Bezos Interview: Publishing and Fire Phone

I recently read this interview of Amazon CEO, Jeff Bezos.  It’s pretty interesting.  Some thoughts:

eBooks / Publishing

I had always assumed that the print/book industry was really struggling – similar to the music industry.  However, Bezos’s quote of, “…the facts are wrong. Publishers are having unparalleled profitability, and the book industry is in better shape than it ever has been, and it’s because of e-books” is interesting.  

It’s also interesting that they take such a long-term view for the Kindle.  As Bezos states, “The vision for Kindle is every book, every imprint, in any language, all available in 60 seconds.”  That’s quite a mission.  They are definitely doing really well so far. 

The Amazon Phone

He admits that it’s a flop but contends that it’s just the start of them being in that business.  He states, “The Kindle is now on its seventh generation. The Kindle Voyage, the new premium product, is just completely killer. Fire TV, Fire TV Stick — we’re having trouble building enough. Amazon Echo, which we just launched. So there’s a lot of activity going on in our device business. With the phone, I just ask you to stay tuned.”

I wonder how many times they plan on iterating on the phone.  He talks about bold bets with things like Kindle, AWS and third-party resellers, but building a phone and competing against Apple, Android (they aren’t using core Android), Samsung and others is entirely different.  While audacious, i’m not sure I see how they can differentiate. 

Drones

He did an interview with “60 Minutes” and showcased their drone delivery system.  It was awesome.  He was asked about it here.  As you’d expect, he thinks the main thing holding it back is the regulatory issues, saying, “The most interesting part of this is the autopilot and the guidance and control and the machine vision systems that make it all work. As for when, though, that is very difficult to predict. I’d bet you the ratio of lawyers to engineers on the primary team is probably the highest at Amazon.

I think it’s the same for self-driving cars (I have a bet they’ll be here by 2023).  It totally works right now but the world is just not ready for it.  There are so many unanswered questions, such as: if someone gets killed or severely injured by a self-driving car, who’s liable?  Is it the person who bought the car, the company that built the car? Is there some level of insurance that you can get?  

Anyway, some good thoughts in there.  It’s worth a read.

 

 

Growth vs. Profitability and Kapost

One of the more interesting learnings I’ve learned at Kapost is what makes SaaS business models work. Related to that I often get the question asked to me, “How is Kapost doing? Is it profitable yet?” implying that if it isn’t, things are bad and if it is, then things are good.  This post is an attempt to address that question.

When talking about a company’s performance, I’ve noticed that you have to talk about both its growth and profitability, and discussing just one in the absence of the other is dumb.

I recently did a post comparing Salesforce and Linkedin.  You’ll notice in there that neither company is profitable yet both are worth over $30 billion dollars.  LinkedIn makes a $1 billion a year in revenue, whereas Salesforce does $1 billion a quarter ($4 billion a year).  Why are they worth the same?  Because LinkedIn is growing at 60% a year whereas Salesforce is growing at 30%.

To investors, companies are worth what their cash flow is going to be in the future – not what it is now.  That’s all they care about.  If they think the cash flow will be huge, the company will command a huge valuation.

Let’s take Amazon.com as an example.  They have had no profits for years, yet it’s currently worth $166 billion.  One analyst even jokes about it, writing:

With every Amazon quarterly earnings call, my Twitter feed lights up with jokes about how Amazon continues to grow its revenue and make no profits and how trusting investors continue to rewards the company for it. The apotheosis of that line of thoughts is a quote from Slate’s Matthew Yglesias earlier this year: “Amazon, as best I can tell, is a charitable organization being run by elements of the investment community for the benefit of consumers.”

The point here is that you need to understand why any company is not profitable. In the case of Amazon, it is making huge investments in warehouses to grow its retailing business and huge investments in data centers to grow its AWS business. It could stop making those investments and start generating profits. But doing so will sacrifice growth in the market they current work in.  Amazon’s doing $70 billion in revenue this year and did $34 billion in 2010.  Here’s Amazon’s revenue since 1996:

That’s doubling in 3 years.  That’s pretty amazing.  I’m sure it’d be worse if they were focusing on profitability.

What does this mean for Kapost?  Kapost has established itself as the market leader in content marketing software and hit profitability early in 2013.  However, we desired to grow and grow quickly.  Thus, we raised a round of funding and are using the those funds to accelerate our growth.

Why can’t we grow organically with our profits?  

The way SaaS businesses work is that they face significant losses in the early years because they have to invest upfront to acquire customers, but they recover the profits from that investment over a long period of time (the life of the customer).  What’s somewhat strange for people to understand about SaaS businesses is that the faster the business decides to grow, the worse the initial losses become.

