Joe Wikert's DisruptorFest

Fast Company's Bezos/Amazon Cover Story

The latest issue (July/August) issue of Fast Company magazine features an excellent cover article about Amazon and Jeff Bezos.  As I read through it I highlighted a few excerpts and made a number of notes:

Recently, Bezos claimed that Kindle e-books add 35% to a physical book's sales on Amazon whenever Kindle editions are available. Put another way, for every three print copies of, say, Malcolm Gladwell's "The Outliers" the site sells, it also sells one Kindle e-book -- or about 25% of total sales.

This felt like an overstatement to me...till I sat down and checked the numbers.  It's true, at least for the top several titles I looked at from our O'Reilly list.  Quite a few of the books I looked at had Kindle sales that represented anywhere from 20-30% of the total Amazon sales.  The key point: If you're a publisher, you need to get your content into this platform.  Authors, if your publishers don't already have your content available on the Kindle, when will they?  As much as I hate the Kindle's closed nature there's no arguing with the results.  Of course, publishers are also free to sell Kindle content direct to consumers, just like we do at O'Reilly.

Jeff Bezos is trying to do to book publishers what Steve Jobs of Apple did to the music industry. With its iPod and iTunes Store, Apple carved out a largely virgin market so fast that it was able to wrest control of the digital-music distribution system and thus dictate what the record labels could do.

I've occasionally been concerned about this but I'm not sure there's much to fear after all.  I'm seeing more and more e-storefronts popping up every week and even though the Kindle is pretty popular it hasn't been the runaway success the original iPod was.  Even the iPhone itself is a worthy competitor to the Kindle.  Ironically enough, I think it's when Amazon fully opens the Kindle platform that we'll have to worry the most about this.  That will probably have to happen at some point, but Amazon doesn't seem to be in any hurry, so relax...for now.

Should that happen, book publishers would have more to fear than just being squeezed. Amazon could phase them out completely, treating them as the ultimate middlemen orphaned by a new technology.

Forget about Amazon.  Any publisher that isn't already worried about this in general is asleep at the wheel.  With all the great self-publishing services out there and the ever-growing importance of social media and author platform it's crucial for all publishers to determine the value they add to the ecosystem.

In some ways, book publishing operates like one of Joseph Stalin's five-year plans.

This statement made me laugh out loud.  Literally.  It's painful to admit but true that some publishers still try to lay out 3- and 5-year financial plans.  This, in an industry where most have had a hard time coming close to their latest annual and even quarterly forecasts.  Ugh.

Here's a doomsday scenario put forth by Richard Curtis, a literary agent and founder of E-Reads, an independent e-book publisher...

The rest of this excerpt would be pretty long, so let me summarize by saying that Mr. Curtis is concerned about Amazon using their BookSurge service to print all the copies they'll sell.  Is that really scary?  We're talking about a more efficient model!  If the unit cost (after factoring in the transportation savings) is less than an offset printing of those copies, why wouldn't the publisher want to do it this way?  If anything, it's a wake up call to the brick-and-mortar stores out there to figure out what value they add to the model.  Instant gratification.  Check.  How about beating Amazon at their own game though and offering print-on-demand of an infinitely long title list at the individual store level?

You might think that because publishers profit from this arrangement -- they don't have to pay for paper, ink, manufacturing, warehousing, and transportation or suffer debilitating returns -- they would be pleased. They aren't. Amazon is creating a sticky price in consumers' minds and redefining the cost of a "book" just as Apple did with music.

I disagree.  Speaking as a publisher I'm thrilled that Amazon is experimenting with pricing, particularly since it's on their dime.  I just hope they share the results with publishers so we can all learn together.  The Kindle has been out for more than 18 months though and I haven't seen any analysis from Amazon on this front yet.

Let's also not forget that a simple port of a print book to an e-format, which is pretty much all that's happening right now, is likely to have a lower value than the next generation e-books that truly leverage the platform.  That's when things get interesting and let's face it, that pricing model is completely unknown.

The cell phone is an excellent example of what I'm talking about.  Remember way back in the days when cell service was all about voice service and the number of monthly minutes?  The phones couldn't do anything else so the providers had to compete on monthly rates.  There was a time when you'd go from one provider to the next, just to get a better monthly plan.  Now it's all about who carries what phone and what additional services they offer.  Have you noticed how the monthly rates just keep going up, mostly because we're all adding more services to our plans?  Look at your iPhone 3G S today, compare it to your brick-of-a-phone from 15 years ago then look at your Kindle and think about the possibilities down the road...

There is more substantial evidence that Apple may be planning a move into e-books.

That's good news for everyone, except possibly Amazon.  Competition is a good thing though, so I hope Apple does introduce a product in this space.  I'll buy one.

Unfortunately for Bezos, not only is Apple far more skilled at designing beautiful products people are eager to buy, but it may also be a more desirable partner for publishers than is Amazon. While Apple drives a hard bargain and might be eager to grind publishers into pulp on price, unlike Amazon, it has little desire -- or history -- of attempting to usurp the publishers' role or to control content.

