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

Posted on December 30, 2012 by switch11

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.

Filed under: evolution | Tagged: , , | 6 Comments »

What’s Amazon’s End Game for Books?

Posted on December 7, 2012 by switch11

When the Kindle first launched there were a few things that suggested Amazon had a very clear vision for where books would go -

  1. The talk of ‘Every Book ever written in Any Language - Available in 60 Seconds’.
  2. The emphasis on $9.99 as the price. Which seemed reasonable – even attractive.
  3. The existence of the Kindle as a device meant for reading. No compromises – as Amazon likes to say.

Things are considerably different now -

  1. It seems that the Kindle was just the first device Amazon wanted to make and that the focus has now shifted to Kindle Fire HD and Kindle Fire HD 8.9″. With a Kindle Phone soon to follow.
  2. Books have gone from $9.99 to ‘Kindle Lending Library’ and ‘Kindle Free Time Unlimited’. Lots of Free and Subscriptions.
  3. Amazon has used lower book prices and free books very, very aggressively. At the same time it handicaps $1 books to give $5 and $10 and $14 books an unfair advantage in the sales charts and popularity rankings.

It’s strange but it seems Amazon sees Books in two paradoxical roles.

Books as both Loss Leaders and Profit Generators?

If you look at one set of data points, Amazon seems to be in a huge rush to devalue books by using them as loss leaders -

  1. The huge push on free books.
  2. The huge push on subscription services like Kindle Lending Library and the new subscription service for kids.
  3. Heavy subsidies on some bestsellers.
  4. Lack of quality control and curation which combines with the sheer volume of free books to create the impression that books are not worth paying for.

Basically, Amazon is using free books and heavy price cuts on some bestsellers as a lure to get people to buy Kindles. It is using the Kindle Lending Library as a lure to get people to subscribe to Prime.

Those are things that definitely reduce the perceived value of books.

At the same time, if you look at another set of data points, Amazon also wants to profit from books -

  1. It takes pains to ensure that you can’t get books from other stores on the Kindle or Kindle Fire.
  2. It uses subtle handicaps to kick out $1 indie books from the Top 100 Bestsellers list.
  3. It is sticking to $9.99 and $13.99 in many cases.

These are things that route users to buying books from Amazon at prices that must be profitable for Amazon.

It’s almost as if Amazon thinks it can use books as loss leaders to sell Kindles and Prime Memberships, and then it can turn around and sell those same users premium books at premium prices.

However, it’s hard to say whether

  1. This is possible. Will readers who have flocked to Amazon for free books, and taken up Prime to get ‘free book loans’, be eager to pay $9.99 for the ‘premium’ books?
  2. This is sustainable. Will this dichotomy of ‘get lots of books for free’ and ‘pay a lot for the premium books’ be a stable one?

My guess would be that this can be pulled off in the short term but it’s not sustainable.

It’s not sustainable to utilize Books as both Loss Leaders and Premium Profit-Generating Products

We have three things happening -

  1. Users getting trained to expect books for free.
  2. Indie authors getting a platform to publish books for free and cheap.
  3. Users being asked to pay $9.99 and $13.99 for Publisher published books – and, to an extent, agreeing.

How long can this go on?

As indie authors get better and better, they do better and better. They have a huge price advantage. They also have the advantage that most readers want to pick the winners themselves.

Amazon managed to kick out a lot of these indie authors from the top charts, and (at least for the time being) preserve the Premium Book Category as the ‘Bestsellers’. The kicking out of $1 indie books is a very smart move by Amazon to try to make its strategy work. However, it’s just not sustainable.

At some point of time the HABIT that users are developing of getting books for free and cheap will overpower their HABIT of assuming the Bestseller lists are the ONE TRUE SOURCE of good book choices.

People underestimate how strong habits are once fully inculcated. We have Amazon inculcating two habits into readers -

  1. Getting free books regularly and relentlessly.
  2. Paying $9.99 for premium books.

These two habits are in violent conflict with each other.

