OtisNotes

"Here’s a riddle: How do you make your book a best seller on the Kindle?

Answer: Give copies away."

The New York Times has a very interesting article called With Kindle, the Best Sellers Don’t Need to Sell. Apparently Amazon has redefined "best-selling" to mean "most-downloaded". This is genius, for the exact reason that it may finally help publishers and authors understand a critical difference between selling physical books and selling digital books.

This difference is that in the physical world you can give away 5% of your product as a loss-leader to help sell the other 95%, but in the digital world the economics are flipped. Digital books cost nothing to manufacture or ship, and thus you can give away 95% as a loss-leader to make money on the remaining 5%. As the article states, this is the new way to make a best-seller.

For anyone wanting a more complete explanation of digital economics, I recommend reading Economist and Wired Editor Chris Anderson's new book Free. You can also read my review of Free.

However it appears that publishers are unfortunately not getting it yet:

“At a time when we are resisting the $9.99 price of e-books,” said David Young, chief executive of Hachette Book Group, the publisher of James Patterson and Stephenie Meyer, “it is illogical to give books away for free.”

Similarly, a spokesman for Penguin Group USA said: “Penguin has not and does not give away books for free. We feel that the value of the book is too important to do that.”

The project triangle: "You are given the options of Fast, Good and Cheap, and told to pick any two."

My advisor James recently wrote a very interesting post called Fast good and cheap, in which he argues that the saying that you can't have all three is "a corrosive mindset".

In actuality these things are trade-offs, but when it comes to the startup mindset, I think he's 100% right. And mindset is what it's all about. Because if you're a startup you have to have it in your culture to go fast or you will die. You also have to do it cheap, because - hey - you're a startup! And you also have to do it good - or consumers will recognize that your product is crap and not use it.

Where this saying comes from is that to engineer a quality product, speed and quality and inversely related, and quality and price are directly related. In other words, if you want a better job done it will cost more, and take longer.

But if you get the engineer who has the mindset to go fast, do it cheap, and do a good enough job, then you have a rockstar. If you have 2-3 of those in your company, you can do anything. And this is the new force in the universe - coding power. Some call it hacking, some call it being a rockstar, but in the end it comes down to the unique fact of software: that good engineers are worth 10x mediocre ones.

Here are some tips on how to be good, fast, and cheap:

1. Stand on the shoulders of giants. Open source software has changed the programming world in the last 5 years, and you can do really complex things really fast by re-using other people's hard work. As an example, just the other day we needed to calculate how different two strings were, and instead of taking days to write an algorithm, we found an open-source implemenation of the Levenshtein Distance.
2. Outsource everything that you can. Complex problems like image hosting, cloud computing, payroll, analytics, email hosting, payment processing, etc have been solved and likely don't need custom solutions.
3. Focus like a laser on your priorities. The way to go fast is to not get bogged down doing things that aren't the top priority of the company. For every project you have you should constantly be asking: is this our top priority?
4. In seemingly direct contrast to the last item - let your programmers have some fun. Programmers, like all creative people, need some TLC or they will get burned out. Google's 20% off time is genius - and we employ it at Goodreads. You will be surprised at how your product will improve in the "good" category by doing this. Because sometimes what makes a product seem good are the little things - the bling that isn't core to it, but makes it sexier. For instance: the extra ajax in gmail, anything in google labs, the photo uploader on Facebook, the amazing widgets on Goodreads, the backlit keyboard on a powerbook, etc.
5. Be a student of good design. When making a new product don't make assumptions about what the easiest user interface probably is. Go out and study other approaches to the problem first. If they are any good they will have things done as they are for a good reason. You would be amazed at how many sites have crappy message boards - when sites like phpbb have amazing solutions with 10 years of UI tuning built into them. This will help in both having a better quality product, and not wasting time fixing and tuning a poor implementation.

So to summarize: who cares if good, fast, AND cheap is possible - you should have the mindset that it is.

My previous post on How to hack a gift store: why brick and mortar retailers are f'd generated some interesting feedback that I wanted to address.

The chief piece of feedback was that many brick-and-mortar stores add value to the experience that can't be simulated online. I'll use bookstores as an example since I know them better - if you walk into any independent bookstore in the nation, you can find many benefits over the online experience. You have hand-picked book laid out that aren't just bestsellers or paid placements by publishers, you have employees that are probably better than any algorithm at helping you find a book (or at least they're nicer), and you have a great place to hang out and enjoy a book. It can be argued that if you walk into any town with a happening strip (from downtown Palo Alto to the 3rd street promenade to Union Square in SF), you find stores, bars, and restaurants that make it a special community-filled place. Places that add value to the city where you live, and increase your quality of life.

