Monday, February 8, 2010
The EBook Wars
I was away last week and so am late to the party when it comes to commenting on the fight between Amazon and book publishers. Here are a couple of observations.
First, I was surprised it took so long for this fight to start. It is a great example of what I call “fighting over the digital pie.” What was most fascinating about it is that none of the publishers even made a mention of how much authors would receive. At present, this is all about trying to support the existing cost structure of publishers with strong parallels to the fight between networks and cable.
Second, there has been some discussion around what it actually costs to put out a book today and how that might change with ebooks. The debate seems to be largely between two extremes: either that ebooks should be much much cheaper (often unsubstantiated) or that the only cost to actually go away is PP&B (paper, printing & binding) which makes up only a small portion of the total cost. Looking at several actual breakdowns of costs, not surprisingly the truth is likely to be somewhere in-between. Pre-production costs will remain for ebooks and depending on the number of formats and additional markup could actually go up a bit. But marketing costs are up for grabs as authors can start to build their own audience via blogging and books can be discovered via social networks. Wholesalers should go away and retail margins should be highly compressed. Publishers’ cut too is likely to get compressed as their value-added diminishes in a world where authors can be directly in touch with readers. Taken together, I believe that at least 50% of the existing cost basis of the book business could be obliterated for ebooks.
Third, even with a reduced cost basis, if ebooks are to be traditionally priced (which is to say the same price for each copy), they need to succeed with DRM, something that the music industry failed at. Personally, I abhor DRM because of its implications for computing devices (closed, not hackable, not trust worthy). But I am afraid that for the first time we are getting close to highly DRM’d general purpose devices succeeding in a mass market due to their superior design and user experience. It would be quite a Faustian bargain for all of us to accept DRM in the name of convenience and design. More on that in a separate post — until then I suggest reading Alex Payne’s post on the iPad.
Fourth, nobody seemed to suggest that charging the same price for a book to each reader is an antiquated idea. A literal adaptation of the historic price discrimination model of starting with a hardcover and then moving through softcover to mass market paperback shows a lack of imagination. There are many better and more effective ways of capturing consumer surplus for digital goods. Think Farmville!
Fifth and finally, throughout most of the discussion there appears a presumption by publishers and authors that there is some kind of god-given right, or short of that a cultural mandate, for them to be able to cover their costs. That view seems to ignore most of the history of publishing during which great works were authored but very few people made a living off it. I am convinced that we will see great books published in the future completely independent of the business model (or lack thereof) of the publishing industry and the income from book sales to authors. Whether it is mico-patronage a la Kickstarter, or income from a day job a la Rowling during the early Harry Potter work.
I am hopeful that in the end we will make it to a DRM-free ebook future with a new renaissance of content but for now it looks like we will have to watch the titans battle it out.
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Tags: publishing e_book amazon apple
Friday, January 29, 2010
What Do AAPL and AMZN Have, that GOOG, Twitter and FB Need?
Each has more than 100 Million credit cards on file to enable 1-click purchases of content, apps, and virtual goods. When I compare doing anything involving payment on other platforms the experience is cumbersome to the point of being useless. My 10-year old son had no trouble hijacking my Kindle, finding the store and getting a book for himself. And that’s on the Kindle! On his iPod touch he blew through the app budget we had set for the month within the first two days of having it. It will be interesting to see who figures out how to catch up with Apple and Amazon and how they do it. In the meantime, companies like Zong with their Zong Plus offering are trying to get there independently. If they get to 10s of millions of linked credit cards, they will make a juicy acquisition target.
Tags: payments credit_cards apple amazon facebook twitter google
Thursday, January 28, 2010
iPad: First Overhyped, Now Underestimated
Yesterday’s “reveal” of the iPad was predictably anti-climactic. With the hype that had built up, anything short of a mind-reading, teleporting device had to be a bit of a letdown. But we are now likely to enter the phase of underestimating the iPad. People are already obsessing about such flaws as the omission of a camera. Or the lack of support for Flash. Or the absence of multi-tasking. These critiques mostly miss a couple of crucial points. First, this is of course extremely similar to the history of the iPhone - what, no Cut-and-Paste? Apple very quickly came out with significant product improvements for the iPhone. I expect that it will be no different for the iPad. Second, while Apple wants you to have a great web experience, they want you to have an even better experience for certain categories (games, videos) through native apps for which Apple takes a cut. If they get enough devices out quickly that will succeed. Third, out of the gate the iPad meets four of my five personal requirements, which I had set out here http://continuations.com/post/321509690/slates-my-personal-requirements . It is much cheaper than had been rumored, making it possible to get more than one for the house. It looks like it would survive a coffee spill and 10 hrs of battery life would be an entire week of occasional usage around the house. Because it doesn’t have multi-tasking it is much simpler to operate. There is a Wifi only option. The only thing that seems to be missing out of the gate are user profiles that would make it easy to share. Bottomline, this is very much the device that I anticipated and I believe that it would be a mistake to dismiss it as an XXL iPod Touch.
