Tinker On

Santosh dreams up a Web.
June 6, 2013

The Price of an Electronic Book

by Santosh

The cost of delivering an electronic book to a device is significantly lower than that of a physical book. That’s clear. Then why is it that publishers insist on pricing eBooks the same as their physical counterparts, especially at launch? That’s probably the question behind the ongoing anti-trust case* against Apple’s use of the agency model. Apple decided to price eBooks at 30% + (the publishers price). In contrast, Amazon priced eBooks at $9.99 where ever it had control of the price.

The funny thing is, Apple used the Amazon approach to pricing for iTunes where it was first in the market.

This same question is at the heart of so many other existing business models?

Why is it not cheaper to reserve a ticket online with an aggregator versus purchasing it directly from the airline, online and offline?
Why is it not cheaper to buy a ticket with a movie tickets aggregator – why is a convenience fee necessary? What is convenience but a choice?
Why can’t it be more cost-effective to buy certain products online than in retail?

In maturing markets, costs don’t determine price. Profit does. Incumbents believe that consumers won’t mind paying for convenience, or for an exclusive, or perhaps for choosing to reserve a ticket on an aggregator where they can compare prices. Perhaps these are profit-making avenues that the incumbents fear losing control of. Perhaps it also helps dampen the popularity of these avenues and keep them in check.

On the other hand, the pioneer of a market – the one who’s trying to change existing consumer behavior, they believe that pricing attractively will convince consumers to change their existing habits. Within four years Amazon were able to achieve parity in sales of eBooks to their physical counterparts**.

* Amazon exec says Apple’s agency model was designed to hinder Kindle, AppleInsider.com.
** E-Books Outsell Print Books at Amazon NYTimes.com.

Excerpt from “Steve Jobs”, Walter Isaacson.

Books were an obvious target, since Amazon’s Kindle had shown there was an appetite for electronic books. Apple created an iBooks Store, which sold electronic books the way the iTunes Store sold songs. There was, however, a slight difference in the business model. For the iTunes Store, Jobs had insisted that all songs be sold at one inexpensive price, initially 99 cents. Amazon’s Jeff Bezos had tried to take a similar approach with ebooks, insisting on selling them for at most $9.99. Jobs came in and offered publishers what he had refused to offer record companies: They could set any price they wanted for their wares in the iBooks Store, and Apple would take 30%. Initially that meant prices were higher than on Amazon. Why would people pay Apple more? “That won’t be the case,” Jobs answered, when Walt Mossberg asked him that question at the iPad launch event. “The price will be the same.” He was right.

The day after the iPad launch, Jobs described to me his thinking on books: Amazon screwed it up. It paid the wholesale price for some books, but started selling them below cost at $9.99. The publishers hated that—they thought it would trash their ability to sell hardcover books at $28. So before Apple even got on the scene, some booksellers were starting to withhold books from Amazon. So we told the publishers, “We’ll go to the agency model, where you set the price, and we get our 30%, and yes, the customer pays a little more, but that’s what you want anyway.” But we also asked for a guarantee that if anybody else is selling the books cheaper than we are, then we can sell them at the lower price too. So they went to Amazon and said, “You’re going to sign an agency contract or we’re not going to give you the books.” Jobs acknowledged that he was trying to have it both ways when it came to music and books. He had refused to offer the music companies the agency model and allow them to set their own prices. Why? Because he didn’t have to. But with books he did. “We were not the first people in the books business,” he said.

“Given the situation that existed, what was best for us was to do this akido move and end up with the agency model. And we pulled it off.”

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June 4, 2013

Conflict with Privacy is Unnecessary

by Santosh

There’s plenty of headroom for social networks to grow without conflicting with the end-users need to privacy. If you think about first principles that underly how we interact in the real world, social networks needn’t have attempted to kill privacy, or bring privacy management online. They really should’ve obviated the need to explicitly manage privacy.

Once a conversation is set up, it determines who gets to listen in. Topics ought to enhance second-order visibility.

Networks that’ve set their default conversation to broadcast to all friends, or followers, or the world, appear to start that way… As individual networks grow, noise goes up. Later, lists are added in an attempt to dial up the signal. This includes facebooks’ lists (friend, close friends, public, friends except acquaintances) and G+’s circles.

Of the three, twitter encourages the better model. For conversations that are public by default, users can choose to directly address others. For a private conversation, users must switch modes to DM. In contrast, the way lists have been implemented on other networks implies that by attaching a conversation to a list, or by limiting the visibility of the post, it enhances participation. This is not true in practice.

If you imply that a user must pause and think when she shares – that right there is the battle lost.

It’s easy to understand why a new network, such as instagram, or medium would skip attempting to satisfy privacy needs altogether.

