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Thoughts on Amazon Fire TV

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amazon_fire_tvLet me open by saying: clear win for Amazon. Here’s why:

  • Internet streamers are still a growing market, only present in less than a quarter of US households – not to mention International opportunities. Bringing *any* product to market under the Amazon brand is sufficient to move units. Amazon has an amazing channel to sell through, and numerous reports cite them as the #1 outlet for both Chromecast and Roku products.
  • It’s at worst a good-enough product, at best it’s the most thoroughly designed Internet STB available on the market today. Unlike the first gen of Kindle Fire, which had to compete against a mature iPad, there’s nothing utterly amazing in the category to compare against.
  • Supporting non-Amazon content is brilliant. I think they could’ve pulled off a winner just by supporting Amazon Prime and Amazon Instant Video, but now it opens up to anyone who watches any streaming content. Plus, just as Apple TV helps sell iTunes content, I’d be shocked to discover that FireTV households don’t slowly convert into Amazon content customers.
  • I’ve heard some naysay (already!) about the price point, and how it should be cheaper than Apple TV to compete. Totally disagree, no reason to do this as there’s no other magic point under $99 other than hitting $49, which I don’t see a reason to do.

Other stuff I like:

  • Voice search seems nicely done, especially in context with the mess of any 10-foot-UI experience.
  • Gaming! Very smart to make this a core component of the platform – I actually hope this remains in the cheap, simple, and easy category of gaming. Not that I don’t love trying to push 17 buttons on my Xbox controller simultaneously, but I think “Big Gaming” is just too complex these days and there’s a latent opportunity for simpler stuff.
  • Gary Busey

My two minor (emphasis on minor) missed opportunities:

  • HDMI passthrough. The single good aspect of the original Logitech Google TV product was HDMI passthrough – it let the end-user connect the device to the fought-after Input One, and work well. While I know adding passthrough isn’t going to sell any more Fire TV’s, it’s one of those little things I’ve been hoping for.
  • Not Free With Prime. Okay, this isn’t exactly fair to complain about, but I harbored this suspicion that Amazon would offer the Fire TV free with a 2-year Prime subscription. Now they always can just start a program like this, but I think it’d be a major wow-er out of the gate.

Let me close this this: building products is hard. Building really good products is very very hard. To get a 1.0 product out of the gate in such a strong state is impressive work, and while many might call it a “me-too”, I don’t. I think this is the exact right first step for Amazon in the living room, and will keep an eye on where it goes from here.

Prediction: Amazon Fire TV is the #2 Internet STB on the market (behind Apple) within 2 years.

Also, and again, Gary Busey.

Expectations and Thoughts for CES 2013

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I love the smell of CES in the morning.  Seriously, I *love* CES (here’s my walkthrough the show last year with Robert Scoble – be warned – its 45 minutes long), though I’d love to see them move it back in the year a few weeks.  CES is like SXSW, except people actually get some work done in addition to all the partying.  I love the vaporware demos sandwiched in between the unnecessarily huge screens and the neon. Lots and lots of neon.  LOVE IT – and no, this isn’t a long, drawn out sarcastic rant.  But I’m taking a break from my annual “CES Tips” lists, as there’s nothing substantive to add.  Instead, here’s some thoughts on what I’m expecting next week:

Nothing Revolutionary
That might sound weird, but I’m just not expecting any “big new thing” at this year’s show, instead lots of “mostly better things than last year”.  Bigger screens.  Thinner screens.  Lighter phones.  Longer batteries.  The major keynotes are from Qualcomm, Panasonic, Verizon, and Samsung – not one of these companies has a history of revolutionizing the show.

But yet, lots of cool updates
While nothing should blow us away, I’m expecting tons of improvements to other products.  More smart TVs with more smarterness to them.   Lots of UltraHD/4K TVs (sigh). More well-done AirPlay integrated devices.  It’ll be fun.

Especially OLED
Coolest thing at CES 2012 were the 4MM thick OLED TVs that didn’t ship in 2012, despite promises they would.  Coolest thing at CES 2013 will be the 4MM OLED TVs that might actually ship in 2013.

