Reading Ken Auletta’s recent New Yorker article on the iPad and the Kindle, I first thought of “the razor or the blade.” While Amazon loses money on books in order to sell Kindles, razors were precisely the opposite. Get a cheap razor, buy blades for a lifetime, and Gillette has an unending stream of revenue. Doing the opposite, Amazon has dominated e-book sales.
Amazon also broke other rules:
A New Pie? According to Auletta, for a $26 hardcover book, the publisher gets 50% of each sale, pays the author 15% of its revenue, covers publishing expenses, and also accepts returned unsold copies. Now, with e-books selling for $9.99, the revenue pie has changed.
Perhaps the one rule that has not been broken relates to innovation. As entrepreneurs implement new ideas, existing firms will be forced to change or disappear.
The Economic Life