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Kindle Fire’s ‘Hardware, Software, Infrastructure/Ecosystem, 5 Main Uses’ Challenge

Kindle Fire HD and Kindle Fire 2 seem to be putting Amazon into a strong #2 Tablet Position this holiday season. My totally uneducated and random guesses would be -

  1. 12 to 19 million iPad Minis sold. Not sure at all about iPads.
  2. 4 million to 7 million Kindle Fire HDs and Kindle Fires sold.
  3. 1 million to 2 million Nook HD and Nook HD+s sold. If B&N is coming right out and saying sales were bad then it’s not inconceivable they were really bad. Note: I suspect there were 1 million to 2 million Nook Colors and Tablets sold on top of this.
  4. 2 million to 3.5 million Nexus 7s sold.
  5. 2 million or so Galaxy Tabs sold.

Basically, there’s a very high chance that Amazon will have the #2 Tablet Spot for this Holiday Season.

The questions that come up are -

  1. Will Amazon be able to maintain the #2 Spot?
  2. What does Amazon need to do to challenge iPad for the #1 Spot?

My guess is that both questions will be answered by the exact same things. That Amazon doesn’t really have a shot at maintaing the #2 spot if it doesn’t make a HUGE challenge for the #1 spot. That, in fact, Amazon will either beat the iPad Mini and get the #1 spot OR it will languish in the #3 spot.

Let’s take a look at why.

Hardware, Software, Infrastructure/Ecosystem

Looking at it from the company perspective, there are three big things Amazon has to master and deliver -

  1. Excellent Hardware. Amazon is doing a good job here. However, it has a way to go before it can beat iPad Mini. It is also, unfortunately, a bit behind the Nook HD+ and HD.
  2. Excellent Software. Amazon’s weakness is software. It tends to make software that is very stunted. This might well be a strategy. Make things that you don’t want users doing (surfing the web, arranging shelves, email) inconvenient. Make things you want users doing (shopping, reading, watching movies) easy.
  3. Excellent Infrastructure and Ecosystem. Amazon has a big advantage here over everyone other than Apple (ecosystem, Apple is far ahead; infrastructure, Amazon is slightly ahead).

Whether or not Kindle Fire can beat iPad Mini depends on whether or not Amazon can beat Apple in 2 out of these 3 areas. Apple will be forced to go with lower prices (it already has with iPad Mini) and the price advantage can’t be a competitive differentiator.

That leaves just – Software, Hardware, Infrastructure+Ecosystem.

Amazon has the best shot at beating Apple on Infrastructure+Ecosystem. After that software. Hardware is the toughest because Amazon can’t even beat Nook HD and Nexus 7 on hardware right now.

The #2 Spot is by no means safe

If B&N can keep improving its infrastructure and ecosystem (which is good but not great). If B&N can fix its software issues (its tendency to release its alpha software as its V1). Then B&N can take the #2 spot from Amazon. Frankly, I really don’t see B&N fixing its software issues. It’s just too hard to change your mindset after already shipping 3 generations of your Tablet. If you’re addicted to the idea that your users are your beta testers then you can’t switch to an ‘Our V1 is actually a V3′ mentality.

Nexus 7 is far more dangerous. Its software is improving even though it is both aesthetically challenged and ‘real users are not PhDs’ challenged. The hardware is good. Its big advantage is that it offers a huge, mostly free app and services ecosystem. The downside is that such an ecosystem tends to attract customers who don’t want to pay for things (to be honest, Google is probably happiest with users willing to trade personal information and data for free services).

Samsung keeps failing. It might, however, eventually succeed and release a Tablet that is actually markedly better than other Android Tablets.

There are dark horses like Microsoft Surface (the Pro version, not the RT version) and Nokia’s rumored Tablet.

Fundamentally, if Amazon doesn’t win in at least 2 of 3 areas over Android and Windows 8 Tablets and Nook, then it runs the risk of losing the #2 Spot it seems to have comfortably taken possession of (this holiday season).

Before we look at what Amazon needs to do to get the #1 Spot in Tablets, let’s look at the User Perspective on Tablets.

