Starting Points: Kindle

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May 25, 2010

The iPad Revolution

by Sue Halpern

John G. Mabanglo/epa/Corbis

Apple CEO Steve Jobs introducing the iPad at the Yerba Buena Center for the Arts, San Francisco, January 27, 2010

As just about every sentient being knows, Apple Computer launched its “revolutionary,”¹ “game changing,”² “magical”³ tablet computer, the iPad, on April 3. This was after years of rumors, dating back almost a decade,⁴ but starting in earnest in February 2006,⁵ when Apple filed a number of patent applications that hinted at its intentions to move into touch computing. Though this turned out to be the prelude to the iPhone, tablet rumors began building again throughout the summer and fall of 2008 and into 2009,⁶ despite consistent denials from the company. By following the age-old dating protocol—flirt, be coy, don’t call back, flirt some more—Apple successfully turned up the dial on desire: here was a device that, sight unseen, large numbers of people wanted and believed they had to have, even without knowing precisely what it was or what it did.

In October 2009, at about the same time that rumors about the phantom Apple tablet were beginning to swirl, but before they coalesced into a media suck, the bookstore chain Barnes and Noble issued a product announcement of its own. It was getting into the electronic book reader business (again, ten years after its failed RockBook launch) with a small device called the Nook, reminiscent of Amazon’s popular electronic book reader, the Kindle, whose dominance it meant to challenge. Though The Wall Street Journal gamely live-blogged the launch, which took place in a basement conference room at the Chelsea Piers sports complex in Manhattan, and despite an overrun of holiday preorders for the Nook, once Apple revealed, right around Christmas, that it was planning a major product announcement at the beginning of the new year, excitement that another player had entered the e-book arena dulled.

At the Nook event, there was a lot of talk about the book industry and the future of books and the promise of e-books. Stephen Riggio, the CEO of Barnes and Noble, pointed out that publishing was still big business; at $30 billion a year, it was bigger than both the music and film industries.⁷ He also observed that readers wanted books on demand, which is what the Nook—with its access to the Barnes and Noble catalog, as well as to the more than one million scanned public domain books already on offer through various online sites, and, most likely, to the millions of books promised by the pending Google Books settlement as well—would give them.

Riggio pointed out all the ways that the Nook was different from the Kindle: it was based on Google’s open-source Android operating system, it used the nonproprietary ePub format, it had both wireless and 3G Internet access, it had a dash of color and a rudimentary touch screen, and it could be used to play music. He didn’t have to say that with an estimated three million Kindles in circulation, Barnes and Noble was playing catch-up to Amazon. It didn’t help that, aside from having a small touch screen rather than a keyboard, the Nook looked nearly identical to its rival, or that in its first iteration, the one that landed in the hands of reviewers like The New York Times‘s David Pogue, its underlying software was buggy and slow, or that due to supply issues, the company was unable to put Nooks under the Christmas tree. The machine didn’t actually ship till February, which is to say after Steve Jobs’s exultant iPad unveiling at the Yerba Buena Center in San Francisco on January 27, but before anyone could get their hands on an iPad, when desire for it was most pronounced. So while the iPad didn’t render the Nook dead on arrival, initial Nook sales, estimated to be around 60,000 units, were not strong enough to test the Kindle’s preeminence, let alone toss a lifeline to the publishing industry, if that’s what trying to capture a share of the growing electronic book market was expected to do.

Stephen Riggio was working with old data when he spoke that day at Chelsea Piers. According to the Association of American Publishers, book sales fell nearly 2 percent last year, to $23.9 billion.⁸ Educational books and paperbacks took the biggest hit. Their downward trajectory seemed to confirm what Steve Jobs said to The New York Times back in early 2008, when he reflected on, and then dismissed, the newly released Kindle, a device “which he said would go nowhere largely because Americans have stopped reading.” “It doesn’t matter how good or bad the product is, the fact is that people don’t read anymore,” Jobs told the Times. “Forty percent of the people in the US read one book or less last year. The whole conception is flawed at the top because people don’t read anymore.”⁹

Imagine his surprise, just two years later, when the number of book apps—books that can be read on the iPhone and iPod touch—surpassed the number of game apps in Apple’s own App Store, and sales of digital books for machines like the Kindle and the Sony Reader tripled, to over $313 million, with analysts at Goldman Sachs predicting that US sales of e-books would grow to $3.2 billion by 2015, and that Apple would command a third of that pie.^10 Most people may not have been reading, but those who were doing so on digital readers seemed to be reading a lot.

