Lessons for Publishers, Amazon, B&N, Kobo from Microsoft’s Xbox DRM about-turn

Hell is beginning to freeze over. Microsoft today announced that it’s doing an about-turn on two big DRM decisions it had made in Xbox One -

  1. Earlier, Microsoft had said that there would be an ‘always-on’ requirement to play games. Now it’s saying there won’t be.
  2. Earlier, Microsoft had said that there would restrictions around used games and there would be a fee involved. Now it’s saying there won’t be. Used games will work just as they do now.

Of course, a lot of this has to do with Sony’s Playstation 4 not having these twin DRM restrictions.

Sony had won a lot of plaudits and Microsoft had gotten a ton of criticism. Preorders for Xbox One and Sony Playstation 4 are live now, and perhaps Microsoft got more direct feedback from the preorder rate.

Whatever the reason, Microsoft has made two very good changes. These changes might very well be what save Xbox One. It had seemed, based on users’ reactions to the DRM restrictions on the Xbox One, that Microsoft would lose the console wars even before Xbox One arrived.

Now it has as good chance to win as Sony Playstation 4, perhaps better because we tend to value people/companies who correct mistakes more than those who don’t make mistakes (yes, strange but true).

Lessons for Publishers

You have four categories of readers (roughly) -

  1. Readers who won’t pay for books and will pirate them. No matter what.
  2. Readers who won’t pay for books if it’s easy to pirate them. These will also not pirate if there is some penalty attached i.e. they might get caught and punished.
  3. Readers who won’t pirate.
  4. Readers who don’t know the option to pirate exists.

The first category can never be ‘converted’. The second category of people are what Publishers are hoping to ‘protect’ from piracy by having DRM. There’s also the rather interesting idea of having ‘variable’ books that allow Publishers and Stores to find who started the piracy – I LOVE that idea.

DRM greatly inconveniences the third category and also somewhat inconveniences the fourth category.

If Publishers drop DRM, it does two big things -

  1. It makes the 3rd and 4th category happier and MORE likely to buy books from Publishers.
  2. It makes the 2nd category likelier to steal books. Unless Publishers attach some ‘you might get caught’ qualifier like water-stamped/word-stamped digital books.

Of course, dropping DRM does one more thing -

  1. It kills the ability of ereader makers to use DRM as lock-in. It effectively equalizes book stores. Why? Because if there’s no DRM, then any book store can sell Kindle format books without DRM. They would work and then users would not be restricted to buying just from Amazon.

This is very important. Because then it blows a giant hole in the closed Kindle ecosystem and it allows ANY author and ANY ebook store to sell directly to Kindle owners. Currently, only indie authors can sell DRM-free books to Kindle owners. Quite a few do.

The downside is that we don’t know the size of the 2nd category (people who will pirate ebooks if it’s simple to do so). If that’s large, then dropping DRM would be madness unless Publishers could introduce the threat of a penalty for stealers.

Lessons for B&N

B&N is already making some aggressive moves -

  1. Huge price drop on Nook HD and Nook HD+.
  2. Periodic sales on Nook Simple Touch.
  3. Huge price drop on Nook Simple Touch in the UK.
  4. Adding Google Play Store to the Nook HD and Nook HD+.

If it were to somehow convince Publishers to drop DRM, it could start selling books to Kindle owners.

The downside is that B&N probably likes the lock-in it gets by using a variant of Adobe DRM that Kobo and Sony don’t yet support. So it has just as much to lose as Amazon if DRM is dropped completely.

Dropping DRM is a move B&N really should consider.

Lessons for Amazon

Amazon is in a tough situation. It definitely does not want to unlock its ecosystem and let everyone easily buy books from elsewhere to read on Kindles.

The lesson for Amazon is to be prepared for this to happen. Publishers and B&N and Kobo and Apple could team up and drop DRM (it’d be funny if Apple helped drop DRM on books, given that Amazon caused DRM on music to get dropped).

In a world where ebooks are sold without DRM, anyone could buy from any store. Would Kindle owners still buy from Amazon? Perhaps they would. What if some crazy new start-up started offering books for cheaper? What if it started offering Publishers and authors 90%?

Keep in mind that an ebook store would not have all the infrastructure costs that Amazon has i.e. free 3G downloads, all the services, delivering data to all these Kindles. It would just be a website selling ebooks that users would download to their PC via their standard Internet connection, or to their Kindles using WiFi.

Amazon would be in a bit of a bind if DRM were to be dropped from ebooks.

