Books & Media Move to the Clouds; Apple, Amazon, and Walmart Fight for Market Share
Nancy K. Herther
Posted On August 22, 2011
In the past 2 weeks, we have seen major announcements from Walmart and Amazon targeted at opening up the market for ebooks and mobile apps from the control of mobile device manufacturers, especially Apple. These events and actions have the potential to change the current distribution systems dramatically for both apps and ebooks.
Apple has established a distribution system for Apple iOS-platform apps that actively filters all developer app submissions, selecting the ones it wishes to sponsor on its site. It only sells those programs that work under the Apple iOS format (iPhone, iPod and iPad), freezing out anyone who doesn’t have an Apple device. Other mobile device makers have similar systems for the sales and distribution of apps and content for their systems. Apple, however, adds another layer, which is at the heart of the current controversy.
If selected by Apple, app developers or content owners are forced to pay what insiders call the “Apple Tax,” which requires that 30% of revenue from product sales, through either iTunes or Apple’s App Store, is given to Apple. With the exception of serials and subscriptions, Apple doesn’t allow for the sale of any digital content unless it is sold through their channels. This includes linking to outside vendors, such as Amazon’s Kindle store.
Given the slim profit margins that most publishers and software manufacturers operate with today, giving 30% to Apple has had a very devastating impact on companies and innovation in the industry. This has created major frustration and resentment in the industry, especially by retailers and developers who would like to see a more level playing field. The new cloud-based distribution systems from Amazon and Walmart aren’t the first volley in what appears to be an inevitable battle against what many consider to be Apple’s unfair monopoly.
Life in the Cloud
NDP Group recently released a survey by, finding that most people don’t have a strong understanding of cloud computing, despite the increasing dependence that everyone has on cloud-based information systems. According to the Apple Insider blog, 76% of respondents report using some type of cloud service; however, only 22% understood the concept of cloud computing.
Clearly, this is about to change. Recently, Apple announced its upcoming iCloud service to be released this fall. However, before this news had much time to sink in, Apple rivals Amazon, Walmart, and others announced their own cloud computing distribution systems, in a clear effort to wrest power and control of the markets for ebooks and other media from the Cupertino giant.
Amazon Moves Kindle to the Cloud
On Aug. 10, Amazon announced its Kindle Cloud Reader, which allows users to freely access the Kindle site that is built on the open HTML5 standard. Amazon’s new distribution system makes it even easier to browse, buy, and read books from your Kindle library—whether online or offline.
System features of the new Kindle Cloud Reader include the following:
- Ability to see all of your library of titles from your browser or device, giving you easy, device-independent access to content
- Embedding the Kindle Store, optimized for your web browser, to make shopping for new titles more transparent by shopping from the app itself
- Serving iPad users with the Kindle Store for iPad, which has been built specifically for iPad’s touch interface
- As you read some books, the user can choose to use it for offline reading
- Using the features of HTML5, you are more easily able to receive software updates automatically without needing to download anything
- You are able to customize page layout—font size, color of text and background and other features—to best meet your personal tastes
- Readers can now easily view any notes, highlights, or bookmarks even if made on other Kindle apps or on Kindles
- The system is able to synchronize exactly where you left off in your reading so you are able to pick up where you left off from any Kindle or free Kindle app
The new system was immediately available for users of Chrome, Safari on desktop, and Safari on iPad. Kindle Cloud Reader on the iPad has been optimized for the size and unique interface of the iPad. The service will soon be available on other web and mobile browsers as well, such as Internet Explorer, Firefox, and BlackBerry PlayBook.
Amazon Kindle director, Dorothy Nicholls, noted in the Kindle Cloud Reader announcement that “we have written the application from the ground up in HTML5, so that customers can also access their content offline directly from their browser. The flexibility of HTML5 allows us to build one application that automatically adapts to the platform you’re using—from Chrome to iOS. To make it easy and seamless to discover new books, we've added an integrated, touch optimized store directly into Cloud Reader, allowing customers one click access to a vast selection of books.”
Using the new Kindle Cloud Reader, iPad users can now get to the Reader by just typing in the URL: www.amazon.com/cloudreader. Amazon’s new approach to content distribution allows users to access the systems from any browser that supports HTML5, just as they would access any other type of program or website.
Industry insiders continue to debate how this will play out in the marketplace: Will users want a more generic, browser-based interface or prefer to stay with app-based system that might provide features and presentation more consistent with their experience? The big news is that this is offering users choices—and represents a clear effort to topple Apple’s control of apps for the iOS platform.
The Battle Begins
On the same day that Amazon announced its Kindle Cloud Reader, Walmart announced that its VUDU digital movie service is also bypassing Apple’s gate-keeping. VUDU is now offering video-on-demand streaming services for the iPad from its own website, not through Apple. VUDU videos can be viewed on mobile devices, televisions, game consoles, and Blu-ray players. Walmart’s press release says that VUDU has now “optimized the navigation experience of VUDU.com to enable millions of iPad owners to rent or buy entertainment content and then stream it easily through any iPad browser.”
Edward Lichty, VUDU’s general manager noted that, “we’re committed to offering the VUDU experience on as many devices as possible so customers can shop for and access their favorite movies and TV shows however they want, whenever they want.” Dorothy Pomerantz of Forbes magazine notes that, “VUDU is in a good position to compete with Apple. Walmart does $3.5 billion a year in DVD business with the Hollywood studios.”
