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Where is Amazon's Kindle market power coming from?

There is much discussion of late regarding Amazon’s market power in the eBook space. It is probably over 60 percent in the US but I had trouble finding a current, reliable number. The fear is not so much that but how difficult it is for competitors to build traction.

There are two main barriers here. First, is the installed base of devices. When you have a Kindle eInk reader, you probably will hold onto it for a few years. Of course, you may have a tablet in which case switching providers is just a free app away. So the installed base for hardware does not appear to be a very strong barrier.

Second, there are possible broader switching costs. Amazon uses its own proprietary format for Kindle books (AZW) but you can, of course, read books from other formats on the Kindle (including ePub if you use a third party conversion). So if users have already bought a ton of books encoded with AZW they cannot port those books to another device or app.

It is sometimes argued, therefore, that the locked-in nature of Kindle books represents a switching costs for consumers. But why should that be? To be sure, Amazon are not going to open up their format any time soon. But they are not the only people in control of this. What if the publishers offered to any Kindle owner, a free download in an alternative format upon submission of proof they have purchased a Kindle version. Think about what that might mean. Apple or B&N could then ask Kindle owners for their book lists and offer them a new device or app with all those books still available. This would cost the publishers nothing as they have already sold the book to that customer. So long as it was the customer still owning all of those collections there would be no lost sale and because it is just a digital copy there are no other costs. In other words, the switching costs would be gone.

So if publishers are worried about Amazon’s power due to switching costs they only have themselves to blame. They can fix this right away.

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