The opportunity for Amazon would be to sell ePub format books to owners of non-Kindle eReaders. The downside is that Amazon probably wants them locked into its ecosystem and buying Diapers and Pink Tutus.

Lessons for Indie Authors

Sony was going to win the Console Wars just on DRM and used game sales. Think about that for a minute.

Microsoft was forced to rescind its two big DRM measures.

Indie Authors have the advantage of being able to sell their books without DRM and for all the stores. There has to be some way to leverage that. There’s also the set of people who are anti-DRM. If Indie Authors can reach those and sell them DRM free books, they can get one competitive advantage Publishers would be reluctant to match.

Lessons for Kobo

Very similar to the lessons for B&N.

Kobo has to be thinking about how much money it could make if it could sell to Kindle owners. If the war came down to ‘selling the cheapest books’, Kobo can fight with Amazon far more effectively. The entire market share lead for Amazon is based on locked-in users. If all those users could suddenly buy from any store, a large portion of them would buy from the cheapest store.

Kobo’s problems would be reduced to – Become the ebook store with the cheapest prices. Kobo already does this well by using coupons and catering to quite a few Nook owners.

At best - removing DRM lets Kobo sell to Kindle owners. At worst – it kills profit margins for Amazon (if it matches Kobo) and thus makes it somewhat meaningless that Amazon has larger market share.

There’s a certain beauty in it – Kobo could cut prices to the point that it makes zero profits. Amazon would be forced to match. The loss for Kobo is perhaps $20 to $40 million. The loss for Kindle is $300 to $400 million.

If Amazon doesn’t price-match, then people start buying from Kobo.

DRM is going to decide the eReader & eBook Wars

People fixate a lot on things like convenience and customer service. They are discounting human nature.

Everyone wants to eat their cake and have it too. If readers get a chance to get an eReader from Amazon and get Amazon services and customer service, and then turn around and get cheap ebooks from Kobo – 90% of them will take it.

90%. Not 10%. Not 25%. 90%.

Sooner or later, Publishers will be forced to drop DRM. At that point a lot of possibilities open up - There’s always someone crazy enough to try things the market leaders never would. Readers, due to being human, will gladly embrace any company willing to take losses to give them better prices. You could argue that’s the entire Unique Selling Proposition of Amazon. That might very well be the best way to compete against Amazon.

Thoughts on Apple and iOS 7

Please Note: This isn’t meant for Apple or even for Apple people – kindly skip it if you’re either. It’s just an analysis meant for people who write books or make software or make any product at all that’s used by every day users. Think of it more as ‘Lessons from a Misstep by Someone Else’. Lessons which will hopefully help you avoid similar missteps yourself.

Software and Hardware needs to be CONGRUENT and Built for Users

A software and hardware team shipping products is a very interesting creature.

You have a bunch of people who are very, very specialized in their areas. At the same time, they are very detached from the reality of every day users. On top of that, they are completely unaware of the fact that they are detached from the reality of the everyday user.

This is absolutely critical – Each one of these ‘very specialized, very good, very detached from every day reality’ people are completely unaware that they don’t know what is best for users. They are beautiful in their skills and who they are. However, they do not represent what is best for users – they don’t even know what’s best for users.

This creates the need for the ‘great communicator’ and ‘vision creator’. A person who has three very different and important roles -

  1. Communicate between EVERYONE on the team and UNDERSTAND what they are saying and make sense of it. This is far tougher than you might imagine. A graphic designer talks in language and world views completely different from a software programmer. It’s the same for almost every other pairing on the team – these people don’t really exist in the same world. Anyone who’s worked in a multi-functional team in any area can relate to this. It’s like putting together an international criminal lawyer and a neurosurgeon at dinner - half the time they don’t understand what the other person says or means.
  2. Communicate the every day user’s needs and desires to all of these people and CONVINCE them that the every day user’s needs are the ONLY thing that matters. It’s a very uncommon bit of common sense – the understanding that the product is FOR THE USER and that the User is paying the money.
  3. Lead the whole team by setting a vision for where the product and software and hardware should go. What it should be and what it should do. Creates a vision that people can get behind. A big part of leadership is keeping everything in equilibrium – you can’t let the hardware team or the software team or the business team or any other person or team dominate and warp the product towards their world view of what’s important.

If you get the decisions being made by someone who is locked into any of the specific specialist world views - then you get a product that is warped towards a particular specialization and not optimal for the user.

That’s exactly what’s happening in iOS 7. You can wait until you’ve used it yourself. Points 2 and 3 above are missing.

