Amazon business started by selling books online. But for Jeff Bezos, selling books was just the starting point. Once Amazon had its infrastructure in place, it extended its business from books to electronics, toys, apparel, and almost any retailer category you can think of.
As Mark Suster points in his article Here is Why Non-Obvious Startup Ideas Can Yield the Largest Results, Amazon is emblematic of the sort of company that mostly disrupts industries behind the scenes, winning through distribution, logistics, inventory management, warehousing, customer support, etc. It never intended to disrupt just the book seller’s market… it intended to disrupt the selling of all kind of goods.
Mark Suster’s article is not about Amazon, however. It’s about MakeSpace. If you haven’t heard of MakeSpace, they define themselves as your closet in the cloud:
MakeSpace is New York’s #1 consumer rated storage company. We deliver free bins (or boxes if you’re outside of NYC, Washington D.C. or Chicago) for you to pack with items you’d like to store. We pick up, store, and deliver your stuff back when you want so you never have to visit a storage unit again.
At our secure storage facility, we upload high-quality overhead photos of your bins or boxes so you know what you have in MakeSpace at all times. This makes ordering your things back simple.
He makes a great analysis of MakeSpace’s business model, market opportunity, and the disruption of an existing but stagnant industry. And they are doing something similar to Amazon:
What tech has our capital raised gone into? Driver routing systems, scheduling, inventory management & tracking, warehousing systems, photography automation, customer service applications as well as the obvious front-end apps such as our consumer apps for keeping track of your goods. We have an amazing team of W2 drivers in NYC, Washington D.C, and Chicago with regional warehouses in each territory and our technology makes it more efficient for them to do their daily pickups with least-cost routing. But as you can imagine we’ve also built technology to allow third-party drivers in markets where we don’t want our own vans. We have built UPS integration to allow a product called “MakeSpace Air” to allow us to do national pickups.
We are building a national business and a beloved brand in a category that is large, fragmented and universally hated. I know that storage sounds unsexy to most but in terms of disrupting a large market where competitors can’t respond? It’s a market made in heaven.
The real question, as Suster points, is which markets will MakeSpace move into the future.
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In a recent video, Facebook’s Mark Zuckerberg defends Internet.org and its freemium model. Internet.org is Facebook’s initiative to bring the Internet to the two thirds of people in the world who are unconnected. They work by establishing partnerships between companies, governments, and mobile operators, and offering free access to a number of basic applications on the Internet. Additional access is offered through regular paid-channels.
Earlier today we announced we're expanding Internet.org to give people around the world even more choice of free basic internet services. We're doing this in a way that respects net neutrality and is also effective in connecting the 4 billion people who need access.Here's my full video explaining our approach and what we announced today.
Are we a community that values people and improving people’s live above all else? Or are we a community that puts the intellectual purity of technology above people’s need? As we are having this debate, remember that the people this affects most, the 4 billion unconnected, have no voice on it. They can’t argue their side in the comments below, or sign a petition for what they believe. (…) History tells us that helping people is always a better path than shutting them out.
I think connecting every person in the world is a great initiative, but there are some questions. For starters, opposing the “intellectual purity of technology” against “people needs” is just plain manipulation and rings an alarm in my head. Are they really opposed? I think not. Pragmatism has its dangers. Imagine if the original Internet had expanded around the World under an Internet.org-like business model.
What is more controversial, however, is that the free service in Internet.org’s offering consists of access to the Internet mostly through Facebook. This is a classic situation of conflict of interest1. Sure, Internet.org also offers free services like Wikipedia, access to job boards, and newspapers. But there is no Facebook-sized company offering, for example, free email services or other services that compete with Facebook’s messaging.
As Zuckerberg puts it, maybe this better than having no internet access at all, and they had to start somewhere. There is the old proverb —Don’t look a gift horse in its mouth. But I can’t help but also remember that if you are not paying for the product, then you are the product.
How can we be sure that Facebook’s main motivations are altruistic and not commercial? Are mobile operators’s intentions as pure as Facebook’s? An essential requirement for Facebook should be renouncing publicly to recollect, store or exploit their free-tier “customer’s” social data. I think Bill Gates solved this the right way. Instead of involving Microsoft operations directly in his quest for improving quality of life for individuals around the world, he founded the Bill&Melinda Gates Foundation, which operates independently of Microsoft’s business endeavours.
cfr Wikipedia, Conflict of interest: a situation in which a person or organization is involved in multiple interests (financial, emotional, or otherwise), one of which could possibly corrupt the motivation of the individual or organization. ↩
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Book Publishing is a topic I’ve been following for sometime now. Books always have had enormous influence on people and in culture. One of the big revolutions in history was Johannes Gutenberg’s invention of the printing press around 1439. Gutenberg’s movable type press introduced an era of mass communication in Europe that permanently altered the structure of society1.