5 Main Tablet Uses

Looking at it from the end user perspective, there are 5 Main Tablet Uses Amazon has to deliver on. Since different users are different we actually have 10 Main Tablet Uses we’ll look at -

  1. Reading.
  2. Movies.
  3. Music.
  4. Surfing the Web.
  5. Games.
  6. Apps that are not Games.
  7. Shopping.
  8. Email.
  9. Facebook.
  10. Feeling Good and In Control.

Shopping

I find it interesting that the first link on the Kindle Fire HD is now ‘Shop’ and it lets you shop – Books, Videos, Apps, Audiobooks, Music, Newsstand, Games, Amazon Prime.

By Kindle Fire 4 we’ll see that this includes EVERYTHING you can buy at Amazon.

This is an important use case because a Tablet is much more convenient to buy things on than a Phone and it’s much more portable than a PC. Showrooming is going to be modified to be Showrooming+TabletBuying soon.

Reading

Reading includes books, magazines, and newspapers. It also, to an extent, includes reading websites and articles and PDFs.

There’s actually a TON of reading that we do and a device that makes reading easy and fun and pleasurable and convenient will ALWAYS have a big advantage over devices that don’t.

Movies

Movies are big for Tablets for a variety of reasons -

  1. Watching movies on Tablets.
  2. Second screen while watching TV.
  3. Using HDMI out to stream movies to TVs.
  4. Trips.
  5. Ease of Use.

Movie studios used to make it amazingly difficult to give them money. Now things are getting better and Tablets have a big role to play in making movie buying and renting and watching frictionless.

Music

Smarphones are killing off dedicated music players. However, Tablets are really good for music too. In some ways they are better since you can search for information about artists easily and you can browse for and buy music more conveniently. Lots of things (making playlists, searching, buying) are easier on Tablets.

All that was missing was good speakers and a committment to high quality sound. Amazon has started on that.

Surfing the Web

This is a huge use case. One where Amazon is shooting itself in the foot.

Perhaps it’s because it wants to harvest browsing patterns. Perhaps it’s to deter users from surfing the web. Whatever the reason, Amazon is making a mess of its web surfing experience.

It has to fix this quickly or it will be the end of its hopes of being a #1 or a strong #2 in the Tablet Market.

Games

This is a big use case. There are three categories we’ll look at (though there are more) -

  1. Casual Gamers. Bored people who just want something to interest them for a short duration. These are necessary to target since they are often the decision makers for Tablet purchases.
  2. Hardcore Gamers. A bit pointless really. They will tend to prefer platforms that are optimized for games.
  3. Babysitter Games. This is a big and necessary category to provide. Tablets are increasingly being used as ‘amusements’ for children. Towards that end Amazon must ensure it has all the bird throwing and rope cutting games it can get its hands on.

Games to keep Kids Occupied. Games to keep Bored Men and Women Entertained. These two categories of games are an absolute must-have. Without them no ‘Entertainment’ Tablet has a chance.

Apps that are not Games

Yes, there are actually people who prefer checking their financial accounts and stocks to finding water for OCD crocodiles.

Tablets have become a channel to various services and websites.

In effect a website is just a portal to a service. Tablets (or Tablet Apps if you want to be particular) are a portal to the service too.

People want portals to the services they use. It’s not enough that they can access the website (though that satisfies some users). The portal should be built for and optimized for the device.

So people want apps that provide the services they know and love.

Amazon has a lot of catching up to do here. Get enough users to force service providers to make apps. Get enough apps to entice users into choosing Kindle Fire HD.

Email

Email is absolutely critical. One of the top three uses. Perhaps even a top two use.

Amazon needs to improve support for email providers of all types. It needs to make the Email app better.

Without an excellent Email App the Kindle Fire HD can’t really be the #1 Tablet.

Facebook

Not my area of expertise. It seems to be a top 4 use case for tablets.

Feeling Good and in Control

I can’t explain this. You’re either a company that gets this or doesn’t. If you don’t get this then hire someone who can convince you that users value feeling good about themselves and feeling good about their devices more than anything else.

What does it mean to be excellent in the 5 Main Tablet Uses

Each user has a different set of ’5 Main Tablet Uses’. However, the above 10 items will show up for most users. Usually account for 3 or 4 of the Top 5.

If Amazon can excel in most or all of these 10, then most users will be HAPPY and SATISFIED with a Kindle Fire HD purchase.