Firstly, someone forgot that users are not designers. They need perceived affordances (clues and cues) and visual cues to understand where to click and what to click. That’s deteriorated considerably. It’s just not good for users.

Secondly, there was no one who kept things in equilibrium. There was no one who championed ‘We should ONLY do what’s BEST FOR USERS’. There was no one to keep things in balance. That leads to a loss of congruence.

When the biggest Apple fanboys are calling the design confusing then there is a big problem. Keep in mind that a lot of the people who don’t like the design are Apple people. These are people who would not have an issue unless there was a very REAL problem. There is. This is a very big warning sign for Apple.

Simplicity leads to a Lack of Opportunity to Add Details + Simplicity is Boring

What made iOS visually very pretty was the juxtaposition of very simple and beautiful hardware against detailed, rich, visual design. Both parts were critical. Black needs White to have Meaning.

People are knocking skeuomorphism. However, look around you – People like skeuomorphism in their day-to-day lives.

For every person who has a very minimalistically decorated house or car or office, there are 100 people who have and love REAL and COMPLEXLY decorated surroundings. For every person who likes to dress in the same outfit every single day, there are 100 people who like to mix and match and add little flourishes and details.

Going to simplicity in the Operating System design causes three problems -

  1. Very simple, minimalistic hardware with very simple, minimalistic software = Simplicity overload. It’s not beautiful. It’s just boring. If you have a very tasteful simple outfit and then wear a daring colorful scarf – that’s beautiful. Much more beautiful than an outfit that has no life or verve anywhere (like the Men’s Wearhouse fashion shows that Apple Presentations have turned into). Variety and Contrast are the spice of life.
  2. Simplicity reduces your opportunities to show your attention to detail and your level of skill. Any, and I do mean any, work can be made more beautiful by adding more detail. No one would know what the Sistine Chapel was if it had a single flower painted on it. Same for the Taj Mahal and for countless other things we consider beautiful and timeless. You have to have detail to give the creators the opportunity to create something special. The more details you can add, the more you can convey. Even things that you would consider ‘simple’ have an immense amount of detail – in those cases, all the work goes into creating the illusion of simplicity in what is a complex intricate design.
  3. You lose the opportunity to make things intuitive and easy for users. What’s the ultimate simplicity – Make a settings button that is just three dots or just three lines. Google does this sort of nonsense. It’s incredibly hard to recognize that three dots indicate a Settings button. What do smart people do? Make a rich, vibrant gear icon – something that’s already understood to be an identifier for the settings button. The rich and vibrant part is key. The more you make it look like a real life gear, the faster people understand it’s a gear. People are NOT looking to see how abstract and designer-hip and hard-to-comprehend you can make that gear design. They want something that’s QUICK and EASY to understand and that clearly conveys you can PRESS it to get results.

The third point is very key. As Jakob Nielsen would say – Users are used to certain conventions and those should not be broken unless you have a very good reason. Too much simplicity means you break all manner of conventions.

Skeuomorphism works because it makes people COMFORTABLE. The cool, hip designers think that we have computers now and Calendars should not look anything like the Calendars of old.

Well, unfortunately for them, 90% of users are more comfortable if digital calendars look similar to, and have the same perceived affordances (clues, cues, visual cues about what to press and where to write), that wall calendars and desk calendars had.

Why? Because you just want a calendar that works like it’s supposed to. You do not want to re-learn how to use a calendar.

The second point, attention to detail, is critical. Guess which two companies avoid attention to detail and go for minimalism – Microsoft and Google. That’s why Android and Windows 8 are simple and elegant (only Windows 8, not Android) and completely devoid of beauty.

They know they can’t make super-beautiful design so they avoid design. They stick to their core competency (I could be evil and say it’s blandness, but let’s call it utility).

Apple is making a big mistake by going away from what it does really well – beautiful, rich, nuanced design.

Simplicity is easy and a trap in design and should be avoided unless there’s a very, very good reason for it. We aren’t talking about an inherently complex field like Quantum Physics or Rocket Science where making things simple and easy to understand is a good goal. We’re talking about software design. Making things beautiful and usable and easy to understand and a pleasure to use is the aim. Not simplicity for simplicity’s sake.

No one ever felt pleasure by touching an abstract button that doesn’t make any sense and where it’s hard to even tell it’s a button. They just felt confusion and an infinite and infinitesimal despair as an opportunity to feel good was stolen away.

