The Birth of the Kindle | Bezos: What's more important than reinventing books?

 Last year, Amazon announced a blockbuster news that it would stop operating its Kindle e-book store in China from June 30, 2023. In the blink of an eye, today, July 1, is the first day that Amazon stopped operating its Kindle e-book store in China, and from today onwards, users will no longer be able to purchase new e-books, while e-books that have already been purchased can be downloaded until June 30, 2024.

On this special day, we noticed the book "Working Backwards: Insights, Stories, and Secrets from Inside Amazon", which is called "Amazon's Management Handbook", in which two former executives who worked at Amazon for more than many years, Colin Bryar and Bill Carr, share in detail the secrets of Amazon's business success.

Among them, Colin Bryar joined Amazon in 1998 as a technical advisor (also known as Jeff's Shadow) to Jeff Bezos and later as vice president of operations, where he observed and participated in important Amazon decisions, including Amazon Prime, Amazon Web Services, Kindle operations, etc.

In the following sections, we excerpt from the book about how Amazon created the Kindle and changed the book industry, a past that is perfect for looking back on today.

The fall of 2003 was a crucial day for both Apple and Amazon. Just two years ago, Apple released its first iPod, and Amazon also achieved quarterly profitability for the first time. On this day, Jobs invited Bezos, me (Colin) and another Amazon colleague to chat.

When we arrived, we were led into a humble conference room with a Windows computer and two plates of takeaway sushi, and everyone was talking about the current state of the music industry. At this point, Jobs wiped his mouth with a napkin and began to get to the point of the meeting: he announced that Apple had just finished the development of the first Windows application. He calmly and confidently told us that although this is Apple's first attempt to develop a Windows application, he thinks it is the best Windows application ever. He then personally gave us a demo of the upcoming iTunes for Windows.

During the presentation, Jobs declared that this would change the music industry. Previously, if you wanted to buy digital music from Apple, you needed a Mac, which had less than 10% of the home computer market. Apple's first attempt to develop software on a rival Windows platform shows how much it values the digital music market. Now, anyone who owns a computer can buy digital music from Apple.

Jobs predicted that CDs (most of which Amazon sells) would be obsolete like other outdated music formats such as tapes, and the next thing he said was sharp, but to the point. "Amazon is likely to be the last place to buy CDs," he said. This business is highly profitable but small, and you can charge high prices for CDs because they are hard to find. ”

Bezos did not make a statement at the moment, but we all know that "becoming the exclusive seller of antique CDs" is not an attractive business model for Amazon.

You know, it was 2003, the wave of digitalization had just begun, and no one wanted to launch a product that did not yet have a market too early, but no one was willing to miss this opportunity and be eliminated by the times. What we can be clear about is to create a way out of the way out of the new model of what the best customer experience is.

Did the meeting with Jobs influence Bezos' thoughts? Only Bezos himself knows. We can only say what Bezos did and did not do later. What he didn't do (and which many companies do) was to launch an all-hands project to combat this competitive threat, issuing a press release declaring how the new service would win, and mimicking the construction of a digital music service. And what Bezos really did was invest his time, polish what he learned, and develop a plan to revolutionize the company — the exact opposite of catching up with Apple into the music sales business.

In January 2004, a few months after meeting with Steve Jobs, Bezos took his first steps. He appointed Steve Kessel, vice president of media retail at Amazon, to lead the company's digital business. This may seem strange at first, as Kessel has been in charge of the sales of physical books, music, videos, and more, which are all core components of Amazon's business. At the same time, the company's digital media business includes a new "in-book search" feature, as well as an e-book team of about five people that generates millions of dollars in revenue each year but has no real prospects for growth.

But then we learned that there was wisdom behind Bezos's move. His decisions are not simply and brutally revolved around "what to do", but are based on "who" and "how", which is a very important distinction. That is, he doesn't focus directly on what product to build, his logic is that the scale of the opportunity is enormous, and the scope of work required to succeed is equally large and complex. So his first focus is on who is the right leader and how to organize the team.

So, Kessel asked me (Bill Carr) to join his new division to lead the digital media business team, and I was hesitant. But then Kessel explained Bezos' thoughts: Amazon is at an important crossroads, and it's time to act.

Although the brick-and-mortar media business is growing, we all understand that over time, brick-and-mortar media will transform into digital media, and its popularity and importance will decline. In early 2004, Apple announced that its iPods had sold more than 2 million units in total, and the surge in online sharing of digital music files had led to a decline in music CD sales. It seems only a matter of time before physical book and DVD sales slip and are replaced by digital downloads.

Bezos often reminds us that if a company doesn't or can't change and adapt to changing consumer needs, it's doomed. "Nobody wants to be Kodak," he said. The once formidable photography giant missed out on the transition from film to digital. We won't watch this happen to Amazon.

We get it, but what I don't understand is why Bill Carr and I have to build a whole new organization, why can't we manage digital media as part of our existing business? After all, we're going to be working with the same partners and vendors, all the while maintaining co-marketing relationships with these companies, so doing it within the same organization and leveraging the knowledge and experience of the team, that's going to work. Otherwise, the Amazon company will have two different teams that are responsible for both the business relationship with partners and vendors.