For example, imagine a world we you spend $6,000 to acquire a customer, and then charge them $500 per month.  For one customer, you’ll get the money back after a year, but you need $6k up front first to get them.  And, if you want to grow faster and get even more customers, you have to spend even more money.  The graph below shows that the more you spend, the better the rate of growth is.

This is why Kapost did another round of funding.  Going forward, as long as we’re accelerating the rate of revenue growth, we’ll always be needing more money and more money that we’ll need to fund that growth.  That is, unless we don’t want our rate of growth to increase.

Now, of couse, profits are critical to the health of a business.  The key is to be able to be profitable if we want to be and to be profitable at some point in the future, at least hypothetically. So, when you hear that a company is losing money, don’t read that as a necessarily bad thing. It could be a very good thing. It all depends on why.

———

Notes: Here are some good posts on this topic that helped me out:

  1. David Skok is awesome.  I stole his graph and a lot of his thoughts.
  2. Wikivest
  3. From Eugene Wei’s blog
  4. From Fred Wilson’s blog

 

 

We Are What We Choose

I didn’t post this last year but it has stayed with me.  It’s a great speech by CEO/Founder of Amazon, Jeff Bezos.  It’s the commencement speech to Princeton’s Class of 2010, delivered on May 30, 2010.   Choices are incredibly important and now, at the beginning of 2011, it’s good to step back and think about what choices we’ll make this upcoming year.  Here’s to you and me, building a great story also.  Read on….

As a kid, I spent my summers with my grandparents on their ranch in Texas. I helped fix windmills, vaccinate cattle, and do other chores. We also watched soap operas every afternoon, especially “Days of our Lives.” My grandparents belonged to a Caravan Club, a group of Airstream trailer owners who travel together around the U.S. and Canada. And every few summers, we’d join the caravan. We’d hitch up the Airstream trailer to my grandfather’s car, and off we’d go, in a line with 300 other Airstream adventurers. I loved and worshipped my grandparents and I really looked forward to these trips. On one particular trip, I was about 10 years old. I was rolling around in the big bench seat in the back of the car. My grandfather was driving. And my grandmother had the passenger seat. She smoked throughout these trips, and I hated the smell.

Continue reading We Are What We Choose

Kindle vs. Nook

I just got a Kindle for my birthday about a week ago and have really loved reading on it. I think digital books could change how i read and the amount i read in a great way.

I was bummed however, to read of the new Barnes & Noble Nook not because it’s bad but because of what it represents.173939-bn_nook_reader_180

The hardware of the Nook is better: It has expandable storage slot, it has wifi and it has a touch screen instead of a keyboard which means it’s more flexible for future functionality.

I now have library concerns. The Nook can take not only B&N’s eBooks but also Google’s and PDF’s.  While i’m not one to compare book counts, i am worried about my eBook library.  When i buy a book i want to own it forever.  I don’t want it attached to the device i have at that time.  Think of how bad it would be if the music you had was tied to your iPod.  Every time you got a new iPod, you could only put new music on it.   Granted, it’s not a great analogy because you listen to music over and over and you typically read a book only once.  But i think you see my point.

Vinyl vs. Books.  What i think could happen with me is that my book purchasing starts to look like how many music lovers purchase vinyl.  These people consume music digitally, through mp3’s, but for bands they really love they like to have the physical product – thus they purchase the vinyl record.  I could see myself doing this with books.  I read them all digitally and for authors/books that i really like, i’ll actually pay a premium and buy the physical copy.  Ideally i would like to have a format (like mp3) where i could save every book in and keep them all on a harddrive.

The Nook has sharing capabilities.  With the Nook you can send a book to a friend for 14 days.  This is nice but not a big deal for me.  What i want is the ability to share sections of the book to the web.  I want to post passages to my blog and i want to send to Facebook and twitter sentences that i enjoy.  I don’t see anyone allowing this and it’s troubling.  I want to be able to do much more with digital books then i could with the actual book. That’s why the mp3 is so much more powerful than the CD and that’s why the eBook could be much better than the book

Anyone else had similar concerns with their kindle?

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iLike & Myspace – it doesn’t make sense

myspaceilikeiLIke was purchased by MySpace this week for $20 million.  Hearing this annoucement, i couldn’t help think that something was off.  Something just doesn’t make sense.

