Tuesday, April 17, 2012

Portability is Amazon's Kryptonite

Red Kryptonite
If you've been reading the blogs and the papers, you probably know that the US Department of Justice has bestowed super-powers on that web-shopping-site based in Seattle. Sure, they're soul-crushingly competent, but take away their Starbucks coffee and expose them to a smart start-up, and they'll probably become as threateningly geriatric as that code shop in Redmond.

So if you're Lex Luthor, CEO of Penguin, what do you do when Superman is flying loops around your latinum supply chain? You reach for a supply of kryptonite, of course.

It's easy to forget that not too long ago, Apple was left for dead and every startup presenting to a VC would dread the inevitable question: if you succeed, how will Microsoft crush you? How things change in the tech world! Microsoft's desire to collect a toll on everything proved to be its weakness. Microsoft is still a big player, but it's not the monster it used to be.

So what is Amazon's weakness in the book business? Has it become an unstoppable monopoly?

The "Collusive 5" publishers thought that the way to thwart Amazon's monopolism was to impose the "Agency Model" which allowed them to dictate retail prices. One problem with this strategy (apart from the illegal thing) was that their agency was a sham. In a true agency model, retailers would act as "sales agents" for the publishers, who would be the real sellers, setting prices and providing products. But what the Collusive 5 implemented was sham agency, in that they relied on the retailer (Amazon, Apple, Nook, Kobo) to do everything with the books except set the price. The retailer does customer service, fulfillment, rights management, viewing platform, even file integrity. The "seller" just pours content into ebook molds and props up the retailer margin, giving lots of other companies the chance to feed at the ebook trough.

This bean-counter's view of innovation mistook the real source of Amazon's growing market power. Barriers to entry, not profit margin, are the pillars that would sustain an Amazon ebook monopoly. And the biggest barrier to entry is the investment that consumers make in the Kindle platform. If it was just the reader device, it would be a temporary investment. Kindles are cheaply made, and they die  after a few years. It's the books on the e-shelves that consumers are loathe to toss in a digital trashbin. If consumers could take their purchases to any platform, Amazon's putative monopoly would melt away the moment some startup figured out how to build a better reading environment. Remember when no one could imagine a search engine competing against the likes of Yahoo, MSN and Alta Vista?



eBook portability is Amazon's kryptonite. If the vaunted Agency Model were not a sham, publishers could simply make portability a standard provision of their agency contracts: "Thou shalt enable portability". And that would be it. No collusion around pricing or discounts would be needed. Amazon could discount the living daylights out of their ebooks, but customers would still judge its competitors on their merits.

Some words about how portability could be implemented: It's been widely discussed that DRM is the biggest impediment to ebook portability. But portability can be implemented without eliminating DRM.  All that's needed is a digital-signed-receipt system. No difference if DRM were set aside for something more magical, morepotterish. Customers would receive a proof of purchase that could be presented to any authorized reading platform. It's not comic-book science, it's mundane coding stuff. I mean, you've hired some great techies, big publishers, why not listen to them for a change? Plus, coders are a lot cheaper than the antitrust lawyers you're not listening to.

So there's this little problem with ISBN assignment. ISBN gets used to identify ebooks, and BISG, in its standardized wisdom, decided that different ISBNs are given to Kindle ebooks and EPUB ebooks. So many people are unsure how to fulfill a consumer's ebook receipt for a book identified with ISBN. There's some work to do, but not anything you need superpowers for. It's muggle technology powering Pottermore, not magic.

Sweetbreads at Picholine
(CC BY-NC-ND by roboppy)
One more thing, big publishers. When you regrow your agency testicles, would you please tell your fruity Agents how you feel about reading platforms that pervert your content and think they know where your books can link to? I can think of all sorts of ways to make new monopolies out of that.

Oh, and when unglue.it colludes with y'all to achieve ultra-portable world domination, it doesn't count unless we do it at Picholine.
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6 comments:

  1. The ironic thing would be that it's the _publishers_ who are insisting on the DRM that is the barrier to portability, at the same time that portability would restore power to the publishers vis a vis Amazon.

    The publishers are the ones insisting on the portablity-killing DRM, not Amazon! It's very ironic.

    They are being hoist by their own petards. If only they can realize it before it's too late.

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  2. I've realized that one point needs elaboration.

    You don't NEED to abandon DRM to get ebook portability, all you need is a system of digital purchase receipts.

    A publisher would authorize a set of authorized ebook vendors and a set of authorized ebook reading platforms, which most likely would be overlapping, but not necessarily. When you buy an ebook, you'd get a digitally signed "proof-of-purchase" that you could redeem with any reading platform.

    Of course, the Apples and Amazons wouldn't like this model because it defeats lock-in, but they're just "agents" that sell ebooks on behalf of the real sellers, so they don't have much say in the matter. (Yeah right.)

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  3. There are other architectures that could work as well. Real portability could come from embedding rights statements inside encrypted epub files, and having those statements read and acted upon by a 3rd party "utility" rights authority that would share the decryption key to a valid rights holder. Aside from having far superior privacy implications (by separating purchase info from rights info), this could enable all sorts of interesting superdistribution.

    DRM need not be just about "blocking" access, a proper rights architecture could enable many aspects of a better book culture, including a way of ensuring authority in a particular text. How to trust a DRM-free epub text?

    I put some of these ideas into a presentation here - http://goo.gl/AgN2L

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  4. Katong- Happy to see work along these lines! The sad truth is that existing DRM architectures are built around fears rather than around aspirations.

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  5. As so you often do Eric, you've got to the heart of the matter... If publishers abandon DRM, it will be out of fear as well. The moment seems right to stimulate an industry discussion (collusion-free!) of better DRM architectures.

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