Project: Liftoff

With the headline-grabbing launch of the iPad, much of the coverage has taken a short paragraph off to mull on the effect of Apple’s new toy on Amazon’s Kindle. That’s the wrong question; they should really ask what the iPad will do to Amazon. Sure, the iPad may kill the Kindle, but, as Obi-Wan said at the moment of his death to Darth Vader, “if you strike me down, I shall become more powerful than you can possibly imagine.” Amazon put the Kindle out there to die, and they will be happy if its time is now. To understand this you need to look deeper at the process of product development at Amazon and ask why that process could have resulted in a product like the Kindle. After all, Amazon moves product around the country, and occasionally makes some Web- or cloud-based software; it’s not a computer manufacturer. Digging a little into their financials, we see shipping costs trending somewhat upwards (you wonder how much of that they eat with Amazon Prime), and value of inventory climbing as they built focus on having products in-stock for immediate delivery. Inventory also means investment in warehouse space, which Amazon specifies in their 2008 financial statements is both owned and leased. Amazon would approach the idea of creating a new product by looking particularly at:

1. What could increase their overall sales
2. What could offer a higher profit margin
3. What could decrease their costs, especially variable costs

One approach that could clearly achieve goals 2 & 3 was to switch to delivery of digital product via the Internet, rather than hard product via shippers like UPS and FedEx. Switching to digital delivery offers higher margins and lower costs by essentially removing all variable costs, replacing them with modest fixed costs that can be distributed across a large number of products sold. Amazon took to this approach with verve, launching both the Kindle and their MP3 store in 2007. The MP3 store had a fairly simple, obvious model: get the tracks in the hands of the consumer, because the consumer already has the ability to store and play them. The same was not true for books; few people at the time owned book readers. And that wasn’t likely to change. Back in 2005 I worked on a e-book reader project; a big reason that didn’t go forward was the very high cost of the e-ink screens you’d ideally like to read a book off of (high as in, just the screen would cost as much as an iPad). That price problem wasn’t going to change without somebody buying those screens in bulk, which just wasn’t happening at the time. Thus the genesis of the Kindle is clear: Amazon wanted to decrease its costs and increase its profitability by moving to digital delivery for books, but that wasn’t possible without a reader, which wasn’t possible without a lot of people buying readers first. This is the classic chicken-and-egg problem that’s bedeviled many an entrepreneur. But Amazon had an advantage: Amazon is rich. They could solve the problem by taking any initial losses required to build volume and the market themselves, considering those as investments in future profitability. So they made the Kindle. And now the idea of owning an e-reader is commonplace. Publishers have responded: many titles are available in a digital format via Amazon.com. And that means they don’t need the Kindle anymore. After all, they’re not a hardware company, they’re a sales and shipping company. The iPad has delivered the culmination of Amazon’s plan: the wide market availability of devices that can read e-books. Now it’s just left to Amazon to become the preferred distribution channel of those books for consumers. (That’s where the money is, as Apple proved with iTunes.)

I’m bad at going to the gym. Which is a pity, because it turns out that being in shape is so useful to doing good work. Going to the gym and sitting on the stationary bike for a half hour and then working through a weight rotation is, to me, just kind of dull. I don’t look forward to it, and so I don’t do it. Being an entrepreneur can be a lot like going to the gym – long hours of solitary activities you know you should do, that you’ll enjoy the results of, but that just aren’t fun. We all tend to put off those tasks and do the fun things, which is great until a vendor cancels your account for unpaid bills that you could’ve paid, you just didn’t find the time to handle. I get around the crowded-gym-is-lonely thing by going to classes. My gym offers many different classes, and it’s great to get to know the instructors and my classmates well. We all sweat through awful experiences like military crawls, sprints while fireman-carrying each other, and Turkish get-ups. Other people I know make friends with their fellow free weight fanatics, or join cycling groups. Working in a community really does help – that’s part of why everybody else goes to the office every morning. It’s easier to get things done when you’re not alone, and others can help you learn things you should know. Many entrepreneurs deny themselves those communal benefits by working solo. Sure, there’s a lot of excitement in going out and doing your own thing, but you do give something up too. Fortunately, the Internet gives us many ways to connect with other people. I took the time a few weeks ago to make a list of all of the startup and small business communities online that I could find easily. Here they are, in no particular order: • PerfectBusiness • Biznik • Entrepreneur Connect • PartnerUp • StartupNation • American Express OPEN Forum • Business.com • Business.gov Community • OnStartups • Yahoo! Answers • And, of course, LinkedIn I’ve tried spending some time on these, and a couple have already made me meaningful relationships. Give them a try, and tell me what you think. If you know others, then tell me about them in the comments!