For their next Tablet they’ll choose the Kindle Fire HD 2. They’ll tell their friends. They’ll gift Kindle Fires to their kids and wives and husbands and parents. They’ll go to websites and fight against wrong allegations and claims.

To be ‘excellent in the 5 Main Tablet Uses’ means that the user LOVES her experience with the device. That, for the 5 main things she does with the device, it just absolutely rocks.

Why is this necessary to be #1?

Firstly, because people aren’t buying the device to feel miserable or out of control or stupid or lost or disheartened. They are buying the Tablet for it to serve their needs, for the Tablet to be a loyal servant to their desires.

Secondly, because competitors are getting lots and lots of these things right. Apple gets 3 or 4 out of the 5 Main Tablet Uses right for lots of users. Samsung does it in phones and might figure out how to do it in Tablets (or it might get ‘inspired’). B&N might wake up one day and realize that software is just as important as store and hardware. Nokia might find some inspiration in its last few heartbeats.

Most importantly, Microsoft might deliver a Tablet that can be used for BOTH productivity things and the current ’5 Main Tablet Uses’. If that happens then ALL existing tablets get reduced to ‘Babysitting Tablets’ and ‘Entertainment Tablets’ – speciality tablets with a market of 100 to 200 million devices a year.

Kindle Fire HD has an excellent chance to solidify its grip on the #2 Tablet spot and fight for the #1 Tablet spot. At this point Jeff Bezos and Amazon need to get out of their ‘We are so smart. We can use path of least resistance to channel users away from what they want to do, and to where we want them to go’ thinking. Don’t give up on the chance to take over the Tablet Market because you are under the delusion that you can make horses drink water when they aren’t thirsty.

If Amazon can let go of its ’5 Best Uses for Amazon’ thinking and embrace ’5 Most Important Tablet Uses for Users’ thinking, then it really has a chance to take over the Tablet Market. Before the giant thrashing snake with its head cut off grows a new head. Before the monster bear that has been hibernating in its cave having dreams of ‘Developers, Developers, Developers’ wakes up and climbs out to the surface.

Kindle Fire is the biggest threat to the Kindle, Nook Tablet/HD is the biggest threat to the Nook

The Kindle Fire and the Nook HD are the biggest threats to the Kindle and the Nook.

First, let’s understand what dedicated eReaders are up against.

The Perception War eReaders have had to Fight

Dedicated eReaders have always had to fight a lot of ‘perceptions’ and ‘prejudices’. Basically, 2007 to 2012 has been an all-out ‘Perception War’.

  1. No one reads any more. It’s a $25 billion a year business in the US (or at least was in 2007) and yet people seem to believe this nonsense.
  2. Readers will not buy a device dedicated to reading. Again, this is beyond ridiculous. For some reason it’s OK for people in every other passion/interest to buy specialized equipment and devices – However, readers are supposed to not buy a device dedicated to reading.
  3. eInk is not better than LCD. Again, we have LCD-compatibles and they exist in a world where they think of LCD-incompatibles much as we think of werewolves and vampires. Surely, they don’t really exist. How could there be someone who wants to read a book in black and white?
  4. If a device can do more than just read, then it’s the best choice for reading. This is one of the funniest arguments. A reader wants to get ‘the best reading device’ and his non-reader friend says – Why not get something that you can do more than just read on? Why do you care if the reading experience isn’t as good?
  5. Readers don’t want to let go of the touch and smell of books. Apparently, from the number of eReaders being sold, they are getting over it.

However, that wasn’t all. Reality wasn’t kind to eReaders either.

The Reality of what eReaders had to Face

In addition to the Perception War, eReaders had to fight some harsh realities -

  1. LCD screens were far, far advanced in their evolution. eInk had (and still has) a really, really difficult task in front of it.
  2. LCD Screens were evolving faster than eInk.
  3. The companies making eReaders (with the exception of Sony) had zero prior hardware experience.
  4. Getting people to spend $399 or $299 and then having to pay again for books.
  5. Users were used to books and bookstores. eBooks was very new and scary.
  6. Publishers were very reluctant to let ebooks grow.
  7. Tablets were evolving much faster than eReaders. The Tablet reading experience (thanks to things like retina displays) was coming closer to the eInk reading experience in overall satisfaction.