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Wednesday, January 27, 2010
More Great News for NYC's Startup Ecosystem: NYC SeedStart
Congrats to Owen Davis and everyone else involved for launching NYC SeedStart 2010. I have long argued that there is no such thing as too much seed capital and SeedStart is a terrific addition. It is amazing that until now New York City did not have such a program, given the success of YCombinator, TechStars, Dreamit, Launchbox, SeedCamp, FBFund Rev and others. I am also thrilled to see that NYC SeedStart has adopted a simple financing model - $20,000/team for 5% of the company. Now very much looking forward to the first crop of companies!
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Tags: seed_capital new_york_city
Tuesday, January 26, 2010
DLD10
Heading to the Munich airport after 2 days at DLD - a thoroughly enjoyable and productive conference. Here is my report from last year: http://continuations.com/post/73536016/dld - I was happy to see that the biggest nuisance from last year had been addressed: there was now a wall between the lobby and the main presentation area. I spent even more time than before in the lobby meeting people - some pre-arranged but mostly spontaneously. I only saw a few sessions/panels - which were all quite good. The mix between media/Internet and science/art worked very well. The party at the P1 was a blast and despite the incredibly loud music I met a bunch more really interesting people there (including a German entrepreneur with a US-based startup). Definitely planning to come back next year.
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Monday, January 25, 2010
Minimizing Jet Lag (for Trips to Europe)
With family (parents) in Germany, two investments in London, and conferences (eg DLD) and vacations, I wind up flying to Europe at least half a dozen times a year. Here is the system I have come up with for minimizing jet lag (without the help of pharma!): 1. Take a late flight - ideally 7pm or later 2. Eat dinner at airport before boarding 3. Right after boarding, set watch forward to European time 4. Get eye shades and put them on right away and rest. Sleep if you can, doze otherwise. 5. Don’t eat on the plane at all - drink water only 6. First meal should be a late breakfast when you get to Europe 7. Don’t go to bed when you get there. Just start the day. 8. For a short trip stay up late in Europe and don’t schedule any meetings before 10am - makes it much easier to remain on US time All of this together works super well for me - always eager to learn tips from others though (eg found Burton Sleeper Hoodie via Avner Ronen).
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Friday, January 22, 2010
Staying Fit
Bryce has had some great posts about his analytical (and tech supported) approach to fitness. I used to find staying in shape to be quite the challenge — I would start the day with great plans of going to the gym or exercising and then wind up scheduling another meeting or answering emails instead.
The solution that Susan and I have settled on is to go out every morning as soon as there is enough light and hit some tennis balls (regular in summer and paddle in winter). We are lucky to have public courts a short walk from our house and to have a German Au Pair who makes sure the kids eat breakfast and get ready for school. But the key has been to make it a routine that we adhere to even when it is freezing or windy or drizzling (we are not tough enough for pouring rain).
While this has been great for feeling fit all day, we have both found that over the last couple of years of sitting at desks or in meetings for most days we have lost a lot of flexibility. So now we are experimenting with family yoga on weekends. It’s fun to have the kids involved, albeit comical how much more flexible they are. Hoping we can turn this into a similar routine and stick to it!
Tags: health fitness family
Thursday, January 21, 2010
An Ongoing Lack of Imagination in Pricing (of Digital Content)
Yesterday brought two announcements and one rumor that all relate to the pricing of digital content: the New York Times announced that it plans to add a paywall in 2011, Amazon announced that it will offer authors a 70% royalty rate, and book publishers are apparently trying to convince Apple to act as a distributor with prices set by the publishers. All three of these are interesting and important.
Starting with the last. It appears from the Apple discussions (if the rumor is correct) that publishers still think they can and should price ebooks close to or the same as physical books. They are freaked out that at lower ebook prices the market would shift more quickly and profits would disappear faster than if they artificially keep ebook prices up.
Amazon is actively trying to subvert this. They have been selling books on the Kindle for significantly below retail. Many publishers have tried to argue that this is bad for authors who now receive less money. But as this latest move by Amazon makes clear, it is all about who gets to keep how much of what consumers pay. In the traditional publishing model the royalty to authors tends to be in the 20% range. It is easy to see that at a 70% royalty rate in a direct model an author will make almost twice as much even if the Kindle book sells for half the price.
