Why Won’t Amazon Compete in the ePub Market?

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Since the beginning of the “modern” ebook era, when Amazon entered the marketplace with its Kindle, I’ve wondered why Amazon chose to follow its own path as regards format and DRM rather than adopting the ePub standard and a more benign or universal form of DRM. I’ve wondered because by choosing its own path, Amazon has decided that readers who are not Kindlers (by which I mean consumers who read on dedicated e-ink devices that are incompatible with Amazon and thus cannot buy ebooks at Amazon unless they are willing to strip the DRM and convert the file, which the majority are either unwilling or unable to do) is not a demographic to woo.

What is it about ebooks that makes them different from virtually every other market that Amazon is in? Amazon sells, either directly or indirectly, all kinds of universally usable electronic equipment and entertainment. It does not sell, for example, digital music or movie DVDs that are incompatible with the devices consumers already own or buy at Amazon or elsewhere. Only in ebooks has Amazon struck a different path.

In every other category of goods for sale at Amazon, Amazon tries to woo every consumer it can. Only in ebooks does it deliberately exclude millions of potential customers. Why? What is it about ebooks that warrants this divergence by Amazon from its very successful business plan? Granted that Amazon would prefer to sell you a Kindle and lock you into its eco system, but that, at least on the surface, makes no sense as a reason to exclude millions of other ebook consumers from being able to buy ebooks at Amazon. One would think that Amazon’s priority is to sell ebooks on which it makes a profit, not reading devices on which it is said to lose money.

Try as I might, I see no obvious reason for this discrepancy. Amazon could sell its Kindles and also sell ebooks in a Kindle-specific format alongside an ePub format. Or it could sell its Kindles and simply make Kindles ePub compatible. Yet it does neither. It prefers to exclude millions of ebookers who are using devices that require the ePub format.

So I ask again: What makes the ebook market different from the other entertainment markets in which Amazon competes?

It surely can’t be because Amazon doesn’t think it can have a winning hand. Amazon has competed and continues to compete in the hardcover and paperback market on equal terms with all competitors, yet it is the dominant bookseller in those markets. I would expect Amazon to dominate in the ePub ebook market as well, simply because of its marketing prowess, its reputation for value and low prices, and its willingness to operate at a loss fiscal quarter after fiscal quarter.

Although no one has accurate numbers, I think it is reasonable to speculate that Sony, Kobo, and Barnes & Noble have sold millions of ereading devices, not one of which is compatible with the Amazon ebook store. Yet every B&N-branded device is compatible with the Sony and Kobo ebookstores (and every ePub ebookstore except Apple’s) — buy a book at Sony, download it to your computer, and sideload it onto your Nook. No questions asked. Similarly, Kobo and Sony devices work the same with any ePub ebookstore except B&N and Apple.

Why is Amazon willing to ignore the millions of readers in the ePub market? Strategically, Amazon has always tried to make people want to shop at Amazon because of price, selection, and ease of buying. Isn’t that the rationale behind the patenting of the 1-click system? And this is the strategy Amazon follows in everything it sells — except ebooks. Why?

I wonder about this but have no answer. I’m certainly open to suggestions, but I struggle to see how ebooks are different from movie DVDs, digital music, televisions, baby diapers, or any other commodity within Amazon’s sales world. The rationale for establishing an exclusionary system for ebooks when all else is inclusionary eludes me.

What else also eludes me is why Amazon thinks this is good policy for Amazon. Amazon has always worked on the principle that if a person buys their hardcover or paperback books from Amazon, they will also buy their TV from Amazon. So if a person won’t or can’t buy their ebooks from Amazon, are they likely to buy their TV from Amazon? Does this exclusionary policy on ebooks have a snowball effect on other items Amazon sells and on the other markets in which it competes?

Consider this difference as well: Amazon has gone to great effort to create the Kindle, its own dedicated reading device using a proprietary format and DRM scheme. But it hasn’t gone to that effort for other devices such as a DVD player. Why? What makes ebooks and the ebook market different from every other commodity that Amazon sells and every other market in which Amazon competes?