There is also a third habit that is being established as readers get better and better at crowdsourcing – Buy good quality indie books for $1 and $3.

This ‘indie’ habit is also in conflict with the habit of ‘Paying $9.99 for Premium Books’.

Amazon must realize this at some level

Amazon must, at some level, realize that the habit of ‘Paying $9.99 for Premium Books’ is getting eroded. That, at some point of time in the future, readers are just going to stop paying $9.99.

It’s a company that thinks very far in the future. Even if it’s deluded itself that $9.99 will always stay, it must have some contingency plan.

Which brings up the twin questions -

  1. Does Amazon envision a world where Books possibly have little value?
  2. Does Amazon have a use for Books in such a world? Or rather – How does Amazon plan to use Books in a world where Books have little value?

My guess is a rather gloomy one.

Amazon’s End Game for Books is ‘Exclusive Loss Leaders’

The way things are going, it seems to me that Amazon has a best case and a worst case plan.

Best Case:

  1. A segment of books that are loss leaders and exclusive to Amazon. These get users to Amazon and to Prime.
  2. A ‘premium’ segment of books that generate solid profits.

Worst Case:

  1. Lots of books exclusive to Amazon. We can see the beginnings of this in the conditions authors agree to, to get into the Kindle Lending Library, i.e. 90 day exclusives, and in the deals Amazon has been striking with authors.
  2. Books used as Loss Leaders to add customers and to retain customer loyalty.

If we are realistic, either is possible. However, the latter is more likely.

What does Amazon see the future of Books as? What’s Amazon’s End Game for Books? How does Amazon think Books can help it dominate commerce?

Filed under: publishing | Tagged: , | 17 Comments »

Amazon and Apple’s astonishing attempts to do everything and be everything

Posted on October 15, 2012 by switch11

Reading the headlines today, and adding in various data points, leads to some remarkable inferences about what Amazon and Apple plan on doing.

A Big Day for Reading the Tea Leaves about Amazon and Apple’s plans

First, let’s start with the big news coming out today.

  1. Amazon is rumored to be in talks to buy Texas Instruments’ Smartphone and Tablet Chip Making Operations. Apparently, Amazon has decided that it might as well make the chips for its current Kindle Fires and for its future Kindle Phones. Note: Apple has also gotten into the business of designing its own chips in the last few years.
  2. Apple seems likely to cut off its ties with Samsung (Samsung makes the chips that go into iPhones). Apple has been designing its own chips the last few years and is now rumored to be moving manufacture of its chips to other chip manufacturers.
  3. Apple hired an ex-Amazon and ex-Altavista search technology executive to run Siri. Given that Apple recently ditched Google Maps, and given that Apple has bought some search technology in the last few years, it’s a safe bet to assume that Apple intends to build its own search engine.
  4. Apple’s iPad Mini is rumored to be priced between $250 and $650 (16 different models).
  5. Microsoft has launched a Xbox music streaming service.

Apparently, the new doctrine for big technology companies is to do everything and be everything to all people and sell everything to all people.

Control Everything, Sell Everything

Apple isn’t content to sell high-end phones and high-end Tablets. It also wants to sell low-end Tablets and make Map Software and build Search Engines.

Amazon isn’t content to sell books and CDs and DVDs. It wants to sell phones and make phones and make chips and produce movies and publish books.

Google isn’t content to be a search engine. It wants Android phones and Android Tablets and Google TV and Google Fiber and driverless Cars and Glasses you can wear to get RoboCop Vision.

Microsoft, even King of Software Microsoft, is suddenly in love with hardware and services. It wants to integrate software and hardware and move into selling services and ecosystems.

It’s really very strange. It’s as if the 5 companies live on the same street and are caught in a never-ending cycle of neighbor envy.

Or … perhaps … this is the new future for technology.