While e-books are not an invention of Amazon, their massive consumption was widely popularized with the introduction of Amazon’s Kindle reading device in November 2007. Even if print books won’t disappear anytime soon —as of 2014 the number of global print books sold still outsold e-books2— the influence of ebooks cannot be ignored. Consider that since May 2011 Amazon, the biggest bookstore on Earth, sells more ebooks than print books3.
Ebooks are disruptive. And business-wise, they have undeniable benefits over their printed cousins. Unlike print media, ebooks can be available for sale essentially forever. Authors don’t need to beg their publisher for a reprint. Electronic publishing dilutes publishing costs, making the marginal cost to sell one more ebook effectively zero. Independent writers can pursue the long-tail strategy and have a portfolio of books that drip income every day.
Digital publishing makes it also possible to publish ebooks only interesting to a small niche of people. This was impossible before in the minds of big publishing houses because they saw no business in such small volume editions. And more important, as Clay Shirky writes, ebooks make the wealth of culture of humanity available to anybody with a reading device:
The traditional industry belief — if you don’t live in a big city and have a lot of money, you deserve second-class access to books — is being challenged by a company [Amazon] trying to say “If you have ten bucks, there’s not a book in the world you can’t read.”
Insights about the Publishing Industry
During the last decade, the publishing industry has gone through an important consolidation process. Big publishing houses bought small imprints and publishers, or merged among themselves to form bigger companies. As of today, the industry is dominated by five companies, often referred to as the Big Five. In no particular order, they are:
Penguin Random House, owned 51% by Bertelsmann and 49% by Pearson. Bertelsmann is a giant media company with revenues around $20 billion. Penguin itself has revenues of $3.9 billion, around 10,000 employees, 250 imprints, and publishes 25% of the world’s English-language books.
Hachette, owned by Lagardère Publishing – the biggest publisher in France and the second biggest in the UK. It is the world’s second largest trade publisher overall. Lagardère Publishing is itself part of Lagardère Group, a giant worldwide media company – magazines, radio, television, online, digital, and books – with annual revenue of approximately $10bn dollars. (cfr David Gaughran, Amazon v Hachette: Don’t Believe The Spin.)
HarperCollins, a subsidiary of NewsCorp.
Macmillan, corporate parent of the Georg von Holtzbrinck Publishing Group, which has 50% ownership of Die Zeit.
Simon & Schuster, property of CBS Corp., owner of the most watched network in the US with revenues over $14bn.
Seth Godin writes that the role of the publishing houses is to find good authors and books. They are the gatekeepers of print media, the ones who decide which selected authors will be published. While this closes the doors to lots of potentially good and even great authors, they also make sure that what gets published meets a minimum level of quality.
The business of publishing houses is not unlike the Venture Capital (VC) industry. With the exception of best-selling authors, nobody can predict if a new book will be a success or a flop. But publishing houses don’t need all their titles to be bestsellers. They only need one bestseller in ten, and maybe three out of ten regular sellers. The rest, the other six, they can afford to be complete flops. Like the VC business, lots of potentially good books or authors get discarded because there is not enough time to read them all. (Who hasn’t heard the story of the number of reject slips some later-famous authors got from publishers before they were “discovered”?)
Publishing houses put their part in the making of a great book —print or electronic— by making sure that it goes through certain stages. For example, they take care of providing essential services for authors like editors, copyediting, book design, in some cases book promotion, etc. Even with a great manuscript, these steps are essential for having a professional quality book at the end of the process.
While print books —specially hardcovers— sell at higher prices than e-books and have higher margins, selling physical books to bookstores and retailers requires demand planning, some heavy logistics, stock provisions, rebates… Big companies are best suited for these tasks than independent writers, because they can obtain important savings thanks to economies of scale.
Pricing models for selling books and price fixing
Even if the big publishers sell some books directly to customers through their websites, their most important sales come through traditional channels like bookstores and retail stores. There are two models for pricing books and ebooks: the wholesale model, and the agency model.
Under the wholesale model, publishers set the list price of books and sell them to retailers at a substantial discount. The retailer then sell the books to customers at the price they choose, keeping the profit or assuming the losses. (For example, as a way to bring in customers, Amazon often sold popular books at heavy discounts.)
Under the agency model, publishers set the book’s final price. Retailers sell the book to customers at that price, and receive a commission on sales. The agency model doesn’t allow for discounting. Retailers become “agents” for the publishers, hence the name of the model.
The wholesale model is the pricing model used for selling print books. Some years ago, electronic books were sold under this model too.