The only answer I have come up with, and I don’t find it a satisfactory answer, is that of all the industries represented by the goods that Amazon sells, the weakest in every sense of the word is the publishing industry, making it the one industry that is highly vulnerable to a direct attack by Amazon. Amazon can become a major publisher because of the industry’s weakness and thus be a vertically integrated enterprise — something that would be much more difficult and costly if attempted in the movie or TV production industries.

Of course, the same question can be asked about B&N’s choice of a DRM scheme, but at least B&N has made it freely available to all other device makers. That it hasn’t been adopted by Kobo or Sony, for example, does make me wonder if B&N hasn’t made a major error in not changing its DRM scheme to be compatible with Sony and Kobo. I think given a choice between the Sony, Kobo, and B&N ebookstores, most ebooksers would shop at B&N, even if they prefer the Sony or Kobo device over the Nook.

What do you think?

[Via An American Editor]

21 Comments on Why Won’t Amazon Compete in the ePub Market?

  1. I think the difference between ebooks and other products like DVDs is obvious: for everything else the manufacturer pays any DRM licensing fees to the appropriate consortium, but for ebooks that’s handled by the vendor, not the publishers.

    Amazon would need to be paying Adobe a portion of every single sale they make (even for free titles). That’s a) expensive, and b) a pain in their butt. At their scale buying and using Mobipocket’s product will have been cheaper in the long run.

  2. Hmmmm, is that kinda like asking “How come the Moon base Amazon is building not compatible with the space shuttle?”

    All they can do with Music and Movies is deliver the final product faster/cheaper. With books, they can actually improve end to end the publishing process, the product itself (ePub enhancements in formatting etc.) and the delivery.

  3. It may just be that it’s a market Amazon can corner at very little cost. Any manufactured product it sells is also available elsewhere. Amazon can’t control those markets; all it can do is share them with other sellers. Its proprietary model for ebooks allows it to shut out those competitors. If this is profitable enough, and it apparently is, it can afford to ignore the market segment that would prefer other formats and devices.

  4. All I can say is *thank God* Amazon didn’t go with ADE. Kindle books are a pleasure to buy and read. Other than Apple, who sell their books at too high a price, all the others are a pain to use & buy from. If Apple got a website for their bookstore and lowered their prices to be compatible w/ Amazon we would be *cooking*. Maybe Apple & Amazon could merge. How about that?

  5. I’ll offer a retail explanation: the distinction between multiple e-book formats is confusing to customers. Amazon would never want Kindle owners to accidentally buy a title in EPUB, or for users of other devices to complain that the Kindle book they bought from Amazon doesn’t work on their Kobo, when an EPUB book they bought there last week did.

    Also, Amazon has sold their e-readers and e-books based not just on titles but on services they build around those titles: instant downloading, cloud backup, syncing pages read, support for multiple mobile and desktop apps, etc. Other e-retailers have followed suit. You can do this when you control the products you sell-from end-to-end, including their DRM. It’s much harder to do this when you don’t.

    Basically, all-digital media tightly linked with devices like e-books, mobile apps, and streaming movies fragments markets in ways that other retail products don’t. In each of these cases, Amazon’s opted for a single management/format solution rather than an eclectic/pluralist one.