In 2008, visitors to Apple’s iTunes store downloaded one book app for every six game apps. Last year, that ratio was one to four. By the time Steve Jobs took to the Yerba Buena Center stage it was obvious that he had been wrong about readers and reading, and wrong about the Kindle itself. His mea culpa came in the form of a picture of a Kindle, projected on the big screen behind him, and the words: “That’s an e-book reader. Now, Amazon’s done a great job of pioneering this functionality with its Kindle. And we’re going to stand on their shoulders and go a bit further.” With that, he introduced Apple’s own e-book reader in the form of an iPad application called iBook. As he paced the stage, highlighting its “functionality,” the audience periodically broke out in spontaneous applause, even when it became clear that iBooks would be readable only on the iPad, and even when he noted that Apple was working directly with publishers, who would be setting their own prices, which were most likely going to be three or four or five dollars higher than Amazon’s loss-leading, penny-less-than-ten-dollars standard, and their own policies, which might keep new books off the e-book shelf so they wouldn’t compete with hardback sales. Prices and policies, that is, that appeared to favor publishers over consumers in the short run, which many publishers considered to be essential to the health of their industry.

You don’t have to be a technophobe or a Luddite to dismiss out of hand the idea of reading on a machine. Maybe it is muscle memory, but there is something deeply satisfying about a “real” book, a book made of pages bound between hard or soft covers, into which you can slip a bookmark, whose pages you can fan, whose binding you can crack and fold as you move from beginning to end. E-books, by contrast, whatever platform delivers them, are ephemeral. Yes, you can carry thousands of them in your pocket, but what will you have to show for it? What will fill your bookshelves? Then, one day, you find yourself housebound, and Wolf Hall has just won the Booker Prize, and you download a sample onto your iPhone, and just like with a book printed on paper you are pulled into the story and are grateful to be able to keep reading, and your resistance disappears, and you press the “buy” button—it’s so easy!—and that is how it starts.

There are two basic ways, so far, that words are displayed on a small screen, and those different ways offer different reading experiences that may influence whether you find reading on a handheld electronic device satisfying or not. There is “E Ink,” which reflects light rather than emitting it, and looks surprisingly like regular ink, though the page itself is grayer and offers less contrast; and there are liquid crystal displays (LCDs), pixels filled with liquid crystals arrayed in front of a light source that can be dimmed or brightened. The Kindle and the Nook, which are both monochrome readers (though the Nook has that petite color touch screen where it’s possible to see a thumbnail image of a book jacket), use E Ink. The iPhone and iPad are LCDs, and both are backlit. Backlit screens are hard, if not impossible, to read outside or in direct sunlight, and held at certain angles have a mirror effect so that the reader’s face is superimposed on the screen. Reflective E Ink screens, meanwhile, are difficult, if not impossible, to see in low light—forget reading under the covers. One is not better than the other; they are both flawed. New “transreflective” technology¹¹ will bridge this divide, but that’s in the future.

When the Nook was announced, tech pundits wondered aloud if it would be a “Kindle killer.” It wasn’t, because, while it generally improves on Amazon’s model by, for example, being easier to navigate, it’s basically the same thing—a small, lightweight, pocketable, durable, black-and-white book reader. Both are simple to operate. Both allow access to hundreds of thousands of titles, the Kindle through Amazon’s extensive bookstore, the Nook through Barnes and Noble’s. While I prefer the Nook because it connects to the Internet through both Wi-Fi and 3G, unlike the Kindle, which has only 3G connectivity and is not operable without being tethered to a computer to retrieve books in certain geographic regions (like mine) with poor access to 3G, the reading experience is indistinguishable.