The Controlled Ecosystem as the New Internet

The Internet is amazing. Except that everyone is trained to spend nothing on the Internet. To expect everything for free. The problem is exacerbated by sites like YouTube and Facebook that focus almost completely on getting humongous amounts of low quality user-generated content.

And on top of all that is Google with its Search Engine. Making sure that all the value flows to it. That individual sites and content creators only get crumbs.

In fact, Google has gotten so good at hoodwinking people into -

  1. Thinking that all value is created by Google and not by the people who actually run and create sites and content.
  2. Thinking that it’s OK to share ALL your private information with a company just because it has ‘Do No Evil’ as its marketing logo.
  3. Thinking that all those YouTube and Google Site links showing up first in Google Search results are natural.

That the FTC is just about ready to launch an anti-trust investigation. Not to mention the EU is going to open a Privacy case.

Basically, Google has turned the Internet into a Toll Bridge. And it is slowly using its dominance in Search to promote and build up other businesses (albeit ones that earn little to no profits) – Android, YouTube, GMail, Chrome, Google Docs (the list goes on).

Google is a threat to Every Other Tech Company

Regardless of which big technology company you are, you have to be wary of what Google is doing -

  1. Apple has to worry about Android Phones and Android Tablets.
  2. Amazon has to worry about Google Shopping and Google’s Tolls.
  3. Microsoft has to worry about Chrome, Chrome OS, and Google’s Office competitor software.

In its drive to map out every human being’s synapses and predict how to make money from them, Google is devouring entire profitable industries. It is exchanging profits for information. Betting that that information will be move valuable in the long run. That it will be the key to unlock people’s wallets and minds. It’s willing to give away Android for free to protect search and increase the amount of user information it has. It’s willing to offer its Office Software for free to get more and more companies and people to share their data with it.

Google’s product is people and people’s intent to buy things.

If you’re a company like Microsoft or Apple or Amazon that sells hardware and/or software and/or physical products, then you have to be very worried by companies like Google (and to a lesser extent Facebook) that want to give away hardware and software in return for user information and a Matrix Link to the user.

It’s a completely different business model. To understand users. To get them in via free software and/or cheap products. Then to sell users and their wishes and aspirations to advertisers. Or to use them in other ways.

The only defence against Google is to build your SEPARATE Ecosystem

Apple and Amazon and Microsoft don’t have a choice.

Google has used its dominance in Search to start dominating other areas. It can pretty much shut out or slow down ANY product or technology or company.

Google is letting people have everything for free – news, music, software, everything. Even when it doesn’t own stuff it lets people pirate stuff (with the obligatory ‘report piracy and then we’ll turn it off, after 1 million people have stolen your content’ loophole).

So you can’t win on the Internet.

The only solution is to build your own Ecosystem. Build a safe little Ecosystem of Good Intent, populated by Customers of Good Intent, who don’t mind paying ‘creators’ for their creations. There’s no other solution. Because if Google (or other ‘sharing is caring’ technology companies) are given a free run – they’ll devalue everything to zero. Because their product is customers and if they can get the content they need to ‘procure’ customers for free, why wouldn’t they.

To truly control your ecosystem, you need to control the device too

That brings us to the device.

If you don’t own the device, there’s no effective way to build a safe, protected ecosystem. Google can come in and say – Here’s $100 million. Put us as the default search engine. Then it’s game over.

The Internet is already controlled by the established players like Google. You can’t compete against the Internet.

The only solution is to replace it with your own device and your own ecosystem.

If you need a device, you might as well make it yourself

Apple probably wants to make a device it can sell at a high premium and strengthen its brand value.

Microsoft probably wants to make a device that lets it feature Xbox and Office and Windows.

Amazon probably wants to make a device that is a shopping portal.

If you look at iPhone+iPad, and Microsoft Surface Tablets, and Kindle Fire – That is exactly what is happening.

