Amazon’s Play

Tuesday, 11 September 2012

The video of Amazon’s Kindle press event last week is well worth watching. Amazon is, to my eyes, the only company playing in the same league as Apple. The only ding is that the event was oddly-paced — it felt too slow. It lasted over an hour but I think it could been done in 45 minutes or so without cutting any material. But pacing aside, it was really well done.

First, Jeff Bezos is likable and credible. Second, there was a clear message, a narrative, a logical order to the announcements. Third, it looked good — the slides, the videos, the stage itself. Fourth, and most importantly, the announced products were very appealing. It was a simple, cohesive, and true message.

To understand the brilliance of Amazon’s and Bezos’s positioning, you need to consider the audience. The mass market is not going to watch his presentation. As I type this, YouTube claims the video has been watched just over 92,000 times — a decent number, but only a sliver compared to Amazon’s customer base.¹ The audience was the tech press. This is how the information filters out: Amazon holds a product introduction event; the media writes and talks about it.

Tech writers have a natural aversion to lock-in, high prices, and dominant market leaders. As reflexes, these aversions are healthy. As dogma, they are not. Bezos played these angles perfectly. This was a good presentation, but it was a nearly perfect presentation for its intended audience of invited tech press, largely because of the way it positioned Amazon against Apple and the Kindle Fire against the iPad.

Amazon’s approach to selling media is in many ways platform agnostic. You can read Kindle books not just on Kindle hardware, but everywhere there’s a Kindle app: iPad, iPhone, Android phones, Mac, Windows, and even in a web browser. You can read iBookstore books only on iPhones and iPads. That’s an appealing message.

I think Bezos’s best line at the event was this one: “We want to make money when people use our devices, not when they buy our devices.” That’s a compelling way to frame it for customers. We’re in the very early innings of the tablet game. The great majority of Kindle Fires and iPads that are going to be sold in the next year will be to first-time tablet owners.

Bezos’s we want to make money only when you use it framing works two ways. First, it explains the Kindle Fires’ noticeably lower retail prices in a way that doesn’t make them seem cheaper, only less expensive. It frames Apple’s prices — and profit margins — as greedy. Second, it works as a sort of guarantee — if you don’t actually use it, we won’t even make any money on it.

Make no bones about it, Amazon is presenting the Kindle Fires specifically against the iPad, not “tablets” at large. In Bezos’s framing, it’s a race between two and only two tablet platforms. He explicitly dismissed all other existing Android tablets with the effective argument that no one is buying them. They’re mere gadgets, Bezos argued, and people today want services, not gadgets. (Eric Schmidt even admitted last week, at Motorola’s Droid event in New York, that only five percent of Android “activations” are for tablets.)

The second-best line from Bezos was this one, which he repeated several times, regarding Kindle Fire features like the dual Wi-Fi antennas and laminated-to-the-glass IPS display: “Is it more expensive? Yes. Is it worth it? Yes.” The brilliance of this line was that when he eventually revealed the prices of the Kindle Fire HD models — particularly the 9-inch models — it made the contrast with the iPad’s higher prices all the more dramatic. The setup made it seem like the prices might be on par with the iPad’s; the reveal was that they’re in fact far lower.

The big question: Why still only sell Kindle Fires in so few countries? As Matthew Panzarino notes, the Kindle (Fire or otherwise) remains a decidedly U.S.-centric platform:

As far as music goes, coverage for Amazon’s cloud storage and MP3 options is incredibly spotty with the UK, France and Germany enjoying some of the services and many other countries wondering what happened over four years since Amazon promised a rollout back in 2008.

But, perhaps worst of all, getting books on a Kindle outside the US is a frustrating affair fraught with unexpected taxes and fees and crazy variations in the catalog sizes in any given country. Yes, there are hundreds of thousands of books available in Amazon Kindle Stores worldwide, but for a company who is almost completely dominating the e-book space (or at least was up until 2010), this is simply unacceptable at this point.

The chicken-and-egg question in this case is easy to answer. First, Amazon needs media content deals in more countries around the world. Then, and only then, will they begin selling Kindle Fires in those countries. This is the downside to Amazon’s “we want to make money only when you use it” pricing strategy — if they won’t make money when you use it because they don’t have media content to sell in your country, then they won’t even sell you the device.

Horace Dediu, as usual, offers clarity:

What Amazon tries to do with the brand is ensure that the Fire is in the hands of its most ravenous consumers. That is why it’s not sold in all markets or through all channels. They are sold through Amazon.com in the US (limited sales in UK as well). This is because a large number of the product in the hands of users who only use it for browsing or in areas where Amazon does not have content deals or where its ads are poorly targeted (e.g. India, Indonesia or Madagascar) would be a disaster. It may not be all that helpful to Google to have Android in those markets but as you would expect it’s still a profitable business for Apple.

So one way to think of the Fire is as a promotional item (aka swag) for another business (Amazon.com).

I wouldn’t call it swag, though. The Fire is more like an accelerator — it’s a vehicle for turning active Amazon.com customers into even more active Amazon.com customers.

Apple’s goal is to sell as many iPads as it can. Amazon’s goal is to sell as many Kindle Fires as it can to a specific audience: active Amazon.com customers. And for that specific audience, it’s a very appealing proposition. The Fire makes it even easier to do things you’re already doing — reading Kindle e-books, watching movies and TV shows through your Prime membership. And the low prices speak to the heart of the Amazon.com customer base. When Bezos says he wants Amazon’s interests aligned with those of their customers, he means it.

It’s a heads we win, tails you lose strategy. That’s the brilliance. If you buy an iPad but use Amazon’s iOS apps to read Kindle books and watch movies through your Amazon Prime account, Apple wins but so too does Amazon. If you buy a Kindle Fire instead of an iPad, Apple gets nothing. Amazon wins so long as you consume media content from Amazon, no matter if you play it on a Kindle Fire or an iPad. Apple only wins if you buy an iPad.

Bezos made a point, both during the event itself and in interviews afterward, that Amazon is not pursuing King Gillette’s razor and blades business model. They’re not selling these tablets at a loss. But they’re not selling them at a high profit margin, either.

Om Malik argues that Bezos is the inheritor to Steve Jobs’s crown. I agree. Not because Bezos has copied anything Jobs did, but because he has not. What he’s done that is Jobs-like is doggedly pursue, year after year, iteration after iteration, a vision unlike that of any other company — all in the name of making customers happy.