Jon Michaeli’s Blog


Kindle and the future of books(tores)

I love reading books. These days, mostly business books, as time allows. And yes for me, a good part of the experience is physically holding the book and turning the pages. I have heard the same argument for newspapers and magazines, whose recent demise is well documented. In their case, they’re not only readily available online but also easily customized to an individual’s preferences through RSS feeds, Google Alerts, etc. Thus, digital is well on its way to supplanting the hard copies available at your local newsstand.

On the other hand, good business books start with a foundation and build on those core concepts, illustrating with examples and case studies along the way. Hence, you miss out on important takeaways if you don’t read a book cover to cover. And let’s face it, no one wants to read a 200+ page book on a computer.

Enter the Kindle and all of the look-a-like e-book readers that have started and will continue to penetrate the market over the months to come, and you have the perfect example of disruptive technology. While I don’t own a Kindle as of yet (I’m usually an early follower when it comes to gadgets and wait for the price to drop a bit before I jump in), my friends and colleagues tell me they read more quickly and it’s easy on the eyes. Apparently digital ink technology has eliminated one of the top reasons to do your reading offline.kindle

Now, let’s use the following evolution of movie rentals/ownership…

Blockbuster –> Netflix (via mail) –> Video on Demand (VOD)

…as an analogy to see how it relates and whether it can help us predict the future of printed books and bookstores:

  • Instant gratification – Because the internet is accessible 24/7, consumers have grown accustomed to getting what they want in real-time. Netflix pioneered cost-effective overnight delivery of movies, and now along with the broadband providers, is moving its library to VOD. Let’s face it, if you have some free time now, would you rather spend it traveling to the book store or downloading the title at the top of your list and reading the first few chapters?
  • Convenience – Netflix made it simple to return movies without incurring late fees. When you’re on vacation or in your second office (i.e. the airplane), the Kindle stores all of the books on your reading list and weighs far less.
  • Scarcity of time and space – Except for a select few real classics, most people don’t watch the same movie more than once in a short time frame. Hence, it makes little sense to own a movie, especially since Netflix has removed the pain points from the return process and the marginal cost of re-renting a Netflix movie later on is nearly zero (under most price plans). Similarly, while some folks like keeping good books on display at home or in the office, the trend towards urban living and cubicles means space is at a premium. (Trust me, it hurts me to say this, as I have dreamed of having a library in my future home. I really worry that our society will lose all of its character, and our abodes will resemble sterile laboratories in the not too distant future.)

You might claim the analogy is flawed in that, my definition of “movie” is as a secondary market (i.e. for the most part, movies are available on DVD/Blu-ray/VOD only after they have hit the theater), while books, by nature, address a primary market (i.e. there is no previously released version). It’s true some consumers watch a movie on the big screen and then rent it again at home (largely due to the low cost). There’s no doubt an e-book has similar residual value (as a reference tool or refresher), because it’s difficult to absorb and digest all key learnings after just one read. However, since you don’t have to return an e-book as you do a movie rental, this argument doesn’t hold weight.

So what’s my conclusion? Book stores will not disappear in the very near future; some genres with illustrations and other characteristics that appeal to the senses (e.g. travel books, cookbooks, children’s books, some novels) will still be preferable in hard copy. But if the Barnes & Noble’s of the world know what’s good for them, they had better innovate more quickly than Blockbuster has in this decade. Providing couches and chairs where shoppers lounge, sip lattes and leisurely preview the latest best sellers is not a viable business strategy. Further investment in e-commerce is insufficient. And with all of that costly real estate on their hands, they can ill afford to be defensive and simply rely on imitation Kindles to save their legacy businesses.

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Zappos and Amazon still have much to learn

By now most everyone knows Zappos was recently acquired by Amazon for $850+ million. For investors who put in a total of $40+ million and employees, this is a home run. And most folks I know have lauded the company for beating the odds to build the largest and most recognizable online shoe store. Along the way, Zappos’ other successes include fostering a close-knit internal culture, providing superior customer service (including a 365-day return policy), and pioneering a free shipping both directions policy (which is now a standard in the industry, also offered by ShoeBuy, Piperlime and others).

People love Zappos, because 1) in their view, the company has removed much of the hassle in buying online, and 2) unusually friendly call center agents go out of their way to please customers. #2 is indeed unique and refreshing and deserves some praise. But, this is also a backwards way of thinking in that personally, I don’t shop online to talk on the phone (the exception being expensive highly considered purchases). And if I do need to call on more than a rare occasion, it’s a sign that not enough hassle has been removed in #1.

For the most part, I care about great selection and availability (Zappos gets good marks here) and a user-friendly easy-to-navigate site that makes it quick and painless for me to find the shoes (or apparel) that matches my needs and preferences (Zappos.com is a cluttered mess and fails miserably here).