These companies are making the EXACT PERFECT device that is suited to the type of ecosystems they need, and to the type of content they sell.

Astonishing & Audacious Attempts to Annex All

We’ve gone from a world where Intel made chips and Microsoft made software and HP made computers to a world where companies want to do EVERYTHING themselves.

What is Amazon building?

An ecosystem where a user fires up a Kindle Fire and a Kindle Phone, watches movies produced by Amazon, buys products from Amazon.com, reads books published by Amazon, and goes to sleep in Amazon branded pajamas.

What is Apple building?

An ecosystem where a user goes to a Starbucks and shows off his iPad and then goes to work and works on his iMac and then sits on the bus and plays on his iPhone and then sits in the living room and streams movies to his TV via his Apple TV. The cherry on top – He also buys all content and all his games and apps from iTunes.

What is Microsoft building?

An ecosystem where users use a PC at work and a Surface Pro Tablet at home and listen to music from Xbox music and watch Netflix on their HDTV via their Xbox and buy games on Xbox Live.

A Fragmented World with Multiple Ecosystems/Internets

Companies have a dual motivation -

  1. Get away from the Internet and the dangerous attempts by Google and Facebook and other Internet companies to keep all the value for themselves.
  2. Build their own ecosystems and keep users involved there and capture 100% of the profits from users.

It’s incredibly compelling.

Can you imagine the amount of frustration Amazon must feel when it has to pay Google to put up Ads for EVERY Amazon related search term?

User searches ‘buy book at Amazon’ and unless Amazon pays Google’s Toll, the benevolent Search Engine company will sell the #1 spot to Target or B&N. Please Note: There is a painfully non-obvious, tiny ‘Ad’ at the far right. That helps avoid legal implications. Because without that tiny ‘Ad’ at the top right it would be as obvious to curious humans as it is to Google’s optimization algorithms that most users don’t know the first few links are Ads.

Can you imagine the amount of money Amazon could make if it could get users to buy EVERYTHING from Amazon?

$1 Profit on a toothbrush, 35 cents on a $2 ebook, $27 on that new computer – It all adds up.

If Amazon relies on Google it has to pay $1 and 20 cents and $5 to get those sales (it must pay Google for clicks (i.e. traffic)). If, instead, Amazon builds cool, Tablet replicating, mini Amazon stores – Well, then it has to pay ZERO tolls to Google.

Fundamentally, there’s HUGE motivation for companies to CONTROL EVERYTHING, OWN EVERYTHING, SELL EVERYTHING THEMSELVES.

There’s huge risk, as we’ve seen with apple ditching Google Maps and with failed efforts like Amazon’s A9 search engines.

However, if Microsoft, Amazon and Apple don’t build up their closed ecosystems, then they are guaranteed to get eaten by Google’s ‘Free Lunch for Your Information’ strategy.

Crux

At least one and perhaps all three of Apple, Amazon, Microsoft are going to survive Google’s attempt to shift e-commerce from selling products to customers to selling customers to advertisers.

The only way they will survive is if they build their own Ecosystem. Free of the influence of companies like Google.

For the companies that manage to build their ecosystem, there is an immense benefit – they can gradually capture nearly all of the profits their ecosystem customers generate.

It’ll be interesting to see which of Amazon, Apple, and Microsoft win their race to build self-sufficient, profit-generating ecosystems. It’ll also be interesting to see whether Google’s attempts to use its Search dominance and Search profits to destroy the value in everything else will work.

Filed under: thoughts | Tagged: , , | 5 Comments »

WalMart comes to its senses and stops selling Kindles

Posted on September 20, 2012 by switch11

Reuters reports that WalMart will stop selling Kindles – both Kindle Fire and Kindle will no longer be sold at WalMart.

