The Kindle Fire.

Indeed, this is a formula we have seen applied in the past. Microsoft used its dominance in software to get you to use all types of Microsoft products, such as its internet browser, word processing, spreadsheets and music players, until the government put some restraints on what it considered unfair competition. In the days of traditional internet portals, AOL employed its position as the largest provider of internet connections to be the internet's major landing site. When the world moved past dial-up, it left AOL behind. AOL never made the move into high-speed access. Nokia was once a dominant player in the cell phone business, but when smart phones replaced many “dumb” ones, Nokia got replaced too. However, unlike the aforementioned vendors, who became static when they achieved leadership in their field, Amazon has not become cocky because they have achieved leadership in internet retailing and e-book readers, just as they did not allow bookselling leadership to lead them into complacency a decade ago. They recognize you need to keep swimming or the next wave will overtake you. Amazon is not just competing with Barnes and Noble and Nokia for physical devices now; they are competing with Apple, Facebook, and Google for drawing you into their world, where you will spend lots of time.... and money.

And what of the previous biggest thing in bookselling – Barnes and Noble? Along with the defunct Borders, B&N pioneered the way in bookselling in the 1980s, with their large, well-stocked stores, offering coffee and pastries to accompany soft chairs for comfortable reading. It was the place to be in the 1990s. By the turn of the century, with Amazon leading the way, B&N was left behind. They did everything wrong – expanding to music just as mp3s began replacing CDs, movies as at-home downloading replaced physical tapes and DVDs. They left electronic books to Amazon, relying upon the declining part of the market. However, very late to the game, B&N responded to Amazon and its Kindle with their own Nook e-book reader. But then, B&N surprisingly did one thing right – they made a better and cheaper e-reader than Amazon. They introduced what was something of a cross between an e-book reader and a tablet – a reader that could perform some functions of a tablet, like internet access, for a very low price. While no one has been able to generate more than a percentage or two of marketshare in the tablet business against Apple, B&N was able to gather a distant but still respectable second-place showing in e-readers, about 25% of the market.

Whither B&N now? They have neither the clout nor the deep pockets of an Amazon. They struggle to stay alive with the albatross of yesterday's new thing – large stores – hung around their neck. One wonders whether Amazon's Kindle Fire will do to Barnes and Noble's Nook what Apple's iPhone did to Research in Motion's Blackberry. The Blackberry pioneered the smart phone business, but Apple used its clout and its research and marketing genius to move past RIM's Blackberry with something better. Today, market analysts wonder whether RIM will ever be relevant to the market again. B&N faces long odds, but perhaps they can find a way to use that albatross, their retail stores, like Apple did with their retail stores, and somehow claw their way into the market. We suspect it is a long shot, and will probably require they be bought out or enter a cooperative agreement with someone with far greater resources, perhaps someone like a Microsoft making one last-ditch effort for relevance in the consumer market.

How does this tie in with Amazon's other big story – that after years of vigorous, in-your-face resistance to attempts to be made to collect local sales taxes, they backed down and agreed to do so in California in return for only a one-year reprieve? Just a few weeks earlier, Amazon terminated all of its affiliates in the state (breaking all ties with a state is the way an internet marketer can free itself from having to collect local sales tax). It then threatened to fund a ballot initiative to overturn a state law that declared local affiliates to in effect be company agents, grounds for requiring Amazon to collect sales tax on sales made to California residents. Then, suddenly, Amazon did a complete about face, dropping its battle-to-the-death opposition for a temporary reprieve. Most commentators concluded Amazon backed down, but Amazon does not back down. Why did they throw in the towel in this extreme fight to the finish?

We believe the introduction of the Kindle Fire tablet, and all it implies, is a sign that Amazon has much bigger things to focus on than fighting sales taxes in California. The vigorous, even contentious defense threatened to hurt their reputation, something Amazon can ill afford as it seeks to move to a higher playing field. And, perhaps most importantly of all, they may see a need to become more, not less involved with California. California is the high-tech capital of America, filled with people designing and building the next, new best thing. Amazon will want to be free to have agents, employees, whatever available to them in California, not be forced to flee the state because of yesterday's tax battles, leaving it and all of its brainpower to Apple. Amazon needs equal access to the state to compete equally with Apple. A few weeks ago, no one saw Amazon as a particular competitor to Apple. Now we know they are about to begin an epic struggle. Amazon is not about to be lax; not about to enter this struggle with one arm tied behind its back. Its sales tax agreement, capitulation if you will, to California is more likely an inevitable next step by a company determined to stay ahead of the market. Isn't it amazing what a bookseller can do?