Meme Prediction: Complaints about the lack of stuff
If there’s one thing that follows the theme of “nothing revolutionary” its listening to everyone, their mother, and their mother’s facebook friends complain about nothing being new at the show. You shouldn’t be expecting something big, and whining about how you could’ve stayed home is just annoying.

Potential sleepers: Verizon & Qualcomm
Interestingly, both have keynotes, and both have large booths (and near each other).  If I had to put money on “doing something unexpectedly big” I’d place on either, or both of these companies.

What I’d love to see, but don’t expect
Flexible displays.  I’ll go so far as saying there’ll be *nothing* exciting in consumer electronics and mobile devices between now and when the first generation of devices with flexible/bendable displays arrive.  So I’ve got a secret hope that even prototype stuff will emerge from someone’s labs at this year’s show.

What I’m already bored of: More Tablets
I still haven’t seen a single product from a single company that defines a “tablet market” and I’m not expecting that to change at CES.  But, I am expecting loads of cheap tablets that might do well overseas, which is all fine and good.  Yawn.

I’m Betting On: Smarterer TVs
Every single TV company will announce new Smart TVs.  And every one of them will continue to make TVs that are harder to use than they were before.  Bummer.

Who Will Be Missing?
Amazon, Google, Microsoft, Apple – the four companies that would make the show dramatically more interesting.

That’s about all I can think of.  Shame is I’ve got so many other commitments at the show this year I have no idea if I’ll even get to walk the floor.  C’est La CES, C’est La Vie!

NextGuide, now with Amazon and more awesomeness

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NextGuide, my personal favorite TV Guide app (that I built at the company I run), is now updated to include Amazon Prime and Amazon Instant Video alongside live TV, Hulu Plus, iTunes, and Netflix.  It’s really a great experience to browse all providers simultaneously and to search for shows and actually know where they are watchable. You can get the update here on the App Store.

That’s the “big” news (yes, adding a streaming provider with tens of thousands of hours of streamable shows and movies is a big deal IMHO), but we also took the time for a lot of across the board improvements to the app.  Here are some of the highlights:

>> New Gestures – two-finger swipe within showcards, pinch to hide, fullscreen media gallery, and more!

One of my favorite things about a great iPad experience is gestures. One of my favorite favorite things about any app is hidden features. While it’d be fun to document them everywhere, we’ve loaded up the NextGuide experience with many new gestures.  Explore around, let us know what you find and think of them!

>> Enhanced Cast & Crew with 1-click saved searches and Wikipedia biography lookups.

File this under “finally!”  When we shipped the 1.0 version, the cast and crew view just wasn’t that useful.  Now, go to the cast and crew tab for any movie or show, and tap on a person you are interested in.  Want to find more stuff from them?  Tap “add to interests.”

>> New Category Editor with easy drag & drop category setup

While we made removing/hiding categories really easy in the app, it’s always been a pain to add them. Now, push and hold on anywhere in the “Category Bar” to get a slick interface to add genres, custom genres, and trending topics.

>> Channel Setup now part of Initial Setup Wizard

The customer is always right, and lots of ours told us they didn’t like the fact they couldn’t customize their channel lineups until after launching the app.  Now you can.

>> Improved “Your Picks” algorithms

Let’s face it, recommending content is a very hard thing to get right. Our focus is to get beyond the baseline concept of “if you like this then you’ll like that.”  We’re constantly working to improve it, and I think our users will see a lot of progress in this department.

>> Lots of other little new features for you to explore throughout the app

Thanks again to every one of our users, even the 1-star reviews in the App Store – its the best way to learn, and learning is what we’re doing!

ps – sorry about not blogging much, just been working on, you know, everything you just read about.

Is Amazon Building a Kindle Set-Top Box?

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I'm awesome at photoshop! I hope it doesn't look like this!

I’m pretty sure the headline here says it all.  Let’s review the facts (it might be worth re-reading my bit on why HBO doesn’t go direct to consumers, as many of those issues are addressed here):

  1. Amazon has a large content library. They are actively increasing it.
  2. Amazon has a content distribution platform already capable of streaming to non-PC devices.
  3. Amazon has a recurring billing relationship with consumers.
  4. Amazon has a (phenomenal) marketing and distribution channel for getting devices into consumers houses.
  5. Amazon has a strong brand in the hardware space.
  6. Amazon has the customer service & support infrastructure needed to deal with service issues.
  7. Amazon has the ability to build hardware and deal with supply chain issues.
  8. The TV services industry is huge, and Amazon wants in.