  6. 1- Consumers buy ebooks, not formats. Note that Kindle ebooks are actually sold in multiple formats.
    2- A kindle ebook is what Amazon says it is. An epub ebook is what the committee say, except when Adobe says different or B&N says different or Kobo or Apple. ePub is not worth betting your business on until it becomes a *real* standard with teeth. Remember the hybrid music “CDs” of a few years back? None bore the official CD logo and could not be advertised as such because it broke the official spec.
    3- Commercial ebooks are, like it or not, DRM’ed ebooks. Which means the front line of customer interaction is the authentication server. Amazon clearly does not believe in outsourcing what is best handled in-house. And considering Amazon’s IT resources for both Kindle and their storefronts are self-financing, why pay somebody else to do something you can get free in-house?
    4- When Kindle launched, and for a couple years after, no epub DRM scheme allowed direct server-to-reader ebook deliveries. That was key to Kindle’s success. Amazon correctly read the market there: to this day their readers can be used independent of any PC.
    5- Let’s not get revisionistic here: Amazon started the Kindle project and designed its first Kindle *before* there was an ePub. They modeled their operation on SONY and APPLE, not the PLAYSFORSURE Windows Media effort. Anybody really want to argue it was a wrong business decision? Once they had launched, to overwhelming success, they saw no reason to change their business model until the *market* tells them to, not pundits and certainly not *competitors*. It’s still working for them.
    6- There is a decent chance KF8 Kindle books will eat up a significant chunk of the enhanced ebook market before the very first committee sanctioned commercial epub3 product is even announced. Market agility and first-mover status is worth some carping from the peanut gallerry.
    7- Shhh! Don’t say it out loud, but some customers you *prefer* they go to your competitors. 😉 Amazon doesn’t want everybody’s business; they just want the business of the people willing to buy their books from them. The unwilling they’ll happily cede to the competition.
    8- Consumers buy ebooks, not file formats. Especially in digital media, what matters is the content and the user experience. For all the antagonism from the ABA crowd, Kindle is doing just fine and dandy, both on the hardware and software side.

    There is an ebook “market correction” coming. Probably this year.
    Let’s see how Amazon weathers it and how the herd of epub vendors handle it before saying Amazon is doing anything wrong.
    History isn’t always written by the winners but it always is written by the *survivors*.

  7. Without getting into what you’re saying about Amazon’s motivations, we should keep in mind that Amazon’s new format, KF8 isn’t simply an new version of their aging and proprietary mobi format. Liz Castro, an EPUB and digital publishing expert makes these remarks in an article entitled “KF8 is nothing more than EPUB with mobi.”

    http://www.pigsgourdsandwikis.com/2012/01/kf8-is-nothing-more-than-epub-with-mobi.html

    Unpacking the new KF8 file she discovered that is is a wrapper around three files:

    “Inside there are old mobi files and new KF8 mobi files (and the original EPUB!).”

    The old mobi files allow the book to be viewed on the current ePaper Kindles. The KF8 file is used by the Kindle Fire. Why the EPUB source is there is anyone’s guess. It would, however, allow Amazon to open up their ebooks to EPUB-only readers from other companies easily, should they choose.

    Examining the actual HTML-like code, Liz Castro discovers:

    “The KF8 inside the mobi is practically identical to my original EPUB file. ”

    And concludes:

    “Now, why they just don’t call it EPUB, since that’s what it is?”

    And that gets us back to just what Amazon’s motivations are.

    I would add that I’ve heard that the major book publishers have refused to supply Amazon with mobi versions of their ebooks, instead giving it EPUB files for conversion. Making Amazon’s new format EPUB in disguise would make that conversion far easier and more accurate.

    If you’re into digital publishing, her “PIGS, GOURDS, AND WIKIS” blog is well worth placing on your ‘must follow” blog list and her books well worth acquiring.

  8. Another important point is that Epub is NOT a standard! Given the IDPF’s refusal to come up with a licensing scheme for their trademark anyone can call their ebook “Epub” and any ereader can call itself “Epub compatible”.

    This is unfortunate, because it makes the term “Epub” basically meaningless. I have asked IDPF muck-a-mucks many times why they don’t come up with a licensing scheme and an enforcement mechanism, but all I get is embarrassed looks and straight-out avoidance of the question. There is clearly some internal politicking at the IDPF that is preventing this from happening.

    Given this, why should Amazon go with a “non-standard standard” which anyone can modify and still call it Epub? Under the current regime anyone can make, and advertise, an “Epub compatible” ereader that will not read many key elements of the Epub standard. This would put Amazon’s Epubs in a mess and make consumers angry at Amazon even though Amazon is doing everything “right”. Rather, Amazon is going with a format that they can control and ensure that it meets their needs.

    Until the IDPF faces reality and makes Epub an enforceable standard it is pretty much a wast of time to even be talking about it.