Still — this amounts to not much more than a fight over the digital pie between publishers, Amazon and Apple. The discussion is still stuck on a ridiculous holdout from the physical era: charging every customer the same price. In a post almost a year ago on the economics of abundance, I wrote:
One important alternative that is not receiving nearly enough attention is to stop charging the same price to everyone. In economics this is know as “price discrimination” and there is an extensive literature on when and how it is possible. For instance, with so-called “perfect” price discrimination everyone would pay exactly what the good is worth to them.
The New York Times is taking a small step in this direction by following the Financial Times strategy of frequency capping visits. This allows for two possible price points: free, if you use it a few times a year and $x (NYT has not announced a price), if you use it more than that. It is a feeble attempt to distinguish between folks who value New York Times content a lot and hence visit often and those who don’t.
This is not a bad idea, it is just not a new one and not a particularly powerful one. The real power is in letting consumers pick their own price. This has of course long been the case in the not-for-profit world. If you like NPR you can listen to it for free. If you like it a lot you can contribute. There are many different levels of contribution letting you pick just how much you like it! Kickstarter has done a fantastic job of bringing the same model to the funding of individual projects.
Yet despite such clear examples, Amazon, Apple, the New York Times, book publishers, etc all seem stuck on essentially the one price model. Can we please have some more imagination in pricing? It is time to start creating offers that let readers self select based on how much they value specific content. How would this work? In the case of the New York Times here is just one of many possible examples. Put on a weekly series speaker series and make priority access to limited tickets / limited realtime online viewing spots part of a higher priced subscription.
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Tags: digital_content pricing economics publishing
Wednesday, January 20, 2010
Some Real Estate Tips for Startups
Now that the cost of servers and bandwidth has plummeted, office space tends to be the biggest expense following payroll for a lot of web startups. Here are some quick tips on what to do.
- When you are just getting going, simple get some desks, ideally at a friend’s startup. New York City also has some great deals in the NYU Poly incubators. Whatever you do, it should be month-by-month with zero lockin.
- As you get larger, it’s best to sublease on relatively short subleases (12 - 24 months). You don’t know how fast you will grow and you can get much better rates (generally) on subleases. Don’t make the leases too short, you don’t want to constantly be moving as it is super disruptive.
- Push off getting a primary lease as long as possible. You’d be surprised how many people you can fit into a space when you really try!
- When you finally have to get a primary lease, try to negotiate an out after some time (e.g. after 5 years).
- Look for buildings that are likely to have expansion space for you if you grow (buildings with other startups are good because they have natural turnover).
- Don’t ever sign anything but a short-term lease without talking to your board members. This will easily be your single biggest fixed expense and you want to make sure everyone is on board.
You might also want to consider Chris Dixon’s fun list of things a startup needs in picking a location for an office.
Tags: startups real_estate office_space
Tuesday, January 19, 2010
Nexus One Needs Simpler Default UX
I have been carrying around a Nexus One for a couple of weeks (in addition to my somewhat nervous feeling Blackberry). There is a ton to like about the Nexus. It works fantastically well with all of Google’s services. The setup is a cinch — just sign in with your Google account and let the phone and the cloud do the rest. The screen looks great and transitions between apps are fast. It can run multiple apps simultaneously. The turn-by-turn directions are awesome.
Given all that, I find it surprising how complicated some of the default user experience is. Here are just two of the things that struck me the most. First, the four buttons at the bottom of the phone sometimes do different things if you keep them pressed longer. For example, the home button, which clearly should take you to the home screen when you press it longer sometimes brings up a special overlay with additional features. Shouldn’t a one time press of the menu button do that? Is there really a need to have a button do two different things as the default configuration of the phone?
Second, the home screen is in the middle of a set of possible screens. So you can have more app icons both to the left and to the right. In addition, there are more icons that you get to by pressing an onscreen icon that looks like a bunch of tiny icons. That’s for instance how you get to settings. By default the settings icon does not appear on the home screen itself. So this means when you are on the home screen and don’t see an icon, there are three (!) possible places it could be: to the left, to the right and on the “all icon” screen.
What strikes me about both of these is that they might be good for power users, but they make for a needlessly complicated first time experience. I can’t help feel that it goes against the grain of some engineers to “dumb down” the experience, but I believe that it would help tremendously with adoption.
P.S. The four bottom buttons work much better when I use my thumb than any other finger (which is fine with me because I like single handed operation), just seems weird that when I try a different finger, I need to sometimes tap three or more times to make it work.
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Tags: google nexus_one ux usability
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