Even if they don’t plan to decouple content from Amazon Prime, making a box is a very viable, and, in my opinion, a likely move.  In addition to all of the above, it is a strong move versus Apple (and possibly Google and Microsoft too).

A $99 Amazon Kindle TV box would not surprise me this coming holiday season (how about a September launch, right in time for school?).  But then again, I occasionally get Kindle predictions wrong.

Kinda saw this one coming, didn't ya?

Oh, and one more thing.  What if they do it by acquiring Roku?  Let’s review that scenario:

  1. Roku already has something better than a minimum viable product.
  2. Amazon could skip all the work on developing a new UI/UX (regardless of your feelings on the Roku UX, it is well more than functional).
  3. Roku isn’t a sustainable business yet, enabling Amazon to purchase at a reasonable price.
  4. Roku has a team with a strong background and industry knowledge relevant to the TV/Device space.
  5. Amazon can distribute the same hardware at the same price point (which seems to fall in the not-too-profitably category), yet supplement with reliable recurring revenue.
  6. Amazon wouldn’t have to drop the Netflix service, but could slowly chip away at it from within.
  7. It’s cheaper than trying to buy Xbox from Microsoft (though that’d be quite the coup, plus nobody would even need to relocate)

I don’t really think Amazon *needs* to buy Roku, but it would probably let them fast-track a bunch of steps.  And then it could be a $49 Kindle TV, which just sounds so… right.

Did Manufacturers Lose $2 BILLION on Android Tablets Last Quarter?

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Strategy Analytics announced today: “Android Captures Record 39 Percent Share of Global Tablet Shipments in Q4 2011”.  Bloggers go nuts with it, headlines such as “Android Grabs 10% Tablet Market Share from Apple in Q4 2011” and “Android tablets gain ground with 10.5 million sales in Q4 2011“.  Here’s a quick fact check: the report was about tablets shipped, not sold.  Sounds like a minor little nit, but it isn’t, and if you’ve never been inside the actual business of hardware before, it’s a fairly common mistake.

Shipping a product implies it’s been manufactured, packaged, and transported into a distribution facility, and in some way allocated by a retailer.  It hasn’t necessarily been purchased by the retailer yet, nor has it been sold to a consumer.  Which means a massive cost was incurred by the manufacturer, with no revenue so far.  Further, even if the retailer has made some form of purchasing agreement/commitment, they typically have many many ways to back out if units aren’t moving.  All, of course, at the expense of the manufacturer.  This is how Logitech lost $100 million on the Revues, as they made a bunch, but couldn’t sell them.  As Seinfeld might’ve put it: “See, you know how to ship the product, you just don’t know how to sell the product and that’s really the most important part of the product, the selling. Anybody can just ship them.”

So let’s go back to that report.  10.5 million Android tablets shipped in Q4.  Not too shabby.  Now Apple did just announce they sold 15.4 million iPads in the same quarter.  So we know we aren’t talking oranges-to-oranges comparisons already.

I’m going to add in a personal observation/anecdote here, take it with a grain of salt.  In the past year, at over 20 conferences, 30 flights, and possibly hundreds of meetings, I’ve seen about 15 android tablets in use “in the wild”.  I’ll go as high as 20.  That’s it.  Not only isn’t it close to 40%, it’s not even close to 1% of the tablets I’ve seen in use, in every major metropolitan area in North America.  But that’s not a fair way to look at it, so I’ll assume I’m off by a few percent, especially including the international market plus the recent hotness of the  Kindle Fire.

But let’s pretend they somehow sell-through 5% of the total tablet market, as defined by iPad sales.  That’s 750,000 units sold.  Maybe a little low, but as I scan the numbers from a bunch of different reports, doesn’t seem too far off the mark (NPD reported a grand total of 1.2 million non-Apple tablets sold between Jan-Oct last year).  Let’s bump it to a cool million, just to seem “fair”.  That leaves manufacturers with 9 million unsold tablets.

