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Amazon Isn't Competing With Apple: But Their Business Models Are

This article is more than 10 years old.

I thought that this was a very smart little piece of analysis over at Digitopoly from Joshua Gans. In one way of looking at it Amazon isn't really competing with Apple. The Kindle against the iPad: rather, it's a competition of business models instead of a head to head fight.

The thing about this is that ‘business model’ competition is very different from a price war. A price war suggests there will be one winner or, alternatively, a commodification of the market. Business model competition means that coexistence is possible. Apple will likely win out on performance and so appeal to those who need that reliability — higher end consumers and commercial or industrial applications — while Amazon will appeal to those who just want to consume content cheaply and easily. To be sure, what Amazon does will constrain what Apple does and vice versa. But my guess is that it won’t result in the victory of a single business model. There is room here for a few.

His back story being that there are two ways to make money in this market. Two ways at least that is, who knows who will come up with other methods?

Leave aside all of the digital stuff and let's just call it all books. There are two ways you can make money out of books being sold. The first is that you can go and build bookshops. That's out Apple model here. Sure, they take a margin on content through iTunes but as Gans says that's not really all that profitable. It's the selling of the hardware that is. And with digital content that hardware is akin to the bookshop.

Amazon, on the other hand, isn't looking to the hardware as being a major profit source. They're looking to then sell the content. This is much more like the selling of books and having the shop buildings they are sold from as a cost centre. Which, by and large is what Amazon is doing with the various Kindles. Trying to get one of their shops into everyone's hands so that they will buy ever more books.

As Gans says, if the two companies are following very different business models then there may well be room for both of them in the market. It needn't become head to head competition which destroys the margins of both.