It’s the second big retailer after Target to do so. It’s interesting that all these companies are coming to their senses. Here’s what WalMart had to say -

“We have recently made the business decision to not carry Amazon tablets and eReaders beyond our existing inventory and purchase commitments,” Wal-Mart said in a memo sent to store managers on Wednesday. “This includes all Amazon Kindle models current and recently announced.”

An analyst thinks the main reason is that Amazon is considered a competitor -

“I think part of it could be margin, though the bigger point is that Wal-Mart and Target view Amazon as a competitor,” Tilghman said.

Yeah, suddenly they wake up and realize Amazon is going to destroy them if they don’t wisen up fast.

Retailers selling mini Amazon.com Stores is Madness

When WalMart started selling Kindles it seemed, to me, the most insane decision ever. Here’s part of what I wrote (the link has the entire post) -

It’s absolutely inexplicable to me that stores like Best Buy and Target and WalMart would sell Kindles and accelerate their own demise.

Do they not realize that Kindle Fire is a direct connection to Amazon.com? That Kindle and Special Offers will end up eroding the sales of the retail stores?

She (Best Buy spokeslady) might as well say -

We are getting tired of selling all these electronics. So we thought we should let Amazon get a direct connection to our customers so that our customers start buying electronics from Amazon.com instead.

This is a standard standard pattern. Fool the existing market leaders into giving you a piggyback ride. Then turn on them when you have enough reach/control/power.

Technology Companies ALWAYS destroy the Incumbents – Right after promising them Salvation

It’s an endless list of new technology companies that destroy existing markets -

  1. Newspapers put their faith in Google. How’s that working out? What they really should have done is banned Google from carrying any of their content.
  2. Borders let Amazon run its online store. Smart move Borders.
  3. Book Publishers are trusting Google and Amazon and B&N. They are going to get skinned alive. Now that the Agency Model has been ruled illegal it’s going to happen even quicker.
  4. The Music Industry let Apple take control of the music industry. It might be great for users but it’s not great for Music Publishers because they are selling $1 songs instead of $11 Albums. Additionally, all the control is with Apple and (to an extent) Amazon.
  5. The list goes on and on. New, upstart technology companies always make an idiot of existing industry giants. The sad thing (from a strategy perspective) is just how often the established gatekeepers think that the new upstarts have the best interest of the existing gatekeepers in mind. Oh this nice young man wants to help us. Young Man, here’s a list of our best customers and thank you so much for all the help.

For all these points PLEASE keep in mind that I’m not saying ‘This is not good for customers’. Of course it is. If you can get free music and free movies and free software – it’s obviously great for customers. And it’s great for the technology company supplying you all this for free – it can run ads and make money, or charge you a subscription.

It’s bad only for the creators and the gatekeepers. Because they gradually lose profitability and control.

It’s madness for the existing powerful companies in a space to accelerate their own demise by trusting new technology companies. The more ‘savior’ and ‘good’ a company seems, the higher the chance it’ll eat you alive (you = existing gatekeeper).

WalMart and Target should NEVER have sold Kindles

If you expect the companies to have half a brain they should have understood that Kindles which allow buying any book, any time, instantly would erode their own book sales. So carrying the eInk Kindle was a stupid decision.

However, it takes a special level of pigheadedness and stupidity to not see what the Kindle Fire was and is.

Perhaps now that Amazon went overboard with Sponsored Offers and Recommendations, it finally struck the fine people at WalMart that they are selling mini Amazon.com stores. Better late than never.

People underestimate the Power of the Path of Least Resistance

WalMart and Target, and people who defend their ridiculously bad decision of selling mini Amazon.com stores, probably make a lot of assumptions -

  1. People would never shop for groceries online.
  2. People would not be willing to wait an entire 2 days.
  3. People would want to see things in person.
  4. People would not go to a store and then buy online.
  5. People want the convenience of a large store they can do their entire shopping at in one trip.
  6. People want to see real people.
  7. People want same day gratification.
  8. People love the weekly drive to the stores.
  9. People want the social aspect of shopping.
  10. People want to support their local retailers.

