Kindle Review – Kindle Fire Review, Kindle 4 Review

My favorite thing about the Kindle 3 is that it’s evolution at work.

It’s a product (species) realizing it’s in danger and evolving (adding features, cutting price, improving at what it does best) to be more fit – to survive.

There’s a post by Dave Winer related to this concept. He talks about how Asus is killing itself in Netbooks because it isn’t evolving -

Asus says the iPad is cutting into netbook sales. I’m not surprised. Asus’s response to the iPad has been to stop improving their netbooks.

The product they’re shipping now is in no way different from the one they were shipping six months before the iPad shipped. It isn’t even cheaper.

There are two fundamental mistakes here – Asus has forgotten what made its Netbooks amazing and hasn’t kept the price gap between netbooks and notebooks that was there in 2007 (the gap that helped netbooks become enormously successful). Asus has also forgotten that it specialized in making great netbooks – It’s now under the illusion that there’s something wrong with making netbooks and that it should be making Tablets instead.

You have to keep running and keep evolving

Business is funny – You start off in a market and no one cares. You do well and show there’s money and suddenly you get all sorts of companies trying to steal your market via all sorts of strategies. 

Consider the eReader market and the Kindle -

1. Chinese clone eReader makers tried to steal the market via low prices. 
2. Plastic Logic tried to steal it via new technology (when previewed in 2008 the technology was a big deal).
3. Pixel Qi is trying to steal the market by turning every netbook and tablet into a Transformers style eReader + Netbook.
4. Apple is trying to steal it by pretending its Tablet is a better eReader than dedicated eReaders.
5. B&N is trying to steal it with Nook. A lot of credit to them for delivering a solid product.
6. Sony is trying to get back the market it lost – though only half-heartedly.
7. Google and lots of companies will try to steal the ebook revenue stream.

There are multiple threats -

• There are companies that try to create a better competing product. Ex: Nook. These are not very dangerous because the competition is right in front of you. 
• There are companies that try to steal the most profitable parts. Ex: Google. These are pretty dangerous as they may commoditize you.
• There are companies that try to re-imagine the entire market in a way that gives them an advantage. Ex: Apple. These are the most dangerous – If you aren’t careful you forget what you’re good at and start competing on their terms.

The last is what’s happened to Asus.

It’s great that Amazon has avoided the grand Apple manipulation/trickery and stuck to reading – the release of the Kindle 3 reaffirms Amazon’s focus on reading.

The ‘multi-purpose device future’ fallacy

There are some things that aren’t supposed to survive but do – Microsoft’s dominance in OS and Office, people wanting customer service via real people rather than algorithms, devices that focus on one thing.

This is what everyone who believes in the multi-purpose device future fallacy thinks -

Amazon is losing a huge opportunity. It’s making a mistake by keeping the Kindle focused on reading. It’s going to get killed by multi-purpose devices.

However, they’re missing the much, much bigger picture – The Kindle has a shot at replacing paper. Look around and you see all the different ways paper is used – labels, notebooks, papers, documents, books, newspapers. It’s an almost endless list.

All of that is going to be replaced by something one day because we’re either going to run out of trees or we’re not going to have enough gasoline to transport and process them. There is going to be a huge opportunity for eInk based products.

Guess which company is going to be the most qualified and the most prepared? Hint: It’s the company that is causing even Chinese clone eReader makers to give up.

So the iPad’s siren call is hardly seductive - Why don’t you pass up the soon-to-be multi-billion dollar business you are the leader in (not to mention the business you specialize in) to focus on an unproven niche that you have neither the lead in nor the expertise for?

Netbooks are forgetting what their core value proposition was

It was – a really cheap computer on which you can do 75% of the things you do on your big computer.

The pace of evolution of Netbooks was breath-taking – until the companies started self-sabotaging themselves. They didn’t want to be selling $300 computers when they could sell $700 computers. Two things happened in parallel – Those $700 laptops fell to $400 and $500. Netbooks stayed stationary at $300 to $400.

Suddenly the main value proposition was gone.

Netbooks went from around half a million in 2007 to 11.4 million in 2008 to 30 or so million in 2009. This year they stalled. Their pace didn’t slow down because of the iPad – It slowed down because they were no longer half the price of laptops. They stopped evolving.

Contrast these two devices -

1. July 2009 – Asus Eee 1005 HA. 8.5 hours battery life, $350,  Intel N270 Processor, 10.1″ display.
2. August 2010 – Asus Eee 1015. 13 hours battery life, $379.99, Intel N475 Processor, 10.1″ display.

In 1 year we’ve had the battery life go up 50%, the processor get a little faster, and the price go up $50. No wonder netbooks stopped growing at 300% to 600% a year.   

We had companies selling 30 million netbooks a year but instead of going to 100 million netbooks a year they decided they should try to see how close they can get to laptops in price.

