Unless you’re under 20, you’ve probably heard the Legend of Microsoft more than once. IBM thought of software as an accessory for its enormous, expensive computers. That’s why, in the early ’80s, the company let the upstart Bill Gates keep the rights to the MS-DOS operating system and sell it separately from the computers. As the mainframe business waned and PCs became a commodity, that turned out to be a colossal strategic error.

Ever since, power in the technology sector has ebbed away from the machine, toward “platform agnostic” applications that made hardware less relevant. Microsoft’s battles for dominance in the operating-system market were followed by the browser wars against Netscape. Then even software became less strategically important, as market power shifted toward the gateways to the Internet: e-mail and search engines.

Hardware is still a competitivearena—gaming consoles have been slugging it out for decades. And of course, there was Apple. After a foray into licensing its operating system, Apple took back control of the hardware, creating a more stable and consistent user experience at the cost of some flexibility. But while Macs had devoted fans, most computer users chose PCs for price and flexibility.

Not until the iPod did Apple demonstrate that its business model—controlling the hardware and operating system—could still dominate a market. And the iPod also created potentially lucrative revenue streams by selling content.

After all, Apple can sell only so many MP3 players or iPhones. But it can push a seemingly limitless number of songs and videos through the iTunes Store. Once you’ve invested in creating a digital-content outlet, the cost of selling an additional unit is low, and you have virtually unlimited economies of scale. Someday, Apple may well make more money by selling content and applications than by selling pretty machines.

That’s presumably why Amazon launched its own service for video and music downloads. Its modest success put competitive pressure on Apple. But without a winning device that seamlessly integrates with its store, Amazon’s digital-media service could not achieve the ubiquity of iTunes.

Books, however, are different. Until the iPad, no Apple device had offered anything comparable to the portability, readability, and battery life of a Kindle, or a book. With a big enough head start, Amazon had the chance to become the primary retailer of digital reading material. Moreover, if enough users acquired libraries of books in its proprietary format, Amazon could maintain that competitive advantage almost indefinitely, because of switching costs: users who adopted a different, technologically incompatible brand of e-book would lose their whole library.

But now the iPad will make it hard for Amazon to achieve that kind of effortless lock-in—just as several years ago, Amazon’s MP3 downloads helped to defeat Apple’s quest for lock-in with its proprietary copy-protected music.