The first point is the most interesting. Hardware simplicity doesn’t work well with software simplicity. It’s about variety and contrast and the juxtaposition and the two opposite elements lending meaning to each other. Night has no meaning without Day.

Simple hardware with simple software is just boring and devoid of meaning and contrast. You can go back and check for yourself – Most of the designs that we find beautiful have a rich contrast. Most of the art and even most of the writing we find beautiful have a rich contrast.

Life is too short – avoid Boring.

Apple’s iOS 7 design is Disappointing and it’s Not Beautiful

We already have a world being sullied by what Google likes to call ‘design’ and its ugly artificial icons. We have Microsoft under the delusion that people want just typography and nothing else in design. We have Amazon skinning Android and doing puzzling things like choosing Orange as a key color (Yes, it’s a ‘Fire’ – we get it. That still doesn’t make it OK to use Orange as a main color).

Apple and a few companies like Square and Tumblr were sticking with good design. However, now Apple has fallen under a lot of misconceptions about what is best for users and what is good design.

No matter how much you dislike or like Apple, you have to feel for it. It has lost its beauty and attention to detail and those might have been its main heritable fitnesses.

You can check out this thread at Quora asking whether the iOS 7 design is an improvement?

No, forget it being an improvement. The iOS 7 design isn’t even beautiful. When’s the last time you could question that?

ZDNet thinks It’s an Inflection Point for Apple. The Inflection Point was when the person who took responsibility for ‘Putting the User First and forgetting everything else’ died. That happened a long time ago. It seems that the Inflection Point is now because it’s only now that we are seeing the result of years and years of people forgetting that the devices and the software and the hardware and the design are FOR USERS. Forstall, that was perhaps the only other guy who got it. Too bad he lost out in the politics and internal wars at Apple - Perhaps because the person fighting for the End User hardly ever wins any popularity contests.

Amazon vs WalMart online – WalMart.com, WalMart Labs a threat to Amazon.com?

Let’s start with some figures culled from this Market Watch article on WalMart’s Annual Meeting and from Wikipedia’s Amazon.com page -

  1. 2012 Sales for Amazon vs WalMart.com online – $61 billion for Amazon, $9 billion for WalMart.
  2. 2013 Expected Sales for Amazon vs WalMart.com online – $75 billion for Amazon, $10 billion for WalMart.
  3. WalMart 2013 expected sales – $487 billion. This is both online and from WalMart stores.

This, however, is just the tip of the iceberg.

There are two contests going on here -

  1. While Amazon’s expected 2013 revenues of $75 billion are just 15.4% of WalMart’s expected 2013 revenues of $487 billion, Amazon is hoping to capture a larger and larger share of retail sales. Its move with AmazonFresh into groceries is one of several signs of its eventual plans.
  2. While WalMart’s expected 2013 online revenues of $10 billion are just 13.33% of Amazon’s expected 2013 revenues of $75 billion, WalMart is hoping to significantly strengthen its online offerings to take on Amazon on its home turf.

Amazon is hoping to strike at the heart of WalMart and WalMart’s WalMart Labs is hoping to strike Amazon.com.

WalMart vs Amazon in the US

WalMart has 3,898 WalMart stores in the US and 612 Sam’s Club stores. This gives WalMart a huge advantage over Amazon when it comes to physical stores and locations. Everything that Amazon is building up to make same day delivery a reality - Well, WalMart has large parts of that already set up and working.

Amazon doesn’t have any stores but it’s setting up a lot of warehouses and the expansion of AmazonFresh Grocery Delivery service to LA (supposedly within weeks) is a sign that Amazon intends to go up against WalMart more and more.

Amazon supposedly has a customer base of 30 million people. It’d be safe to assume that over 20 million of those are in the US.

WalMart supposedly has 200 million customers – not sure what portion of those are in the US.

Amazon dominates online retail in the US. WalMart dominates retail in the US. A lot will depend on how quickly, and to what extent, online retail eats up market share from traditional retail.

WalMart vs Amazon Worldwide

WalMart has 5,733 international stores in an impressively large number of countries -

  1. Argentina
  2. Botswana
  3. Brazil
  4. Canada
  5. Chile
  6. China
  7. Costa Rica
  8. El Salvador
  9. Germany
  10. Ghana
  11. Guatemala
  12. Honduras
  13. India
  14. Japan
  15. Lesotho
  16. Malawi
  17. Mauritius
  18. Mexico
  19. Mozambique
  20. Namibia
  21. Nicaragua
  22. Nigeria
  23. South Africa
  24. Swaziland
  25. Tanzania
  26. Uganda
  27. United Kingdom
  28. Zambia

Amazon has subsidiaries in the following countries (courtesy Wikipedia’s Amazon.com page) -

  1. Asia – China, Japan, India
  2. Europe – UK, Germany, France, Spain, Italy.
  3. North America – Canada.
  4. South America – Brazil.