Some facts: iLike has 50 million registered users.  That’s a huge number.  They are definitely one of the most popular applications on Facebook and one of the best applications anywhere for concerts. They have built some things that are quite hard to build such as:

  • A mp3 download store (link)
  • A music activity feed crawling millions of artists and millions of users
  • A ticketing system integrated with Ticketmaster
  • A self-serve advertising system

They have raised $16 million bucks and claim to be profitable.  Both Facebook and Amazon were interested in the deal.   If both of these are true why would they sell for $20 million? Selling for $20 means that the investors get their money back and then then $4 million gets spread around to shareholders.  Basically nobody makes any money that they are happy about.

To compare, Facebook just bought FriendFeed for $20 million and they have 1 million monthly uniques.  iLike has at least 3x that on the web and 50x total and they are growing.

Also, I can’t imagine why a dynamic, fast moving company would want to go work at MySpace instead of Facebook or Amazon.

  • MySpace vs. Facebook. One is doing a fantastic job of innovating and developing new innovative software (FB).  The other is bleeding users, bleeding cash (MySpace Music) and restructuring.  iLike has also actively been courting Facebook for the past 3 years. They’ve thrown Facebook / iLike parties and done everything possible to try to get a FB acquisition.  Going with MySpace is strange
  • MySpace vs. Amazon. One (Amazon) is in iLike’s backyard in Seattle and the other is down in LA.  One is making good inroads into providing a viable music store to iTunes.  The other (MySpace) started as a primary space for music but is now controlled by the labels and is getting worse and worse as they try to cut costs.

Both of those don’t make sense so then you have to conclude that they are just doing this for the money.  But if (a) they are profitable and (b) it’s only $20 million on $16m raised then that doesn’t make sense either.

My conclusion from all this non-sense:

  • iLike was not profitable and were running out of money.  They needed to either raise more money or sell.
  • Fatigue.  Working in the digital music industry and having success at it is exhausting.   Your main content source (music) brings with it tons of headaches.  The labels are working against you every step of the way
  • Facebook had no interest in getting into the music business.  I think they see content area as something for partners and although iLike probably asked them repeatedly, they backed away from the deal.  There is no better content company that is more integrated into Facebook than iLike.  If FB didn’t want them, they’re not going to get anyone.
  • MySpace paid more than $20 million.  They won’t disclose the terms but my guess is that there is some kicker in there that made the deal very attractive to the shareholders.  Too bad we don’t know what it is.

At least one or more of these have to be true.  What are your thoughts?

Wolf Shirt Amazon Review

51jZitVcKmL._AA280_This is a review i came across on Amazon and i think it needs to be shared.  Had me laughing this morning.  Take a look at the t-shirt on the right.  Here’s the Amazon page that sells it for $13.78.  The first review on the page reads like this:

This item has wolves on it which makes it intrinsically sweet and worth 5 stars by itself, but once I tried it on, that’s when the magic happened. After checking to ensure that the shirt would properly cover my girth, I walked from my trailer to Wal-mart with the shirt on and was immediately approached by women. The women knew from the wolves on my shirt that I, like a wolf, am a mysterious loner who knows how to ‘howl at the moon’ from time to time (if you catch my drift!). The women that approached me wanted to know if I would be their boyfriend and/or give them money for something they called mehth. I told them no, because they didn’t have enough teeth, and frankly a man with a wolf-shirt shouldn’t settle for the first thing that comes to him.

I arrived at Wal-mart, mounted my courtesy-scooter (walking is such a drag!) sitting side saddle so that my wolves would show. While I was browsing tube socks, I could hear aroused asthmatic breathing behind me. I turned around to see a slightly sweaty dream in sweatpants and flip-flops standing there. She told me she liked the wolves on my shirt, I told her I wanted to howl at her moon. She offered me a swig from her mountain dew, and I drove my scooter, with her shuffling along side out the door and into the rest of our lives. Thank you wolf shirt.

Pros: Fits my girthy frame, has wolves on it, attracts women
Cons: Only 3 wolves (could probably use a few more on the ‘guns’), cannot see wolves when sitting with arms crossed, wolves would have been better if they glowed in the dark.

