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Big news today from Amazon who have quietly released their Kindle Cloud Reader using HTML5. I have to say, I’m so excited for HTML5 and its disruptive potential. But that’s besides the point. Amazon’s latest move in their chess match with Apple for control of the e-book market is both bold and cunning. It’s not checkmate, but I think it is certain to garner fans and good-will, which will be crucial for market-share supremacy. So now, let’s look back at this epic rivalry to shed some light on Amazon’s latest move.

Originally, Amazon viewed sales of e-books as a tool for building their foothold in the e-reader market. This was certainly their purpose in 2007 when they started selling all e-books at the consumer friendly price of $9.99. By keeping e-book prices low, they hoped to encourage readers to purchase their Kindle. This model isn’t new, of course. They actually copied Apple’s iTunes/iPod business model: price the content cheaply to sell the hardware.

Of course, Kindle users will recognize that Amazon no longer sells all their books for $9.99. In fact, their hand was forced by Apple. In order to gain a foothold in the e-book market leading up to the release of the iPad, Apple penned disruptive deals with several publishers in early 2010. These deals gave pricing power back to the publishers in return for assurances that the publishers would not sell their e-books for lower prices through any other retailer, ie. Amazon’s Kindle marketplace. Amazon, caught between the proverbial rock and a hard place, responded by updating their deals with publishers to match the terms offered by Apple. If Amazon hadn’t, they would have seen their e-book offerings decline, and the value of the Kindle and its marketplace would have eventually plummeted.

On a side note, this occurence is now the subject of a class action lawsuit against Apple and the participating publishers. The move from Apple and the participating publishers, if it can be proven to have been planned in collusion (which seems likely to be true but difficult to prove), would in fact be illegal anti-competitive behavior. Amazon doesn’t seem to have had any hand in this lawsuit, but I imagine the lawsuite will not be seen unfavorably by the e-retailer. A good PR campaign around this lawsuit, regardless of the verdict, might allow Amazon to paint themselves as the beleaguered friend of readers everywhere, and Apple as the evil corporate giant only interested in getting market share at any cost.

The next notable move also came from Apple. In June, Apple announced rule changes for 3rd party iOS Apps. Specifically, any App for iOS platforms (including iPhone and iPad) could not include links to external sales sites. Apple’s intent was to force app makers to use in-app sales (of which Apple would get a 30% cut) instead of directing consumers to external sales websites.

This move wasn’t designed exclusively to target Amazon, but it seems to have been focusing particularly on Kindle. The Kindle App is consistently one of the most downloaded for Apple products. Meanwhile, Apple wants their users to buy e-books through iTunes, where they earn a 30% share of revenues. If Amazon plays along with the rule change, Apple will get a 30% share of e-books sold through the Kindle App for iOS. If Amazon doesn’t play along, then Apple has made it less convenient for Kindle App users to get the books they want, and potentially increased the relative appeal/value of the iTunes e-book store. Either way, Apple wins.

In response, Amazon changed the Kindle App: they removed the web links for purchases but they didn’t add in-app “buy” buttons. Instead, less than 2 months after the Apple’s rule change, Amazon released the Kindle Cloud Reader, using HTML5. With this new platform, people can buy books from Kindle, store them in the cloud, read them online or download them to many different platforms, including iOS. Brilliant! And not just because it gets around Apple’s ridiculous attempts to prevent iPhone and iPad users from buying e-books from the Kindle marketplace. It’s also perfectly aligned with Amazon’s focus on becoming a key player in cloud services for digital media. And in my humble opinion, digital media consumption and storage will increasingly be moving to the cloud in the near future. If I’m right, then Amazon is positioning themselves perfectly to be the go-to retailer of digital media, conveniently stored directly in the Amazon Cloud Drive and accessed anywhere via the Amazon Cloud Player.

The match isn’t over. I expect a brilliant countermove from Apple, who are, of course, working on their own cloud services offering and who knows what else. But for now, I’m enjoying watching these giants duke it out.

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