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July 26 2012

14:00

The newsonomics of Amazon vs. Main Street

Order it on Amazon. Then run to your front door and have it handed to you. The news of Amazon’s same-day delivery blitzkrieg — first explained in depth in an excellent Financial Times piece — elicited a near-maniacal laugh among newspaper companies: What next?

Of course, the impact of Amazon’s move extends well beyond the further toll it may take on the ever-shrinking newspaper business — but that crater-creating possibility may well be the biggest news of a big news summer. Advertising — in Amazon-contested markets — will never be the same.

We’ve known that newspaper advertising revenues are in a deep, downward spiral — higher single digits this year, with early budget guesses showing the same for 2013. In the U.S., overall ad revenues are half what they were five years ago, down $25 billion a year from 2007.

Here’s what most hurts most about the new Amazon threat: It aims directly at the one category of newspaper advertising that has fared the best, retail.

Classifieds has decimated by interactive databases. National has migrated strongly digital. Retail, which made up of just 47 percent of newspaper ad revenues 10 years ago, is now up to 57 percent of newspaper totals. Now that advertising, albeit in just a few markets initially, will have to compete with Amazon-forced marketplace change.

Amazon, of course, isn’t targeting newspaper revenues. It’s targeting customers — selling more to current ones and engaging new ones. Further hits to newspaper revenue are just another unintended consequence of accelerating disruption of all business as usual.

The same-day push is built on strategies long in the making. Amazon knew its day of reckoning on its sales tax exemption would come. Like all big, smart companies with legions of lawyers and lobbyists, it delayed the inevitable, and with each delay, built market strength and cash.

Now the jig is finally up. Combine revenue-starved states and the late-arriving sense that Internet business no longer needs a societal jumpstart, and Amazon is being forced to charge sales taxes, though it negotiated their arrival with great agility. The exemption allowed Amazon an incredible price advantage, and many of us have been glad to take advantage of it. Not having to charge customers four to nine percent in sales in taxes (which land-based merchants couldn’t avoid) allowed it to provide lower prices.

Amazon knew this day would come. What the market didn’t know was that sales tax settlements would lead to Amazon quickly flipping its model. It had paid sales taxes in a few states, forced to do that in places it had warehouses. So it placed those warehouses close enough to customers (Nevada for Californians, for instance) to make two-day shipping a snap. Now, with the tax changes underway (it’s estimated that Amazon will be on the hook for sales taxes for half the U.S. population) , it no longer needs to selectively place vast warehouses in only a few states — it can place them everywhere and much closer to customers.

Today, if you’re in Baltimore, Boston, Chicago, Indianapolis, New York City, Philly, Seattle or D.C. , you can place an order and it the same day through Local Express Delivery. That becomes Amazon’s base program. It is now building out that simple concept with 7-Eleven distribution lockers and much more, city by dense city. Behind that new delivery service stands an array of back-end technologies, analytics, and logistics that far surpass what anyone else possesses. Even now, to get a sense, of what’s behind the evolving system, just check out the left-hand navigation on this page.

The program builds on the smarts of Amazon Prime, whereby 10 million Amazon customers pay $79 a year and get “free” two-day shipping. Same-day is just the next logical step, both for delivery of goods and deepening of customer relationships and selling opportunities — which, remember, increasingly include media (“The newsonomics of Amazon’s Prime/Subscription Moves”).

The unintended impacts of Amazon’s same-day push will be as intriguing as the ones we can foresee. Just for starters:

