Amazon's intrapreneurial activity

Analyze and describe the entrepreneurial situation for Amazon and its intrapreneurial activity.

Internet January 24, 2010, 10:41PM EST text size:
Amazon Enlists Developers to Head Off Apple Threat
As Apple readies its tablet, Amazon enlists developers to make its Kindle e-reader more alluring. The e-tailer needs to make its hardware better, too
By Douglas MacMillan

Editor's Note: This story has been corrected to change the word iPhone to iPod in the 10th paragraph.

Last year Amazon.com (AMZN) executives sent an intriguing e-mail to Trip Hawkins, CEO of mobile software maker Digital Chocolate and the person behind some of the best-selling games for Apple's (AAPL) iPhone and iPod touch devices. Amazon was hoping Hawkins would create and sell games for its electronic-book reader, the Kindle.

The e-mail piqued his interest. "Amazon is capable of selling millions of units of anything," says Hawkins, founder in the 1980s of video game giant Electronic Arts (ERTS). He's now considering opportunities to bring games to the Kindle.
Amazon got the attention of plenty of developers on Jan. 21, when the e-tailing giant said it will let anyone build applications for its reading device, sell them through an online store, and keep 70% of the sales. The e-tailing giant is racing to make the Kindle more compelling as Apple prepares to release a tablet-style computer likely to be e-book friendly.

More than a dozen developers tell Bloomberg BusinessWeek they are considering or have definite plans to create apps for Amazon's Kindle. Among them are game maker Social Gaming Network, movie review site Flixster, and uLocate Communications, creator of applications that help mobile-phone users find people and places.

Comic Books Promising
It won't be easy to build a thriving community of software makers on par with the one that has rallied around Apple, which has registered more than 125,000 developers who have built more than 100,000 applications for the iPhone and iPod touch. The Kindle's hardware is too basic for programs requiring such features as color and touchscreen interaction. Yet even a small number of well-executed, useful software-based tools could help the Kindle repel some of the threats posed by other multipurpose machines, including Apple's tablet.

Amazon denies that its hardware is limiting. The Kindle is "a unique experience to build content for an audience of people who spend a lot of time reading with a device that has extremely long battery life and a screen that is easy to read for hours at a time," Amazon spokesman Drew Herdener says. Since the screens of the Kindle and its larger sibling, the Kindle DX, are made with a low-energy technology that's best-suited to presenting text, developers have to exclude fast motion and color graphics and focus on the strengths of the platform-a large screen, long battery life, and a demographic of die-hard readers.
The Kindle is a promising venue for comic books, says David Steinberger, whose company, Iconology, sells comics from Marvel and others in Apple's App Store. Steinberger says the larger screen would suit such Marvel characters as Wolverine. "I love the idea," says Steinberger, who signed up to develop for the Kindle on Day One. For now, though, Marvel fans would have to settle for black-and-white images on the e-reader.

Amazon on Jan. 21 said it has lined up some apps already. Handmark will create a version of its top-selling Zagat restaurant-guide app. And Electronic Arts and startup game maker Sonic Boom will sell games.

"The way we've looked at it so far, there are a million of these devices out there and the installed base seems to be growing quickly," says Josh Grant, chief operating officer of New York-based Sonic Boom. Amazon does not disclose Kindle sales; analysts put the number at 1.5 million to 2 million.

Gaining Traction in Classrooms
Some developers say the Kindle may help them cater to a different audience than that of the iPhone and iPod touch. Circle Builder is a social network used by more than 1,000 churches for getting members to interact throughout the week. Circle Builder's "demographic skews older," says Carl Erickson, whose company, Atomic Object, creates the technology for the social network. "The Kindle is interesting in that it appears the Kindle's demographic also skews that way."

The Kindle is gaining traction in the classroom. Education publisher School Specialty (SCHS) plans to sell interactive content on the device. Rick Holden, who runs the unit of Greenville (Wis.)-based School Specialty that focuses on children with learning disabilities, says he has been in discussion with Amazon about bringing K-12 content to the Kindle for the last six months. He plans to have the first application available on the device by April.

Amazon may have a harder time recruiting developers after Jan. 27, when Apple is expected to introduce its tablet. It's likely Apple will make it easy for existing developers to create apps for the bigger-screen tablet. "In theory, Apple is bringing 50,000 developers onto a platform that is directly competitive with Amazon," says Jeff Smith, chief executive of Smule, which creates music apps for the iPhone.

Hardware Overhaul Needed?
Smule is focused on writing apps for Apple's tablet, and Amazon would have to make some big changes to its device to attract the developer's attention, Smith says. He says it might cost 10% of the original development cost of an iPhone app to create a new version for the tablet. By contrast, it may cost 60% to 70% to convert the same app to the Kindle format, he says. Writing for the Kindle would mean "rethinking how I design applications from the start," Smith says.

For Amazon, the best way to mobilize developers may be to overhaul its hardware. The maker of the Kindle, as well as other e-book manufacturers, "will need to take a hard look at their strategies in the wake of a more broadly focused multimedia tablet," says Susan Kevorkian, program director at technology researcher IDC (IDC). "We expect Amazon and other vendors will be looking for a viable display technology to support color content, and perhaps video," she says.

Says Andrew Stein, director of mobile-business development for game maker PopCap Games: If Amazon releases a new Kindle that addresses some of the shortcomings of its existing device, "it's definitely a platform that we'd take a look at."
Douglas MacMillan is a staff writer for Bloomberg BusinessWeek in New York.

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