End of Publishing + Bill Gates on Jeff Bezos

First, a really good and short write-up by Bill Gates on Jeff Bezos at Time. The last paragraph in particular is interesting –

Lately, Jeff’s pioneering spirit has taken him in some new directions. He would like nothing more than to be the first to provide a cheap and safe way for anyone to fly into space and started a company called Blue Origin to devise the technology. That’s pretty cool, but his biggest legacy of all might be more down to earth — a modest-looking white-and-silver digital device called the Kindle. This electronic book is Jeff’s brainchild and may well revolutionize not only how we acquire books and periodicals but also how bookworms like me actually read them. That would put him in the same ranks as Johannes Gutenberg

There are some really good articles out talking about the end of publishing as we know it. Definitely worth your time –

  1. Publetariat on ‘Where’s the BailOut for Publishing?’ I wonder why newspapers and books feel they’re necessary for democracy.  
  2. Dear Author goes as far as to say that the lack of a Mr. Bezos equivalent dooms publishing. It was a wee bit paranoid. Agree on the publishing is doomed part.

Publishing is very, very expensive curation. Writers get 5% (at most 10%) of what readers spend. A successful book has to support 20 failures, and so forth. Given Mr. Bezos’ obsession with kaizen and optimizing and cutting out waste can we blame him if he feels that the whole industry looks like a giant piece of inefficiency?

For every physical book you buy, you’re fundamentally supporting an inefficient industry. And your authors, who’re the artists and creators, are making a measly 5% or less. We really shouldn’t be getting upset about the demise of publishing.

NJL classify Kindle owners as Arthritic, question our ability to generate revenue

Nieman Journalism Lab are making an ass of themselves – to the point that perhaps they should remove ‘Journalism ‘ from their name.

It takes a lot to get me mad – however, NJL have written two articles that are so ‘the world revolves around us publishers and we decide everything, and you little people should just do as we say’ that it infuriates me –

First, NJL wrongly make the assumption that most Kindle owners are arthritic or otherwise have health problems.

Here’s the relevant part of the article

The second finding of note from Publishers Lunch:

So many users said they like Kindle because they suffer from some form of arthritis that multiple posters indicate that they do or do not have arthritis as a matter of course. A variety of other impairments, from weakening eyes and carpal-tunnel-like syndromes to more exotic disabilities dominate the purchase rationales of these posters.

In other words, it’s primarily a particular segment of older folks that the Kindle appeals to — those for whom the traditional dead-tree reading experience is painful or difficult.

Nothing wrong with having a health problem – everyone has one sooner or later. However, making a generalization like this is ridiculous.

Second, NJL base their article off of Flawed, Incomplete Analysis

The great analysis on which NJL’s crime on journalism is based?

A paid subscriber weekly, Publishers Lunch, went to the Amazon Forum where someone had posted asking about age of Kindle owners, and picked 700 out of the 1000 responses (they claim its 1000 while its actually 1700+ posts) –

 More than 1,000 people have posted their info to the forum, and Publishers Lunch took a sample of about 700 of them and ran the numbers.

The entire NJL post is based on this little bit of ‘research’.

Well, lets look at a more complete analysis of the same thread from Stephen Peters at Kindle Culture, which considers 1387 responses (out of 1700+ posts), and gives us –

  1. 33.5% below Age 40. 
  2. 40.3% between 40 and 60. 
  3. 26.2% over 60.

The grand ‘research’ (or lack thereof) on which NJL have based their article is severely flawed –

  1. It only considered 700 out of at least 1387 valid responses.  
  2. They make a random statement lacking hard numbers saying ‘so many users … have arthritis ..’ and NJL interpret it to mean that Kindle is primarily appealing to people with arthritis.   

NJL are so desperate to propagate their worldview that the Kindle is not a threat that they’re willing to base their articles off of hackish research. 

Third, NJL is writing this article based on their ‘we ought to decide the future of publishing’ worldview, not on facts.

The same author wrote an earlier post titled “Why the Kindle will Fail”. He demonstrated how caught up in his own world view he was by making a few rather interesting comments.

First,

— I’m a nerdy guy. And I’m a writer. I work at Harvard, which is filled with nerdy people who are writers …

I say all this to illustrate that I am the exact target audience for the Kindle — precisely the mix of book reader and tech lover who should want one. And yet, 15 months after the Kindle, I have not seen one single Kindle in the flesh.

Not one. 

So … the Kindle should have been made to appeal to him as he and his friends are the deciders of what the future of books should be.

Second,

I’m spending a couple days at the O’Reilly Tools of Change for Publishing conference in New York City. It’s a conference for people in the publishing industry who are interested in books’ digital future … 

And yet yesterday, during a panel on ebooks, the moderator asked the audience of hundreds of tech-savvy (or at least tech-interested) publishing professionals how many of them had a Kindle. I’d say maybe 1 in 8 raised their hands …

If Amazon can’t win in this room — people willing to spend two or three days sitting through sessions on XML and such, people who love books and who want to navigate through the coming digital thicket of their business — then the Kindle ain’t going nowhere

Aaha … your hubris is exceeded only by your hubris. If the Kindle can’t win you over, it has no future.