  9. Yet every B&N-branded device is compatible with the Sony and Kobo ebookstores

    But you can’t buy an ebook at B&N and read it on your Sony, so the compatibility doesn’t work both ways.

  10. Tim and Felix are correct. Amazon is not selling digital ebook files. They are selling a seamless and painless reading experience. And they are doing a great job. Everywhere I go with my Sony eReader people ask me “Is that a Kindle?”. Amazon had an opportunity to seize the ebook market in the same way that Apple seized the eMusic market. They grabbed it and they have been running with it.

    Paul Biba is also right when he says that epub is something of a mess. I find that epub ebooks often have unpleasant formatting such as wide margins or odd font sizes. I read on a Sony eReader that is built for epub but I actually prefer to start with a mobi file and convert it to epub in Calibre. I get more consistent results.

  11. Amazon does what it does because it can. And it has succeeded. It’s that simple. Nothing is going to change unless a major competitor takes a serious chunk of the business or the EU/US competition authorities take action next year. Hopefully they will.

  12. Amazon has competed and continues to compete in the hardcover and paperback market on equal terms with all competitors, yet it is the dominant bookseller in those markets.

    Amazon on equal terms with all competitors? I don’t think so….

  13. Amazon has long explained their investment in their own format and DRM as driven by their desire to control and innovate with their own format. This has been largely empty talk—little innovation has been delivered since Amazon’s acquisition of Mobipocket in 2005—but now, with KF8, they can credibly claim that there is a path forward, even if it consists mostly of copying ePub, or at least the ‘low hanging fruit’ thereof. I think that this isolation has allowed them to focus on getting market share and developing other aspects of their ecosystem without worrying about what Adobe would or would not do with their eBook rendering system and DRM solution. It’s difficult to argue that they could have been more successful than they have been by adopting ePub.

    (Apple has taken much the same approach, and has been far more innovative around ebook formatting, though I think their ecosystem offers far less value than Amazon’s due to the fact that (DRM) content can only be consumed on Apple iOS hardware using the iBooks app.)

    There are of course licensing and royalty fees associated with the industry ‘standard’ Adobe DRM, and since Amazon doesn’t pay these, it represents a competitive advantage with respect to vendors who do pay these. Note however that Google, B&N, Kobo have all developed proprietary DRM/encryption and ePub rendering software to avoid paying Adobe licensing and transaction fees where possible, i.e. when the content is consumed entirely within own reading ecosystem. So I think these ‘additional’ licensing costs are not significant.

    ‘B&N DRM’ is not owned by B&N. It is part of the Adobe DRM solution which most non-Amazon reading systems and ebook vendors license. Sony readers are virtually the only current devices that license Adobe technology which cannot consume it, and that seems to be Sony’s continuing decision (misguided in my opinion). I believe all current Kobo devices can read B&N books, for example.

    But it is curious that even after a couple of years, other ebook vendors do not follow B&N’s lead and use this DRM flavor for their own storefronts. It eliminates the dependency on desktop software such as Adobe Digital Editions (except for library borrowing) and is the most ‘consumer-friendly’ DRM available. That should result in reduced support costs as well. I don’t get it.

    What would the ebook market look like without the distorting influence of DRM? There would be more demand for true ePub compliance and standardization, for one thing, and accelerated convergence of KF8 and ePub3. Production/design costs would be lowered and that could translate to lower costs for consumers, or higher profits for publishers. ‘Walled gardens’ like Amazon and Apple would still prevail, because on the whole they continue to offer superior user experience and unique features, while artificial pricing constraints (the ‘Agency model’) limit the scope of bargain hunting. But as long as publishers insist on DRM solutions, consumers will continue to suffer the consequent inconvenience, and uncertainty about the future readability of the content they purchase. And innovation will be stifled to some extent.

  14. B&N owns their (ereader) DRM. They got it by buying Fictionwise/Ereader, and have licensed it to Adobe.
    All ereaders using the latest Adobe software (like the Kobo Touch and the new Sony ereader) could support the B&N DRM, but manufacturers have chosen to disable this option.