Let’s face it, there’s a big hurdle to buying shoes online to begin with (when I bought shoes on Zappos in the past, I ordered 5+ pairs and kept none), so the site should start off clean and the shopping engine and flows should be as contextual and directed as possible. The more inventory a site has, the more important this is. If companies in industries with tens or hundreds of thousands of options can build scalable solutions (e.g. Kayak in travel and Indeed in job search), so too can an e-tailer like Zappos.

Zappos gets kudos for how it communicates and interacts, whether in the call center or through social media channels like Twitter (@zappos has over 1 million followers), but there are many other dimensions to servicing customers. Zappos, and even its acquirer Amazon, can learn from a company called Forzieri, a much less known Italian clothing and accessory retailer, with a fairly decent website.

I browsed around briefly and added a sweater to my shopping cart. I also found a nice pink button down on sale, however my size was unavailable. But instead of a “Sold Out” message, the site had a button labeled “Check Availability”, which I clicked. I assume this prompted the inventory system to check the warehouse(s) and/or stores. Pretty cool. Far larger retailers don’t integrate their online and offline properties so elegantly. After a few more minutes, I left the site without making a purchase.

Fast forward a few days when I had forgotten about Forzieri. I received a “Courtesy Reminder” advising me that the abandoned item in my shopping cart would be saved for 2 weeks, and if I completed the order in the next 2 days, I could use the private 10% off coupon provided in the email. Brilliant. A super-targeted discount with a clear and time-sensitive call-to-action. I liked the sweater enough to put it in my cart, so perhaps all I needed was a little extra incentive.

This is simple to do in e-commerce. Just deposit a cookie on the user’s machine and have functionality to accept unique coupon codes on your site (most Tier 1 and 2 sites do both of these already). Now you can not only distribute the codes to those who’ve visited and taken a specific action, but also track conversion rates of various offers and optimize.

As for the pink shirt, Forzieri let me know they couldn’t find my size after all. But it didn’t end there. The email included a link to a page where the “newest arrivals” by the same manufacturer were available for viewing and purchase. Sure they were full price, but as these were just added to the selection, they were the latest, most up to date styles. That warrants a premium, right?

My love-hate relationship with Amazon

I admit it. I buy on Amazon.com all of the time. The bottom line is prices are aggressive and the return policy(ies) are typically consumer friendly (this varies depending if you are buying from Amazon directly or from one if its merchants). If a smaller “category-killer” e-tailer is competitive on these measures, it has a good shot of earning my business. That said, if it’s a registered Amazon merchant, I’ll likely opt to buy through Amazon.com instead of on the company’s website, because I am less confident that the rinky-dink operation shipping out of its garage observes best-in-class privacy and security practices. And, I believe if a merchant feels accountable to Amazon – with the risk of being removed should Amazon receive too many complaints – it will be more inclined to resolve consumer issues quickly.

Amazon is approaching a “one-stop shop” in the truest sense, so I can get my online shopping done at one destination, without providing my credit card and shipping details multiple times. I know it’s lame, but I also enjoy the challenge of qualifying for free super-saver shipping with as close to the minimum $25 purchase as possible.

My issues with Amazon relate to user experience. In its effort to rule the land of web commerce in a head-to-head faceoff with eBay, Amazon has drastically complicated the browsing and buying experience and thoroughly confused shoppers. Average consumers don’t know that Amazon has two distinct business models, 1) taking inventory and shipping from local distribution centers, and 2) passing orders onto merchants who drop ship from their own stores or warehouses. Despite Amazon’s efforts to explain within the selection and checkout processes, most consumers don’t grasp why items do or do not qualify for free shipping or why they have to pay multiple shipping fees.

Perhaps even more difficult to understand is why the same product can show up multiple times on a search results page, often with a range of prices (if you’ve never experienced this before, just do a search on Melissa and Doug Deluxe Wooden Multi-Activity Table and look at the top 3 results). Again, this is because numerous merchants within the same category – or “department” in Amazon terminology – are selling the same product. Sometimes price disparities are due to games retailers like to play (e.g. charge a lower price and make it up in the shipping and handling charges), which consumers have grown accustomed to when viewing cross-merchant product availability and pricing on shopping engines like pricegrabber.com and bizrate.com. But, this is awkward and unexpected behavior for a single website. My favorite scenario is when Amazon has its own inventory to display, and its prices are higher than its merchants. This probably does not happen too often though, and when it does, Amazon still gets a bounty on the sale, collects valuable consumer data, and owns re-marketing rights.

So what’s the solution? For starters, I’d love to see Amazon more intuitively organize and display its departments, merchants and product selection. Perhaps it should consider mimicking the metasearch and parametric filtering combination used by Kayak.com (travel) and Indeed.com (job search), but instead of clicking away, keeping users within the Amazon storefront. This would make the seller’s name more visible, clarifying when Amazon is the merchant or just the middleman, who is charging which fees, etc. In addition, it could allow shoppers to drill down to the details (e.g. shipping fees, merchant rating) they need to gain comfort with the purchase and complete the selection. Then via an open pane in the window, customers would return to the main Amazon site where the purchase is funneled to a central shopping cart.