Shortly after Apple’s iPhone 6/6+ launch on September 9, IDG announced that the print edition of Macworld is shutting down. Jason Snell, Macworld’s lead editor for more than ten years and who has worked in Macworld for more than seventeen, writes in Goodby, Macworld:
Over the last decade we all made an enormous effort to transform Macworld editorial from a magazine mentality to a web site mentality. And honestly, it worked: By the end, the magazine was essentially a curated collection of the best stories from the website, cut down and copy edited and with nice photographs. The economics of the business just didn’t make it possible to continue.
I wonder if magazines from other industries will follow the same path. Most magazines now offer access to their digital counterpart when subscribing to the print edition. I find that even when subscribed to the print edition of some business magazines, most of the time I read the articles online.
The news have been reporting on the dispute between Amazon and Hachette. Neither company has disclosed the details of the dispute, but the argument is understood to be about e-book pricing.
Amazon argues that e-books should sell at a lower price because of the lower costs of the e-book value chain. Also, according to Amazon, e-books are highly price elastic. (If an e-book priced at $14.99 sells 100 copies, lowering its price to $9.99 will increase sales numbers to 174 copies.) Therefore, with some exceptions, Amazon position is that e-books should cost no more than $9.991.
Hachette’s argument is that book publishing is more than just printing books. Publishers make author discovery possible, have editorial teams that make sure that books meet quality standards, and do a significant marketing effort in promoting their authors and books.
Is this dispute important?
The outcome of this dispute will be important for the publishing ecosystem. Hachette is one of the Big Five3 publishing houses. This renegotiation is the first in a series, part of the settlement reached between the big five publishing houses with the US Department of Justice in 20122 under suspicion of colluding prices. Negotiations with other big publishers will follow.
Because of the volume of books affected, the result will set a precedence on how e-books are priced in the whole industry. The Big Five publish most of the books published in the world.
Another factor is that online outlets have become critical for publishers. In 2013, 41% of books purchases were made through and online retailer, while bookstore chains accounted for 22%. Amazon, the biggest online book vendor, sells 65% of all new print and digital books4.
If Amazon wins, most e-books will sell at $9.99. As the revenues from e-books become more important for publishers, they will be forced to rethink their business models.
Book quality won’t be affected
As a reader, I value a book’s quality over a cheaper price. One could think that Hachette’s position will lead to books with better content. But book pricing doesn’t work that way, and money is rarely the prime motivation for writers.
From a monetary point of view, book writing and publishing is a winner takes it all kind of market. Lots of books are written and published each year, but only a small percentage provide their authors or publishers with significant income.
Seth Godin says that a book gives you leverage to spread an idea, but if you are doing it for the money, most of the time you’re going to be disappointed5.
During the last decade, the publishing industry went 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, 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. ↩
The good news I can tell you is that to be a great investor you don’t have to have a terrific IQ.
If you’ve got 160 IQ, sell 30 points to somebody else because you won’t need it in investing. What you do need is the right temperament. You need to be able to detach yourself from the views of others or the opinions of others.
You need to be able to look at the facts about a business, about an industry, and evaluate a business unaffected by what other people think. That is very difficult for most people.
Most people have, sometimes, a herd mentality which can, under certain circumstances, develop into delusional behavior. You saw that in the Internet craze and so on. I’m sure everybody in this room has the intelligence to do extremely well in investments.
The ones that have the edge are the ones who really have the temperament to look at a business, look at an industry and not care what the person next to them thinks about it, not care what they read about it in the newspaper, not care what they hear about it on the television, not listen to people who say, “This is going to happen,” or, “That’s going to happen.”
You have to come to your own conclusions, and you have to do it based on facts that are available. If you don’t have enough facts to reach a conclusion, you forget it. You go on to the next one. You have to also have the willingness to walk away from things that other people think are very simple.
Some weeks ago, we needed to hire a designer —not a web designer— for a job. We had a list of names with good references and recomendations from other people. As expected, we searched for them on Google.
