How The Kindle Stomped Sony, Or, Why Good Solutions Beat Great Products

How did Sony, with its lauded hardware, get clobbered by Amazon in the e-reader war? The answer is an object lesson in the importance of creating an ecosystem to support your product.

The following is an excerpt from The Wide Lens: A New Strategy for Innovation.

Launched in 2006, Sony’s Reader was a Lamborghini to the Model Ts of earlier attempts at electronic book readers. Slim and lightweight, with a highly praised "electronic ink" technology that was as easy on the eyes as was paper, it was touted as the iPod of the book industry. It achieved what no other reader had managed: a reading experience that approximated traditional print, with all the advantages (storage, search, and portability) inherent to digital media. The launch met with much fanfare from the press, where the Reader was hailed as "the electronic gadget that could change the way we read." So why, having delivered this exceptional device, did Sony fail to deliver on its promise?

Sony brought massive technology resources to the Reader project. But a great e-reader is not enough to complete the value proposition for the customer. They also need something to read. Enter Sony’s complementers.

Sony’s plan for getting e-books to readers depended on bringing on board authors, publishers, and its own e-book retailer,

Even though some authors could have been convinced to issue e-books, it was the publisher who controlled the flow of content. As co-innovators, publishers looked like reasonable partners. They would need to innovate, modifying their internal processes and systems to manage and package e-books. This was a technical hurdle but a manageable one.

As adopters, however, publishers were highly ambivalent about whether and how to approach e-books. First, the economic and legal aspects of this new offering had to be hashed out: What is an e-book worth? What will the royalty payouts to authors be? How should the contractual language read? What would margins look like? The publishers—conservative firms clinging to a traditional business model—would not commit to e-books until these concerns were settled. And Sony was in no position to settle them. Publisher red light number one.

Second, was the question of digital standards. The very idea of having their copyrighted content in the digital wilderness—a hacker’s dream—sent shudders down the publishers’ spines. Sony’s proposed digital rights management (DRM) solution, the BBeB format, was just one more unproven option in a crowded field. Publisher red light number two.

Turning any one of these lights green would not be enough. Sony would need a clear path to turn all of them green before publishers would come on board in a meaningful way.

In the excitement of launching the PRS-500, it was clear that Sony was focused on delivering great hardware as the key to unlocking the potential of e-books. But while the hardware was certainly a cornerstone, it was not the whole structure.

The Kindle Conquers

As the publishing industry haggled over how to make e-books a winning proposition, Amazon entered the fray in 2007. Described by one analyst as "downright industrially ugly," it was larger than the Reader, weighed more, and had an inferior screen. Moreover, it was a very closed platform that was able to load content only from Amazon, and which precluded users from transferring the books they purchased to or from any other device, sharing with friends, or even connecting to a printer.

How could Amazon engineer a triumph with a weaker product? The company did it by engineering a superior solution.

Presenting the Kindle, CEO Jeff Bezos announced, "This isn’t a device, it’s a service." Unlike Sony’s Reader, the Kindle offered a complete experience for the customer: an expansive library of books and the ability to download the book instantly using Amazon’s wireless network.

Often overlooked, but critical to its success, is what Amazon changed on the back end to create its offer. In order to provide this seamless experience, Amazon changed the way critical elements of the ecosystem were configured by both extending its successful position in retailing and simplifying the value proposition for all the other parties involved. A few yellow lights, yes, but a clear plan for turning them all green.

Amazon’s powerful retail platform gave it enough leverage to approach publishers with several innovations that would encourage the creation of digital books for Kindle. But Amazon did not simply bully publishers into supporting the Kindle. Amazon created conditions in the ecosystem that made joining the long-awaited e-book revolution a more attractive proposition for publishers than any previous attempt.

First, Amazon tackled the DRM issue. The Kindle was both closed and proprietary, meaning users could not print their e-books, read them on another device, or share them with other people.

While this restriction was a turnoff for consumers, it was critical to reducing publishers’ perceptions of risk and total cost in making their adoption decision. In looking at the total ecosystem, Amazon made the wise choice to reallocate value to its weakest link, the publisher.

Amazon also increased the relative benefit for publishers by effectively subsidizing their participation through a counterintuitive retail model in which Amazon paid the publisher 50 percent of the list price of the print version but then sold the e-book for $9.99. To jump-start the e-book ecosystem, Amazon sacrificed its own e-book profits. In the short term, everybody was a winner: the publisher received the same amount it would have earned from a print version and saw a boost in sales; the customer enjoyed a cheaper, and some would say better, reading experience without sacrificing breadth of book choice; and Amazon emerged as the leader in the electronic book revolution. It was a position worth fighting for.