Publishers and not customers decide where the future of books is headed. So stupid of us to think that because we paid for books it was our decision.  

What Neiman Journalism Lab really want to write

We at Neiman Journalism Lab, and our friends, and people like us, decide how books and publishing should be.  And you should buy what we deem is worthy.

Its rather inconvenient for us that you morons are buying Kindles and threatening our cozy, comfortable lives and our hold over what gets published and where publishing is headed.

We’ll  just pretend that you don’t exist and that the future of publishing and books and newspapers is going to pan out according to our plans, never mind the fact that newspapers are dying out and book sales are declining.

We’ll write self-serving articles that patronize you common people, stay within the perfect world that we live in, and just pretend that the Kindle never happened.

For surely, a bunch of fools such as yourselves couldn’t possibly know what’s good for you, and its not as if your money decides whether our industry is successful. That’s just an illusion you live under.

Illustrating Exactly why Publishers and Newspapers are dying

Its like the frog in a pan of water that is slowly heated to boiling temperature. The frog never jumps out. The frog’s always telling himself – Perhaps it’s a little warmer. Well, a little warmer doesn’t really hurt.

Right until the point that he’s boiled alive.

A lot of the people who currently hold a lot of power in Publishing feel they have the god given right to decide what the future of publishing is, and that customers have no choice but to buy whatever they send out.

In the grand scheme of things, publishers are curators – the links between authors and readers. Their work as curators is important – however it is not as important as creation or consumption. Google and the Internet are showing that curators are no longer as powerful or precious as they would like. 

Any curators that lose sight of the fact that they are a part of the system, and not the system itself, will be rewarded fittingly by us arthritic, old, penniless end users.

Deferred Kindle Revenue – $100 million in Q1 2009 Kindle Sales deferred

There’s a snippet from the Amazon Q1 2009 Earnings Call which is rather important. Listen to Mr. Bezos talk about Kindle sales (courtesy Seeking Alpha)-

Were digital sales an impact or not?

Jeffrey Bezos

Digital sales, are you referring to Kindle sales or all digital? Digital is certainly part of the numbers. The key thing to keep in mind as you think about Kindle specifically from a device standpoint, we recognize that in the month following shipment over a two year period. We amortize that over a two year period. 

Notice how Mr. Bezos mentions that earnings from Kindle device sales are deferred and spread out over 2 years.

Why would Amazon need to defer Kindle Revenues?

Apple does deferred iPhone sales revenues and that is somewhat understandable –

  1. It probably is a Sarbanes Oaxley requirement, given that iPhones are bought alongside a 2 year contract. 
  2. AT&T  almost certainly pays Apple on a month per month basis.

Perhaps both of those are wrong assumptions and Apple just defers revenue to spread out the benefits of iPhone sales across quarters.

Here’s another Seeking Alpha snippet, talking about Apple’s Q1 2008 Sales –

What if I told you that Apple forgot to enter 2 of the 2.3 million phones it sold this quarter, that they just skipped them, took the dough, are using it and just left it plain – well- out of the net income? Well, they did. They “deferred” them.

Amazon is doing exactly the same thing with Kindles.

Even though they do not subsidize the Kindle and do not have earnings spread out over the lifetime of a subscription.

When you look at whatever segment Kindles get allocated into – whether its Media (which grew 8%) or Electronics and Others (which grew 42%) – a huge part of Kindle Sales are not accounted there. 

Amazon start counting Kindle sales only a month after the Kindles are shipped. Kindle 2s started shipping Feb 24th. Add these up –

  1. Any Kindle 2s shipped after end Feb weren’t counted in Q1 2009 results.
  2. Even for the Kindle 2s shipped between Feb 24th and Feb 28th, only 1/8th of the sales revenue was counted.

Amazon’s last 2 excellent earnings quarters have, for the most part, excluded the impact of Kindles sold, while still including the cost of manufacturing them.

Amazon deferred over $100 million in Kindle Revenues in Q1 2009

Just for the sake of running a guesstimate, let’s assume 300K Kindle 2s were sold. And that 150K of them shipped before end Feb. Amount of Kindle 2 sales revenue counted in Q1 2009 –

  1. 0 of the 150K Kindle 2s shipped after end Feb. That leaves $53.85 million in deferred revenue. 
  2. 1/8th of the 150K Kindles shipped in Feb = $6.73 million counted. And $47.12 million in deferred revenue.

Out of the $107.7 million revenue due to Kindle 2 sales in Q1 2009, only $6.73 million was actually included in Q1 2009 Earnings.

Why would Amazon not count this $100 million in Kindle Revenue?

Two obvious benefits to Amazon –

  1. No one can accurately figure out the number of Kindles sold. Its not until mid 2010, when the deferred earnings start adding up, that we’ll get an actual idea of Kindle 2 and Kindle 3 sales.
  2. Deferred revenue means guaranteed revenue spread out across and benefitting the coming 7 quarters.

Amazon is either trying desperately to hide the number of Kindes sold, or its shoring up future earnings.