In 2010, Apple negotiated a deal with the Big Five publishing houses to make their ebooks available on Apple iBookstore. One of Apple’s concerns was that Amazon’s aggressive pricing strategy was eroding the market’s margins on ebooks. According to Apple, ebooks should cost at least $12. (Amazon was selling them at $9.99 or less.)
Back in 2007, when publishers began selling large numbers of books in digital format, they used digital rights management (DRM) to lock their books to a particular piece of hardware, Amazon’s new Kindle. DRM is designed to transfer pricing power from content owners to hardware vendors. The publishers clearly assumed they could hand Amazon consolidated control without ever having to conspire with one another, and that Amazon would reward them by passing cost-savings back as inflated profits. When Amazon instead decided to side with the customer, passing the savings on as reduced price, they panicked, and started looking around for an alternative conspirator.
Under the wholesale model, publishers had no say over Amazon’s final pricing. After closing deals with Apple, these publishers switched simultaneously from the wholesale model to the agency model. Because all of the big houses changed pricing model simultaneously, retailers —even Amazon— had no option but to accept the publishing houses’s conditions.
Some time later, in April 2012, the Department of Justice (DOJ) sued Apple and the Big Five publishing houses and accused them of conspiring to set e-book prices4. After reaching a settlement with the DOJ, the Big Five publishers have continued to sell ebooks under the agency model. However, they are required to renegotiate deals with Amazon and other retailers independently.
Self-published authors are outearning all authors published by the Big Five
There are more and better tools available today for self-publishing than a couple of years before. Market numbers confirm that authors are using these tools for good.
According to Author Earnings’s January 2015 Author Earnings Report, 33% of all paid ebook unit sales on Amazon.com are indie self-published ebooks. In mid-2014, indie-published authors as a cohort began taking 40% of all ebook author earnings generated on Amazon.com, while authors published by all of the Big Five publishers combined slipped into second place at 35%. (Amazon controls 67% of the US ebook market.) The Write Life reports that 40% of all dollars earned by authors from e-books on Amazon.com are from sales of independently published e-books.
Author Earning’s comments:
Only seven months ago, the idea that indie self-published authors and their ebooks were outearning all authors published by the Big Five publishers combined was jaw-dropping heresy. Today, it’s boring —a widely-acknowledged fact among knowledgeable authors, if not industry pundits. Many authors who publish both ways point out their earnings disparity in favor of their self-published titles, and so this data is no longer surprising.
This doesn’t mean that an author’s life has become suddenly easier. The effect of more publishing options, better tools, lower costs, and no gatekeepers, is that the barrier to new incumbents to this market is lower that it has ever been. It has become a more crowded space than ever for the indie author. Like Tim O’Reilly said years ago, obscurity is a far greater threat to authors and creative artists than piracy5.
Aside from obscurity, there are other threats. Books —specially ebooks— now compete for attention against mobile games, television, movies, social media like Facebook or Twitter. Because nowadays it’s increasingly difficult to engage in activities that require long attention spans, a large number of people favor short format reading. Think about it. When was the last time you could spend a quiet, interruption-free hour or two reading a novel from your favorite author?
Going the indie-road doesn’t exonerate authors for doing the work that traditionally publishers took care of. Having great content is essential. But for a good book to become a great book you still need an editor, good cover design, beta readers, etc. These steps are important, and they are not difficult to fulfill. But it is surprising of how many talented people neglect them.
Book promotion is also crucial if authors plan to sell their work. Writing about non-fiction books, Seth Godin says that “publishing a book is really nothing but a socially acceptable opportunity to promote yourself and your ideas far and wide and often.6“. But books require the user to read them for the idea to spread. He suggests you should try other things first:
Build an asset. Large numbers of influential people who read your blog or read your emails or watch your TV show or love your restaurant or or or…
Then, put your idea into a format where it will spread fast. That could be an ebook (a free one) or a pamphlet (a cheap one—the Joy of Jello sold millions and millions of copies at a dollar or less).
Then, if your idea catches on, you can sell the souvenir edition. The book. The thing people keep on their shelf or lend out or get from the library. Books are wonderful (I own too many!) but they’re not necessarily the best vessel for spreading your idea.
The Last Gatekeeper
Ebooks are changing the publishing industry. The power of ebooks is that they have opened the doors for independent authors. Anyone can who can write a book can now publish her or his work without relying on an established publishing house and without fear of rejection slips.
Aspiring independent writers should consider ebooks as their first option. With print books, even if the costs of physical publishing going down, you still have to convince the gatekeepers to let you in. With ebooks, the are essentially no gatekeepers.