It’s a miracle that we are seeing 10 million or so eReaders being sold every year. We started off with forecasts of ’40,000 Kindles sold and then it dies’. Now, with 10 million Kindles and Nooks and eReaders being sold every year, it’s again time to consider the mortality of eReaders.

Amazon and B&N are more focused on Tablets than eReaders

Somewhere along the way Amazon and B&N realized a few things -

  1. Tablets can evolve much faster than eReaders because the main ingredient (the screen) is evolving much faster.
  2. With Tablets they can sell users books and movies and music and eventually teddy bears and diapers and kitchen sinks.
  3. They can flip the Tablet encroachment (and they have). If this seems an exaggeration, consider that if it were not for Nook Color and Kindle Fire, Apple would not have released an iPad Mini and Google would not have released a Nexus 7. Nook Color and Kindle Fire created and cemented the 7″ Tablet Market.
  4. With Tablets they can reach casual readers who were choosing Tablets over eReaders.
  5. With Tablets they don’t have to wait another 25 years to get color eInk and sell movies.

It’s actually a very smart move by both companies to shift to Tablets. They are now selling to dedicated readers and casual readers. They are now selling books and movies. They are increasing their customer base.

This might be a great decision for Amazon and B&N but it’s very damaging for eReaders.

Amazon & B&N would rather sell Tablets to Readers than Dedicated eReaders

Imagine you’re B&N or Amazon. You have two options.

Option 1: Sell a reader a dedicated eReader. Then make money from ebooks sold. Also, watch while the reader buys an iPad and spends money on movies and music at Apple.

Option 2: Sell the reader both Tablets and dedicated eReaders. Then make money from everything – books, movies, music, apps.

There’s another aspect to Option 2. You’re adding a permanent mini-Store. You can, down the line, sell the user anything you and the user want.

It’s a no-brainer. Selling Tablets in addition to eReaders. Eventually, preferring to sell Tablets over eReaders.

Without Amazon & B&N focused on eReaders they will gradually stop evolving (not that they’re doing a very good job at the moment)

2007 – The First Kindle.

2012 – A Kindle with a built-in light, a touchscreen, and more clarity.

None of that is really very impressive.

Notice everything that’s missing: Color eInk, Flexible Screens, Unbreakable Screens, Video Support, Games Support.

eReaders were already evolving at a snail’s pace. Now that Amazon and B&N are focused on Tablets, where will the fire for eReader improvements come from?

Sony? (Please stop laughing. It’s a serious question.)

So we will see Kindle Fires and Nook Tablets get better and better. We will also see Nook eReaders and Kindle eReaders stagnate. This makes the contrast even sharper. Soon we’ll have eReaders that are stuck in 2008 (2009 if you’re generous) while Tablets zoom into 2013 and 2014.

Is the Inflection Point Past Us?

There was the first inflection point – when Nook Color did well. At that point the Nook eReader suddenly became B&N’s #2 Priority.

There was the second inflection point – when Kindle Fire did well. At that point, the Kindle became Amazon’s #2 Priority.

Amazon and B&N suddenly went from

Worldview 1: eReaders are going to replace paper. We will be selling hundreds of millions of eReaders per year.

to

Worldview 2: eReaders are going to be a niche market. Tablets will eventually replace paper and PCs. We will be selling hundreds of millions of Tablets per year.

We don’t know if either worldview is accurate. However, that’s the shift that happened in B&N’s thinking and Amazon’s thinking.

B&N saw the Nook Color as its future. Amazon saw Kindle Fire as its future.

Have we passed the inflection point of the death of eReaders. I don’t think so.

However, there are three things we can agree on -

  1. The single biggest threat to the Kindle is the Kindle Fire.
  2. The single biggest threat to the Nook is the Nook HD.
  3. eReaders have Tablets blocking their growth path to hundreds of millions of devices sold per year.

From Amazon and B&N’s perspective this is fine. They are exchanging a ‘one digital revenue stream’ device with a ‘multiple digital revenue streams’ device. They are also effectively safeguarding themselves from a world where they are made obsolete when it comes to digital products. However, for anyone who wants ‘dedicated reading devices’ to keep improving, this is sad and unfortunate. We are not going to see very many big advances in eReaders. We might even see them become a niche product and slowly die out.

eReaders with Color eInk Displays – Will we ever get them?