Internationally, there’s little doubt that WalMart has a sizeable advantage. It reaches more countries. In quite a few of the countries it has lots of stores and a large customer base. It has a very good understanding of lots of international markets.

Amazon’s advantage is that it sells worldwide via its subsidiaries and via Amazon.com. For example, it sells its Kindle eReader and its Kindle Fire HD Tablet in 170 countries. It also allows sales of other goods to lots of countries from its websites.

WalMart’s advantage is in being present and having stores in many more countries. Amazon’s advantage is in selling products online to nearly every country in the world and having some strong subsidiaries in some important markets like the UK.

For reference: Amazon has 90,000 or so employees worldwide. WalMart has 2.2 million worldwide employees.

Next, let’s look at what resources and financial assets Amazon and WalMart have to fight an Amazon vs WalMart war.

Amazon vs WalMart – Some Financial Figures & Assets

  1. Net Assets – Amazon has $32.55 billion in Assets. WalMart has $203.1 billion in Assets.
  2. Operating Income and Net Income – Amazon had operating income of $676 million and net losses of $39 million in 2012. WalMart had $27.801 billion operating income and $16.999 billion net income in 2012.
  3. Revenue – Amazon had $61 billion in revenue in 2012. WalMart had $469.162 billion in revenue in 2012.

We see an interesting contradiction here -

  1. Amazon with $32.55 billion in assets, $676 million in operating income, and $61 billion in revenue has a market capitalization of $126 billion.
  2. WalMart with $203.1 billion in assets, $27.801 billion in operating income, and $469.162 billion in revenue has a market capitalization of $251.11 billion.

Perhaps Wall Street traders expect Amazon to leverage its technological and/or logistical skills and abilities to take out a large chunk of WalMart’s business. Perhaps they just expect it to take a large share of total retail.

Regardless, WalMart is in a very strong position financially and it’s hard to see it making it easy for Amazon to take over a large part of retail. It’s clear that Amazon intends on doing exactly that. Where Amazon has a weakness is that it neither has huge assets nor huge profits. So, if the Amazon vs WalMart war turns into one of attrition – How is Amazon going to keep fighting?

While Amazon makes forays and follows its gameplan for domination of all of retail, WalMart is implementing its own anti-Amazon strategy.

Could WalMart.com turn WalMart Labs into a major threat for Amazon.com?

If we consider just WalMart.com, then the figures seem tilted massively in Amazon’s favor -

  1. WalMart.com accounts for just 13.33% of the revenue of Amazon.com. $9 billion revenues in 2012 for WalMart.com are dwarfed by Amazon’s $61 billion revenues.
  2. WalMart has none of the technical savvy of Amazon. While Amazon is building Amazon Web Services and Kindles and Kindle Fire HDs, WalMart is making very few moves in the online space that people know of.
  3. Amazon has all the coolness and the blessings of Wall Street. Developers who would jump at the chance to work for Amazon might feel WalMart is not ‘technologically’ good enough.

Well, WalMart is going about acquiring technology and developers very smartly. There are two things Amazon.com has to be wary of -

  1. WalMart has an incredible amount of assets and a huge profit stream. $203 billion in profits can buy a lot of technology companies. As can $16.999 billion in net annual income (2012 profits).
  2. WalMart is already buying up technology companies left, right and center. Acquisitions in the last few years include – Vudu.com (movies, see WalMart Press Release), OneOps (Cloud Services), TastyLabs (makers of Delicious), OneRiot (Mobile Ad Firm), Kosmix (social media, interesting interview with Kosmix founders who also founded Junglee and worked at Amazon), Grabble (POS technology), SmallSociety (iOS Apps, interesting article on WalMart setting up offices in tech cities).

WalMart’s WalMart Labs is slowly and surely putting together the pieces to fight Amazon.com on its own turf. Given that WalMart generates $17 billion a year in profits and Amazon generates less than a billion a year. Given that Amazon’s total assets are just $33 billion, Amazon has to worry about what might happen if WalMart Labs hits a home run.

The even scarier possibility is that WalMart doesn’t view WalMart Labs as a means to take on Amazon.com. Perhaps WalMart views WalMart Labs as the next step in online retail – the semantic shopping web (this is based on the Kosmix interview linked to above).

