When first reading this case we thought that Amazon is using Clayton Christensen’s law of conservation of attractive profits which says that when one thing becomes modular and commoditized, another thing becomes valuable. We thought that, as shown by exhibit 4, Amazon is selling the excellent Kindle at a bargain or maybe even at a loss (Kindle is better on most specifications than its direct e-ink competitors and is less expensive) in order to make huge profits on eBooks sales. A common strategy in the industry: Google gives its mobile OS Android for free because the more people will use smartphones the more money Google can make on online advertisement – its core business. But after a closer look we noticed that Amazon isn’t even making money on eBooks sales because as we can see in the document, eBooks on the kindle store (Via Kindle readers, PC, Mobile phones etc.) can be sold with a (significant) loss for Amazon. And this is, in our opinion how Amazon changed the book industry, it has dramatically lowered the cost for customers to acquire an e-reader (a basic kindle reader costs no more than 49$ today) and didn’t stop at that, it made the purchase of e-books even more affordable by subsidizing the later. A strategy that no competitor can follow, because very few can afford to lose money on every sale they make.
In addition, Amazon is making it very easy and very profitable for writers to self-publish on the kindle web store. This is a real game changer. Because not only writers that cannot find a publisher are now able to publish their books with a few clicks, but even established writers are becoming more and more interested because of the more favorable offered by Amazon (up to 70% Royalties).
2. What would you identify as the most important risks and benefits of further vertical integration by Amazon into book publishing?
One of the most important benefits