True, the Nook has the capacity for listening to music and now, with its most recent software update, for simple Web browsing and playing a couple of games, but these features are, so far, primitive and uninspiring. The real difference between the two machines, and the one that matters, is that the Nook is built around the ePub format, which is open and freely available for any device, unlike the Kindle’s proprietary format, which functions only for Kindle. The ePub format is used by every electronic reader except the Kindle, and promises to be a big selling point for Google Editions, the search firm’s planned Web-based electronic bookstore scheduled to launch this summer, which will allow buyers to read books and much else on any number of devices. (This may include, by year’s end, Google’s own tablet computer.) It’s through ePub that readers have instant access to millions of books in the public domain,¹² that electronic publishing has a chance to become standardized, and that writers will have more options when it comes to disseminating and selling their books. As the Jacket Copy blog in the Los Angeles Times pointed out, “Theoretically, an individual author could create an EPub e-book and publish from home.”¹³ The implications go deep.

Daniel Acker/Bloomberg/Getty Images

Competing e-book readers: Barnes and Noble’s Nook and Amazon’s Kindle

The headline of that piece, published the day of the iPad unveiling, was “The iPad Shows Up the Kindle.” And it did. When Steve Jobs projected the image of the iPad after his damned-with-faint-praise nod to the Kindle, the Kindle looked comically out of date, a relic, like a black-and-white TV next to a fifty-eight-inch plasma HDTV. As an analyst for the investment bank Needham and Company put it a week after the iPad went on sale and nearly half a million units flew out the door, the Kindle is “not a compelling product.”¹⁴ Even so, he and a number of other forecasters estimated that upward of three million of them would be sold in the coming year. (According to Apple, a million iPads were sold in the first month.)

What this suggests is that there remain good reasons to buy an uncompelling e-book reader like the Kindle rather than a polished, entertaining, ingenious Apple tablet. E-book readers are smaller (so far) and lighter and can slip into an even more compact space than a traditional paperback book. By contrast, the iPad is a fairly large slab, nearly as big as a page of manuscript paper and, at about 1.5 pounds, decidedly heavier. Dedicated e-book readers are considerably less expensive than the iPad and likely to drop in price to stay competitive. (Amazon has even begun giving away free Kindles to its most active book buyers, which of course will lock those buyers into continuing to purchase e-books from Amazon.) E-book readers can be used outdoors and in direct sunlight indoors. And, perhaps most crucially, even though the move is on to add Web browsing, so far electronic book readers reduce the temptation to check e-mail or the baseball score or stock prices or headlines or Twitter or all of the above every few minutes, allowing a reader to do what readers typically like to do most: get lost in the pages of a book. That the pages are not made of paper, that the ink is made from electrical charges, does not matter.

The iPad, in contrast, celebrates and enables mental roving. You can check e-mail, listen to the radio, watch a film, play poker, read the headlines, edit photos, compose a song, shop for shoes, track calories, look up recipes, and on and on, and you can read a book and write one, too (though typing on the keyboard screen is hit-or-miss and editing with Apple’s $9.99 touch-based word-processing program is as messy as eating with your fingers). What you can’t do, with few exceptions, is do these things simultaneously. You may want to check e-mail while a commercial is playing during an episode of Lost, but pressing the mail icon shuts off the ABC icon. You may need to convert dollars to kroner while searching for hotels in Oslo, but if you’re looking for those hotels on the Kayak app, it will disappear once you tap your finger on the conversion app. Multitasking, which may soon come to the iPhone, is absent here, which makes the iPad less like a computer and more like the large-print version of the iPod Touch.