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May 17, 2013

How Sticky Growth Models Work

by Santosh

What really matters is not the raw numbers or vanity metrics but the direction and degree of progress. – Eric Ries, ‘The Lean Startup’.

Most online services can be cast as having a sticky engine of growth. At it’s heart is the question – “Is the experience rewarding enough for new users to return?”. A model built around this question can help you determine the direction and degree of progress for eCommerce services, creative communities, Saa’Services and many more business models.

Three measures come together in this model – Retention Rate, New Customer Rate and Growth Rate. Each measure has it’s own story to tell. If you’ve read ‘The Lean Startup’, you’ll also learn that the model can reveal if your venture has figured out how to leap forward consistently.

With this honest a metric at hand, you won’t lose your way. I’ve found the model handy in most of the projects that I’ve worked on. Below is an interpretation of the model and how the three measures are derived.

Sticky Growth Model (Image)

With the model above,

1. Retention rate: ”Customers Retained in Current Period” by “Total Customers”.

2. New Customer Rate: ”New Customers” by “Total Customers”.

3. Churn Rate: “Customers you failed to retain” by “Total Customers”.

4. Growth: is the difference “New Customer Rate” – “Churn Rate”.

5. Total Customers: coming into a period are the Customers Retained in the previous period and New Customers you will engage in the current period.

Key scenarios shown in the test sheet (Google Docs Worksheet) that will help you grasp how the model works,

* When Retention Rate is 100%, Churn Rate is zero.

* When New Customers Added = Customers Retained in the same period, Growth is 100%.

* When Retention Rate is zero, Growth is negative for that period.

* When New Customers Added is zero, Growth is less than or equal to zero depending on the Churn Rate.

Thanks to Mitesh Bohra, CEO at Savetime.com for lending his time to whet iterations of the model. Do leave your feedback in the comments, especially if you have a different interpretation to share.

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April 1, 2013

Don’t Miss the Trivial

by Santosh

Imagine you’ve been given the objective of designing a spacecraft that will need to take passengers to other star systems starting out from our own. A challenge of this nature starts with how do you sustain life through a journey that will potentially take millions of years. You can’t store energy without losing some to the environment. In the cold depth of interstellar space with the nearest star far far away, how is it possible to constantly recreate or source the energy needed for life? Really, how much energy does life need? This is the premise behind Rendezvous with Rama, a science fiction classic by Arthur C. Clarke.

If you’ve not read the book you could probably get around this paragraph and I’d avoid spoiling it for you. Many book reviewers found it strange that Rendezvous… does not have any alien life-forms in it. I’d say that the book is teeming with ideas, ideas about a different version of life. Life that flourishes in ways we understand but would find too obvious and will discard in the bat of an eyelid. Clarke’s fictional solution to interstellar space travel is to transport consciousness in a literally recyclable world where the life-forms are manufactured. Such life need only exist when an abundant energy source such as our sun is at hand. Now that we’ve got a grip on this central idea, you can ask why not? All we need to do now is to figure out how to sustain this consciousness in a low-energy state through the quiet between star systems.

Nine years ago on this day of 2004, Google first advertised a limited beta release of Gmail. It resonated with initial subscribers on the legs of another absurd idea – a 10GB inbox. Perhaps you’d thought, who’d need so much space? Or, how is it possible to give away so much space? At the time a GB cost a $1 on a hard drive** and most providers would only give away 10′s of MB’s to their millions of free users. I know I thought both those thoughts. I was a graduate student working at RIT’s Lab of Applied Computing. I recall dissecting how it would work with my colleagues at the lab. Obviously we needn’t allocate all that space right away. If we disassociated the inbox with the actual physical storage of an email, we could allocate just a few MB and simply grow the physical storage ahead of usage. This made the ’10GB inbox’ plausible.

Turns out, this idea was enough to spark millions of conversations within the first few weeks and drew several millions of users away from other email providers within it’s first year. Some enthusiastic users even tested the elasticity of their inboxes by growing them successfully all the way to the 10GB limit. It was fascinating to watch it all come together and yet I had more questions. Why were so many making this possible? I probably asked because I still didn’t think I needed that much space.

A few years later at a consulting gig, I’d been given an inbox on a client’s MS Exchange server. Every time I’d get a series of files weighing in at several 100KB’s, my inbox would cross a preset limit and I’d have to reach out to the admin for more space. While I waited, I’d delete older emails off the server or incoming emails would bounce back to senders. It was at this time that I wished dearly for Gmail’s magical expanding inbox and asked is this what drew the early adopters to it?

Many ideas are like that and I think they deserve a closer look. They’re really awaiting a marriage of the right mindsets before they can bloom. Perhaps someone who can see past first impressions to quickly spot the frustration of no solution and the genius beneath the unassuming? Someone who’s willing to put in the time to follow the idea through.

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** Cost of Hard Drive Storage Space.

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