An elegant device and a financial model that would be no less appealing than Amazon's existing one?  Sign me up!  Again, competition is a beautiful thing.

As for book publishers, they benefit from a fragmented market with no single entity controlling the distribution pipeline. The more that Amazon and Apple duke it out, the better for them.

Exactly!  And you can replace "publishers" with "authors" in that first sentence and it's just as accurate.

Looking long-term, as readers migrate to digital books, there is a real possibility the basic form of the book will change.

It's not a "real possibility."  It's a certainty and it's also why I'm so excited to be part of this industry.

A Kindle App I'd Buy

Amazon's tightly closed Kindle ecosystem doesn't offer customers an App Store like Apple does with the iPhone.  That doesn't matter though because the idea I have in mind would reside on your computer, not the Kindle...

How many emails like this do you get each week?: "You need to read this article over on so-and-so.com. I just read it and thought it was terrific/funny/relevant/etc."  I get these all the time.  Sometimes I click the link and read the first sentence or two.  If it's good and I don't have time to read it all now I'll leave that browser tab open and hope I don't forget about it, but I often do.  If the article looks really good and I don't want to miss it I might even print it out and read it later.  None of these approaches are very effective though, especially when I also have a $360 Kindle at my disposal.

OK, if you're a glutton for punishment you'll try to access all those articles on your Kindle via Whispernet.  Good luck with that.  Even if you manage to get the page loaded you'll find the formatting and readability is awful in most cases.  And what if you're out of Whispernet range, say, on a plane?

Someone needs to write a desktop application that lets me grab a url and drag it to my Kindle, which is connected to my Mac via USB.  The app has to do more than just drag the web page to the Kindle though; it needs to convert the contents of that page to mobi format so that it looks nice and clean on the Kindle display.

I'd use this app every day and I'd be more than happy to pay for it.  Let's not stop there though...  Think of the dynamic advertising income opportunity a developer could create with this.  During the conversion process, the app would also apply Google AdSense-type logic to the contents and serve up relevant ads in each piece.

The beauty of this is you don't have to work within the confines of that closed Kindle system Amazon has built.  You're just pulling content off a website and converting the HTML into mobi files (plus the advertising component, if you want).

Does this tool already exist and I've somehow overlooked it?  If so, where is it?  If not, how soon can someone write it?!

P.S. -- I'll ask the question once again: Why isn't Amazon building this sort of thing?

Recent Thoughts About the Amazon Kindle

I made a few notes while reading this Book Business magazine article over the weekend.  It's well worth reading, btw, but here are a few items I underlined:

The innovation of the Kindle was not to improve e-reading—many earlier e-readers offered a very similar reading experience—but to dramatically alter the purchasing experience through its wireless capability.

So true and yet so easily forgotten.  The Kindle could have simply become Newton 2.0 without this important feature.  Customers come for the eInk display but Whispernet is what keeps 'em coming back.  (It still blows my mind that no other Kindle competitor has figured this out...)

...obviously publishers could do better by designing online-oriented cover versions that would not only be more eye-catching and dynamic, but potentially even interactive.

Another obvious but overlooked point.  We're all still applying the print rules to the e-world.  Just put a two-dimensional image of the print book's cover on the Kindle edition's product page and you're all set.  When will we start seeing that precious screen real estate occupied by something that's much more engaging and dynamic?

This analysis suggests that e-books could, as a stand-alone business, be priced far below Amazon’s current $9.99 pricing and dramatically lower than p-books.

I have no doubt some e-books can be priced below $9.99.  Heck, quite a few print books are already there (e.g., mass market paperbacks).  I'm also a big fan of the idea that lower and lower prices will cast a much broader customer net, meaning you'll attract quite a few customers who otherwise would have ignored your product.  But as Apple's iPhone App Store has proven, while there's a big difference between sales of a $4.99 app and a $9.99 app, there's a much bigger difference between a free one and a 99-cent one. 

Experimentation is the key here, of course, and thanks to the e-book model, it's pretty easy to make price changes on the fly.  As I've also mentioned before, I think sponsorship will have a role in the e-book marketplace.  Just like ads make the magazine world work, sponsorship is likely to help keep certain e-books at an irresistibly low price.

Finally, I wanted to toss in another idea I'll bet Amazon will spring on us at some point.  Why haven't they bothered to insert any "Where do I go from here?..." links at the end of Kindle editions?  If I just read a great book by Joe Author, why aren't they inserting links to other books written by Joe Author at the end?  Enable one-click buying and boom, they extend their e-commerce reach even further.  If not other books by the same author, what about simply utilizing the "customers who bought this item also bought..." functionality of their website by inserting it at the end of the Kindle edition?  If I just had a good experience reading this book (or magazine, or newspaper) I'm more likely to buy something else from you; why rely exclusively on email blasts and other e-marketing strategies from the 1990's?

