On November 19, 2007—five years ago today— Amazon (AMZN) chief executive Jeff Bezos appeared before a group of journalists and publishing executives at the W Hotel in lower Manhattan to introduce something completely unexpected from a company widely thought of at the time as an online retailer: an electronic reading device. Oddly shaped, with a sluggish black-and-white screen and a jumble of angular buttons, the original Kindle resembled the unholy spawn of a calculator and a Blackberry more than a revolutionary piece of hardware. Despite its peculiar design, the Kindle was easy to use and allowed owners to quickly download a book from Amazon’s vast catalog without connecting to a PC. That, it turned out, was the magic trick that not only transformed an industry but also Amazon’s own image in the eyes of the world.
There are certain moments in the history of technology that demand special acknowledgement. The introduction of the IBM PC in 1981 was such an inflection point, as was Microsoft’s (MSFT) rollout of Windows 95, which made computers accessible in many regular households. So was Apple’s (AAPL) introduction of the iPod in 2001, the iPhone in 2007 and probably even the iPad in 2010. The first Kindle belongs in that high-tech hall of fame. Code-named Fiona, the original Kindle was out of stock for much of its 15-month-life but showed enough promise that the publishing world finally began to embrace the long-heralded promise of digital books. “I spent literally decades trying to get publishers to pay attention to e-books and I know how resistant they were to the idea,” says Tim O’Reilly, the founder of computer book imprint and conference organizer O’Reilly Media. “Most publishers just weren’t willing to move. Jeff made them all move, and he took a bold bet on hardware and got into a different business that didn’t necessarily play to Amazon’s strengths.”
Investors and even some consumers underestimated the impact of the Kindle, at least at first. A litany of similar e-readers had already flopped, including the Sony Reader, which went on sale first in Japan and then received a tepid reception in the U.S. The Sony Reader had to be connected to a PC and had a limited selection of e-books. The Kindle was a standalone device that gave users instant access to Amazon’s vast catalog of 90,000 titles. Still, most analysts still weren’t impressed. “The Kindle is the thing that I got most wrong in the whole history of digital change in publishing,” said Mike Shatzkin, chief executive of publishing industry consulting firm Idea Logical. “I thought it wouldn’t work.”
Amazon was forced into inventing its electronic reading device. Selling physical books was its first business and at the time remained its best one. The company had also just watched Apple’s iPod and iTunes devastate traditional music retailers—and undermine its own business of selling CDs. Bezos knew what fate awaited industry incumbents, like Kodak, who were unable or unwilling to adjust their analog business models. Following the lessons of Harvard professor Clayton Christensen’s “The Innovator’s Dilemma” almost as if they were recipes in a cookbook, Amazon spawned an independent subsidiary called Lab126 in far-away Silicon Valley and then went about systematically disrupting its own bookselling business.
The success of Amazon’s Kindle subsequently upended the balance of power in the publishing industry, brought Apple into the book-selling market with its iBookstore and eventually lead to a Department of Justice investigation into collusion and price fixing by Apple and five large publishing companies.
Still, Amazon today is in a similar predicament. Media sales still account for a third of its overall revenues. With music, movies and books transitioning inevitably into purely digital formats, Amazon has to move quickly to stake out its position. It’s taken counterintuitive steps over the past year, such as funneling resources into Prime Instant Video, a free movie streaming service for members of Amazon’s Prime two day shipping club. (Netflix CEO Reed Hastings recently estimated that Amazon is losing up to a billion dollars on the effort a year.) Last week Amazon also began shipping its newest Kindle tablets, including the Wifi version of the Kindle Fire HD 8.9 inch, which sports an iPad-like screen. At $299 for the 16 GB model, its cheaper than comparative tablets from Apple and Google and funnels customers into the universe of Amazon digital content, likely converting them into more voracious online shoppers as well. “People don’t want gadgets, they want services,” Bezos told Bloomberg’s Charlie Rose in an interview last Friday. “For us, the hardest pieces has been integrating, in a very, very simple way for customers, the vast Amazon content ecosystems.”
Earlier this year, Amazon began to gird itself for this battle, according to several employees who were not authorized to speak on the record. Bezos created a separate executive council to oversee Amazon’s digital efforts, called the “D Team,” a corollary to its longtime management group, the “S team.” He also initiated a “draft” of several hundred employees and engineers who were reassigned from other corners of the company to the Kindle and other digital teams. At the same time, the senior leadership team executive reshuffled its reporting lines. Sebastian Gunningham, Amazon’s head of marketplace, and Marc Onetto, its chief of operations, began reporting to senior vice president Jeff Wilke instead of Jeff Bezos. The purpose of all this, say sources, was to free up the company’s resources, including Bezos’ time and attention, to devote them to Amazon’s vital push further into the digital world.
It’s one of the more interesting legacies of that event in New York City five years ago. The first Kindle expanded Amazon’s appetites and put it on an inevitable collision course with other high-tech heavyweights making a play to dominate the coming age of digital media. “It’s not longer about Virgin Media or Barnes & Noble,” said Scott Devitt, an analyst at Morgan Stanley. “It’s Apple and Google (GOOG) and Samsung and Microsoft. This is about protecting and ultimately growing their share of media over time and doing it in a way where they can be competitive with a group of companies that doesn’t have the same structural disadvantages that the physical retailers that Amazon was once competing with did.”
Five years ago, the e-book business was practically there for the taking. The challenges this time around are much greater. To succeed, Amazon will need a little bit of Fiona’s magic.