Amazon’s and Sony’s efforts to conquer e-books were the inverse of one another: Sony enjoyed competence in its hardware but was a stranger to the ecosystem; Amazon was well positioned in the ecosystem but was less competent with its hardware. The e-book ecosystem—like so many of today’s innovative efforts—is ultimately a system of interdependencies. Success is not determined on the basis of a winning effort at any single point; it requires moving the entire cohort of partners in the same direction.

Buy The Wide Lens here.

Excerpted from The Wide Lens by Ron Adner by arrangement with Portfolio Penguin, a member of Penguin Group (USA), Inc., Copyright © 2012 by Ron Adner.

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  • OR

    I would argue the ultimate reason Sony failed with this technology at the onset was their poor choice of Marketing Channel Strategy. Compare how Sony sold their e-reader vs. how Apple sold its iPhone and iPads. Furthermore, compare Kindle and the Nook. It is precisely the fact that the Nook is available for purchase in a brick&mortar that it has gained such tremendous grounds both on the Kindle and the iPad. Given the prospect of novelty, one needs to touch it, feel it, play with it before adopting it.

  • bbb

    Amazon paid the publisher 50 percent of the list price of the print
    version...the publisher received the same amount it would have earned
    from a print version 

    What am I not understanding here?

  • rpk

     But WHY did suppliers like Amazon and B&N move from a standalone solution to integrated offerings? Just because? Of course not. They recognized an opportunity and went through the back-end trouble to make their system work.  

    The answer is in Bezos's reference to the Kindle as a service. It's a means to an end. Kindle is to a razor as amazon is to razorblades. Take iTunes away from the iPod and you simply have an mp3 player. Albeit a well-designed mp3 player. 

    Yes, this story focuses on the Amazon Kindle. But the point of the story is not to ask "what happened to Sony" as much as it is to say, "Think about the integrated eco-system when you're looking to innovate."

    After all, it is an excerpt from a book about innovation. Not a book about what happened to Sony's eReader.

  • phead

    Sony had nice looking devices, but like many sony products the firmware was dreadful.  The hole on the bottom of the Sony is all you need to know about it, it should really come with a official Sony paperclip, as you will be using it every other day.
    My kindle has never crashed once.

  • sell used cell phones

    Interesting facts aforementioned. Kindle I think is a very nice device suited for plain reading.

  • Lucas Neumann

    This website is taking SO long to load....The previous design was much faster

  • BostonGuy

    This article is a bit of revisionist history and the title simplifies the argument to just one variable.  ie It was Kindle's doing. 

    In reality Sony eReader was a casualty of a shift in the eBook market, where ALL major suppliers moved from stand loan solutions to integrated offerings.  So with Apple, Amazon AND B&N all pushing their own content to their
    own ereaders, Sony's "standalone" offering just didn't stand a chance.  (Things could've been very different if Amazon and B&N decided to license hardware.  This was a strategy employed by Borders, but we all know what happened there).

    So as I said at the beginning.  This story was written with a
    preconceived notion of what happened and why.  It didn't really consider
    to look outside of that.

    Sure Kindle had a lot to do with killing the Sony eReader, but so too did everyone else. 

  • Rod J

    One has to realize, Amazon simply took its lead from Apple and the formation of iTunes. Sony, here had an even more convincing lead over Apple and the formation of the iPod ecosystem. Sony held a huge portfolio of music since they owned Sony Music Entertainment. But even here, Sony wasn't able to execute, even though they held all the cards


  • Simon Cohen

    totally agree. How Sony failed to learn from the iTunes lesson is itself worthy of a very deep case study.

  • Nnewton

    If only SONY could have learned from its Walkman heyday. With the Walkman it created a ubiquitous product that played music from any source published to cassette tape and then compact disc. From music corporation to indie to home, the Walkman product enabled the portable music ecosystem. The first Walkman could only play music for personal consumption. Had the SONY e-Reader been founded with the same simple proposition - deliver books for personal consumption, it would not be facing defeat by an inferior product.

  • Rolando Peralta

    Huge fan of Kindle and Sony (but not the reader). Actually BusinessWeek was also pointing "where's SONY right now" a couple of months ago.
    I considere SONY as a great hardware provider, but in ebook ecosystem, they're almost a stranger, as you said it before. I'm a reader junkie, and actually, I didn't see SONY stepping in the right direction.

  • Legalnola

    The picture you're using for the introduction of the kindle is actually the kindle 2.  The original kindle looked like the one on the right:  , conveniently next to the kindle 2 you have a picture of.  I've owned the original and the 3, so I immediately noticed the difference, and it does make a rather large difference to your story since the original kindle WAS much less sleek than the sony reader while the kindle 2 actually looked a lot like it (when you're quoting your anonymous analyst).

  • Simon Cohen

    well then it's worth pointing out that the picture of the Sony Reader is also a later model - one that introduced a touch screen. It actually suffered from worse readability and IMHO, worse usability.