According to a variety of reports (best from iSuppli), tablets cost manufacturers between $200-$300 to manufacture, on average.  So again, averaging it all out (which isn’t exactly right, but that’s kind of the theme of my blog anyway, right?) at $250 times 9 million units equals holy crap.

$2,250,000,000

Oh, and this doesn’t include marketing, packaging, shipping, warehousing, taxes, and all the other costs involved.  Please, somebody, show me how I’m wrong!  No, seriously, I don’t actually want to be right here!

The Dirty Little Secret of The Future of TV: Data [Guest Post]

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This is a guest post by Anil Podduturi, you can find his bio below.

Gary Myer, who helped found DirectTV, recently penned a guest post for Wired on the future of TV. It comes with a provocative headline: Why Nobody is Challenging the Pay‐TV Providers.

Myer covers a lot of ground in the post, but it’s mostly familiar territory for readers of this blog: Unbundling, linear vs. VOD, social, device ecosystems. After setting the scene with the 40k-foot industry landscape, Myer makes some bold claims about what’s gating television innovation that dramatically oversimplify industry dynamics.

The biggest problem with Myer’s argument is that it ignores the major impediments to progress for both newcomers and incumbents – these include product design in all of its various incarnations, but let’s not forget content rights, content cost structures, and the economic realities of unbundling. It’s not as simple as cracking a new navigational paradigm for on-demand video or acquiring more content.

(For more on the nuances of this industry quagmire, see my Storify from last week capturing a Twitter conversation between Dennis Crowley, Dan Frommer, Hunter Walk, and others, that all started when Dennis’s grandmother couldn’t watch the Pats game in Florida without a $350 DirectTV Sunday Ticket subscription.)

At the end of the day, video services of the future must increase the value of the monthly subscription through a mixture of distribution, content, and user experience, but getting there will require a data-driven approach to the business that embraces platform dynamics and wedges the economics of content in favor of consumers.

This approach should extend to every dimension of the business, including content acquisition. Myer acknowledges that content acquisition is one of the biggest challenges for would-be disruptors. In fact, it’s his hypothesis for why nobody is challenging the pay-TV incumbency:

What’s the Problem

To seriously compete with existing pay‐TV providers, new providers need to offer at least what the existing providers offer, plus added benefits (more content, lower price, superior user experience, etc).

Successful internet‐video providers will offer a comprehensive catalog of à la carte/on‐demand content –- with an intuitive user experience. Existing internet video players are offering only a fraction of the programming of pay‐TV providers and they are securing new content rights haphazardly. If you’re going to compete with the incumbents, why guess what programming is important to your customer by only acquiring rights to selected programs?

That’s the old Microsoft embrace-and-extend ploy. I’ll save you my personal thoughts on embrace-and-extend as it relates to product development, but assuming some newcomer could actually afford a content acquisition strategy that successfully equalized the traditional channel lineup, what would be the return on such an astronomical investment, and would it even add value for consumers?

Myer says that newcomers shouldn’t guess what programming is important to the customer, and he’s right. But that doesn’t mean the video service of the future should strive for parity in programming. We now live in a world where the best consumer web products have iterated in part because of data – usage data if your product has traction, but how about general industry research like this Nielsen study that tells us the average US home with a cable package receives about 118 channels, but only watches 17 of them.

The way to increase subscription value isn’t by embracing the same content library, but rather by extending the value of the ~14% of content that consumers do access regularly and augmenting that offering with other relevant content and services. To do that, newcomers should leverage actual consumer data signals if they’re fortunate enough to have built a product that can capture them.

"Let me just write em an email, I can explain it all in a simple email!"

Netflix has built a data-driven product, and this is why Reed Hastings got on stage earlier this month at the UBS Media conference to proclaim that he’s the Billy Beane of digital media.  “We’re very much the ‘moneyball’ content buyers. We’ll look at, OK, we paid X for something, so how many people watched it?” Netflix is collecting and analyzing viewing data that then informs their content acquisition strategy.

