Power User Infrastructure

This past weekend I finally tackled two projects that I had on my to do list for quite a while.  Had I known how easy they would turn out to be I would have worked on them much sooner.  The first was setting up the 212 area code number I had bought for Susan a while back.  As a longtime New York resident she really didn’t like that we got a 646 number when we moved back from the suburbs.  As it turns out you can buy unused 212 numbers.  All I wanted to do then is to forward that number to our 646 number.  So I ported the 212 number to Twilio, which was painless but takes a bit of time.  Once that was done though, all I had to do was log into Twilio and use the forwarding Twimlet.  Twilio provides these as a way to route and respond to calls without having to run your own server.  In fact, I wound up chaining the forward Twimlet together with the voicemail Twimlet so we can get recorded and transcribed voicemails.  From logging into Twilio to having it all up and running was a matter of minutes.

The second project was to find a cloud backup for all the stuff stored on our aging ReadyNAS drive array.  I have a Dropbox account but this really isn’t a case of wanting to sync something.  I don’t need a local copy of these really old files.  Now I could have set up a folder in my dropbox and used selective sync, but it occurred to me that I could just use Amazon S3 directly.  I found a nice little Mac OS utility called One Way that lets me right click on folders and upload them to S3.  From there it was just a matter of a few minutes of logging into my AWS account, creating a bucket in S3 and starting to dump stuff into it.

In both of these cases I was using developer infrastructure to solve essentially a consumer problem: a routable phone number and cloud backup.  In both cases it was super easy to do and took only minutes to set up.  While this won’t become mass market consumer behavior it speaks to the power and ease-of-use of the respective platforms.  Instead of developer infrastructure I am beginning to think of these as power user infrastructure.  That may well wind up being a category to itself with services such as IFTTT.  Would love to hear if anyone else has examples that might fit this category (btw, I also love how easy it is to host a static website on S3!).

Seattle, We Have a (Kindle Screen) Problem

I love reading books on my traditional Kindle.  I find the eInk display to be easy on my eyes and make extensive use of highlighting.  It’s great not to feel tempted to fire up an app or check email while reading which lets me make good progress even on hefty books. But across our family we now have three Kindles with broken screens.

At first I suspected that the kids were mistreating the Kindles when they were reading on them.  But they insisted that they had done nothing of the sort.  Of course twice in a row when we got a broken screen it was literally the night before a vacation and so I rushed out and bought another one at BestBuy (which means as far as I can tell I can’t return them to Amazon).

Last night, I plugged in one of our Kindles that had run out of battery (the one on the right).  My son tried to turn it on while it was still charging and the screen froze in a fashion similar to the previous ones.  So now we are up to three of these and I really want to figure out what to do rather than just have them sit around.  Has anyone had any luck returning these to Amazon?  Is there a place that will fix this problem?  Any and all suggestions welcome.

Taxes in Marketplaces: Amazon’s Cloud Reader and Pressure on Apple’s 30% Cut

Fred’s blog post today is about how new and powerful HTML5 apps are emerging, giving the new Kindle Cloud Reader as an example.  The Cloud Reader is also an example of something else: if you tax a system too much people will find ways to work around it. This is highly relevant to anyone running or starting a marketplace.  You can’t be greedy! (Sorry, Gordon).

I had written a while back — in the context of eBook pricing — how Apple’s take rate of 30% was significantly too high.  The Kindle Cloud Reader demonstrates just that.  Instead of collecting say 10%, Apple will now be collecting nothing for books sold via Cloud Reader.  I believe that the sustainable take rate for marketplaces will be somewhere in the 5-15% range but not above.

I have run into a number of people recently starting new marketplaces and have provided them all the same advice.  Launch from Day 1 with the longterm sustainable pricing even if that means that you will have less in initial revenues.  The reason is that you will be more disruptive, grow faster and be more sustainable by not opening the door for people to try to circumvent your marketplace.

On a related note, I continue to believe that this will ultimately turn out to be Google’s biggest weakness.  Search can be thought of as a marketplace and Google is currently keeping close to 100% of the revenues that marketplace generates.  There is no way that’s sustainable in the longrun.

Another Take on the Web is Dead: Limits to Decentralization

The Wired cover story on “The Web is Dead? A Debate” has in fact caused an intense debate of the question, taking place — of course — on the web.  It may be seen as somewhat ironic that on just the following day we get two pieces of news from Google that would point in the other direction: a demo of the future of browser games and a Chrome OS tablet together with Verizon (aside: sure didn’t take long after their joint pronouncement on net neutrality).

Much has been made of the potential shift of attention from the totally open web to more proprietary platforms on mobile devices.  But there is another question that I have been thinking about (in fact have a draft of a long post on this question for the USV blog):  how well does completely open work on the web?  Or put differently: are there limits to decentralization on the web?

