Amazon is not a good example of a company that accomplished technological leapfrogging in the book industry.
In an industry where a standard has emerged the company that holds the rights to it and can appropriate much of its network externalities is called an incumbent. Due to the competitive advantage offered by a standard, the incumbent is always challenged by companies attempting leapfrogging- the replacement of current standards by a new, incompatible technology that is usually realized through the improvement of the technical characteristics of the product.
Looking at the book industry, more precisely, at its newly developed E-book segment it became obvious for all the ...view middle of the document...
The new platform brought one big improvement: it could connect to the internet through wireless technology, what they called whispernet.
It was not this innovation that allowed Kindle to become a standard, rather the complementary products it offered through a system that was already in place that made the difference. With the permanent link between Kindle and the user`s Amazon account, one could easily download any book in 60 seconds with payment being made instantaneously. The wireless technology was an improvement but without the Amazon account connection it would have offered little benefits.
The price set for a product that is trying to establish itself as a standard is an important signal. The first Kindle was priced at 399$ and it sold out after appearing on Oprah. This shows that Amazon was using two of the leapfrogging strategies: showing commitment through well done marketing campaigns and offering discounts in order to encourage adoption: Kindle could have easily produce a much higher marginal profit if it had a higher price but Amazon decided that the network externalities that will follow mass adoption of the product will offer greater opportunities.
Deriving profit from the complementary goods through licensing and royalties was a strategy used by Nintendo in the video console industry (Schilling, 2003). The same behavior can be observed at Amazon. By making connection so easy to the Amazon account and not allowing Kindle users to purchase books from other retailers through the AZW3 format, profits were not made by selling the actual...