Netflix, like the Oakland A’s, must apply a data-driven approach because they simply can’t afford to acquire everything they think consumers might want. It’s been reported that Netflix’s streaming content licensing costs will rise from $180 million in 2010 to $2 billion in 2012. Netflix can’t afford to spend another dime or another million on content that doesn’t directly add measurable value to the service.

But at least Netflix is in position to measure value and apply data-driven learning to its product strategy. This brings us to the supply chain of internet-age content distribution, an ecosystem within which Myer says, “companies need to control at least the device and the service.”

It remains to be scene whether this level of control will prove to be a categorical business imperative. Apple and Amazon seem to think so, and have demonstrated success owning their respective hardware and software stacks.

Netflix, on the other hand, is a service provider that understands platform dynamics and how to extract value and meaningful consumption data at the service layer. Netflix not only operates its service across PCs, tablets, gaming consoles, connected TVs, and phones, but has also developed the technical proficiency to optimize that cross-platform device distribution. This allows Netflix to maintain a direct relationship with the consumer and refine its user experience across platforms.

Incumbents like HBO and Showtime have begun to recognize the value of the direct-to-consumer model with their HBO Go and Showtime Anytime streaming services. Competitors like Hulu and YouTube keep investing in direct-to-consumer efforts to drive greater engagement (Hulu Latino, YouTube Channels). Microsoft redesigned the XBox Live Dashboard as a platform for content providers to go direct-to-consumer. Just this past week, we saw the comedian Louis CK pull off an experiment in content distribution, going direct-to-consumer to the tune of $200k and counting in profit.

These direct relationships, and how service providers leverage them to extract data that in turn informs product development, content distribution, and content acquisition will help shape the real future of television at the service layer. No single service will be able to provide a comprehensive offering so long as there is still exclusive, marquee programming and healthy competition in the device ecosystem. However the dust settles, content must stay accessible and affordable for the consumer.

—
About Anil: Anil Podduturi was most recently VP of Product Strategy at NBCUniversal. Prior to NBC, he led product management at Daylife, MTV Networks, and Microsoft. On Twitter: @anilpod

Why Apple Won't Buy Netflix (or Sony or RIM or …)

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We're like Media. Squared.

I enjoy pondering the question of “who should Apple buy next?”  I think it’s probably best answered in this Quora post, which conveniently includes a history of most of their recent acquisitions, then followed by all sorts of fun guesses.  Some of the companies mentioned include: Square, Pandora, Sony, Amazon, RIM, and many more.  PaidContent lists Apple as a good future home for Netflix.

I’m sure on paper many of these are sound acquisitions.  Some bring good IP. Others good cash flow.  Others good branding and distribution vehicles.  I’d surmise that many a financial analyst could put together very solid plans, and would even wager the discussions happen within Apple from time to time on the topic.  But I don’t think Apple’s buying any of them, and for a vastly different reason, one that won’t make any spreadsheet or pro forma statement anywhere.  It’s about the DNA transfusion.

If there’s one thing Steve Jobs created over the past decade-plus it’s a certain DNA.  It’s a company-wide culture that transcends from product to marketing to customer service to building design.  And inserting hundreds of product managers, engineers, QA staff, designers, etc who come from radically different types of DNA will result in exactly one thing: Brundlefly.

How about an iMinidisc player? Or adding UMD to next-gen Macbook Airs?

My money is on Apple continuing their pattern of only absorbing companies who are either:

  • Small – smaller teams who are tightly focused can have their developing culture be absolutely subsumed by Apple’s
  • Non-consumer facing – ingredient technologies (chips, algorithms, infrastructure) tend to need less of the consumer product dogma that guides the “Apple way” and have less impact on culture

The exciting thing about an Apple acquisition, in my opinion, is watching them take little pockets of technology and turn them into big consumer products far down the road.  Although I would say, of all the companies named above, it certainly does seem like Square could be a good fit from a product, market, *and* DNA perspective, but that’s just from outside appearances.

When Will Facebook Fail?