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Why YouTube’s Losses Are Much Smaller Than Expected

Picture 3There’s been a lot of buzz about a month ago about how YouTube loses money and is a horrible business.  Most of these articles came after Credit Suisse’s published an estimate of YouTube’s losses at $470M a year.  This is a large number and people pounced on it. However, there is a good report i just read (PDF only and downloadable here) that challenges Credit Suisse’s assumptions with some more accurate numbers.  For instance, Amazon Web Services could provide storage for 50% of the costs included in CS’s study.  The survey ends with:

Regardless of what you may hear, YouTube costs are a fraction of any other company running similar operations. Most of Google’s bandwidth is free or near-free; its hardware is cost-optimized; and its data center costs are mostly committed or sunk. The top customers of our sourcing advisory service, whose prices are on average 20% better than the average market level, cannot deliver content as cheaply as Google’s massively scaled operation. Surprisingly enough, the ones that come closest are often thosethat leverage the scale of others through using cloud services.
But even if a fair accounting of its costs showed a loss, YouTube gives Google the ability to achieve needed improvements in lowering cost of other operations. Loud stories about YouTube’s losses can only help deter copyright lawsuits and demands from content owners. Skepticism is warranted — but be ready for surprise news of profitability in the future.

The article does explore the upside of allowing the market to believe the YouTube business is quick unprofitable.  With license-holders eager to renogotiate and reap larger profits, it’s better to all them to perceive that it’s much too expensive to host and deliver these files and thus license payments should be low.

But this is clearly wrong.  In yesterday’s earnings call, Google had this to say about YouTube:

“Monetized views” on YouTube have more than tripled over the last year, said SVP Jonathan Rosenberg. Executives would not say whether YouTube was profitable, although they did say it was on a trajectory to become a “very profitable business for us” in the “not too distant future,” giving a collective heart attack to analysts who have speculated about how much money the site is losing. In a follow-up call with analysts, CFO Patrick Pichette said that the company wanted to reaffirm that YouTube’s business model was credible. “There’s been so much press with all these documentations of massive costs and no business model,” he said.

Interesting to think about next time someone speaks up about how horrible the YouTube business is.

Kindle and eBook Formats

NEW YORK - FEBRUARY 09:  Amazon.com founder an...
Image by Getty Images via Daylife

I must admid it, i want a Kindle 2.  I like the thought of having all my books in one nice little electronic device.  I like the thought of downloading and saving and storing all the things i want to read.  I’m intrigued.

This is why i was interested in this article in Forbes from Tim O’Reilly about formats.  He talks about the importance of supporting an open format in the success of a product.  For instance, the iTunes/iPod ecosystem is a popular platform and even though it has it’s own proprietary AAC format, it also supports the mp3 – an format that anyone can encode into.  Supporting both allows the iPod to take advantage of both customers and the web at large.

O’Reilly argues that Amazon should do the same with the Kindle.  The fact that it supports only it’s own eBook format will lead to its demise in the same way that Microsoft and AOL’s support for their own formats led to theirs.  The O’Reilly camp is only supporting the open e-book platform and they have seen it have success:

But we can already see the momentum on the open e-book platform. Stanza, the epub-based e-book reader for the iPhone and other Web-capable phones. Lexcycle, the creator of Stanza, announced recently that its software has been downloaded more than 1.3 million times, and that more than 5 million e-books have been downloaded.

While The Kindle is the slickest of eReaders and the most popular with 500,000 – 700,000 sold, the game is far from over.  The Sony Reader which also uses e-Ink has sold around 300,000.  Should Amazon remain closed, it could very well miss out on a huge opportunity, or as O’Reilly says: “Open allows experimentation. Open encourages competition. Open wins. Amazon needs to get with the program”

Of course, another way to look at this is:  AOL was about to build a $150 billion company by making it easy for people to get web information and only after the web matured did they fall.  Perhaps The Kindle will be the first out of the gate and will take the early lead because of the streamlined format and operation of it’s service.  Personlly, while i understand the need to be open, i’m still willing to check out The Kindle.

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New Microsoft Services

Image representing Microsoft as depicted in Cr...

Image via CrunchBase

I’ve been pretty anti-microsoft for a while because it seems that they always miss the boat.  However, they do have LOTS of cash (40+ billion) and a huge development force.  Becauase of this i was surprised they didn’t get more press for the news they spit out last week.  Four big things appeared out of last week’s Professional Developer Conference (PDC):

  1. They announced Azure, a set of cloud services that competes with Amazon’s S3.  Another big player will really solidify the category.
  2. They showed off Windows 7 which is getting high good hype from the blogosphere.
  3. They showed off new Web-based versions of Microsoft Office that were really nice.  They are really late here but if they can get up to parity with Zoho they could dominate
  4. They also released new Mac and Mobile versions of Mesh and further explained how that’ll enable new kinds of Internet-connected apps to be built.

All in all it was a HUGE week for Microsoft. I just don’t know why nobody noticed.  It is because we’re all Mac fanboys and want them to fail (I know i do)?  What do you think?

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