Amazon.com might be building what it thinks can take down brick and mortar retail. WalMart Labs might be a reaction/response to that. Or it might not.

What if WalMart Labs isn’t anti-Amazon? What if it’s the evolution of Amazon and online shopping?

The better strategy for WalMart would be to out-evolve Amazon.com

We basically have – Amazon using online efficiencies to try and take out traditional retailers like WalMart.

The standard defence to this would be to build WalMart’s own website and take on Amazon head on. However, that would be fighting the war on Amazon’s terms. Amazon understands the current online retail model very well.

The better strategy for WalMart Labs and WalMart.com would be to figure out what’s next in online retail and web shopping. Perhaps it’s semantic/social shopping that combines data points from sites like Pinterest and Twitter with customer history and customer purchases and provides a predictive, ever-evolving stream of choices for the user.

If WalMart Labs can help WalMart.com develop this, then WalMart can hit Amazon.com where it really hurts. It could then take over online retail using the next evolution in online shopping and trap Amazon between brick and mortar retail and semantic/social shopping.

Amazon’s two weaknesses persist

Whether it’s competing against Apple and Google or competing against WalMart, Amazon’s two main weaknesses are the same -

  1. It doesn’t have any highly profitable cash cows. It’s hard to fight wars on revenue alone.
  2. It doesn’t have huge assets. $33 billion is very impressive. However, it’s dwarfed by the assets of companies like WalMart ($200 billion) and Apple ($176 billion) and Microsoft ($121 billion).

Amazon’s competitors could use the exact same strategy that Amazon has been using against its ebook rivals. Sooner or later some company will. It’ll be interesting to see how Amazon reacts when that happens.

Amazon vs WalMart isn’t going to be decided by Amazon vs WalMart.com – unless WalMart.com wins

We aren’t talking about books or music here. We aren’t going to have all of retail switch over to the Internet anytime soon.

Amazon vs WalMart might go on for another 20-30 years.

However, at the present moment, Amazon.com vs WalMart.com is very interesting. If WalMart Labs can deliver a few big hits, it could really slow down Amazon.com and greatly increase the chances that WalMart beats Amazon in the long-term.

Internet Companies you can trust; Apps you can trust

None!

None whatsoever.

If things like these don’t help us realize, then nothing will -

  1. Washington Post: US, UK mining information from 9 companies.
  2. Guardian: UK is collecting information via the same NSA program.
  3. Verizon passing along all call data to Government.
  4. There are lots of denials. But they are NONSENSE.
  5. Michael Arrington points out the truth -

    The companies sending the data have both immunity from prosecution and are also prohibited from disclosing that the NSA has requested or received the data.

    The truth of what’s going on becomes obvious.

    The U.S. government is compelling companies to turn over all personal information of users to the NSA. They have immunity for this, and they are absolutely prohibited from admitting it.

    The result is a massive NSA database that includes information about everything we do online, and everything we do offline that has any online ghost (checkins, photos, etc.).

Everything we do on the Internet or on our devices is available to Government Agencies.

That’s just the reality that all of us should wake up to.

Companies are NOT your best friends

People are DELUSIONAL that companies like Apple and Google and Microsoft are their childhood best friend who have their best interests at heart.

They are not. They are companies.

Firstly, they really don’t care. It’s a corporate entity that works for profits and shareholder interests and it isn’t capable of caring. It’d be like expecting your toaster to miss you when you were on vacation.

Secondly, they are very vulnerable. The Government can shut them down and/or massively hamper them (just ask Microsoft). So, if the Government gives them a choice between revealing some user data or being shut down/hobbled – Which do they think they will choose?

Thirdly, they aren’t as smart as you might imagine. If the Government gets ISPs (Internet Providers) to play along, then it doesn’t matter what the Internet companies or the App companies believe in or do. Everything that goes to them, goes through ISPs and therefore is available to the Government.

As companies it’s their job to tug at your heart-strings or your emotional triggers. That’s how they survive. Google’s Do No Evil is like a Velociraptor’s Claws – it’s a survival mechanism. Same for Apple’s love for Aesthetics. These are evolutionary adaptations. They are meant to create a bond. They aren’t the core of the company.

Everything you do on the Internet is Available to Certain People

This is the first thing people need to realize.

The Internet is like a giant record of everything you do, think of doing, want to do, or actually do.

Nothing you do or search or write about or participate in is actually private.