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Just like governments, mixing “creativity” with “banking”, taking naked pictures of yourself and hoping they won’t end up on the Internet, and well, this stuff, tech companies have a certain inevitable amount of failure built-into them.  Sure, IBM, Xerox and Motorola have existed for many decades, and both Microsoft and Intel still have dominant positions, but if we really think about the “powerhouses” in technology today (Amazon, Facebook, Google, and Apple), they are all fairly young (I’m using the argument that Apple effectively reinvented itself in the late 1990s).  And if we look ahead even 10 years, it’s hard to argue those four will hold they same positions they do today.

Little known secret? Sony guts.

Of the four, I’d personally assess Google and Facebook as “most vulnerable” to obsolescence (just a hunch, I’m sure I’ll be ridiculed in the commentary for such a statement), and with the points made on “why Facebook’s the new Yahoo!” by Mike Elgan and Mathew Ingram, I thought I’d write up a little somethin’.

First and foremost, I see Facebook as in no way similar to Yahoo!  Not even a little bit, I’d barely even figure out how to compare the two companies (other than the “.com” at the end of their URLs).  The key thing, beyond whatever “Facebook.com” is all about, is that Facebook is unarguably the most well-distributed and deeply integrated service on the Internet.  According to Nielsen, Facebook users spent 53 billion minutes in May 2011 using the site – and this does not count Facebook-integrated features on other websites.  The Facebook “social graph” is at/near/above 700 million users at this point.  That’s a lot of the Internet.  A lot.

My God. It's Full of Likes!

I don’t see Facebook dying due to “stale technology” – they aren’t about technology (other than scaling, etc).  They aren’t about UI/UX (tip to FB: the “clickable thing” in an update should be the action/verb, not the user nor target/noun).  Most of the typical norms of a website’s laws of gravity simply don’t apply to them, due to the massive inertia they’ve built with their userbase. Further, the inertia of existing social graphs make growth of Google+ and Twitter effectively irrelevant – I think speculation that “Facebooking” will shift to a different social network is extremely hard to substantiate.

I used to take the “cool club in town” position on Facebook, and the moment it wasn’t “new” and instead full of B+T crowds, it’s popularity would sink and people would move on.   But I don’t think this argument holds up anymore, Facebook is too popular in too many demographics and the “cool kids” are “over” the fact that their lame parents are there as well.  It’s like the mall – just because Dad’s shopping at Eddie Bauer isn’t stopping the utes from hanging out in the food court.  I know it too is easily picked apart, but I think the mall argument works really well as a parable for Facebook.

Why does the one in the middle look so. much. older?

When you want to open a Gap, and you want customers, you find a mall.  Orange Julius? Mall.  Crappy replica furniture Bombay Company? Malls.

What’s the online equivalent of that?  Facebook, Likes, Facebook Connect, etc.  Facebook is the way brands are engaging with customers online.  And this is just making them even stickier.

I just hope there's a kiosk with a crazy lady selling mystical gems.

So how might Facebook fall?  A few thoughts…

  1. Massive shift to mobile interactions – Facebook’s weakest point at present is its mobile presence.  If the world continues its mobile/social/web path, I believe Facebook has less to offer that ingrains it so deeply in the traditional browser/web world.  Without the stickiness across mobile apps (especially with the iOS shift to Twitter and Android’s inevitable equivalent with Google+), they could be highly vulnerable.
  2. Massive revolt on social networking – At present, our society is unfortunately radically focused on narcissism and fulfilling ego problems.  This may (please, please, please!) change, in which case folks’ll have much less desire to share every (useless) nuance of their (mundane) lives with their friends/acquaintances/people they kinda met once.  If these patterns ever emerge, you can put Facebook at the top of the chopping block as it’ll become the target of said pushback.
  3. Massive elongated platform failure – Whether its by hackers or internal problems, a significant outage of Facebook and its related services could cause things to unravel in a significant way.  I’d wager that if a Facebook Connect downtime prevents users from logging into websites/apps for more than a few days could cause the digital equivalent of a bank panic by both the web services and the end-users themselves.
  4. Massive rapid shift to post-PC platforms – Similar to (1) above, if the shift from a computer-based world to a tablet iPad, phone, connected TV, and other device world happens, and Facebook can’t provide the same “glue”, they’ll be vulnerable.
  5. Massive privacy breach – When I say massive in this case, I don’t just mean Facebook makes some (typically) poor decision regarding consumer rights/privacy, I mean something really awful happens, and its very public, and its entirely due to Facebook.  Like, huge act of terrorism on highly visible people entirely tied to something that was Facebook’s fault.
  6. Unknown – This would be the deux ex machina of today’s post – something otherwise unpredictable comes along and clobbers them over the head.

