instead of recognizing that Amazon is a common enemy that is promoting its own proprietary file and DRM schemes that are incompatible with everyone else, Sony and B&N, with the acquiescence of Adobe who needs to share some of the blame for not insisting that B&N either not add its flavor of DRM or that Sony must upgrade to include the B&N flavor, have acted as if each alone can take on and conquer the Amazon juggernaut. Clearly no one at either company will win an award for brilliant strategist of the minute, let alone the year.

If anything, they should be uniting to knock Amazon down a notch or two. Instead they are dividing the field, making it easier for Amazon’s juggernaut to roll over them. You would think that B&N’s quarterly report would have caused a lightbulb to at least flicker in Leonard Riggio’s mind, but apparently not. And Sony has a perfect opportunity to both increase sales of what I think are superior ereading devices and tackle the problem by simply updating the firmware in the new models — even if it doesn’t offer the update to prior models, it needs to offer it in the new models.

I know that neither Sony nor B&N want their customers shopping elsewhere, but that is simply shortsighted. All they have to do is look at the pbook operations of both Amazon and B&N to recognize how foolish that position is. Both pbook operations have marketplaces where competitors can sell pbooks. Now why would that be if it wasn’t a good idea? How hard is it to transfer that thought process to the ebook market and recognize that Sony and B&N should be using the same flavor of ePub and DRM — especially as the bottom line now is that B&N customers can shop virtually everywhere other than Amazon and Apple, and Sony customers can shop virtually everywhere other than Amazon, Apple, and B&N. (Is it so hard to see something wrong with this scenario?) .

Neither customers nor businesses are loyal to anyone but themselves; this is the reality of today’s marketplace, especially in light of the easy access to competition provided by the Internet. Using incompatible DRM schemes doesn’t mean that the consumer will buy solely from your store. Sure some will, but not all, and those that will would do so regardless of whether they had easy access to other ebookstores. I’m not suggesting that Sony or B&N should give convenient wireless access to competitor stores, just that the books their devices will read should be more universal.

It is pretty clear that neither is on a sure path to overtake Amazon in the U.S. ebook market. B&N has lots of troubles and this is just one more trouble that it could have avoided with a bit of careful thinking. Sony is an electronics giant — not an ebook giant. Yes, there was a reason why it created its own ebookstore in the birthing days of ebooks, but now they should rethink the “strategy” of trying to tie Sony Reader customers to the Sony ebookstore. It will do Sony no good to have the best devices available but no buyers because people perceive that the Sony ebookstore isn’t as good as the B&N or Amazon ebookstore, regardless of how well it stacks up.

Sony’s real shot at stardom is to concentrate on the hardware and promote the universality of access its Readers provide. Encourage purchasing at the Sony ebookstore by making it easy through wireless access and applications for multiple devices, but boast of a customer’s ability to shop anywhere except at the two stores run by the Amazon and Apple, which want to limit consumer choice, not expand it. Sony and B&N need to become the white hat guys and make Amazon and Apple the black hats.

To my mind, having Sony and B&N work together to their strengths is a competitive combination that would stand a good chance against Amazon. Let Sony do the hardware and B&N run the bookstore. Forget the nook and forget the Sony ebookstore. OK, it ain’t gonna happen, so can we get the next best thing: B&N and Sony using the same flavors of ePub and DRM. At least then there would be some competitive pressure on Amazon and the possibility of more, especially as other device manufacturers — outside of Amazon and Apple — would follow suit. Sadly, I don’t think that’s going to happen.

So one day in the not too distant future we will see B&N raise a white flag, surrendering the market to Amazon, and the pundits will look back and sigh over how it could have been avoided if only two dumb decisions hadn’t been made and then stuck to as if the decisions were immutable gospel.

The ultimate loser, of course, will be the consumer, because when there is one company left standing, prices tend to go from competitive and low to uncompetitive and high. Shall we set a date to gather in New Orleans for B&N’s funeral procession?

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