Sony fails to read signs and loses out to Amazon

Amazon's Kindle has grabbed the market- leading position for electronic books from Sony, echoing what happened with the iPod and Walkman, writes John Gapper

EVER SINCE Sony lost the battle between its Walkman music player and Apple's iPod, it has been trying to strike back. Last week, it paid $900 million (€598 million) to take full control of Sony-BMG, its music joint venture with Bertelsmann.

Sir Howard Stringer, Sony's chief executive, wants to make it as easy as possible to download or stream music and films to all of Sony's electronics devices, from Bravia televisions to PlayStation 3 consoles.

Stringer, still smarting at how Apple integrated hardware, software and its iTunes music store far better than Sony, has another target in mind. He wants 90 per cent of Sony's hardware devices to be networked, and even to be connected wirelessly, within two years.

In one small corner of Sony's empire, however, it has just made the same mistake all over again. It has squandered an early lead in a new field because another company was better not just at inventing an electronic device, but also at linking it to a wireless network and making it easy to use.

The Sony product is the Reader, a portable device for reading electronic books, which the company launched two years ago. This time Sony's competitor is Amazon, which has swept past Sony with the Kindle, a rival e-book reader that is showing every sign of becoming the iPod of this nascent market.

Stringer was not in charge of Sony during the Walkman debacle and partly owes his appointment three years ago to the recognition that new leadership was needed to pull the divided company together.

But the e-book battle occurred on his watch, after he identified the Reader as a product that Sony should throw its weight behind. So the ascendancy of the Kindle is - or ought to be - an embarrassment.

Sony launched the Reader in October 2006 with quite a fanfare. It is a light, booksized gadget with a screen made by technology company E-Ink that is easier and more restful to read than a computer's and needs no backlight. You can download books to a computer from Sony's eBook Store, which has 45,000 titles, and transfer them to the Reader.

Sony did a better job with the Reader than with the Walkman of linking the device to the content and it gained respectful reviews. Stringer singled out the Reader as the sort of device the new Sony wanted to make: both innovative and well-connected.

A year later, Amazon launched the Kindle. It looks quite similar and has an E-Ink screen, but there are two differences. First, the Kindle links to Amazon's online store and there are 145,000 titles available to download. As well as books, readers can subscribe to daily newspapers and blogs, which makes the Kindle a more useful device in everyday life.

Second, Amazon came up with a clever way of linking the Kindle to its content. Each Kindle is connected to a 3G mobile network, so books and newspapers can be downloaded within a minute. If you subscribe to the New York Times, for example, it arrives wirelessly at night, ready to read on the morning commute.

This enhances the usefulness of the Kindle. "The real change is that you can buy a book any time and anywhere. It is like having an airport book stall with you 24 hours a day," says Mark Mahaney, a Citigroup internet analyst.

The fact that the Kindle is smoothly connected in this way is deliberate. Amazon is very good at finding ways to make it easy to purchase things, from its 1-Click online buying system to Amazon Prime, under which US customers pay $79 a year for free delivery of their orders. Jeff Bezos, Amazon's geeky chief executive, says it tries to minimise "cognitive overhead" for people who want to buy something, which I believe means ensuring they do not need to think too hard.

Anyway, it works. To the surprise of sceptics about e-book readers, the Kindle is a hit. Amazon has not released figures but TechCrunch, the technology website, reported last week that it has sold 240,000 units, putting it on track to match iPod first-year sales of 360,000 in 2001.

Meanwhile, Kindle sales make up 12 per cent of the total for book titles available both in digital and physical form on Amazon, which is far from trivial.

Mahaney has estimated that Amazon could make up to $750 million in annual revenues from the Kindle within two years.

The signs are that the Reader will go wireless too, perhaps this year: Steve Haber, head of the business, says Sony is "open" to that idea. Sony has also tried to get one up on the Kindle by allowing owners to obtain books from other online stores and libraries.

The danger for Sony is that it is already too late. Amazon has grabbed the market-leading position from Sony and established a stronger brand, which is what happened with the iPod and the Walkman. Sony never managed to recover, despite trying repeatedly to match Apple.

The Reader is arguably less important to Sony than any of its core entertainment businesses. Even if the Reader stages a comeback, it will not become one of Sony's "trillion-yen" businesses like its PlayStation and Bravia franchises.

But books should not be written off. Annual US sales of fiction and popular non-fiction books match those of recorded music, so there is enough revenue to be worth fighting for. Sony obviously thought it was worth staking a claim to e-books when it launched the Reader.

So Stringer should worry that it seems to have been pushed aside in another market. Sony talks about making devices networked and easy to use, but Amazon did so.