It’s hard to predict the end of giants or eras.  But that they will fall and whither away is predictable.  Curious to hear any other people’s thoughts on the topic in the comments below!

An Analysis of Amazon's Free, Unlimited Streaming Video Service

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Starting today, Amazon Prime customers can take advantage of the company’s new, unlimited video streaming service. Amazon Prime Instant Video is free, with a few caveats. Quoting from Engadget:

This is only for paid Prime subscribers, so if you’re a college student or the like with a free membership you’re sadly out of luck. Also it’s US only at this point.

Of course, comparisons to Netflix are inevitable here. Early reports say that Amazon’s catalog of titles is comparable to Netflix, while the quality of Prime’s video has been so-so. Prime Instant Video will have some ground to make up if it wants to compete toe-to-toe with the market leader.

Amazon streaming is missing from a few key set-top boxes, including video game consoles and TiVo.

There are 180 million current generation video game consoles on the market, and they all offer Netflix. So that means that Netflix is in more components, has a larger content library and offers higher quality video.

Which is not to say that Amazon is DOA. Not by a long shot.

It would be interesting to know what the goal of Prime Instant Video is. Do Bezos and company want more people to pay for Prime shipping, or is this offer aimed at getting people used to watching videos on Amazon and – later – purchasing media from their ecosystem?

Amazon can assemble a formidable library of content. They don’t need the same titles as Netflix, but the shows and movies need to be compelling. To win here they need to offer a blend of new releases and older classics (think TNT shows and the kind of programming you chill out with on a Sunday afternoon). Expect the library to mature as the service does.

Amazon could also white label Prime Instant Video and let other content providers offer their videos over the Prime streaming media center. The troubled Blockbuster brand could find new life here as a streaming only service (although at this point we’re not even sure if Blockbuster knows what streaming video is).

Finally, Amazon needs to get on as many pieces of hardware as they can. If people can only use Prime Instant Video on their desktop, it will have limited value. One of the first goals needs to be getting on gaming consoles, mobile devices and televisions. Again, this is an attainable goal, especially for Amazon.

I have always maintained that there can be more than one “winner” in the streaming media wars and there is certainly room for Amazon’s service to grow alongside Netflix. While the two services will probably compete for some customers, one does not have to lose for the other to win. It is clear, though, that the stakes of the online distribution game have just been raised.

Where's the Kindle Used eBook Store?

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I’ll summarize my long-winded (but well-adorned) post on the Kindle by saying: solid device, don’t like the spending model around eBooks.  While the ultimate solution for digital music and video is obviously based around subscription businesses, it’s not so clear for books.  Fundamentally the book industry has a long way to go before it truly gets threatened by the digital book industry (though clearly they shouldn’t wait forever).

I buy a lot of used books myself (on Amazon I rarely spend more than $6, shipping included, for any given book I buy). I’ve been pondering quite a bit on how to make a “used” eBook model work, and I think for a closed system like the Kindle, it’s a real possibility.  Unlike MP3s, for example, which can be duplicated perfectly infinite times, a book “file” on the Kindle has a unique code, and all Kindles are “registered” to talk to Amazon’s servers.  In other words, there’s no such thing as a “copy”, just an individual “instance”. As a result, when a single “new copy” of an eBook is sold, it’s instance is known forever.  Therefore, just as in paper books, there are a finite number of copies in existence, although unlike paper books, Amazon knows exactly where they all are.

How it works…
So what if, after reading a book, the reader could choose to “sell it back” to Amazon?  After all, when I get a paper book I can do just that (or give it to a friend), and neither Amazon nor the publisher mind terribly that I do (otherwise the used bookstore industry would be illegal).  And what if by selling it back, the original reader could get a modest credit, say $2, for use exclusively on the Kindle store.  Not much money, but it basically implies that at $9.99 per book, you get 1 free with every 5 you buy.