Okay, that’s not completely fair: there are a number of unique applications that have been developed specifically to take advantage of the iPad’s size, resolution, and graphics, and they are either unlike anything we’ve seen before or different enough to seem original and new, and the number increases daily. There’s a realistic labyrinth that works by tilting the machine and, as the marble caroms off the sides, makes a satisfying clunk. There are also an acted-out edition of Shakespeare’s sonnets in what is called a Vook—a book with embedded video; a Netflix app that allows subscribers to stream movies; and a gorgeous, three- dimensional rendition of the periodic table. Magazines haven’t yet hit their mark (a single issue of Popular Science on the iPad costs $5 while an annual print subscription costs $12), though this could change in the coming months as more magazine publishers, like Condé Nast, cut deals for iPad-enabled editions. The free New York Times Editor’s Choice app is anemic, especially in contrast to the Web edition of the paper, but may be a placeholder or a teaser for a more robust subscription-based app in the future.

In the meantime, news organizations like the BBC, NPR, and Reuters show what’s possible with the iPad technology, providing up-to-the-minute written reports on the events of the day supplemented by high-quality, often stunning, audio and video. On the BBC site, for example, it’s possible to tune in to live radio while scrolling through the day’s stories, while NPR’s masterful application lets you read, view photos, and listen to pieces from a slew of public radio shows. Whether all this adds up to a game-changer able to revive magazine and print journalism will depend, not surprisingly, and as usual, on whether it’s innovative enough to lure consumers and advertisers into paying real money for content. At the moment, most of the news sites are both free and largely ad-free: while neither “revolutionary” nor “game-changing,” this is indeed “magical.”

One place the iPad shines is with its iBook application. Apple not only straddled Amazon’s shoulders when designing the app, it found the finest e-book application for the iPhone, called Classics, lifted its best features—a virtual bookshelf filled with the book jackets of virtual books and pages that curl and turn like paper pages—and enhanced them. Turn the iPad horizontally and the book on the screen instantly shows left and right pages. Turn it vertically and there’s a single long page. Flick the screen with your fingers and the pages fan. Flick them one at a time and you hear them turn. It’s a little cheesy—but it’s familiar, too, which makes holding and manipulating a book made of glass and metal a little less strange. Though the actual iBookstore is so far limited to less than 60,000 volumes, half of which are the public domain holdings of Project Gutenberg and the rest the thrillers, mysteries, and celebrity memoirs that top recent best-seller lists, that number will only grow as more publishers sign on with Apple, which has been much more accommodating of publishers’ interests than Amazon by letting them set prices and release dates, as well as by adopting the ePub format. (It’s still unclear how books purchased through the Google Books settlement or through Google Editions will work with iBooks.) With ePub, too, it’s also easy to retrieve free books from manybooks.net or Project Gutenberg or Google Books, as well as to download PDF files, send them to iBook, and have them appear on the iBook bookshelf ready to read. In addition, there is a stand-alone free books app.

Free books, typically, are either self-published or published before 1923 and in the public domain. Some, like Alice in Wonderland and Pride and Prejudice and the Kama Sutra, are quite popular, but for the most part, when readers seek out digital books, they are looking for titles that are contemporary, if not new. What the Kindle and the Kindle app for the iPhone/Touch demonstrated was that if the price was right, books could be an impulse buy. But immediacy—being able to push a button and having a book appear instantly on your screen—only worked if the price was low enough not to get in the way of hitting the “buy” button.

Somehow, maybe by focus group, maybe by luck, Amazon determined that the ideal price point was $9.99 and made that the sticker price for most of its titles, despite hardback prices that were often more than twice that, despite losing money on them, and despite many publishers’ belief that cheap e-books were going to cut into their bread-and-butter retail sales. For better or worse, there was a catnip quality to the $9.99 book, much the way there was for the 99-cent song. By May 2009, Kindle downloads accounted for 35 percent of Amazon’s book sales when there was a Kindle edition available,¹⁵ as the folks over at Apple were well aware, since a lot of those sales were coming through the Kindle app, not the Kindle itself.

