Richard Brandt, technology journalist and author, discusses his new book, One Click: Jeff Bezos and the Rise of Amazon.Com. Brandt discusses Bezos’ entrepreneurial drive, his business philosophy, and how he’s grown Amazon to become the biggest retailer in the world. This episode also covers the biggest mistake Bezos ever made, how Amazon uses patent laws to its advantage, whether Amazon will soon become a publishing house, Bezos’ idea for privately-funded space exploration and his plan to revolutionize technology with quantum computing.
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[Cross-posted at Truth on the Market]
[UPDATE: Josh links to a WSJ article telling us that EU antitrust enforcers raided several (unnamed) e-book publishers as part of an apparent antitrust investigation into the agency model and whether it is “improperly restrictive.” Whatever that means. Key grafs:
At issue for antitrust regulators is whether agency models are improperly restrictive. Europe, in particular, has strong anticollusion laws that limit the extent to which companies can agree on the prices consumers will eventually be charged.
Amazon, in particular, has vociferously opposed the agency practice, saying it would like to set prices as it sees fit. Publishers, by contrast, resist the notion of online retailers’ deep discounting.
It is unclear whether the animating question is whether the publishers might have agreed to a particular pricing
model, or to particular prices within that model. As a legal matter that distinction probably doesn’t matter at all; as an economic matter it would seem to be more complicated–to be explored further another day . . . .]
A year ago I wrote about the economics of the e-book publishing market in the context of the dispute between Amazon and some publishers (notably Macmillan) over pricing. At the time I suggested a few things about how the future might pan out (never a good idea . . . ):
And that’s really the twist. Amazon is not ready to be a platform in this business. The economic conditions are not yet right and it is clearly making a lot of money selling physical books directly to its users. The Kindle is not ubiquitous and demand for electronic versions of books is not very significant–and thus Amazon does not want to take on the full platform development and distribution risk. Where seller control over price usually entails a distribution of inventory risk away from suppliers and toward sellers, supplier control over price correspondingly distributes platform development risk toward sellers. Under the old system Amazon was able to encourage the distribution of the platform (the Kindle) through loss-leader pricing on e-books, ensuring that publishers shared somewhat in the costs of platform distribution (from selling correspondingly fewer physical books) and allowing Amazon to subsidize Kindle sales in a way that helped to encourage consumer familiarity with e-books. Under the new system it does not have that ability and can only subsidize Kindle use by reducing the price of Kindles–which impedes Amazon from engaging in effective price discrimination for the Kindle, does not tie the subsidy to increased use, and will make widespread distribution of the device more expensive and more risky for Amazon.
This “agency model,” if you recall, is one where, essentially, publishers, rather than Amazon, determine the price for electronic versions of their books sold via Amazon and pay Amazon a percentage. The problem from Amazon’s point of view, as I mention in the quote above, is that without the ability to control the price of the books it sells, Amazon is limited essentially to fiddling with the price of the reader–the platform–itself in order to encourage more participation on the reader side of the market. But I surmised (again in the quote above), that fiddling with the price of the platform would be far more blunt and potentially costly than controlling the price of the books themselves, mainly because the latter correlates almost perfectly with usage, and the former does not–and in the end Amazon may end up subsidizing lots of Kindle purchases from which it is then never able to recoup its losses because it accidentally subsidized lots of Kindle purchases by people who had no interest in actually using the devices very much (either because they’re sticking with paper or because Apple has leapfrogged the competition).
It appears, nevertheless, that Amazon has indeed been pursuing this pricing strategy. According to this post from Kevin Kelly,
John Walkenbach noticed that the price of the Kindle was falling at a consistent rate, lowering almost on a schedule. By June 2010, the rate was so unwavering that he could easily forecast the date at which the Kindle would be free: November 2011.
Continue reading →
Business Insider reports that, sometime next year, Scribd will launch a “seamless” interface that allows users to access Scribd docs on their Kindles. That’s a major step forward for the startup, which aims to be the “YouTube for print”—and which Adam and I use to make all our PFF papers available online in an embeddable Flash viewer that’s much quicker to load than the full PDFs. But it also represents a serious potential long-term challenge to Amazon, since Scribd is “quietly developing a strong e-book storefront to match its hoard of user generated content,” as Business Insider notes, and because:
If Scribd can put its books on the Kindle, this number should only grow, especially since it offers publishers a better business deal than Amazon. Amazon reportedly offers a 50/50 sales split. Scribd only keeps 20% and allows publishers to set their own price.
So much for “The coming Kindle monopoly” the cranks over at Oligopoly Watch warn us about!
It would be more accurate to say that Scribd will be “Kindling” e-book competition within the base of Kindle users, and of course, competing devices like Barnes & Noble’s Nook offer cross-platform competition, just as satellite television competes with cable. In both cases, the platform operator has a strong incentive to compete for users by offering as much content (books/video programming) as possible at attractive prices.
On the one hand, one might say that inter-platform competition is stronger in the case of video delivery platforms, because users generally lease equipment on a month-to-month basis, while e-book users must buy their $250+ device up-front (making it therefore harder to switch from Amazon to Barnes & Noble, if one decides one doesn’t like the offerings or prices for e-books on the Kindle). But on the other hand, if Scribd can compete head-to-head with Amazon in offering e-books on Amazon’s Kindle (and perhaps on the Note, too, someday soon), users don’t need to switch devices at all: They can just switch e-book providers. Furthermore since e-books are bought on an à la carte basis, users don’t have to switch completely, they can just switch for any particular book—meaning that Amazon needs to compete for every additional purchase they can get, which means lower prices and more choices for consumers.
Continue reading →
The disabled have much to give thanks for this year—but contrary to common assumptions, it’s not for paternalistic government accessibility mandates, regulations or subsidies (see, for example, the FCC’s November 6 Broadband Accessibility workshop), but for the good ol’ fashioned private sector ingenuity that has made America great. Five broad categories of examples suggest how constantly-improving computing power and innovation can make life easier for many, if not all, disabled users—and how market forces empower the disabled along with everyone else.
Video transcription. Last week, Google announced “the preliminary roll-out of automatic captioning in YouTube, an innovation that takes advantage of our speech recognition technology to turn the spoken word into text captions.” Google uses the same speech recognition technology it refined with its free Goog-411 and Google Voice services to automatically transcribe video dialog (which can also be automatically translated using Google’s translation engine). Why? Not because of any government mandate, but because of some combination of three factors: (i) it’s an easy way for Google to invest in its “reputational capital,” (ii) the underlying technologies of transcribing videos make videos easier to use for all users, not just the hearing-impaired, and (iii) those technologies also make it possible to contextually target advertising to the verbal content of videos.
http://www.youtube.com/v/kTvHIDKLFqc&hl=en_US&fs=1&
It’s worth noting that Hulu currently offers closed captioning for some of its television programming but notes that “closed-captioning data that’s used for broadcast TV isn’t easily translated for online use.” The online television clearinghouse promises to offer more closed-captioning soon. Perhaps they ought to license Google’s algorithmic transcription?
Voice recognition for direct consumer use—most notably, Dragon NaturallySpeaking 10, the latest version of the leading voice recognition software, which was released in summer 2008 but only recently seems to have really hit critical mass. Continue reading →
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