So if some retailers do add value, will they survive the coming comparison shopping revolution that smart phones are starting?

Even the NY Times picked up on the smart phone trend last week in their Holiday Smart Phones piece. Retailers that don't add value are going to be in trouble quickly.

I think the problem is that when I was in the Disney Hall gift store it wasn't made apparent that the markup was going to support the Disney, and thus the symphony. If it had been pitched that way ($20 for a DVD and $10 for a donation), I might have felt differently about making my purchases on Amazon.

The Indie booksellers that still get business are getting it because some people do recognize their added value. But what if they made it explicit? Assuming people will recognize the value on their own will not cut it - it needs to be built into the price or the experience.

I'm not sure the best way to do this. Experimentation has probably been done, but needs to be done a lot more. What if they sold the book at zero markup and then offered consumers the option to donate a few dollars to keep the store running (it worked for Radiohead after all)? Or even just listing all the value-adds in every isle "Support our store", etc. I'd be interested to hear about any experiments people have tried.

It will be interesting to see what happens. But I don't think anyone will bemoan the loss of the large generic retailers that don't add value to their communities. I think Amazon is going to continue to crush them.

Cryptonomicon by Neal Stephenson

My rating: 5 of 5 stars Just re-read this for the first time, and it's still one of my favorites. This book is geek-heaven: cryptography, world war II, code-breaking, nazi gold, and modern day internet beginnings all tied together in one masterful story.

It also was largely lost on me, and I suspect many of my generation, that the second world war was won - or at least greatly accelerated - in great part due to the fact that we had cracked the German and Japanese codes. Learning more about the efforts of Bletchley Park, and Dr Alan Turing and huffduff and cribs, etc was fascinating.

I think the funniest part of the book is the page where Stephenson actually graphs out how productive Waterhouse is when he has recently had sex (very productive) and when he hasn't (not very productive).

The code-breaking and cryptography is not stuff I know a ton about, as modern day programmers largely don't have to worry about that stuff, but it's a good reminder to think about, as we don't have it on our brains nearly enough. Avi & Randy's paranoia and tendency to encrypt everything from their hard drives to their emails may be overkill, on the other hand, it also may be wise. I remember getting email from people who used public/private keys to encrypt their email before, but not in the last 5 years. Maybe we should request that Gmail Labs add that!

If there was a theme to this book, it's that cryptography is everything. It defined the second world war, and it also defines the modern internet. Information is king - not large caches of gold.

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Elizabeth and I went to see Handel's Messiah at Disney Hall in Los Angeles last night. Great show! But beforehand we were, like hundreds of others throughout the night, browsing in the gift shop.

The fun started when we found a book we wanted to buy someone as a gift: Tenor: A History of Voice by John Potter. The gift shop had it marked as $40. That made me suspicious, so I whipped out my iPhone, did a search on the Goodreads mobile site, and found the book is available on Alibris for $15 and Amazon for $22. What a mark-up!

Then I remembered that Amazon had finally just integrated Snaptell into their iPhone app, which is an amazing image recognition app that they bought this summer. I spent the rest of my stay photographing various items and finding that the gift store marks everything up by 40-100%.

I left by buying 3 items. On Amazon. And since I qualified for free shipping, my savings were about $35. Why would anyone who knows this ever pay more than they have to in a brick-and-mortar store again?

Facebook just announced a big new change that in effect is designed to make more content public. They've realized for a long time (ever since Twitter got popular, really) that they should have made status updates public by default, but they haven't been able to make us change the settings.

This is a HUGE change. ReadWriteWeb realized this too.

They way they've gone about it ticks me off a bit. I can't blame them at all for doing it - it even makes a lot of sense. But hiding it behind a big "privacy update"? Why not just come and be open about the fact that they think the product will be better if more status updates are public? That alone would have been enough for me to switch my setting.

Here is the page where they sneakily get you to change your status updates to be public by default. This is the WHOLE point of them doing this, yet it's buried in the page.



And here is a page where you can now search public status updates. I bet as more and more become public this page will grow in prominence:

I'm starting to notice more and more that rich animations and graphics are appearing on the web, and I think it's a very interesting trend. Designers and animators are going to be a big part of the next web, and I think it's a sign that web technology has continued to improve. Imagine when applications like Second Life can run inside your browser.