  • Will local advertising expand or retract? Retailing will be more intensely competitive, and anti-Amazon appeals need to be transmitted somehow, via smartphone, websites, print, community events, and more. Was SoLoMo just a dream, or is it now a counter-strategy? (Newspaper companies efforts to become regional ad agencies, ironically, may get a boost from the Amazon move.) Preprints, which may total as much as 40 percent of the $11 billion or so U.S. dailies take in as “retail,” will be a prime front here, one way or the other. While retail advertising impacts could be substantial, brand advertising may well become more important, as online buyers decide among brands in different ways.
  • Will newspapers be forced to accept still another death blow to their fortunes, as retail ads are further disrupted? The impact on print is up in the air. Further, Find ‘n Save, a fledgling newspaper-consortium-owned Amazon competitor finds itself even more outmatched as same-day delivery further trumps one of its key differentiations.
  • Will Google, with all its eggs in the ad basket, find unexpected competition, as Amazon further disintermediates advertising itself, becoming the first and only stop between “I want this” and delivery of the good? Will advertising itself be replaced to larger degree as manufacturers are forced to differentiate themselves within Amazon, maybe moving marketing spend there?
  • What will cityscapes and shopping centers of all kinds look like if Amazon’s plans succeed? Imagine a cityscape without big box stores, Walmart, Best Buy, and Bed Bath & Beyond? Impossible, you say? How about one without Borders, Tower Records, and Blockbuster Video, all of which have left hulking holes in the American suburban landscape. Nothing is safe from digital disruption; nothing, holy or commercial, is sacred. Optimistically, a couple of dozen communities are creating next-generation uses for these eyesores, as the big box reuse movement (good rundown and reuse wiki via Slate) has been unexpectedly spawned. Will big boxes, the spirit-sapping, wallet-supporting icons of our age of disenchantment, take the brunt of Amazon’s assault, or will it be smaller stores?
  • What might it do to employment? Will CVS checkers be replaced by more truck drivers and order fillers? Or is the future simply more robotic, as Amazon’s purchase of warehouse-product-picking Kiva Systems changes the supply chain? No, it’s not sci-fi, though it appears to be the year of the “robots,” as computers do everything from local “reporting” (Journatic) to filling our orders for toothpaste and printer ink.

Let’s take a first look at the competition, as we look at the newsonomics of Amazon vs. Main Street.

In one corner, there’s Amazon. Its strengths:

  • Quick findability, in your living room.
  • Delivery to your door, or near it, now “same day.”
  • Wide selection, often more than is available locally (but sometimes less).
  • Wide-ranging and increasingly deep user reviews.
  • Guaranteed satisfaction or easy return.

In the other corner, it’s Main Street. Its appeals:

  • Buy it now. Pick it up. See, buy, use. Ad veteran Randy Novak says that more than 80 percent of retail sales now come from areas within 15 minutes of a stores’ location.
  • The visual and tactile shopping experience; NAA’s Randy Bennett points to retailers’ role as “showcasers.” Then, there’s shopping as entertainment, plainly as much heaven for some as hell for others.
  • Habit.
  • Getting out of the house once in a while.
  • Support of the local guy.

Proximity here is fascinating. The local edge has long been proximity, that 15-minutes-away appeal. Now, Amazon counters that with 12 inches away (your nearest screen) and some number of hours, as Americans do their new arithmetic on buying.

Beyond proximity, there’s price. Yes, Amazon is acknowledging that the 20-year-long sales tax furlough it got is finally ending. It knows it will have to add that 4-9 percent of sales tax to its prices across the country within several years. So where will that tacked-on pricing put it?

Let’s remember that its world-class algorithms track competitors’ pricing in real time. After all, that’s been — often to Amazon investors’ chagrin — CEO Jeff Bezos’ strategy from the beginning: sacrifice profit margin for market share and growth. Its last quarterly report showed 1 percent net profit — on $13 billion of sales. Expect it to match or beat on many items, absorbing low margins, and maybe loss leaders to win market share from Main Street.

How much room, with tight margins, will Amazon have to maneuver? That could tell the tale here. Squeezing margins — lowering prices — will have one at least near-term consumer impact. If you’re selling the same vitamins, shoes, or dog food as Amazon, you’ll have to lower some prices to compete. The cautionary tales of bookstores and music stores, and now Best Buy, show that consumers don’t find a lot of sense in paying more locally than through the web.

As we consider price, the shipping fee comes clearly into view. With Prime, the innovation that paved this road, members don’t worry about each shipping cost. Pay once — that $79 annual fee that’s been remarkably stable — you get shipping “free.” Look for Amazon to embed free same-day shipping into another similar program, Prime Same-Day, for $99 or $139, or include it for anyone spending more than $500 a year, for example; we believe that Prime members may average $1,500 in annual purchases already. As with Prime and with Amazon overall, again, build market share for the long term, even at the risks of low profitability or even loss.

There’s a lot of nuance we’ll miss in the first passes on the topic, of which Farhad Manjoo had the best. This commercial initiative is aimed of course at goods, not services. It’s the goods-selling competitive and geographic landscape — think Amazon categories like drugs, clothes, toys, and electronics — that could be transformed. Services, like those that we use today — health care, restaurants, fitness centers, and, of course, coffee shops — would be unaffected. In an ideal world, we may have less time for mundane shopping and more for more fruitful activity. Or we may have big empty buildings, fewer community jobs, and less socializing. And, maybe people will have more time to read. We’ll probably see all these things happening at once.