Luckily Amazon and B&N are much, much smarter than Asus and Acer.

Kindle 2 to Kindle 3 is a pretty big jump

Yes, it could and should have been even bigger. However, consider the differences -

1. Kindle 2 in July 2009 was around $299, it didn’t have PDF support, it wasn’t available internationally, it didn’t have rotation support, and the screen was good but not great. It also didn’t have accessibility.
2. Kindle 3 in August 2010 is $189 (with a $139 Kindle WiFi option), there’s really good PDF support, 1 month battery life (double), double the memory, much faster page turns, international availability, rotation support, the new eInk Pearl screen, and a dozen other improvements (especially in fonts). It’s also accessible and has a new WebKit browser and WiFi.

A lot of credit to Amazon (and to B&N) for pushing eReaders. If Kindle and Nook had stayed as stationary as netbooks they would be dying too. They haven’t – they’ve evolved so quickly and the companies behind them have invested so much that Wall Street is upset with Amazon and B&N is struggling.

Evolution applies to companies too

Companies not only have to compete and fight off competitors in the markets they own, they also have to evolve and find new niches and markets that will sustain them in the future.

Consider a few companies -

1. Apple is building each product line on top of the previous ones – iPods, iPhones, Macs, iPads. They all combine to create this Apple eco-system and Apple nation that lets Apple launch even more new product lines. It’s creating an interesting symbiotic relationship where owning one product makes you feel perhaps you should own the others.
2. Amazon has a few major bets for the future – Kindle, Amazon Web Services, Shoes and Clothes. Interestingly enough its entire main business (retail) is a huge bet. Amazon is delaying gratification far more than any other company and you have to wonder just how much money it’ll make when it finally decides to cash in.
3. Microsoft, for all the flak it gets, is pretty secure – Windows and Office are making more money than they ever have (just check the balance sheet if you find it hard to believe), there are new successes (Xbox Live, Xbox), and there are the low profile billion dollar businesses (SharePoint, Server Tools).
4. Google - Don’t really know what to think or say. Search is a behemoth. Every other business Google goes into it seems to only want to compete on zero price. The whole ‘live by the sword, die by the sword’ aspect couldn’t be more true. Google is using its ability to leverage Free as a weapon/differentiator in every business but it’s also blowing up every potential revenue stream – It’s beating its opponents by blowing up the profitability.

Free is such a scourge and such a disease that we don’t even have other huge multi-billion dollar companies. Where are they?

If Google from 1998 is the newest company with multi-billion dollar profits you have to wonder whether the entire 1999 through 2010 stretch has been an utter waste financially. Skype had a profit of $13 million in the first 6 months of 2010. Facebook is still hiding behind terms like cash-flow positive.

If companies with hundreds of millions of users are having a hard time making profits it’s time for companies to pick a different branch of evolution – preferably one that rules out Free and ‘Freemium’ and every other ‘sounds too good to be true’ strategy dreamt up by Internet start-ups.

eReaders and eBooks will spawn lots of billion dollar businesses

The top 2-3 eReader makers will have billion dollar businesses. The top 2-3 ebook stores will have billion dollar businesses. The top company providing services to authors will be a billion dollar company. There will be new Publishers and new Platforms that might become billion dollar companies.

There are lots of opportunities. Of course, an essential prerequisite is to keep out the scourge of Free and the Internet Start-ups. Authors and Publishers should be as wary of Internet companies as they would be of the red death. Internet companies are the Anti-Midas companies of our times – the true enemies of profitability.

Skype sees 124 million users per month. Only 8.1 million are paying users. It made $406 million in revenue and the profits were just $16 million. That’s $2 profit per paying customer per 6 months. 12.9 cents per customer per 6 months. You could make more profit per customer from a lemonade stand or from a newspaper route.

That’s how amazing our new Internet companies are – They are less profitable per customer than your kid’s paper route.

With eReaders and eBooks we’ve found what might be the next big businesses. Not just in the US – all over the world. A business where users are gladly paying $5 to $10 per book and buying multiple books per month. If an average Kindle owner buys 3 books a month and Amazon makes $1 per book then in 6 months it’s making $18. That’s 139 times more than what Skype makes per user.

The scary part is that there’s a pretty decent chance eReaders really blow up. That there are tens of millions of eReaders sold and then hundreds of millions of eReaders sold. It’s not out of the question that we have 50 or 100 million Kindle owners in 2015 with each making Amazon $36 a year just from ebooks. That’s $1.8 billion a year in profits – from selling ebooks.

It’s puzzling isn’t it – That Amazon is #1 in 2 businesses that might each generate billions in annual profits for it and it isn’t ditching those to try to imitate Apple and its iPad. Too bad it isn’t like Asus which is pretty much ditching the netbook business that went from 400,000 units sold in 2007 to 30 million units sold in 2009.

Filed under: evolution Tagged: | future of ereader, kindle future