Let's list some of the recent big web technology advances:

• Search: In the late 90's, with the advent of the search engine, suddenly it became possible for businesses to be found online, and an explosion of websites resulted. Along with it came an industry around SEO, and of course, The Google
• Blogging/Self-publishing: Allowing anyone to create content that is searchable resulted in a user-generated democracy of information that has changed our culture. Twitter is only the latest embodiment of this.
• Ajax: A buzzword created by a web developer that came to embrace rich user interface across the web and led the charge of improving our internet experience around the web.
• Facebook platform: By opening up their platform Facebook has spawned more innovation than anyone ever thought possible - and all because they were offering sites access to free traffic.

I think rich animation using flash is next. It's simply astounding what some sites like Farmville are creating - and all inside the browser.

Here are some pictures that illustrate what I mean. Can you guess which two are from a web app and which aren't?

Just read a great article titled Seeking: How the brain hard-wires us to love Google, Twitter, and texting. And why that's dangerous. - and I think you all should read it - it's important stuff to understand, especially if you make websites.

Things I learned:

• Seeking is related to opiate side of the brain, and controls our desire to seek more information. Addiction is controlled by the dopiate side of the brain, and is unrelated to seeking. This means people can't literally "be addicted to Twitter". Opiate drugs are cocaine and amphetamines - different from dopamine increasing drugs like Marijuana.
• "Wanting and liking are complementary. The former catalyzes us to action; the latter brings us to a satisfied pause. Seeking needs to be turned off, if even for a little while, so that the system does not run in an endless loop."
• When we sit and hit refresh on Twitter or Facebook feeds for hours on end, we are seeking. When we find something interesting to consume, we aren't satisfied, so we keep going.
• When we play a game the "possibility of a payoff is much more stimulating than actually getting one."

The article parts with concern that we are being hard-wired to like small snacks of information and have shorter attention spans. It offered no proof however. I want to believe in our human intelligence and say it's impossible to hard-wire ourselves like that, and that people will still always be able to consume longer-form information if we need too. Leave a note in the comments if you have more information on this.

The internet has clearly moved us a shorter-form for all content - and I'd argue this is good as it's making us more efficient. Yes it's true you can't write a Pulitzer in short-form, or even get across a complicated thesis like you can in a book. Or can you? Most nonfiction books have 1-2 chapters of actual thesis - the rest is buildup or fluff that could easily be skipped. For instance, I recently read Free by Chris Anderson - and if you want to know the gist of Chris's thesis all you have to do is read his article in Wired - the rest of the book was interesting - but non-essential to his overall point.

Things I wonder: has the human mind ever been "rewired" before by media or societal change? I've heard it said that the Internet is revolutionizing our society on the level that only introduction of TV and the industrial revolution have done in in the last century. Did those events re-wire our brains in any way?

The Man in the Iron Mask by Alexandre Dumas

My rating: 3 of 5 stars A great finish to the D'Artagnan series - definitely enjoyed it. Ending wasn't what I wanted though, you could tell he was just trying to permanently end the series. It could easily be having seen the movie made me want more drama. View all my reviews >>

Free: The Future of a Radical Price by Chris Anderson

My rating: 5 of 5 stars
A business classic that everyone should read. Explains 20th century and 21st century economics from a big picture perspective. The basic thesis is that while in the physical world (atoms), products have cost and thus companies can afford to give away small amounts of free samples (5%), or give away cheaper loss-leader related products in order to maintain profits. In the digital world things are reversed as products have little to no marginal cost and companies can afford to give away 95% of the product for free and make money on the remaining 5%.

My Notes

* For physical products free is a marketing tactic. Give away one product to make money on another (cell phones to sell plans, razor blades to sell razors, jello cookbooks to sell jello, etc). This is the concept of a "loss-leader", and is the basis of much of 20th century marketing.
* Value psychology: things that were once paid have a difficult time going free because people think it must not be as valuable anymore. Things that have always been free can still have a high perceived value.
* The Penny-gap: The psychology of a free product versus that of a product costing even one cent is huge. Koppelman says many businesses can't make the leap. Study where truffle is $.15 and kiss is $.01 and 70% choose the truffle, then reduced to .14 and free and now 70% choose the kiss. Free is disposable so we can't make a bad decision by choosing it - it's a psychological thing.
* Products in a truly competitive market tend to fall to the marginal cost. A true competitive market was mostly an economic theory as most real economies have inefficiencies (the products are somehow differentiated). However with digital economies we finally have true competitive markets, with marginal costs so close to zero that it's often rounded down.
* Reputation and attention economies are other important things that motivate people. Time is money! People will pay for status or to save time in a game, even if they wouldn't pay for the entire thing. There has been an explosion in gaming lately as games become free to play then charge as people play (Habbo Hotel, WOW, Puzzle Pirates, Second Life, Club Pengiun, Runescape, etc)
* Giving away your product for free or allowing piracy can be a good thing if you can figure out how to make money from the attention you get as a result. Microsoft would rather people be using pirated versions of Windows & Office than be using a competitor - it establishes them as the market leader and leads to more sales. Bands in China and Brazil give away as many free copies of their album in towns they visit as possible to get everyone to buy a ticket to their concert.
* Google is the best example of the above. They make so much on advertising from their main product (search + advertising), that they can afford to hire thousands of engineers to work on dozens and dozens of quality products that don't need to make money, they just need to establish Google more as a brand people use (gmail, google docs, google calendar, google apps, youtube, blogger, google analytics, google ad manager, and many more)