Within days of getting into the e-bookstore business, Apple, as if to answer the question of whether higher e-book prices would put a brake on buying, anounced that 250,000 books already had been downloaded on 300,000 machines. It turns out, though, that it was fudging. By using the word “download” to describe readers’ behavior rather than “purchase,” it was not possible to distinguish between books that were added to all those new iPads without charge—free books and book samples—versus those that cost money. Whether higher prices will slow e-book sales remains to be answered. In the meantime, readers who balk at paying a premium to read books through iBooks can still buy books on the iPad using the Kindle app or one for Kobo Books, a Canadian bookseller, and in a few months through Google Editions. While their formats are not as elegant as iBooks’, it is not unusual to find a book selling for a couple of dollars less on these sites, and as soon as someone comes up with the book price comparison app, that kind of shopping will be even easier.

Of course, there’s no telling if Apple will allow such an app in its App Store, since it keeps a tight rein on what can be sold there. All software for the iPad (and iPhone and iPod Touch) goes through a lengthy vetting process and has to be approved by the company. Apple can reject software it considers too competitive with its own products, or deems inappropriate, or just does not like—it’s an arbitrary process, as shown by Apple’s rejection of an app created by political cartoonist Mark Fiore because it “ridicules public figures.”^16 This is its prerogative, and it’s not that different from publishing (editors routinely reject manuscripts) or retail (that’s why there are professional buyers).

Still, Apple’s vetting is the antithesis of the openness that has sparked much of the creativity and ingenuity that defines and drives the Internet. Since the release of the first browser seventeen years ago, the Internet has been an unrestricted playground, accessible to just about anyone. Its openness is why some governments fear it, why certain corporations are threatened by it, why a formerly unknown singer can sell a million albums, why a teenager in Mumbai can contribute computer code to a piece of software developed in Amsterdam and distributed globally.

The Open Source movement and Creative Commons both derive from the Internet’s essential freedom, a leveling that allows designers and filmmakers and singers and craftsmen and any number of writers, activists, politicians, artists, and entrepreneurs, many of them amateurs, to develop and disseminate their ideas. Imagine what the Internet, and our lives, would be like if, after inventing the Mosaic Web browser back in 1993, Marc Andreessen and Eric Bina not only required users to buy it but required payment for every click or download or page view. Try to imagine how a privatized, monetized Internet might have developed, and you can’t, because its evolutionary path would have been so different. Apple’s iPad apps may be ingenious. They may be fun and entertaining. They may be useful. What they can’t be is free of Apple’s control.

It is true that the iPad, like the iPhone and iPod Touch, comes with a Web browser app that takes the user directly to the Internet. Arguably, this makes these devices comparable to any computer and renders the complaint about gatekeeping moot. In fact, Web browsing on the iPad is less than ideal. Keeping more than one window open at a time is not possible, and Apple’s refusal to enable Flash, a piece of proprietary software owned by Adobe Systems that underlies many websites and allows for animations and video, means that those websites are either not fully functional or not available at all. But why bother going through a browser to get to YouTube or to read the AP headlines or check the weather when there is a dedicated app for each of these? This is what is really revolutionary and game-changing about the iPad: once there is an app for everything, it’s Apple’s Web, not the wide world’s.

Dec 29, 2009

This holiday season, Web sales are retailers' biggest gift

Image via Wikipedia

By Frank Ahrens
Washington Post Staff Writer
Tuesday, December 29, 2009; A11

Consumers spent a little more than anticipated during the holiday season, according to a report out on Monday, and a significant e-tail threshold may have been crossed on Christmas Day at Amazon, the online bookseller.

For the first time ever, online sales of e-books on Christmas Day exceeded sales of physical books at Amazon, the company said on Monday.

Overall, retail spending from Nov. 1 to Dec. 24 rose 3.6 percent compared with the corresponding period last year, according to MasterCard's SpendingPulse survey, which tracks all retail spending, including cash transactions.