At the risk of stealing my own thunder, here is what prompted my thinking about this question.

• Almost all the knowledge that is on Wikipedia also exists on the web at large distributed across millions of sites.  So what is it that Wikipedia adds?
  
  
• Small merchants could set up their own web sites rather easily these days and sell directly.  So what is it that Amazon adds?

Clearly both Amazon and Wikipedia are not the open web.  They represent some form of centralization and some limits.  That centralization and those limits must be adding value at least for now.  Here are the benefits that I have been able to identify:

Reputation: Buyers trust Amazon’s service.  They don’t need to make up their mind on each separate merchant’s page about whether or not it will provide a good shopping experience.  Similarly, readers trust Wikipedia’s mechanisms to catch errors relatively quickly.  Certainly way more than reading some random individual’s web page.

Convenience: Having credit cards on file together with a unified check out allows people to buy from multiple merchants in one go on Amazon.  On Wikipedia all the information on say an individual is pulled into one place that might otherwise live across a dozen different sites.

Discovery: Based on its knowledge of a large number of purchases, Amazon powers a discovery process by suggesting related or alternative products.  Wikipedia doesn’t do much of this, but there is some discovery of new topics and or related items that one might not have thought of oneself.

Uniformity: Every product page on Amazon looks the same, making it easy for someone looking for something to browse quickly through a large number of items and know exactly what to look for.  Ditto for Wikipedia.  I believe that is much more important than people think.  The cognitive overhead associated from switching between pages that look vastly different is huge (in fact, I believe it played an important role in the ascent of Facebook over MySpace).

Granularity: In Wikipedia the smallest contribution item is a single letter, as in the case when fixing a typo.  On the open Web, you’d have to publish an entire page.  Not sure whether this applies to Amazon also.

Convergence: Even though each Wikipedia page has an extensive history, at any one point in time, there is only a single page.  On the open web there will easily be multiple copies with slight differences of the same content.  Again, not sure how this applies to Amazon.

What is interesting (and the subject of the longer post I am working on) is that these benefits from some centralization are difficult to overcome with better technology.  At their heart, they are not technology problems but incentive problems.  And incentives are difficult to get right.

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.

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.

So Long, And Thanks for All the Shoes

I am sorry to see Amazon buy Zappos.  Not because I have bought a lot of shoes at Zappos (still liked this as a title for the post though), but here are three reasons:

First, I felt that Zappos could be a real competitor to Amazon for online retail.  And I love competition.  It is great not just for customers but also for suppliers.

Second, Zappos was an IPO-able company based on size and apparently profitability.  It takes IPOs to build confidence in the financial markets.  IPOs beget IPOs.  Now we have to scratch one candidate off that list.

Third, I am an Amazon shareholder and don’t think this was a smart move (as so often, the market disagrees with me as AMZN is up 5%).  This reminds me of eBay buying half.com and then never really figuring out what to do about the two brands.

There is a rumor going around that Tony Hsieh did not want to sell Zappos and that this was a Sequoia Capital move.  Bijan points out, it’s not so easy for an investor to sell a company unless management wants to go along.  On the other hand, it may also not be easy to IPO a company if the VC doesn’t want to go along.  Be that as it may, I sure would have love to see Zappos stay independent and go public.

Big Week in Cloud Computing

This has been a big week in cloud computing.  Most importantly, Amazon removed the “Beta” label from EC2 and is now offering an SLA for EC2.  This is essential for businesses that want to move core systems onto EC2.  As I have stated before, though, EC2 is not really a cloud platform in and of itself, rather a highly advanced server provisioning infrastructure.  Amazon also took several steps towards moving closer to a true cloud platform.  In particular, they have added support for load balancing and automated scaling.  Both of these are key ingredients for running a platform such as 10gen which completely abstracts servers for the majority of applications.  I have not yet had a chance to read up in detail on how these have been implemented, but was intrigued by one line on the AWS blog which indicated that load balancing and scaling were exposed as web services which makes the programmatically accessible for others.  That’s the right way to do things.  And yes, they are also offering Windows support now, but so what.  The other big announcements this week came from Rackspace which acquired Slicehost and JungleDisk.   Rackspace has a bit of a piggy bank from the IPO, albeit much smaller than they had hoped for (the IPO raised $200 million which was half of the original plan).  Whether or not these acquisitions are smart remains to be seen.  They could be if Rackspace can cheaply acquire customers and move them to their Mosso platform.  There are two big ifs in that sentence.  With margins being compressed it’s hard to know if you bought something cheaply and migrating customers to a single platform can be painful (maintaining multiple platforms will kill you on support costs).  It is also possible that these companies have real technology that Rackspace can use for Mosso, but here too one has to worry about the substantial integration risks.  I sure hope that Rackspace succeeds because competition will be healthy and we would like to see many different places where folks can run 10gen.