A lot of what you do on the Internet is Available to Anyone who Looks

It gets worse. Pretty much 70% of what you do and what you add to the Internet is available to anyone who searches for it (or for you).

People get rejected from jobs for stupid things they write every day. As we build larger and larger online ‘profiles’ with our actions, we create bigger and bigger ‘files’ of ourselves. These are available to anyone who’s interested.

How do you think Google, LinkedIn, Facebook, Twitter are going to make REAL money in the future? By selling these ‘online behavior profiles’.

Where can you find privacy

Well, here’s where you can’t expect to find privacy -

  1. Internet Websites. Just doesn’t exist.
  2. Internet in General. Nah.
  3. Phone Calls. No. If Verizon is handing over all call data there’s a very high chance other carriers are too.
  4. Apps. No. With Apps you have multiple vectors of data being accessed – The App Maker, the App Store, The Device, The ISP.
  5. Email. Worst of All. Here again you can have ISPs or the Email Provider take your data.

Basically, the Internet is the EXACT opposite of what you think it is. It’s 100% anti-privacy. It’s 100% ‘an infinite record of everything you ever did or wrote or searched for’.

What kind of world are we living in?

That’s the question we have to ask ourselves.

We’re living in a world where the Government tracks every single phone call and every single website visit of every single citizen. That’s not a democracy, that’s not even a dictatorship. It’s something out of 1984 -

The Oceanian province of Airstrip One is a world of perpetual war, omnipresent government surveillance, and public mind control, dictated by a political system euphemistically named English Socialism (Ingsoc) under the control of a privileged Inner Party elite that persecutes all individualism and independent thinking as thoughtcrimes.

We’ll be given the option to be sheep.

  1. All the technology companies will claim nothing of the sort happens.
  2. The Government will claim it only tracks the duration of phone calls and the length of emails and not what’s in them.
  3. We’ll be told The Guardian and The Washington Post are lying. The reporters will be prosecuted and jailed. The people who leaked them the details will disappear.

We’ll all nod and then get back to our state scheduled programming.

OR we’ll decide that People and the Country and the Constitution are much bigger than the Government.

Amazon Grocery? AmazonFresh expanding as Amazon gets serious about Groceries

AmazonFresh is Amazon’s Grocery service which offers same day delivery in Seattle. It’s always been thought of as a little bit of an eccentricity. Surely, the experience of WebVan should have shown Amazon that it’s crazy to do Internet Grocery deliveries.

Apparently not.

It seems Amazon falls in love with every low-profit business it stumbles across. What better than delivering groceries that need refrigerated trucks and can get damaged and spoilt?

AmazonFresh is expanding to two new cities this year (LA this week, San Francisco later this year). It’s also planning on expanding to 20 more cities by 2014. So say the carefully distributed ‘rumors’. Reuters has perhaps the best details on Amazon’s Plans to start delivering Eggs and Fruit.

Amazon Grocery – Is Amazon really serious about delivering groceries?

It certainly seems so.

  1. Amazon has been delivering groceries since 2007 in Seattle. So AmazonFresh isn’t some random experiment. Amazon’s probably been gathering user data non-stop.
  2. The ‘rumors’ (more like Amazon’s PR department spreading the news) talk very specifically about expansion to LA next week and SF later this year. The rumors also mention expansion to 20 more cities by 2014. One analyst even claims 40 locations, including international ones.
  3. Amazon has been building a lot of warehouses. A lot. The amount of capital expenditure is enormous. Most people assume this is because Amazon thinks sales will shift massively from retail to online. What if a large part is Amazon’s plans for AmazonFresh? The analyst claims some warehouses will have refrigerated areas for groceries.
  4. It certainly fits in with Amazon’s modus operandi of making things convenient for users – the path of least resistance. Ordering from Amazon becomes the path of least resistance - So people order more and more from Amazon .
  5. It seems a natural shift. After selling books and movies and music and electronics, Amazon could either expand into devices or it could expand into groceries and such. It seems it’ll be doing both.

Take a look at Amazon Fresh. No, seriously. Go take a look. It’s pretty crazy. It even delivers from local merchants.

Here’s what the Amazon Fresh website has to say:

AmazonFresh is a grocery delivery service founded by Amazon.com serving the greater Seattle area. With AmazonFresh, you can enjoy:

  • A full selection of fresh groceries, including produce, dairy, meat and seafood — even alcohol
  • Fast, overnight delivery
  • Thousands of best-selling Amazon.com items to add right to your grocery order
  • FREE delivery on qualifying orders.