The increase was partly attributable to one extra shopping day in 2009. Even removing that day, retail spending still beat last year's performance, when recession-dampened sales slumped 2.3 percent compared with the 2007 period.

This year's results also bested expectations, which forecast a 1 percent slump in holiday spending across November and December, compared with last year's historically bad results.

"While up is good, it wasn't going to take much" to beat 2008 holiday spending, said Miller Tabak equity strategist Peter Boockvar. "Things are better but still sluggish, and consumers are still fervently looking for sales."

Boockvar pointed to reports Monday of people returning gifts in exchange for cash to buy necessities as "a sign that the labor market and people's pocketbooks are still very uncertain."

According to government data, consumer spending makes up about 70 percent of U.S. gross domestic product. The biggest jump in 2009 holiday retail spending happened online, where purchases rose 15.5 percent compared with last year, the survey said. They now account for about 10 percent of all retail sales.

Image via CrunchBase

Contributing to the online surge were electronic book purchases from Amazon, meant for use on the company's Kindle reading device.

Amazon, however, does not release sales figures on Kindle sales, nor on e-books sold on Christmas Day.

Using built-in wireless technology and an electronic display, the Kindle lets users download digitized books, blogs, magazines and newspapers in almost any location and read them on the device's six-inch screen immediately.

Amazon introduced the Kindle in 2007. The peak in e-book purchases on Christmas Day indicates that a number of Kindles were given as Christmas presents and were used to buy books that day. In a release, Amazon chief executive Jeff Bezos called the Kindle, which sells for $259, the "most-gifted item ever in our history."

On a wider scale, the uptick in holiday spending came from electronics, jewelry and footwear, which combined to make up more than 16 percent of all sales, MasterCard said.

Sales at department stores dipped 2.3 percent, MasterCard said.

MasterCard's online sales report was backed up by data from comScore on Monday, showing that November online spending rose 10 percent measured against November last year. This year, consumers geared up for the holidays buying $12.3 billion worth of goods over the Internet.

Image by Yupa1 via Flickr

On 2009's "Cyber Monday" -- the first business day after the Thanksgiving weekend, when a surge in online sales is typically expected -- spending rose 5 percent, with half of all sales coming from work computers, comScore said.

But on Black Friday -- the day after Thanksgiving, which is thought of as a big, brick-and-mortar retail spending day -- online spending actually rose 11 percent compared with November 2008, comScore said.

Online sales hit a one-day high of $913 million on Dec. 15, comScore reported, the first time they have topped the $900 million mark.

Monday's positive retail news pushed stocks modestly higher. The Dow Jones industrial average rose 0.26 percent to close at 10,547.08. The broader Standard & Poor's 500-stock index rose 0.12 percent to close at 1127.78 and the tech-heavy Nasdaq composite index climbed 0.24 percent, reaching 2291.08.

With three days left in the trading year -- and decade -- the Dow is up 20 percent, the S&P 500 is up 25 percent and the Nasdaq is up 45 percent year-to-date.

Aug 9, 2009

Amazon.com, Digital Publishing and Jeff Bezos

By Lev Grossman and Andrea Sachs

This story has been updated since publication in TIME magazine.

Cayla Kluver was 14 when she wrote her first novel. It's a fantasy novel called Legacy, and it's about a certain Princess Alera of Hytanica who's being forced to marry the handsome but obnoxious Lord Steldor when she's really interested in the handsome but mysterious Narian, who hails from Hytanica's bitter enemy, Cokyri.

When she was 15, Kluver and her mom, who live in Wisconsin, formed their own publishing company to publish Legacy. Sales were modest, but the book attracted some rave reader reviews on Amazon.com At 16, when most authors are years away from getting their first big break, Kluver is getting her second: this August, Amazon is going to relaunch Legacy on a grand scale.

The whole story is practically a fantasy: Amazon plucked Kluver out of obscurity to be the first author in its Amazon Encore program, which takes worthy but overlooked books and republishes them for a wider audience. But there's something odd about it too. If Amazon is a bookstore, it's supposed to be buying from publishers, not competing with them. Right? (See the 50 best websites of 2008.)