By selling the book, the original reader’s Kindle deletes the file, and somewhere in the Amazon servers, one new “instance” of a “used copy” of that particular title is available for purchase. Now, some other Kindle owner can browse the title, see the used copy, and buy it.  No matter what there are no extra copies being made.  This is key, because the natural cycles of supply and demand will still force new copies to get sold. In fact, this would mimic a highly efficient economic model that does not presently exist in the Kindle landscape (where buying a popular title, say Angels and Demons, costs $7.99, whereas the used paperback is selling for $0.01).

Money stuff…
I’d price the used copy at $6.99, though obviously it could be higher or lower, but that seemed like a fair price.  Also, the “resale credit” for the used book would have to be less, call it $1 per copy.  For the last part of our system to work, Amazon would pay an additional royalty to the publisher at $3.01 per used copy (that number explained later).  As our first “why this is important” story – publishers would be generating revenue from used books, something they’ve never done before.  In fact, an individual book sale becomes a recurring revenue stream, rather than a one-off sale (nightmare for the accountants, but a plus to everyone else).

Next reason why it matters? It turns out Amazon actually loses money on every new copy sold ($3.01 per book – sound familiar?).  With the used sales, Amazon would turn a profit on a title after 2 resales ($6.99 – $3.01 to the publisher – $2 to the user = $1.98 to Amazon).  After 10 resales, both Amazon and the publisher have profited (yes, it’s all profit) an additional $20 each for the title.

But wait one second young man!
Which leaves us in the inevitable problem area of the model.  It’s that unpredictable area that makes the math a wee bit hard without more data.  The question arises: how will this impact the sales of new eBooks?  Well, no, that’s the wrong question (albeit it’s the one that would/does stop anything like this from happening).  The right question is: how will this impact the overall profitability of selling eBooks?

The important part here is: it makes no difference to the publisher!  If used sales cannibalize new sales in any way, the publisher makes the same amount of money as they did before (assuming the market size doesn’t change).  Further, the more the used sales do cannibalize from new sales, the more profitable the market is for Amazon.   For example, if a given title would sell 100K copies new on Kindle, there’s $301K in revenue to the publisher, and $301K in costs to Amazon.  If 50% of the copies were “used”, then the publisher still makes $301K, but Amazon now only loses $51500 (roughly).  Now that’s some dot-com revenue thinking for you!

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But wait, it gets even more interesting!
Let’s pretend that due to the combination of reduced costs and users earning credits for selling the books back into the system, there’s an overall increase in purchasing.  I can’t prove it, but it sure seems likely if you think about it (or make an excel spreadsheet like I did).  If used sales bump the overall market up by 5%, the same 100K title sends an extra $7500 to the publisher and reduces Amazon’s losses by about $5000 (at the 50% cannibalization rate).  If the market bumps 20%, Amazon halves their loss, and the publisher is up a total of $30K.

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While we’re at it, if cannibalization gets to 60%, Amazon is now profiting (instead of, in case I didn’t make it very very clear, losing money every time their customer buys their product).

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Not too shabby there, Mr Toeman.
I’m sure I’m missing some details here.  There are agreements I don’t know about.  There are market sizing issues I’m unaware of.  I don’t know how price-sensitive Kindle users really are.  It might be, you know, illegal due to some nonsense in the DMCA (yeah, I’m not a fan, amazing, eh?).  Also, it’s clear that current pricing for eBooks is in flux, and who knows where things will end up.

But it sure makes sense both economically and practically speaking.  In fact it’s one of those barriers that I believe prevents wider adoption of the Kindle.  Not the lack of a used eBook section, but the inability to do something with a book once you are done with it.  I’d love to be able to “gift” an eBook to a friend once I’m done with it.  Plus I think it’s a model that just “feels right” to those of us who wouldn’t throw out money on new copies of hardcover books.  Or cars, while I’m at it, as there is no single worse use of your money than buying a new car.  Well, you could set it on fire, I suppose, but that’s just plain silly.