Surprisingly, from a total of ten, only two had a web page. For others, Google search results revealed little more than their personal Facebook page. In one case, you could see some cute pictures of her family’s vacation to Disney World, but no information on how to contact them professionally. Another one LinkedIn’s profile was almost empty.
If you run a personal business or are a freelancer, here is a list of basic things you should do if you take it seriously:
(Disclaimer: none of the following are affiliate links, and I am not related to any of the companies although I use some of the services mentioned.)
1. Get a domain name for your business
Domains are cheap ($15/year for a .com domain). If you are a freelancer, see if it makes sense to register your own name.
If you live in Perú (where I live), .pe domain names are registered by punto.pe. They are not cheap (around $44/year, compared to around $15/year for a .com domain), but they are the only registrars in Peru.
The upside with a .pe domain is that you can probably find many more names available than .com domains.
2. Consider having a webpage
You need a webpage to put information about your business, your background, and your portfolio of clients if it is relevant to your business. What you do, why you do, how you do it… This is what people wil find when they google for your business, for services related to it, or for your name.
Like your mail, this webpage must be under your business domain name, not under a free service like tumblr or the free tier of Wordpress.
Some people ask me if I know a ‘programmer’ who can help them build their website, and a good hosting service. Don’t do this. Webpages for small to medium businesses is a problem has already been already solved by companies like SquareSpace.
For $96 a year, SquareSpace offers a simple interface for building a professional-looking webpage, with most of the funcionality you would expect. If this is over your budget, then at least create a Facebook Page sepparated from your personal profile. Unless you are freelancing, have a LinkedIn Page exclusively for your business.
3. Use an email address under your business domain
Get an email for your business domain name and use it in your business cards and everywhere business related. That is, don’t print firstname.lastname@example.org, but use email@example.com, or firstname.lastname@example.org.
Google used to offer up to 10 mails for free for custom domains via Google Apps. They don’t anymore. But there are alternatives. Some registrars like hover.com offer a ‘forward only’ email address for domains registered with them for a small fee. (That is, all mail that arrives to email@example.com is automatically forwarded to firstname.lastname@example.org.)
If you are willing to pay for a professional mail service, you can pay $5/month for Google Apps for email and other services. A good alternative is fastmail.fm.
You should answer mail sent to your business address within one business day.
Having a professional-looking presence on the Internet has become very affordable. If you have an excellent product or service, there is no excuse for giving a poor first impression to your customers.
Professionals, unlike amateurs, spend their time carefully. They prioritize because they know they can’t put their best effort on everything. Businesses put it like this: focus on the 20% that makes 80% of your profit.
If you are serious about your work, track how you spend your time, at least for a week. Review your data, identify your leaks, and then decide what you are not going to do.
I don’t know the key to success, but the key to failure is trying to please everybody1. Deciding what you won’t do is the hardest part, because it not only implies saying no to yourself, but to other people’s expectations.
Among other things, he reflects about how Apple’s device-centric approach and owning platform, devices, and services allows them to compete with high-margin products in a commoditized industry, and offer a seamless experience across Apple their devices that is unparalleled in the industry.
It’s all about control.
Another interesting reflection he makes is how Apple is improving it’s internal operational efficiency.
It’s frequent to see friends and colleagues overwhelmed by how much there is to do everyday.
A common advice you will hear is that you should spend some time thinking on how to manage your time, and learn to manage it better. Easy, right? It’s not easy. It seems that our brains are wired for things that require immediate attention, and shy from more abstract matters. But it needs to be done.
Do you need a to-do list? Not necessarily. In an 2006 interview with CNN’s Money about how he works, Bill Gates said he is not big on to-do lists. And he gets an awful lot of work done. What you need is to device a system that works for you. Try a methodology and tweak it until it works for you.
The goal is not to become proficient at managing your to-dos list or keeping your email inbox tamed. Efficiency, personal productivity, time management… are not the goals, but tools. The goal is to do what’s important over what is urgent, to do quality work instead of just a lot of work. Get to the point where you can focus in doing what’s important for you.