I was also fortunate enough to interview Chris Anderson about this book: check it out here.

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I just read a really insightful article in Wired called Secret of Googlenomics. Here are 5 things I learned:

1. The key component of which ads get shown more on Google is the Quality Score. This is based on a bunch of factors, but the key one is the CTR. This means ads that each ad has a "trial period", and after that if it has a low CTR it just won't get shown very much anymore.

2. Google puts a minimum bid on ads with low quality scores. This means that rather than show bad ads when they are out of inventory for good ads, they show NOTHING. Ballsy! But important, as it's what makes everyone think Google Ads are quality and targeted.

3. Google used to have a real live sales force, which was largely replaced by Adwords and the auction algorithm. It seems to me that the role ad sales plays in media companies today is moving more and more upstream - focusing less on selling the client, and more on helping them undertand, analyze, and improve their ad campaigns.

4. Google has developed their ad auctions into an economic science, and they hire people to do both economics and statistics. They have "one statistician for every 100 computer scientists".

5. Google thinks the auction model can help other industries. I fully believe this - it's variable pricing in it's extreme. Only a very mature market has a true stable price exactly matching supply and demand. Most markets however have significant fluctuation - something only a sophisticated software bidding platform could solve. Imagine if you went to a bookstore and books were priced based on demand instead of a flat rate made up by it's publisher. Twilight would still cost a lot - but book's in lesser demand might be closer to the true cost of the book - and thus might sell more.

Master and Commander by Patrick O'Brian

My review

rating: 5 of 5 stars
One of the most enjoyable stories I've read in some time. Captain Jack Aubrey was a fascinating character. You just wanted him to succeed - to capture the Spanish vessel, to gain the respect of his men, to gain the respect of the Admiral.

The book is set during the Napoleonic Wars, and it was interesting to see all the Kings ships were nothing but glorified pirates, capturing all vessels they could on the open seas.

The book also strongly reminded me of my sailing lessons from last summer - I still had to look a lot of words up, but I remembered ones like leeward and abeam. Makes me want to go sailing!

View all my reviews.

I heard a piece the other day on NPR about Twitter. They were trying to understand and explain what Twitter was. They had clips from all kinds of Twitter users explaining it. I hear a lot of people saying they have no idea what Twitter is, and I'm frankly amazed that a service with such a convoluted purpose can be so popular.

I think Twitter needs to work on its purpose and branding so people can understand it better! Do people ask what Google is about? Facebook? No - a quick visit to the homepage of either site and you will get it.

Twitter is an information filter. Plain and simple. Google is an information filter too, but Twitter is a bit different in that you consume information from friends or interesting people that you follow. If you need information about what news people think are interesting - Twitter is a great place. Twitter really shines around specific news events - whether is a plane landing in the Hudson, or discussing a talk at a conference as it happens. If you want the pulse of what the people you follow think is interesting about an event, there is nothing like Twitter out there.

Many people who misunderstand Twitter say that they could care less about what their friends are doing at all random hours. And I agree! Tweets about random nonsense like "playing with my kitty" are useless, and Twitter should work on getting rid of those. Facebook is making progress there by changing the question they pose from "What are you doing right now?" to "What's on your mind?". That will totally change the answers, and I think for the better. Being able to group your friends and see updates from each group would be sweet too - anyone know why Twitter is stalling on that feature?

You can follow my terribly interesting updates here.



Here is the Daily Show piece Twitter.

I learned a lot about ebooks at the Tools of Change conference last week. There are ebook readers galore apparently - but the question remains if anyone will use one! Here are some options:

Adobe Digital Editions. A secure DRM ebook reader.


BookGlutton - a nifty epub reader all done in javascript


Stanza (by Lexcycle) - the most popular iphone ebook reader


Kindle 2 - not out yet, but I'm eager to try it. I have only seen a Kindle 1 in the wild once. You?

After a brief hiatus due to technical difficulties and some laziness on my part, my blog is back in action - yay! Check out the spiffy new group widget on the right :)