Amazon, of course, just wants to make money. Yet, it has already, in part, disintermediated shopping itself. Expect it to be extend its Subscribe (interesting choice of words, right?) and Save program, wherein you get small discounts for getting regular deliveries of goods, like detergent, that you reorder over and over again. Expect it to try to change our mindsets from shopping to deciding and then letting it go, and getting it delivered without a second thought — changing the very notion of shopping.

With price differentiation now driven by algorithm, with ad offers driven by those with the biggest data, and now with delivery of our daily goods newly rationalized, it looks like those that prize news creation best continue to look elsewhere for revenue. That’s one of the reasons I’ve become increasingly enthusiastic about reader revenue. Yes, newspapers could repurpose their daily delivery systems here, to actually aid Amazon, but that seems like a real longshot. The technocrats of commerce, Amazon, Google, Facebook and Apple, are the biggest game in town — and increasingly, they want to be the only one.

Photo by Stephen Woods used under a Creative Commons license.

October 18 2010

16:11

BookBrewer Makes Major Self-Publishing Deal with Borders

This has been one of the most amazing, rewarding and surreal weeks of my life.

Borders has chosen BookBrewer -- the first product of my startup, FeedBrewer, which grew out of a News Challenge grant -- to power the engine for its e-book self-publishing service. You can read about our partnership in the official press release, or in media coverage from a variety of sources including Fast Company, Publishers Weekly and PC Magazine.

Bordersgetpublished_small.jpg

We made the announcement at BlogWorld Expo, one of the largest confabs of bloggers and new media enthusiasts in
the world. The response at our booth was enormous and even overwhelming
at times, with people lined up to talk to me, my team and Borders' e-book manager Kelly Peterson about how they can turn their content into sellable e-books. Their response is not surprising, given the explosive growth in e-book sales in recent months.

About BookBrewer

So what is BookBrewer? It's a web-based tool that helps you turn content from your blog, or Word or PDF documents on your computer, into e-books that can be sold on your through multiple online e-book stores, own through your own website. After importing your blog, you then add posts and organize them into chapters, edit and enhance content, and push a button. BookBrewer then turns your content into an e-pub that most e-book stores require. You can pay one fee to have it published to e-book stores we work with, or another fee to just get the file to do with as you wish.

This video shows how it works:

BookBrewer Help: Building Your Book from Dan Pacheco on Vimeo.


Some highlights on our partnership with Borders:

  • On October 25 the same technology and user experience will be surfaced on a separate site called "Borders Get Published, Powered by BookBrewer." You can enter your email address on the form on Borders.bookbrewer.com to be notified as soon as the service launches.
  • Books published through both BookBrewer and Borders Get Published will be available for purchase on Borders.com and viewable in Borders-branded apps (such as Kobo), but will also appear in other eBook stores that BookBrewer has relationships with. Those include Amazon.com and KoboBooks.com, with more on the way.
  • Borders will use its marketing muscle to encourage thousands of new authors to get published, and will promote promising new authors in its weekly emails and on its website. This is a huge boon for self-published authors because Borders reaches more than 30 million people per week in emails alone.
boothteam.jpg



Our booth team, from left to right: Todd Levy, Laurelie Ezra, Kelly Peterson, Dan Pacheco.

BookBrewer, which only launched last week, will operate as its own entity. We will serve customers through both sites and will roll out more strategic "Powered By BookBrewer" services throughout the year that benefit our company and partners, in addition to other services for authors and content providers. With one of the largest bookstores in the world on board, we're now shifting our focus to companies with content or content relationships.

Given my news background, I know that a lot of newspapers and magazines have "evergreen" packages or investigative reports that would stand the test of time as e-books. I will be reaching out to some of you about that at the Online News Association conference later this month. And you freelancers/entrepreneurial journalists out there? This is a fantastic opportunity to pay for freight while also building your brand.

Borders' Open Publishing Stance

Some people are surprised that Borders would want "their" e-books to show up in competitors' stores, but it makes sense when you think about  the self-publishing customer. They want their content to be everywhere  that people want to buy it.

I can tell you from spending two days in a booth with Kelly Peterson and talking extensively with others at Borders that they're one of the  most customer-focused companies around. They understand that authors -- a category that now potentially includes each and every one of  you -- don't want their content to be defined or confined based on which service or programs they use to create it. The customer always comes first for them, and with self-publishing the book always belongs to the author.