In pasts months, a number of startups have closed1. These companies raised money, launched good products, gained attention from the press… and then closed. It’s not my intention to judge the decisions the founders of these startups made. Their closing is sad news. But… what happened? Even with the limited information available publicly, there are some lessons that can be learned by trying to understand the business models of some of them.
Know your operating costs
Knowing your contribution margin —the selling price minus the variable costs per unit— is important, because if your contribution margin is negative, then you are selling at a marginal loss. The more customers you get, the more money you loose.
Everpix was a great online photo archiving and organizing service. They had nailed a problem worth solving. They also had an excellent team. Everpix got very positive reviews, the service was really good. Their user base was growing.
These graphs were published in 2013:
Everpix closed doors on November 2013.
Using Everpix’s own data, which they made public2, Ivan Plenty offers an in-depth analysis of Everpix’s operating costs. After converting Everpix’s-provided operational to an accrual-based revenue3, he concludes that Everpix’s operating income is negative, even before amortizing fixed costs. Contrary to what the Everpix team thought4, their main problem was not growth5. They were selling a paid product at a marginal loss.
If you raise money, use it for assets that generate money
“Editorially was a collaborative writing and editing platform designed to support and encourage the writing process. It featured a plain-text editor, a document version system, notes and activity feeds, discussion threads, and more.”6
Editorially has failed to attract enough users to be sustainable, and we cannot honestly say we have reason to expect that to change.
That is, they had spent their initial funding and were not going for a second round of investment.
We thought of that, and in fact, it was always our plan to do so. But Editorially is a sophisticated application that requires a team of engineers to maintain and develop. Even if all of our users paid up, it wouldn’t be enough.
It would be mean to say now that Editorially should have charged its users from the start or at least adopted the fremium model. (That is, have a free tier and one or more paid tiers with premium features.) They made a decision on raising a certain number of users before charging, and how they would reach break even, and it deserves respect.
But they spend their money developing a product that offered great value for their customers, but no revenue for the company. As a general principle, you should only raise money to get or build assets that generate money. You should never raise money to pay salaries, unless those salaries are directly generating money.
Build a simple financial model early on, to see the flaws in your business model. If your users are your customers, charge them for your service, or at least adopt a freemium model.
Offering a service for free can make sense
On July 13, 2012, after a post on the founder’s blog titled What Twitter could have been, App.net launched as a Twitter replacement. Meant to be sustainable from the start, it started as a paid-only service. Free accounts were added later, but they were invite-only and limited in functionality.
The Value Proposition of a social network like Twitter is deliverable only if they have a significant number of users. Because Twitter is extremely successful and free, there is very little incentive for users to migrate to a new network. You can’t start a Twitter clone today with just a small user-base and grow from there. You need to offer something different and valuable. (That’s what services like SnapChat and Secret are doing.) Also, super-fast user growth is needed, and charging for the service certainly hinders that.
Having Product/Market fit is not enough, you need a sustainable business model
A business model is a scalable, repeatable process that your organization follows to create value that someone else is willing to pay for. Having a Product/Market fit is an essential part of any business model, but it is not enough. As Seth Godin notes, the fact that you are going to work hard is irrelevant. The fact that you have risked everything is irrelevant. To be sustainable… you need a sustainable business model.
Some startups closing their doors are Everpix, Editorially, Springpad, Readmill, Bloom.fm… ↩
This means you can recognize revenue not when your customer pays but when you render the service or sell the product. For example, if a customer pre-pays for a yearly subscription of Everpix, you recognize as revenue only 1/12 of the amount each month (and not the complete amount the moment he pays). Otherwise, you’ll end ‘using up’ in advance the money you will need to pay in the following months for the user-generated expenses. ↩
cfr High-Level Metrics: “At the time of its shudown announcement, the Everpix platform [was] generating subscription sales of $40,000/month during the last 3 months (i.e. enough money to cover variable costs, but not the fixed costs of the business). “ ↩