Color E-Ink, technology for displaying text and images on an eReader in color, exists today. It’s just not good enough and not cheap enough yet.

We have a lot of ‘Reading Tablets’ (such as the new Kindle Fire HD and the Nook Tablet). However, these are tablets with LCD screens with minor adjustments (such as an anti-glare coating) to make the LCD screen good for reading. It’s far from the ideal color eInk screen.

While LCD displays are stunning they have their limitations.

Some Limitations of LCD Screens

  • Difficult to read on LCDs for a long time. Unless you are LCD-compatible you’ll experience eye-strain.
  • Difficult to read in direct sunlight. Pretty much impossible, actually.
  • High contrast and brightness makes it difficult to read it in a dimly lit room. You have to dim the brightness and adjust the theme to a Night Reading theme.
  • Some people find it difficult to sleep after reading for a long time on a back-lit screen (LCD display). The brightness messes with the Circadian rhythm (your body assumes it’s not night yet because a bright light was right in your face so recently).
  • More power consumption, drains battery very fast. IGZO screens are trying to solve this in one way (to only refresh the screen once per second when displaying photos and other static items). However, color eInk is a much more promising solution.
  • Devices using LCD screens can sometimes heat up.

A LCD display is excellent for media consumption and performing utility tasks like checking mail, browsing (short durations). However, LCD displays are not the ideal book reading screen (unless you are LCD compatible or think that a device/screen optimized for reading is a stupid idea).

Is Color eInk the solution? Is anyone EVER going to ship eReaders with color eInk? 

Black and White eInk screens (16 shades of grey, not quite as exciting as 50) have been the screens of choice for eReaders (Sony Reader, Kindle, Nook). This is despite the fact that eInk can only display 16 shades of grey.

Why are eInk screens so popular for eReaders?

E-Ink is a reflective display technology and it works by reflecting the light that falls on it (unlike the back-lit LCD). This makes eInk ideal for reading in sunlight.

eInk also only changes the screen when required. There is no constant refreshing of the screen (as you have in TVs and Computer LCD screens). So it only uses power when the screen is changed. This makes eInk very good for uses where the screen is not often changed (reading, posters, price tags).

Since the screen is not refreshing constantly. Since the technology is very similar to actual ink on paper – there are eInk dots that are moved up and down to show different shades of grey. Since there is no light coming out of the screen at your eyes.

eInk is great for reading.

E-Ink is the closest we have got to the real paper experience. Readers find it very comfortable to read from eInk screens, regardless of duration.

LCD-compatible people claim that they can read War and Peace off a LCD screen at one go without bothering their eyes even a bit. However, for us LCD-incompatible mere mortals, eInk is the only screen that allows us to read non-stop for long stretches without eye strains or worse (headaches, loss of sleep, etc.).

eInk uses very little power and thus eReaders using eInk do not heat up. This is critical for eReaders as people hold them in their hand(s) while reading.

E-Ink displays are also light weight.

However, eInk is far from perfect

The biggest disadvantage of E-Ink is that currently eInk screens are only available in Black and White. Color eInk screens have been promised for years and years. However, they either have very washed out colors, or very high prices.

This puts Amazon and B&N and Sony in a bind. They would probably LOVE to get color eInk and makes cool new Kindles and Nooks and Sony Readers. However, the technology hasn’t arrived yet.

Limitations of Color E-Ink and eInk

  • Low/Slow page turn, page refresh rates. Since the dots of electronic ink are literally ‘moving’ every time the page refreshes, it’s hard to match LCD screens. Advances are being made but we are still a long way off from catching LCD screens on speed.
  • Relatively expensive (this is in part due to lack of bulk production capacity).
  • Limitations on natural color reproduction, dull colors, limited color palette. Color eInk screens shown so far can’t compare with the richness of IPS and AMOLED displays.
  • No multimedia, video display capability. Most Color eInk display technologies do not support Video.

To compete with LCDs (or to even have a chance), eInk needs color and video support and lower prices and higher volumes and faster evolution. Right now, none of this is happening.

