Retailers Struggling With The Concept Of Digital Ownership

As much as E-Commerce and Mobile Commerce are all about taking the in-store experience and making it better (easier, faster, cheaper) and perhaps creating a few experiences that are uniquely digital, digital sites are almost always more comfortable selling physical goods. That's true even for entirely digital operations, such as Amazon's Kindle.

That's why the announcement from Kindle that it will, "later this year," introduce "lending for Kindle" is so potentially significant. (Nitpick: Why not simply say that it will be introduced this year? Isn't it assumed that you won't announce it earlier this year?) The concept is a direct steal from the physical world. A person who purchases an e-book can loan someone a copy of that book, with restrictions.

"Each book can be lent once for a loan period of 14 days and the lender cannot read the book during the loan period," said an official Amazon post on its blog. "Additionally, not all e-books will be lendable. This is solely up to the publisher or rights holder, who determines which titles are enabled for lending."

Why not extend this lending idea to music? Ringtones? Software applications? Clearly, some copyright protections must be established, along with significant lending limits.

But if the security issues can be dealt with, why not truly replicate the physical world? If a consumer today buys a book from a physical store, that consumer owns that book and is therefore free to sell it to someone else, for whatever price the market will bear.

Instead of prohibiting that in the digital world, why not encourage it, albeit for a cut. Let's say Mary buys a digital book for $10. After she reads it, she wants to sell it. Problem 1: Unlike the physical world, what she wants to sell—her "used" book—is absolutely identical to a new copy. She may be fine with selling it for $5, but you're still trying to sell it for $10. Why undercut your own market?

Answer: Because you have to. Today's e-books—along with many other digital products—are no longer sub-$1 novelties. Some electronic books today are actually selling for more money than their dead-tree counterparts. At those prices, you need to respect the concept of ownership.

Why not launch a community for selling "used" files? With consumers selling these items—with your environment getting a cut—why would anyone buy from you directly, at full price? Because of your brand and the credibility behind it. Why do many consumers pay a higher price to purchase from Amazon, even with used versions marketed on the same page?

Forget used. How about the identical shrink-wrapped piece of software that Amazon sells for more than third parties on its site? They still sell, and it's because consumers trust Amazon more than some third party.That means you can allow third-party consumer sales to happen—with you taking a healthy cut—without destroying your core revenue stream.

Part of the benefit of lending in the physical world is to encourage more sales. When a consumer buys the latest high-tech gadget, friends and family often want to see it, to play with it. Those short-duration loans amount to little more than product demos.

Could those be replicated in digital retail by dramatically reducing the loan period? Kindle is offering to loan its books for 14 days, which is more than enough time to read the entire book. What if the loans could be offered for 30 minutes? Enough time to flip through the book to determine if it's of interest, but not enough time to kill any potential sale.

A 30-minute loan of a song, game, movie or application could have a similar impact. The short duration loans could be free, with the longer duration ones—assuming you allow them—to be for a cut.

Let's take it up a notch. With cloud-synching, many smartphones can exist virtually, with all of their content on the cloud, subject to being downloaded onto any identically configured piece of hardware at whim.

Consumers today can loan their credit cards to a family member or a friend. It's entirely at their own risk, but they can do it. Let's say three family members all have the same Android phone. Why not be able to "lend" the phone (actually, simply the phone's contents) to someone else so that they can make purchases? Or be able to play your music, browse your photos, use your games and access your calendar?

The biggest issue is still this concept of ownership. When I buy a song, I want to be able to play that song during a dinner party. What if this party is virtual and we're meeting digitally? What if it's a company meeting of all members of a team and they are throwing a celebratory party? The company is sending the identical hors d'oeuvres and entrees to each location. Why not share selected songs that one employee paid for?

As more and more items are digitized, retailers need to get comfortable with the idea of consumer ownership. And they need to figure out fair ways to transition those concepts to a mobile world that is still run by physical-world humans.