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Amazon Kindle Will Win Thanks To Hype, Not Performance

This year, the gift that I really hope to find under my tree is the Amazon Kindle Fire.

Amazon is projected to sell 5 million of its new $200 tablets—that's one for every three iPads Apple sells, making it the first real iPad contender despite the fact that many technology wonks argue the Kindle Fire lacks what it takes to challenge the iPad.

So is the Kindle Fire living on hype and false expectations? Yes...and that is precisely why it may win.

There are essentially two classes of innovations: those that fulfill existing needs better and those that create entirely new needs. Most innovations are of the first type, also known as "better mousetraps": faster phone, more efficient airplane, quieter dishwasher. Better mousetraps are easier to sell because you don’t have to change user behavior. You can predict the success of such innovations relatively easily by tracking their adoption along a smooth, upwardly rising curve.

Innovations that create new needs follow an entirely different pattern. If we understand that pattern, we can become more effective at driving innovation and changing the world.

1. The breakthrough: A new technology is conceived that makes it possible for people to do something they never thought they needed to do. Six thousand years ago the simple scratch plow allowed hunter-gatherers to start farming, an activity they had never considered, and that ultimately gave birth to civilization.

2. Adoption for the wrong reasons: Early adopters start using the new technology not to fulfill the new need (which they don’t know they have), but to fulfill one of three types of needs: utilitarian (get something done), hedonistic (to have fun), or social (to get status). This is iPad users buying the first iPads to read books because it’s fun or cool, even though it’s not the best use for an iPad. This is early TiVo users using the first DVR to tape shows, even though VHS tapes did the same thing less expensively.

3. Hype fights failed expectations: Because the technology isn’t designed to meet existing needs, people start rejecting it. The innovator must "hype" the technology, convince early users to stay and new users to join, usually by maintaining false expectations since the technology is likely an inferior option for their purposes. See "Mastering the Hype Cycle: How to Choose the Right Innovation at the Right Time" by Gartner analysts Jackie Fenn and Mark Raskino for more on this.

4. Behaviors shift: iPad users start discovering new uses for their device, app developers start creating new tools, TiVo users start watching TV content in ways they never thought possible. By shifting behaviors, the innovator creates a temporary competitive advantage.

5. The giants step in: The innovator’s success starts attracting slower-moving, larger incumbents. Either the innovator falls—TiVo is marginalized, Kazaa destroyed, Netscape eroded, Netflix challenged—or they set up a defensive wall in one of three ways: locking up inputs, achieving economies of scale, or locking in customers.

Amazon seems to understand this path:

1. The breakthrough: Jeff Bezos, CEO of Amazon, has his vision set on a new need. He says, "In the modern era of consumer electronics devices, if you are just building a device you are unlikely to succeed. Today it is about...a seamless service."

2. Adoption for the wrong reasons: The Kindle Fire has burst out of the gates. It’s already selling millions, albeit at a small loss for now. Compare that with RIM, which has sold just 850,000 PlayBooks so far, with quarterly sales dropping from 500,000 the quarter it launched to 200,000, then to 150,000.

3. Hype fights failed expectations: We are just approaching this phase. The naysayers are right that the Fire is poorly equipped to do what the iPad can do. And that is because it is pursuing a different purpose.

4. Behaviors shift: If things go well, we will now see Amazon’s customers’ behaviors start to shift as they discover things they can do with the Kindle Fire they have not yet contemplated. The experts surmise this might be streaming video content. But history tells us it is likely to be something we are not yet considering.

5. The giants step in: Will Amazon survive? That  depends on whether it can lock in customers, lock up inputs (i.e., content), or achieve economies of scale. Its greatest weapon, I believe, is to lock up content. Economies of scale are hard to create the new business paradigm. This is why Amazon has looked at acquiring Hulu.

If Amazon succeeds, as I think it should, then a new battle emerges between an Amazon world in which devices are commodities and content is king, and the Apple world filled with $700 tablets.

But that battle plan can wait for another day.

Kaihan Krippendorff, president of Outthinker, is a strategist, author, and innovation expert. His newest book, Outthink the Competition: How a New Generation of Strategists Sees Options Others Ignore, will be published in 2012.  

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[Image: Flickr user yoshinari]