Prominent manufacturers of eInk and Color E-Ink

E Ink Corporation (eInk Triton): E-Ink has almost become the de facto standard for monochrome eReader displays. Can E-Ink repeat that success with its color E-Ink Triton display?

They do have the technology and there is even a product in the market (Ectaco Jetbook Color) that uses the color E-Ink Triton technology. However, none of the big eReader makers have embraced eInk Triton.

Pixel Qi:  Pixel Qi’s e-paper display technology modifies existing LCD technology to create multiple modes. A black and white reading mode that consumes very little power. A color mode that lets you use video. Combine the modes and you can display full color video and images, read in sunlight, and consume less power.

Pixel Qi has a multi-mode screen whose back-light can be switched on and off by the reader. When the back-light is switched on, it works similar to a LCD display and when the back-light is switched off, it becomes a reflective screen for reading books. The technology has been implemented in the Notion Ink Adam tablet. Again, none of the big eReader makers have adopted the technology.

Mirasol: There are at least four devices using Mirasol displays in the Korean and Chinese markets. Kyobo eReader was perhaps the most popular among them. However, Kyobo discontinued its color eReader products. Mirasol recently decided to license its technology to others instead of manufacturing its own displays. All signs that perhaps the technology has no future.

Plastic Logic: Plastic Logic is another company with a color e-paper technology that has decided to license its technology to others. There were no products released with Plastic Logic displays, even thought they sent out a lot of very impressive Press Releases.

Fujitsu e-paper: Fujitsu was one of the first vendors to bring out an eReader using color e-paper technology (Fujitsu FLEPia Lite). They even did a technology refresh. However, their color ePaper screen was too expensive and was not released in the West.

Fujitsu is now planning to come out with improved color eReaders that are flexible (bendable) and have better displays. Let’s hope they succeed.

Samsung: Samsung bought Liquavista, a company which manufactures color e-paper displays that work with and without back-light. These displays also have limited video capability.

Samsung is working to release these electrowetting-based color e-paper displays. These will be flexible and might even support video. Samsung’s backing should increase the chances of this technology making it to actual users at some point of time.

Conclusion

Color eInk isn’t here yet. There are a lot of contenders. However, none of the competing technologies seem to be ready. None of them seem to be able to land a big client like Amazon or Sony.

There also seems to have been a shift. Instead of focusing on eReaders with Color eInk, companies that make Color eInk seem to be trying to take on LCD Tablets. That’s a really strange move. Why not start with a smaller, less competitive market first? Why would you try to take on a firmly entrenched screen technology like LCD technology?

It is actually quite disappointing to see that the major eReader vendors (Read: Amazon, B&N, Sony, Kobo, etc) are focusing on Tablets and aren’t releasing any Color eInk display powered eReaders. You’d think that a Color eInk powered eReader would make for a wonderful TextBook Reader and also a very good device for Magazines and Newspapers. It would have the sort of battery life that LCD powered Tablets can only dream about.

Amazon has recently released a lot of new Kindles but none of them have a color eInk screen. Will B&N spring a surprise? Will Samsung?

In Defence of Delaying Gratification – Amazon from a non short-term Profit perspective

ReadWriteWeb writes an article about Comparing Apple, Amazon Based on Their Profits. It’s really interesting because they start off with the stupidest description of what Amazon does that ANY Silicon Valley worshipping Tech Blog has ever written -

Apple and Amazon are both in the business of designing small computers – tablets, ereaders, phones, media players – and selling them to the public. But how they do it is the big difference. And that’s best depicted by the astonishing difference in the two companies’ profits.

Did they just write that ‘Amazon is in the business of designing small computers – tablets, ereaders, phones, media players, and selling them to the public’?

Whether its Amazon or Microsoft, the tech press LOVES to bad mouth Seattle tech companies (actually any company not in SFO or the Valley). A company based in San Francisco that is selling users’ information or selling purple cows to users – the NEXT Amazing Technology. A company in Colorado making lifesaving equipment – Not worth a mention.

Let’s set some facts straight about Amazon. Then we’ll take a look at why Amazon is running a very different race from Apple. A race that might prove to be a much smarter race and a much longer lasting one.