Except it isn't just a bookstore. As numerous publishing journalists and bloggers have pointed out, Amazon has diversified itself so comprehensively over the past five years that it's hard to say exactly what it is anymore. Amazon has a presence in almost every niche of the book industry. It runs a print-on-demand service (BookSurge) and a self-publishing service (CreateSpace). It sells e-books and an e-device to read them on (the Kindle, a new version of which, the DX, went on sale June 10). In 2008 alone, Amazon acquired Audible.com a leading audiobooks company; AbeBooks, a major online used-book retailer; and Shelfari, a Facebook-like social network for readers. In April of this year, it snapped up Lexcycle, which makes an e-reading app for the iPhone called Stanza. And now there's Amazon Encore, which makes Amazon a print publisher too.

No question, Amazon is the most forward-thinking company in the book business. If there's a Steve Jobs of books, it's Amazon's founder, Jeff Bezos. His vision is defining the way books will be bought and sold and written and read in the digital world — which is to say, the world. The question is whether there will be room in it for anyone besides Amazon.

Amazon founder Jeff Bezos, holding the new big-screen Kindle DX.

The Perils of Verticality

If you're a reader, you probably consider Amazon your friend. And it is. It recommends books to you and gets them to your door for cheap. But try shifting your point of view to that of a publisher and Amazon starts looking a bit scarier.

The Amazonians are really good at selling books online, and publishers love them for it. But because Amazon is so much better than anybody else at selling books online — last year, it owned 43% of that market, according to the bibliographic-information company R.R. Bowker — it has a lot of power at the negotiating table. All retailers get discounts from their wholesalers, but some publishers think the discounts Amazon asks for are getting too deep. "They're fast approaching the point where we just can't afford to do business with them," says a well-known New York book editor, who asked not to be identified. "It'll be interesting to see what happens then."

Publishing is a genteel business, and publishers aren't used to playing hardball. Amazon is, and it does. "I think it's fair to say there's some tension," says Jim Milliot, business and news director at Publishers Weekly. "They're the dominant online retailer. Publishers really aren't in the position to argue. Or to fight back." Last year, in a widely publicized scuffle, Amazon disabled its "Buy now with 1-click" button for some books published by Hachette's U.K. division after the companies disagreed about sales terms.

See the 100 best novels of all time.

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The whole digital revolution just makes things more complicated. For example: How much should an e-book cost? Right now, Amazon prices most of its Kindle editions at $9.99, which is quite a bit less than the cost of your average hardcover book. "In the digital-books world, a number of the costs are removed, so we believe they should be priced lower," says Russell Grandinetti, vice president of books for Amazon. "Our approach to digital books is that we will allow that to continue."

For now, Amazon takes a loss on these books, since it buys them from publishers at the price of a regular hardcover. The company considers it an investment in getting the Kindle established as a platform. But eventually — soon — it's going to want publishers to start sharing the pain. This may seem a nitpicky issue, but once e-books become a significant part of the market, the price of a Kindle edition could mean the difference between the red and the black for some publishers. "That's the detonation point," says Dennis Johnson, publisher of the prominent small press Melville House. "Because nobody can make a book that sells for $9.99." Yes, you save on printing and shipping, he says, but that's only a small fraction of what it costs to make a book. (See the top 10 gadgets of 2008.)

Don't get them wrong: publishers are thrilled that Amazon is putting all these resources into the Kindle. Any new retail channel for books is a godsend. They're just concerned that the precedent being set is unworkable. "Amazon picked a cost in the beginning that they believed the consumer would like, and of course, the consumer likes it," says Carolyn Reidy, president and CEO of Simon & Schuster. "Who wouldn't like a price that was significantly lower than the price the hardcover is? And we think it's too low." (Grandinetti sticks to his guns: "We believe our approach to digital books allows authors, publishers and retailers to run profitable businesses yet still pass on the savings that digital books allow to readers," he says. Right or wrong, nobody can stay on message like an Amazon exec.)