And, as Lichty admitted about the launch to Reuters in an interview, “the economic advantage of not having to pay Apple 30% was a factor.”
On another front, on Aug. 9, 2011, a class action suit was filed in U.S. District Court in San Francisco alleging that Apple and a group of major publishers—Hachette, Harper-Collins, Macmillan, Penguin, and Simon & Schuster—had been conspiring to set pricing. The complaint alleges that Amazon’s decision to price ebooks at $9.99 represented what publishers saw as a threat to their revenues. The publishers, then, worked with Apple, abandoning their traditional wholesale model, and adopted Apple’s iTunes ecosystem, following the January 2010 launch of Apple’s iPad.
Steve Berman, the attorney representing consumers in the suit, noted that the plaintiffs “intend to prove that Apple needed a way to neutralize Amazon’s Kindle before its popularity could challenge the upcoming introduction of the iPad, a device Apple intended to compete as an ereader.” The attorney’s press release goes on to contend that, “if Amazon defied the publishers and tried to sell ebooks below the publisher-set levels, the publishers would simply deny Amazon access to the title, the complaint details. The defendant publishers control 85% of the most popular fiction and non-fiction titles.”
Efforts to break Apple’s dominance and allow the market to fragment and develop more naturally due to market forces instead of monopolies, began with efforts by users to truly control their own mobile devices.
Jailbreaking Your Device
Those of you who have survived the various format battles of the past 30 years know that people want far more flexibility and freedom than is generally possible under proprietary systems. Just as hacking was developed to make software more accessible and interoperable on computers, the apps marketplace has developed into two classes: On-deck—approved to operate on the devices and their specific operating systems—and off-deck, software that is not approved by those companies (Google’s Android, Apple’s iOS, BlackBerry OS, etc.) that “own” those operating systems. In order to make it possible to use apps that aren’t included in the official catalogs developed and promoted by mobile manufacturers, users have to make changes to the basic operating system of that mobile device.
It’s called jailbreaking and it’s hot. People develop “hacked” or modified versions of some proprietary mobile operating system that, once installed on your mobile, allows you to install applications from outside that device’s app store. Your device works just as it always has, but you have more flexibility and control over the games/programs/information that you want to be able to access.
Every time a new (especially Apple) cellphone is released, within months—if not days—someone has found a software path to jailbreak that phone. The original iPhone released in 2007 was jailbroken in 11 days; the iPhone 3GS released in 2009 was jailbroken in 2 weeks. The iPad 3G model released in April 2010 was jailbroken in just 2 days.
Is It Legal?
As a part of the 1998 DMCA law, the Copyright Office of the Library of Congress is required to determine, on request, if some technology (hardware, software, etc.) is covered by copyright extending to some particular function or use. In 2009, the Electronic Frontier Foundation (EFF) petitioned to have an exemption allowing for cell phone unlocking by owners of these devices. In a decision announced in July 2010, the Librarian of Congress released the ruling that: “Computer programs that enable wireless telephone handsets to execute software applications, where circumvention is accomplished for the sole purpose of enabling interoperability of such applications, when they have been lawfully obtained, with computer programs on the telephone handset.” The ruling doesn’t require that Apple and others unlock their systems, just that individual owners have the right to unlock their own devices and, by doing so, don’t violate copyright.
This effectively ends efforts by cellphone makers, Apple in particular, to sue individuals for breaking the protections built into their mobile devices. “Now people can go ahead and fix their phones and jailbreak them so they can run all sorts of different applications,” notes EFF’s Corynne McSherry. “They can make full use of the phone they bought without some kind of legal liability hanging over their head.”
Responding to legal decisions and customer pressure, Apple began selling “unlocked” versions of their iPhone 4 in 2011. Now, major retailers have begun to challenge Apple’s dominance in the content realm. It will be interesting to watch Apple’s response to these challenges.
Ebooks Are Clearly Big Business Today
In recent data from the American Association of Publishers, ebook sales in the U.S. have grown 1274% in the past 3 years. “Ebooks have grown from 0.6% of the total Trade market share in 2008 to 6.4% in 2010. While that represents a small amount in the total market for formats, it translates to 1274.1% in publisher net sales revenue year-over-year with total net revenue for 2010 at $878 Million.”
Today, ebooks are hot and all media and distribution companies are working to stake their claims and protect their interests. The battles with Apple represent market fragmentation as ebooks enter the mainstream of consumer culture. As the market continues to evolve, there will be winners and losers—and it is likely that the future ebook distribution system will look very different from what we have today.
One apparent loser is Microsoft. This week, in announcing it was “closing the book” on its ebook efforts, Microsoft posted the notice that it is “discontinuing Microsoft Reader effective Aug. 30, 2012, which includes download access of the Microsoft Reader application from the Microsoft Reader website. However, customers may continue to use and access the Microsoft Reader application and any .lit materials on their PCs or devices after the discontinuation on Aug. 30, 2012. New content for purchase from retailers in the .lit format will be discontinued on Nov. 8, 2011.”
Amazon has a lot at stake with ebooks and the Kindle platform. Walmart is the world’s largest retailer. Could one expect ebook publishers and sellers to respect the Apple-imposed restrictions on content, distribution, and use of their cellphones for long? This industry is growing fast and offers major potential for publishing and information in the 21st century. These actions represent some of the first volleys in the battles for dominance and market leadership. We can expect to see more posturing, product announcements, legal wrangling and, hopefully, consumers will see better ebook/app products at competitive prices.