Amazon is more than the Kindle and Kindle Fire

Let’s take a quick look at all the things Amazon does -

  1. Amazon.com.
  2. Amazon Web Services. This is, arguably, the #1 Cloud Services Provider. An industry that is going to be very, very significant.
  3. Lab126 – maker of Kindle.
  4. Kindle Store and book publishing divisions and companies like BookSurge, Mobipocket, CreatorSpace and various publishing imprints.
  5. IMDB.com. Movies Website.
  6. Amazon.com branches in multiple countries including Joyo.com in China and Amazon UK, Amazon Italy, Amazon Germany. Keep in mind these are ENTIRE country focused retail sites (not just a branch selling goods made in the US).
  7. Audible. Audiobooks.
  8. Zappos. Shoe and Apparel Retail.
  9. Shopbop. Retailer of Designer Clothing.
  10. Endless.com. Another retailer of Shoes and Apparel.
  11. Woot. Deals site.
  12. Amie Street.
  13. Lovefilm. Movie rental site in UK and Europe.
  14. The Book Depository. UK book selling site.
  15. Investment in Living Social, a daily deals site.
  16.  Brilliance Audio, audio book producer.
  17. A9 and Alexa – search and categorization sites.
  18. Amazon Movie Studios.
  19. Amazon Wireless. Selling phones and subscriptions.
  20. Operating retail websites for Lacoste, Marks & Spencer, Sears Canada, Timex, etc.
  21. Drugstore.com.
  22. Diapers.com.

Amazon is like the Hydra. You cut one head off and two others grow. It’s exactly the sort of strategy that stands the test of time. Just ask GE.

We basically have a LOT of billion dollar businesses that Amazon is running -

  1. Amazon.com. This is the main site.
  2. Amazon sites in different countries. Amazon UK by itself is a multi-billion business.
  3. Digital Media such as music and movies.
  4. Kindle devices.
  5. Kindle books.
  6. Cloud Services.
  7. Zappos and Shopbop and Endless.
  8. Diapers.com. Might not be a billion dollar business yet but it’s very close.

Amazon is setting up all these billion dollar businesses and it’s putting itself into position to make money from EVERY SINGLE THING that EVERY SINGLE PERSON buys ANYWHERE.

Yes, it’s probably going to fail in getting to that point. It will, however, end up as a company that -

  1. Has 100 million+ customers in the US. 500 million+ customers worldwide.
  2. Makes money from 25% to 50% of the items those customers buy. Consistent, recurring money – every single month for the life of the customer.

It’s going to be the ULTIMATE stable and HUGE business. If it gets to that point.

It might fail. However, the extent and scope of its ambition is impressive and ludicrous.

Microsoft was – a PC on every desk.

Amazon is – Every purchase by every person through Amazon.

Recurring Revenue is ALWAYS better than one time revenue

The single biggest thing Amazon understands very well is that it’s better to make money from customers repeatedly, than to just make money once.

  1. Better to make money from customers every month than just once every two years.
  2. Better to make money from customers from various products than from just 2 or 3 products.
  3. Better to make money from customers as often as possible.

Recurring revenue means that you know with a HUGE amount of certainty how much money you will make. You can invest now to grow and to make more profits in the future and to keep growing your recurring revenue.

It’s a vicious positive cycle – You keep using current profits as customer acquisition costs. And you keep increasing recurring revenue and profits. Then you keep pumping that back into new customer acquisition. It’ll take you a very long time to run out of customers to acquire. But when you do you’ll be left with 500 million to a billion profit generating customers for life.

Delaying Gratification = Long Term Survival

Those existing 7-8 billion dollar businesses that Amazon has. The additional 7-8 billion dollar businesses it is building up.

Those guarantee long-term survival (to whatever extent it can be guaranteed in such a fast changing world). If one product is no longer ‘The One’ then another takes its place. If one business gets defeated, then another takes up its place as a fundamental pillar for the company.

All those customers Amazon is locking up as long-term recurring revenue income streams – at the cost of current profits. Those are very, very valuable.

My prediction is that in 5 to 10 years we’ll see some very clear signs of what is the better approach – Selling devices for $200 to $300 instant profits to a somewhat smaller group OR Creating long-term customers for life from a somewhat larger group.

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