Well, it certainly seems Amazon is dead serious about this idea. If we really do see AmazonFresh in 20 cities by 2014, we’ll know beyond a doubt that Amazon is crazy enough to try Internet Grocery Deliveries as a business.

There’s also this little motivation -

  1. The grocery business in the United States … generated $568 billion in retail sales last year.

Perhaps that’s how Amazon will justify its high valuation – by getting into and dominating (or becoming a major player in) Groceries.

Of course, this isn’t going down well with existing Grocery Stores.

“The fear is that grocery is a loss leader and Amazon will make a profit on sales of other products ordered online at the same time,” he said. “That’s an awesomely scary prospect for the grocery business.”

Yeah. Amazon getting into any business should be a concern for the incumbents. It’s not so much the competition. It’s the fact that Amazon likes to destroy profits for everyone, including itself.

Why is Amazon expanding its Amazon Fresh Grocery Service?

Gina Chon at Quartz has a very interesting take on why Amazon is getting into groceries -

Amazon’s move into online groceries isn’t really about making money. Instead, it is seen as a way of making Amazon’s burgeoning same-day delivery service more cost efficient.

Amazon also has the logistical expertise that could help in online groceries where others have failed. And offering fresh produce is one area that Amazon’s competitors in other sectors, like technology, would probably not venture. Amazon would seal its place in the consumer mind as the go to place for everything.

Well,

  1. It would make sense that Amazon would try to piggyback on grocery deliveries for its same day delivery service. It already does this to an extent in Seattle. Note: Amazon Fresh has been going on, in one form or another, since 2007 in Seattle. People can add things from Amazon.com to their grocery delivery.
  2. I doubt Amazon has some magical logistical expertise. Additionally, lots of grocery stores do delivery. So it’s not unprecedented to pull it off.
  3. Yes, we can be pretty sure that companies like Apple and Google have zero desire to deliver your groceries.
  4. Sealing Amazon as the ‘go to place for everything’. There’s some value to that. But not enough to justify a risky, expensive venture like AmazonFresh.

I think the main 7 reasons are -

  1. Delivering Groceries is about the least profitable business you could get into, in terms of profit margins. Doesn’t that sounds just like Amazon? Why make billions in profits selling easy to ship Kindle PCs, when we could make millions in profits selling really hard to deliver groceries.
  2. Groceries are something that aren’t going to disappear. People will always want groceries. Makes sense that Amazon would want to do this. It’s not like music where suddenly it changes from physical to digital and Amazon’s income stream is toast. Of course, when someone invents teleportation in 2037, Amazon will regret investing so much into delivering Groceries.
  3. Gina Chon’s two points – piggyback same day delivery on the grocery delivery service, set up Amazon as the ‘buy everything here’ store.
  4. Perhaps Amazon’s shift to digital and AWS threatens to generate too much profit. It’s hard to avoid a high profit margin when you are selling digital goods. To protect against this state of ‘too much profit’ and ‘too high margins’ Amazon wants to invest into something that is guaranteed to have low profit margins. Note: This is not a joke. I really do think Amazon has some internal metric that says that if your profit margins are very high it means you aren’t investing for the future.
  5. AmazonFresh could become a ‘low profit margin but high total profits’ business in the long-term. Perhaps Amazon is perfectly content making 5% profits from tens of billions of dollars in grocery sales every year.
  6. Very few technology companies will get into groceries and very few grocery stores will get into technology. Amazon has a unique perspective and a unique skillset. Of course, we don’t really know whether that unique perspective and skillset translate into any killer competitive advantages.
  7. Amazon sees something in Groceries we don’t. Perhaps it thinks that the economy is changing in a fundamental way (things like Peak Oil (peak oil = peak cheap oil) and Printing Money). That soon people won’t be able to afford driving to grocery stores. That, when the shift from everyone driving to stores to everyone ordering home delivery happens, Amazon will be perfectly placed.

I think the last reason is the most compelling. Amazon sees something no one else sees.

What company in its right mind would want to deliver apples and peaches and breakfast cereal in refrigerated trucks every single day? Surely, there are millions of easier ways to make money. Ways that require a lot less work. Ways that deliver a lot more profit for the amount of effort expended. Ways that aren’t devilishly difficult to manage and run.

Amazon perhaps sees something in delivering groceries that other companies don’t see. Perhaps it wants to do Groceries simply because it’s a great ‘always going to be around’ business and Amazon doesn’t see anyone able to compete with its unique mix of retail and technology expertise.

Follow

Get every new post delivered to your Inbox.

Join 5,229 other followers