Services for sharing large files (MEGA is still not a Dropbox killer)
Two years ago I wrote an article comparing Mega to Dropbox, two file sharing services. The point of the article was that Mega was not a Dropbox killer. Mega had just launched, and maybe because all the hype around Mega’s owner, Kim Schmitz, many sites were proclaiming the end of Dropbox. Mega’s main offer was generous storage space and very strong file encryption. Back then, it didn’t offer native file synchronization (which now does).
Based on Roesink’s poll, the most used service for sharing large files is Dropbox (44% votes), followed by Google Drive (13%) and OneDrive(6%). While Mega now offers native file syncing and probably better file encryption than the other services, less than 3% said they used Mega, and none as their first option.
A strong argument for using Dropbox was simplicity. If you want to share a file in your Dropbox folder, just right-click the file to get a link that you can send by mail or using your favorite messaging app.
With Mega, there is no easy right-click action to share your data. You’ll need to log into Mega’s web page. What’s more, MEGA’s cryptographic security model depends on the confidentiality of the keys needed to decrypt the files. But to share a file with someone else, you need to share this confidential key. As Mega’s site warns you, by sharing a file you could be compromising the security of your Mega folder.
I still think that Dropbox and Mega are trying to solve different problems. If you need very strong encryption, Mega is a solid choice. You will be able to sync your files to your machines, but beware of the security implications of trying to share your files with third parties. On the other hand, if you want reliable and simple file sharing with a reasonable level of security, then Dropbox is the service of choice.
It is not that we don’t acknowledge the existence of silent data. We do. The thing is that, in practice, we unconsciously ignore it again and again.
Silent evidence is what events use to conceal their own randomness, particularly the Black Swan type of randomness. (Nassim N. Taleb, The Black Swan)
Something similar can be said about evaluating people’s performance in an organization. Managers often have to consider if their reports are ready to be promoted. Depending of the company, a more or less formal processes for this may exist. But in the end, it is the manager’s responsibility to judge if the employee is ready to be promoted or not.
If you are a manager, do you pause to think if there is silent data about your candidate that you are not considering? Is her “success” a consequence of chance? In the light of someone consistently exceeding her sales goals, other considerations may not seem important. How did she achieve her goals? How were the goals set?
Perfect information is rarely available.
Developing the habit of looking for silent data is a really important asset.
Procrastination is one of those words that is difficult to translate to other languages. The English definition for the verb to procrastinate is to delay or postpone action; put off doing something. It is the verb of the defeated1.
When I come to the keyboard to begin writing, a million potential distractions stand at my doorstep. There are many days when I’d rather give in to one of the distractions instead of doing my writing. But I choose not to. I write when I’m tired. I write when I’m uninspired. I write when the weather outside is beautiful. I write when I’m not even sure what to write about.
A few weeks ago, Shawn Blanc started an email newsletter about creativity, focus, and risk called The Fight Spot. Shawn has put all the procrastination-centric content published in his newsletter in a document called The Procrastinator’s Guide to Progress. You can get it for free by subscribing to The Fight Spot newsletter.
(…) there are many ways to beat procrastination. But if I had to boil it all down to just one piece of advice — the first step toward beating procrastination in terms of doing something else instead of making and creating — I would say this: Show up every day.
As in, carve out 30–60 minutes in your day. Every day. Make an appointment with yourself for when you’re going to create. Be it writing, playing music, painting, drawing, photography, or whatever it is you’re trying to create for the world.
Make that appointment and keep it. And when you’re there, put your phone on Do Not Disturb mode. Get earplugs or headphones. Go somewhere you won’t be distracted. Whatever it takes so you can spend the whole of your time making.
Two excuses can keep you from giving clear, unambiguous feedback: the fear of falling out of favor of your boss, and the desire to be liked by your peers or reports.
There is a great example of the desire to be liked in the conversation between Steve Jobs and Jonathan Ive1, quoted by Ian Parker in his excellent article for The New Yorker titled The Shape of Things to Come:
Jobs’s taste for merciless criticism was notorious; Ive recalled that, years ago, after seeing colleagues crushed, he protested. Jobs replied, “Why would you be vague?,” arguing that ambiguity was a form of selfishness: “You don’t care about how they feel! You’re being vain, you want them to like you.” Ive was furious, but came to agree. “It’s really demeaning to think that, in this deep desire to be liked, you’ve compromised giving clear, unambiguous feedback,” he said.
Author Stephen King puts it bluntly: only enemies speak the truth2. Maybe we should said instead: only enemies and true leaders speak the truth. When was the last time you gave honest feedback?
Jonathan Ive is the genius behind Apple’s beautiful and revolutionary designed products, ranging from the iPod to Apple Watch. He was very close to Steve Jobs and his personal friend. According to Parker, Ive is also one of the two most powerful people in the world’s most valuable company. ↩