Btw, when Amazon does implement something like that last item (and they will!), they'll make even more money off it by structuring it like their other online placement/marketing campaigns.  Publishers will have to pay for the privelidge to be included in these links. I'm not suggesting that's good or bad...just pointing out it's yet another way Amazon can make a few more bucks along the way (and possibly reduce the price of the Kindle hardware?...)

Textbooks: A Market Begging for Change

Every day brings more news about the book industry's ongoing evolution.  Whether it's a shiny new e-reader, a recently-opened e-storefront or some other development, it's clear some experimentation is taking place...maybe not as much as you'd expect, but there's some happening nonetheless.

One area where experimentation efforts should be ramped up significantly is the textbook market.  Seth Godin wrote his own rant about this over the weekend and I think he makes a number of excellent points.  College students are some of the most clever, resourceful and imaginative people on the planet.  They're no more tired of getting hosed by overpriced textbooks than their parents, but they're fortunate enough to be in college at a time when e-alternatives are all around.

The problem here isn't that the customers are not willing to try new alternatives to the tired old textbook.  No, the real problem is with the system itself.  Publishers, schools, authors (which oftentimes means "professors") and campus bookstores all have plenty at stake and have enjoyed the current model for far too long.  It's yet another case of The Innovator's Dilemma.  You'd think it would be an excellent opportunity for an upstart to come in and completely obliterate the system, sort of like what Craigslist did to the newspaper industry.

Kudos to efforts like what Governor Schwarzenegger is trying to do in California.  Then there all the open textbook programs that have been sprouting up.  All well and good but I'm not sure any of this will have a material impact on the current model.  Something bigger has to take place first.  Maybe it will come from several states joining forces and saying "enough is enough!", but California probably won't influence market-wide change on its own.

On a related note, for-profit schools like ITT and Devry are growing in popularity, partially because of the better value they offer compared to the traditional four-year institutions. As a publisher I've found these schools to be very open-minded about choosing the best course materials.  If the pendulum continues to swing in their direction maybe this is where the new model will arise.  They'd be wise to follow the "chapterettes" model Godin describes towards the end of his rant.

Getting More Magazines on the Kindle

The Kindle is now more than 18 months old and there are still only 24 magazines available for it.  Why so few?  I've heard several reasons why and the most likely ones are (a) the magazine publishers don't like the financial terms offered by Amazon and (b) they also don't want to give up control of their content (and direct customer access) to Amazon.  I've got an idea that solves both these problems and would make Kindle owners everywhere much, much happier.

The company I work for, O'Reilly Media, Inc., sells Kindle editions on Amazon's website.  We don't rely on Amazon as our only means of access to Kindle owners though.  We also sell e-book bundles on our site and those bundles feature all the popular formats including .mobi for the Kindle.  Magazine publishers (and newspapers too, for that matter) should take the same approach and sell Kindle content right from their own websites.

Granted, we're talking about a single block of content with a book vs. an ongoing subscription with a magazine or newspaper...and that's where things get interesting...

Amazon has a document conversion service for all Kindle owners.  I can e-mail a PDF to my Kindle address ([email protected]) and Amazon will convert that PDF and wirelessly send it to my Kindle.  The service used to be free but now it costs 15 cents per meg for the upload.  Each of the magazine issues currently on my Kindle (The New Yorker and Technology Review) are less than one meg, btw.

Here's how the model would work: Each magazine website would simply add another option to their new subscriber page.  This option would be for Kindle delivery.  Choose it, give the magazine publisher your @kindle.com address, set your Kindle e-mail account to accept incoming messages from that magazine's server and you're done.  The result is a direct relationship (again) between magazine publisher and customer; it's just that this particular customer happens to receive issues via their Kindle.

That's how the front-end works, but how about the back-end?  The magazine publisher could prep the issue in PDF format, send it to the customer's @kindle.com address and let Amazon do the conversion and upload work for them.  Sure, Amazon gets 15 cents/meg, but each magazine publisher would simply have to figure out how much that translates to per issue and price the subscription accordingly.  Btw, if you want to avoid the Amazon charges, have the subscription sent to your @free.kindle.com address and simply move the content from in-box to Kindle via USB cable.  Another option is to take that last option a step further, automate it a bit, and go back to wireless delivery, like KindleFeeder now offers.

As a magazine publisher you'd keep 100% of the subscription price.  You'd also do away with printing and postage fees, so please keep that in mind when setting the subscription price!  Finally, you could determine how much advertising you want to keep in the digital edition.  Maybe you'd want to offer two plans: A higher-priced subscription with no ads and a lower-priced one with all the regular ads.  As an added bonus, those ads could now have live links to the advertiser sites; good luck pulling that off in the print edition.

Speaking for Kindle owners everywhere, I hope magazine publishers will follow O'Reilly's lead and start offering a direct-to-Kindle-customer subscription plan.  What do you have to lose?!

P.S. -- Why am I so comfortable publishing my Kindle e-mail address here?  Because every spammer in the world can send messages to it and they won't get through.  I give Amazon a list of acceptable incoming e-mail addresses and none of them are from spammers.