Amazon's Kindle and CEO Jeff Bezos. Source: Amazon.

NEW YORK -- The Amazon Kindle might today be a success, but CEO Jeff Bezos admits that when the company decided to get into the e-book reader business, it was starting from square one.

"When we started work on the Kindle, we did not have the skill set to build a hardware device in house," he said here during this week's Wired Magazine's Disruptive by Design conference.

But that didn't stop Amazon, he added.

"You have to be willing to learn new skills," he said. "Many companies don't do that because they feel that learning a new skill is akin to ignoring core competencies. Don't stick to your knitting. I would never exclude something because someone said, 'Jeff, this is not the knitting.' I would not even know how to respond to that."

As a result, Amazon may be changing the book business with its e-book offering, a large catalog of Kindle-compatible digital books that Bezos said is already significantly altering the prices Amazon's customers pay for books.

"For the 300,000 books now available for the Kindle, Kindle unit sales are already 35 percent of total unit sales," he said. "Internally, we are startled and astonished by that statistic."

Amazon also may soon be changing prices in the lucrative college textbook market as those titles reach the Kindle, he said.

"I think there's room to reduce the cost [to students] and provide plenty of profit for the publisher," Bezos said. "Publishers are excited about selling textbooks because of used textbook sales. A textbook is used on average four more times after it's sold. Textbooks are expensive because they're sold once per five sales."

"Hopefully we can deliver a more rational model, one that's not selling the 11th edition with minor changes so students with the 10th edition cannot find the right page in class," he added.

But are publishers really willing to sell a digital book for less than the price of its physical analog? Yes, if Amazon's print book business is any indication, Bezos said.

"We never made money on bestsellers, and that's true of hardcovers as well," he said. "We sold at lower than our cost in many cases and made money in the mix. There have to be enough books for sale not below cost. There's plenty of revenue in it for publishers, authors, and retailers too."

"Customers are smart and know they shouldn't pay the same for an e-book that they pay for a paper book, especially for a $25 or $35 hard cover book," he added.

Kindling innovation

Bezos said that kind of thinking is illustrative of the many ways that the Kindle book reader has changed Amazon (NASDAQ: AMZN) and is disrupting the businesses that Amazon competes in. And it's due to what he described as his company's willingness to fail and to be misunderstood.

"When you talk about 'disruptive by design,' you mean positive disruption. You have to be willing to fail if you're going to do large-scale invention," he said. "You have to think long-term and be misunderstood for long periods of time."

And that means being open to different models of innovation.

"We innovate in two directions," he said. "We work backwards from customer needs and we work forward from our skills. With Amazon Web Services (AWS), we worked forward from our skills. With Kindle, we worked backward from customer needs."

Bezos added that one thing that distinguishes Amazon from the competition is its ability to constructively build new businesses, like AWS. "We have a huge electronics business and it would not be unusual if the head of that business complained about the resources being devoted to AWS. But in fact, the head of our electronics business sent a nice message to the head of AWS."

Page 2: The price of Kindle and the threat from Google

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