Let’s take WalMart’s case and consider why each of these assumptions is shortsighted -

  • People would never shop for groceries online. Well, Amazon is setting up Amazon Fresh and gradually expanding it. We’re soon going to find out how people react to grocery shopping online if there’s same-day delivery.
  • People would not be willing to wait an entire 2 days. They won’t have to. Amazon is setting up enough distribution centers to achieve same day and next day shipping in lots of areas.
  • People would want to see things in person. The Zappos approach – free returns. Amazon already has 30 day returns. They could expand and say – buy 3 items and keep the one you want.
  • People would not go to a store and then buy online. They do it all the time already.
  • People want the convenience of a large store they can do their entire shopping at in one trip. What store can be bigger than an online store selling ten million items?
  • People want to see real people. Not really. It helps but it costs a LOT to have good qualified sales people. Brick and Mortar stores are losing that and it means that the value of real people customer service is declining.
  • People want same day gratification. Amazon is setting things up to deliver this.
  • People love the weekly drive to the stores. That’s just nonsense.
  • People want the social aspect of shopping. Again, this is a bit of a fantasy.
  • People want to support their local retailers. WalMart, how did that work out for all the small grocery stores you drove out of business?

Yes, there are very REAL advantages to shopping in a store. However, there are also disadvantages. And Amazon keeps reducing the advantages real stores have (instant gratification, quick gratification, selection), and it keeps increasing the advantages it has (cheaper prices, wider selection, no checkout lines, etc.).

The Path of Least Resistance is already online stores for a sizeable percentage of the population (perhaps 15% to 20%). As Amazon keeps refining things it’ll reach the point where 40% of the population prefers online shopping. At that point the retail stores will be in trouble because they will start losing out on volumes and impulse purchases and their prices will become less competitive.

Every Kindle Fire is an Amazon.com Mini Store in Customers’ Hands

This is the part that totally baffles me. Was this not clear to Target and WalMart from the start?

They have the following options -

  1. Sell iPads where they make a cut and Apple doesn’t sell anything other than digital content. Not ideal but not bad.
  2. Sell Google Tablets where they make a small cut and Google is only interested in online search and in getting a cut of online transactions. This is worse than Apple because there’s less money and Google has more of a ‘I want a cut’ mentality. However, this is still not that bad.
  3. Sell Kindle Fires where they make a small cut and ALSO make it easier for their users to BUY EVERYTHING easily from Amazon. This is absolutely crazy. It’s the equivalent of WalMart setting up Amazon.com Stores in people’s houses.

There’s no Room for Confusion – Selling Kindle Fires was a self-defeating move by WalMart and Target

People fall into two categories -

  1. People who realize that selling Kindle Fires is the stupidest thing WalMart and Target could do. That WalMart and Target are hammering in the nails into their own coffins by selling Amazon.com mini stores to their loyal customers.
  2. People who assume that ‘Having that Amazon mini Store in people’s hands 2 to 3 hrs a day doesn’t matter’ OR that ‘People will pick a tougher path over The Path of Least Resistance’.

The latter category will use strange arguments like – People could still go online to Amazon.com from any Tablet. Yes, of course. But that’s very different from having a device which literally bombards users with ‘Stuff they can buy from Amazon’ constantly.

Big difference between -

  1. Once a week I go to Amazon.com on my iPad I bought at WalMart.
  2. Every 15 minutes I see one thing I could buy from Amazon on my Kindle Fire HD I bought at WalMart.

Add on the fact that MOST media purchases on iPad go to Apple whereas most media purchases on Kindle Fire will go to Amazon.

It’s not even close. WalMart and Target were literally signing over hundreds of dollars in digital media profits per customer to Amazon with every Kindle Fire purchase. They were also losing a few hundred dollars in physical item profits per customer themselves (which also would go to Amazon).