I heard Kelly put it this way: "If you buy a piece of clothing at a store, you expect to be able to wear it everywhere, not just in the store where you bought it." You can see that evidenced with the wide variety of e-book readers and apps Borders promotes, beyond the Kobo reader the company invested in last year.

I'm also excited to work with Borders because they, and bookstores in general, are part of the fabric of local communities -- that rapidly disappearing third place that has been so important in the history of civil life. Other types of third spaces exist online, but at a local level physical meeting spaces are still important. Digital community engagement is the common thread  in my most meaningful endeavors (Bakotopia, Printcasting and AOL Hometown as just a few examples), and as a previous recipient of a Knight News Challenge grant from the John S. and James L. Knight Foundation I'm a proud  public champion of helping the news and information needs of communities in the digital age. I see BookBrewer and Borders Get Published being strongly connected to those goals.

No Man is an Island

On that note, I want to once again thank the Knight Foundation for its role in the Printcasting project, which evolved into my company FeedBrewer, Inc., from which the Knight Foundation will one day benefit thanks to a voluntary 6 percent gift to the Knight Media Innovation Fund. While the Knight  Foundation didn't provide any funding for our proudly "bootstrapped" BookBrewer (and we did not ask for any), BookBrewer is an example of how non-profit seed funds can light a spark that continues to burn later.

It's my sincere hope that future successes from BookBrewer will go to help fund other startups that help local news and information.

The technology for BookBrewer is all new and distinct from Printcasting, but the thinking, methodology and customer insights evolved from it. In fact, thinking back, the biggest thing we learned from Printcasting was that even first-time print publishers really wanted to be multi-platform digital publishers. They just didn't know that until they got their feet wet. In the space of a few weeks after publishing a PDF magazine, they would start asking us if they could publish the same stories into Facebook or as a blog, and they would tell us that they saw print as only a small part of their future business.

They also started asking about e-books as the Kindle and, later, iPad grew in popularity.

The feedback we're getting with e-books validates that. People occasionally ask us if we can provide print-on-demand paperbacks for their books, but when we say we're currently focused on digital books they're fine with that. Most just want to make sure older readers who don't have e-reading devices, iPhones or iPads to have a print option. (And we will be looking into that, by the way).

What I've learned through this process is that when you have an idea that you're passionate about, people will step in at the last minute to help you out. I think the BookBrewer product engenders a desire to reciprocate after authors see how much it can do for them. We even had the leader of a writer's group in Florida buy an ad in a conference program for BookBrewer with her own funds -- a first in my 15 years of working on digital products.

I also want to thank Jon Nordmark, the co-founder of Wambo.com and founder and former CEO of Denver-based eBags. He facilitated Denver's inaugural class for Adeo Ressi's Founder Institute, an intensive technology and mentoring program. For four months, I would spend every Tuesday night from 5:30 to 9 p.m. with him, other startup CEO mentors, and founders of 17 other companies. We would sound ideas off each other, refine them, give and receive brutal feedback, and delve deeply into the business behind our businesses. While I had a lot of ideas before, I can safely say that without the Founder Institute program I never would have been able to create this product at this time and get it in front of Borders. Nordmark also helped with the Borders introduction.

Fellow Founder Institute graduate Todd Levy, co-founder of BloomWorlds, and his girlfriend Laurelie Lee Ezra also stepped in at the last minute to man our BlogWorld Expo booth and talked to hundreds of people about BookBrewer as if it was their product. I will never forget that, and can't wait to talk more about BloomWorlds once it launches.

Then of course there's Don Hajicek and Andy Lasda, my amazing team of co-founders, who have worked tirelessly on this alongside me with no pay other than generous equity. You learn a lot about people when you're down in the trenches with them, and these two are solid. In addition to their incredible development and product design skills, they've shown incredible faith and dedication. And a big thank-you to our advisors, especially Kit Seeborg from BumperTunes.

Last but not least, there's my family. My wife Kendall Slee and two daughters have given up many nights and weekends with me, and also helped with ideas and feedback. (My 7-year-old Lauren even published an e-book that was for sale in Amazon, and she's now perfecting a second edition.) My mom and dad even pitched in at the end to handle the logistics of ordering last-minute t-shirts for our BlogWorld booth.

Start Brewing Your e-book!

...But I guess you should expect that from a community-focused product. BookBrewer is and will continue to successful thanks to the community of people behind it. Hopefully that also includes you. Start brewing your e-books so we can help you get published and featured by Borders!

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