Such are the conundrums raised by a company that has attained the radical verticality that Amazon has: when it comes to e-books, Amazon doesn't just sell them; it practically owns the entire medium. Of course, they'll all have to make nice eventually, since Amazon needs publishers to survive and thrive. Or does it?

Here's an interesting factoid: last year, for the first time in history, more books were self-published in the U.S. than were published the regular way. Amazon has invested heavily in publisher-free publishing, and it's paying off handsomely. The sector has seen two straight years of triple-digit growth, and on the cultural side, the stigma associated with "vanity" publishing is wearing away.

Or if Amazon can't make a deal with the publishers, it can always just become a publisher. That's where Princess Alera of Hytanica makes her royal entrance. Last year, speaking to Publishers Weekly, Bezos pooh-poohed the idea of Amazon publishing books: "I'm not sure we have any skills per se to be a content originator," he said. "Why would we be better at it? It's a well-served industry." That it may be. But as Amazon Encore demonstrates, Amazon does have one very important skill: it gathers better data on how readers buy books than anybody else. "We're lucky enough to have a passionate customer base who comes to our store and tells us about books that they like," Grandinetti says. "Even great books can be overlooked." When they are, Amazon is the first to know about it.

See the 50 best inventions of 2008.

Read an interview with Bezos.

If Amazon Encore pans out, what's to stop authors from signing directly with bookstores and cutting publishers out of the loop completely? U2 and Madonna don't have deals with record labels anymore; they did their deals with a concert promoter, LiveNation. That stuff that the labels used to do — production, promotion, distribution — it's just not that hard to DIY now or buy off the shelf. It's the same with publishing. Amazon could become the LiveNation of the book world, a literary ecosystem unto itself: agent, editor, publisher, printer and bookstore. It probably will.

The Sky Isn't Falling

But it's a big leap from there to concluding that publishers are going to perish or that Amazon wants them to. It's true that Amazon plays hardball with them, but that's partly because the online-book world — unlike the real-life Amazon — isn't particularly biodiverse yet. If publishers aren't in a position to check Amazon directly, the market is, or it will be. There will be some painful scenes while we wait for that to happen, but already Google — a company that never met a loss leader it didn't like — has announced its intention to start selling e-books before the end of the year. Simon & Schuster has just announced a plan to sell digital copies of its books through the e-book website Scribd.com. The price? Twenty percent off the harcover price, which comes to a good deal more than $9.99. "Within the next six to nine months, there will be many new devices, some new platforms and formats and a number of big companies entering this field that don't currently have a presence," says Michael Cader, founder of Publishers Lunch, an e-newsletter for book-world insiders. (See 25 must-have travel gadgets.)

As for Amazon the publisher, it's hard to imagine it competing seriously with conventional publishers. Its DNA is just too alien. When Amazon uses its customer base to crowd-source editorial selection, it's doing something radically different from what regular publishers do. "This is a very different method of discovering books than the more classic publishing process," Grandinetti explains. "The robustness of Amazon customer data is a different view into what people are looking for in a book."

He's right. A different editorial method will engage a very different set of literary values. Imagine a world where publishing has two centers rather than one: a conventional literary center, governed by mainstream publishing — with its big names and fancy prizes and high-end art direction — and a new one where books rise to fame and prominence YouTube-style, in the rough and tumble of the great Web 2.0 mosh pit. The two centers will affect each other gravitationally and swap authors back and forth between them, but they're not likely to eat each other. With any luck, they'll energize each other.

Which is why the future of books won't be purely Amazonian. It's not an either/or future. It's both/and. It will have publishers and self-publishers and books and Kindles and probably other devices in it too. The rise of a new model doesn't require the death of the old one. In fairy-tale terms, Princess Alera won't have to choose between the politically expedient Steldor and the mysteriously alluring Narian. She can have them both and live happily ever after. Or if not happily, at least she'll have plenty to read.