It’s such bad strategy that it’s painful. It physically pains me to see WalMart and Target selling Kindle Fires. It’s one thing to get beaten by technology because it’s better technology. It’s completely different to be stupid/ignorant/clueless enough to hasten your own demise and to hand over your BEST customers as fast as you possibly can.

We aren’t yet at the Inflection Point

Well, WalMart has come to its senses. Target came to its senses about 5 months ago. At some point other retailers will realize what’s really going on. We haven’t yet reached an Inflection Point – a point at which retailers are GUARANTEED destroyed and Amazon is completely unstoppable. If more retailers start realizing what is REALLY going to happen with all the Kindle Fires they are helping sell, then hopefully retailers can avoid the Inflection Point.

A state of equilibrium, where Physical Retailers and Amazon keep competing without killing each other, would be nice. A LOT of people assume this is what’s going to happen. Actually, it’s very unlikely. If you think about the advances that are happening, and think about the 10 to 20 year scenario (instead of 2 to 4 years out), then it becomes evident that physical retailers need to BOTH lock online reatilers out of their stores AND create their own online presence. If that doesn’t happen, Amazon will dominate ALL of retail in the US within 20 to 25 years. Then all the retail battles will be fought only between online retail giants like Amazon and Rakuten.

Filed under: thoughts | Tagged: , | 8 Comments »

Kindle for Movies? Confused and Conflicted Thoughts about Amazon Studios

Posted on January 22, 2012 by switch11

Not content with revolutionizing books (and in the process, inadvertently driving the value of books to zero) Amazon has also stepped into ‘movie production’ via Amazon Studios.

Here are some very conflicted thoughts:

  1. Great Idea. If you’re a company that likes to throw out lots of ideas and see what sticks, this is definitely worth trying out.
  2. Kudos to Amazon and Jeff Bezos for having so much ambition.
  3. Don’t think Mr. Bezos has ever seen a technology pie he didn’t want to stick a finger into.
  4. Amazon Studios might end up being Kind of a Big Deal.
  5. First get books right. There’s a grand curation problem in books – partly due to what Kindle has enabled. There’s a huge value perception problem in books – mostly due to what Kindle has enabled. It’d be really nice to see Amazon focus its attention on fixing that first.
  6. The line of logic that ‘we can still give as much attention to books, while also doing movies’ doesn’t make sense. Resources, especially time, are finite.
  7. Amazon Studios is to Movies and Kindle Fire what Kindle DTP is to Books and Kindle.
  8. Amazon’s ambition is eventually going to get it killed. My vote would have been with ‘Amazon’s reluctance to build up a huge cash hoard or a huge patent hoard’. However, increasingly it seems that Amazon’s reach might exceed its grasp.
  9. Amazon Studios should have begun to scare a LOT of movie producers. Not necessarily because it will replace Avatar – because it might be able to replace Paranormal Activity.
  10. Perfectly efficient markets kill the participating content producers. Amazon Studios is almost certainly going to end up being a close-to-perfectly-efficient market.
  11. Not sure why so many technical companies think algorithms can solve everything.
  12. Not sure why so many technical companies think getting people to work for free or cheap and then making money from that (due to scale/volume) is a sustainable strategy.
  13. It worries me that so many people and so many companies are now moving to an attitude that – ‘getting to have their books read/movies seen’ is enough reward for artists.
  14. The contract is laughably one-sided IF your movie becomes a big hit.
  15. If Amazon doesn’t option the rights - you have to still give it rights to use your movie.
  16. At one level it just seems a way for Amazon to be able to win the mythical Who has the most free movies? contest. Never mind that 70% of Amazon’s ‘free’ Prime Movies will be produced by 15 year-old-kids and will star Mentos and Coke.
  17. Amazon is like the jealous spouse who doesn’t even want you looking at someone else. Consider this:

    … for 18 months after you create a project at Amazon Studios, you cannot display, sell or license your script or test movie elsewhere, or withdraw it for any reason. However, when the option term ends, if we haven’t exercised our option and purchased your work, you will get back non-exclusive rights to your original material.