  15. I used to think that Kobo/Sony disabling B&N books was a deliberate attempt to hurt the other bookstore. But a new thought just occured to me:

    Supporting B&N DRM would require the e-book readers to store the Credit Card Number of the user, (or, at least, a key derived thereof) *on the reader.* (For those who don’t know, that’s what B&N uses in place of on-line authentication servers.) Maybe Kobo and Sony simply don’t want to be held liable for the security liability of letting the portable e-reader tablets store that kind of potentially sensitive data?

  16. Tom,
    Both the standard “identity based” Adobe DRM option, as well as the pass-hash option which B&N uses enables retailers to build devices and mobile client apps that bypass the desktop – with both purchased and loaned content. There are pros and cons of both options but that is not one of them. Pass Hash for a while had a leg up because a reading system could be built that did not require the end user to have an Adobe ID – which may be one reason B&N chose that route – however since Adobe introduced Vendor ID last year you can do that with the identity based option too. I don’t think we’ll see many retailers go with pass-hash in the near future for a variety of technical and business reasons.

  17. ‘In every other category of goods for sale at Amazon, Amazon tries to woo every consumer it can.’

    Not true in my experience. The main category of goods that I buy on Amazon UK is music CDs, and I have noticed that Amazon’s prices for many labels’ new CD releases have been ludicrously inflated since Amazon began marketing MP3 downloads of the same titles in digital form (dowloads which I personally avoid buying at any price because of the inferior sound quality).

  18. I should perhaps have said ‘marketing cheap MP3 downloads’ to make my point more clearly.

  19. Having used a Kobo, a Nook Color and most of the Kindles from the original on to the current 3, I will take the Kindle format over e-pub any time. There is probably no piece of software more annoying than Adobe Digital Editions. It is full of errors, and hangs onto the ghosts of some books which are no longer there, with no way to get rid of them. The Kindles have been seamless for me and my only quarrel with their formatting is its stubborn refusal to allow ragged right as opposed to justified. Many e-pub books contain margins which are too wide and with no ability to change them.

    My own personal experience was that I could buy Kobo books and read them on my Nook Color, but that Nook books could not be read on the Kobo. However, I do not have Kobo touch so perhaps this has changed? At any rate, I am done with buying Kobos and Nooks, since my Kindles continue to be close to perfect.

  20. Becca: Sony, Kobo, and B&N are all “compatible” because they all pay Adobe handsomely to use their epub rendering code. Apple doesn’t, and issues exist. A few years back, reader apps that tightly followed the ePub spec as best they could, discovered the spec did *not* define all formatting aspects tightly enough to guarantee interoperability and it was easy for different implementations to prodduce incompatible results.
    Even Kobo broke compatibility recently by serving out files with a custom CSS that worked beautifully on their readders but was unusable elsewhere.

    ePub is more of a suggestion than a true standard in tech industry terms.
    A true standard can be implemented cleanly from the documentation and does not require reengineering a proprietary code base (like the Adobe SDK) which is what Calibre and otther epub tools were forced to do to accomodate the perception of many users that ePub is what adobe says it is, not just what the spec says.

    And if you think it is splintered now, wait until we see five different ePub3 implementations, each slightly different.ePub3 may be the next “great thing” but the transition is going to get ugly.

    As I said, there is real value in being able to control your own fate: Kindle ebooks are whatever Amazon says (even if they are epubs in drag) and *they* are solely responsible for making them work on their readers and apps. They don’t have to explain their decisions, don’t have to accomodate somebody else’s hardware or software, nor do they have to troubleshoot problems with somebody else’s system.

    All that translates into faster time-to-market and lower operating costs.
    It may very well be that the main reason Amazon stays proprietary instead of bowing down at the altar of (non-standard) standards is that it is simply cheaper. 😉

  21. Felix
    Lots of excellent reasons for Amazon to stay with their system. From the creation side I can also say creating Mobi format is much easier to work with in making ebooks with pictures than epub. In fact I haven never worked out what is supposed to be so good about epub.

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