  18. That last phrase is genius – ‘you will get back non-exclusive rights to your original material’. There’s a pretty strong vein of ‘We’re doing you a huge favor and you better not forget it’ running throughout the FAQ.
  19. Amazon is the equivalent of a Stage 5 Clinger. Except, you have to take a blood oath that even if you break up, you will spend one weekend together in Paris every month.
  20. Content Creators are probably so desperate Amazon could have introduced a ‘You will swim with sharks before we read your script’ condition and they’d still sign up.
  21. There’s got to a more sustainable strategy than ‘let’s mass-produce cheap content and hope we get lucky’.

The one thing that really bothers me, and perhaps should bother anyone who loves books, is that Amazon doesn’t have the ends wrapped up with books yet.

Amazon should get the Kindle Store right first

There are lots of things that need to be fixed with books. The two biggest ones are:

  1. How do authors get paid? And No – sharing out $700K amongst 7,000 indie authors every month is NOT a solution. 
  2. Who does the curation?

Right now Amazon is just thinking – Wow, we figured out how to blow up an entire industry. Figuring out a new viable model is difficult. Let’s just go blow up another industry.

That’s a really strange way of looking at things. It’s very Amazon centric i.e. it doesn’t consider what happens to content creators or people or to quality.

You can’t make everything a loss leader

This is another example of what seems a strangely short-sighted Amazon attitude towards content.

  1. Content Makers are desperate. Content Publishers are inefficient. Let’s blow up the market and turn content into a loss leader that helps us sell other stuff.

It’s become a bit much. History will look back at the rise of the Internet companies and perhaps consider them the biggest value destructors for people who create content.

  1. Some tech companies want your creations for free so they can run ads against them.
  2. Some tech companies want your creations for free so they can use them as a lure or as loss leaders.
  3. Some tech companies want your creations for free so they can sell them for profit. 

Where on Earth are the tech companies that are willing to build sustainable business models? Internet companies make Microsoft and Apple seem absolute saints in comparison. To be honest – they really are. When you think of the number of HUGE companies that grew up based on the Personal Computer ecosystem. And the number of people who did well selling software and other things.

With Internet companies, it’s an anti-ecosystem. It’s a giant leech sucking all the blood out of content creators.

It’s great for consumers of content – until the malnutrition of content creators trickles through the system and blows it up.

Why do so many companies look for the easy solution?

It escapes me why the vast majority of tech companies want to build a model where they profit from other people’s hard work.

Capitalism is glorious. However, capitalism usually meant paying the people who made the products. The Internet in general, and Internet companies and people who have never had to sell anything in particular, are creating an environment where the creators aren’t getting paid. It’s just not sustainable.

And everyone is caught in the trap now. The glorious thing about it is that most of the tech companies using these strategies aren’t very profitable either. The Internet is just a huge destructor of industries.

At some point we won’t have people left who make a decent living. There’s not going to be a middle class. It’ll just be very rich people and poor people who’re supposed to feed themselves on the knowledge that invisible people on the Internet enjoyed their work and they got nothing at all from it.

Whether you sell a physical product or a digital one – It’s time to start wondering. What are you going to do when your arguments (an extra copy costs nothing, volume makes up for it, Internet makes everything cheap and efficient, X/information/value wants to be free) are used against you?

Whether you like it or not – The argument extends to whatever you do. There’s always some idiot somewhere who’s willing to do your exact job for free. And there are more than enough companies willing to leverage that into creating Giant Leech ecosystems that will slowly suck everyone and everything dry. Movie Producers and Book Publishers are evil – but they don’t make money if they don’t sell movies and books for profit. That’s the one big lesson – Be careful what you wish for, you just might get it.

Filed under: thoughts | Tagged: , | 10 Comments »

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