But Bezos argues that if we try to manage digital media as part of a brick-and-mortar media business, it will never be a priority. After all, it's the bigger business that drives the company and will always get the most attention. Kessel told me (Bill Carr) that it was very important for Bezos to embrace digitalization correctly, and he also hoped that Kessel would not distract himself from other things. So, Kessel wanted me to join him and help him create a new business.

Starting an independent digital media organization proved to be the right thing for the company and one of the best things I've ever encountered in my career.

Since then, we've had one mission – to build a business that sells digital books, music, and videos. We spent about six months researching the digital media landscape and found a few doorways.

First up is "music": With piracy quickly killing the CD industry and Apple selling millions of songs to millions of iPod users on iTunes, record labels are desperate for us to jump on board quickly so they can have more retailers — not just Apple. The second is "e-books": this market already exists, but it is very small, publishers have not invested in it, they only publish a small part of e-books, and the price is as high as hardcover books. Finally, there is "digital film and TV": content creators are risk-averse and are not interested in licensing shows or movies to digital service providers like Amazon.

At first, we thought the music industry seemed to be calling us. In December 2004, Bezos, Kessel, and I attended Music 2.0, a digital music industry conference at the Universal Studios Hilton. We listened to a lot of presentations, one of whom was Larry Kenswil, a senior executive at Universal Music, who spoke about the current state of the digital music industry, which at the time was divided into two camps:

One camp is a service provider like Napster that offers free file sharing; Another camp is Apple, which offers song downloads on iPod for 99 cents each. Kenswell is eager for more big tech companies to enter the industry, as this will bring more revenue to Universal Music. He clearly knew we were in the audience, because he was intentionally pointing out that Amazon was not entering the digital music space and urged us to get in quickly.

At the beginning, we had to decide whether to start our own business or acquire a company in the sector. We had many meetings with Bezos, and every time we met, Bezos rejected what he considered "imitation thinking" and repeatedly emphasized that there must be truly unique value for customers.

He often talks about two basic laws that every company must choose when developing new products and services: to become a quick follower – to copy successful products that other companies have already developed, or to invent a new product on behalf of a customer.

Both approaches work, he said, but he wants Amazon to be an innovative company. In other words, seducing his executive at a digital music conference will not push our progress, he does not want to simply imitate products like iPod and iTunes store. He chose the "path of invention" because real invention can bring greater long-term value to customers and shareholders.

The team quickly realized that invention was a more challenging path than following quickly. The roadmap for quick following is relatively clear – you just need to research your competitor's product and then copy one. But invention doesn't have a roadmap, it requires you to jungle explore uncharted terrain, find every possible product idea, and build your own roads.

Bezos highlighted the fundamental difference between the "digital media retail business" and the existing "physical media retail business". Our competitive advantage in physical media is based on the widest selection of goods available on a single website. But this cannot be a competitive advantage in digital media, because the barrier to entry is quite low, so any company can compete with us. During that time, any company could set up an e-book store, or a 99-cent music download store, offering books and songs with the same breadth and depth as other digital download stores. And our digital business, which only offers unique and differentiated products in terms of selection and aggregation, clearly cannot meet Bezos' requirements.

The digital world also undermines another of our strengths. We were able to consistently offer low prices compared to other retailers, partly because we had a lower cost structure (because we didn't have stores), but that was not a factor in digitalization. Whether you're Amazon, Google, Apple, or a startup, the process and cost of hosting and serving digital files are basically the same.

If a company gains a competitive advantage by reducing digital media operating costs and passing on those savings to consumers at lower digital media prices, there will be no competitive advantage among companies in the long run.

Earlier, Bezos drew his ideas on the whiteboard:

He believes that there is also an important difference in the digital media value chain. In brick-and-mortar retail, Amazon sits in the middle of the value chain, adding value by sourcing and aggregating a huge selection of items on a single website and delivering them quickly and cheaply to customers.

To succeed in digitalization, we need to identify the parts of the value chain where we can stand out and where we can serve our customers well. This, he told Kessel, means going out of the middle and venturing to both ends of the value chain: on the one end is "content", where the value creators are book authors, filmmakers, television producers, publishers, record labels, and film studios; At the other end of the spectrum is the "distribution and consumption of content". For us, that means focusing on the apps and devices that consumers use to read, watch, or listen to content, just as Apple did with iTunes and iPod.

This sounds reasonable, but here's the thing: our core competencies don't extend to either end of the value chain.

Kessel didn't let that get in the way. He said in a meeting that a typical company that wants to grow would evaluate its existing capabilities and ask itself, "What can we do next with our capabilities?" "Amazon's approach has always been to start with the customer and work backwards, where we'll figure out what the customer's needs are and then ask ourselves, "Do we have what it takes to build a product that meets those needs?" If not, how do we build or acquire these capabilities? ”

So, Amazon began to look into the digital media space.

Among them, the "music market" is the first area of digital transformation, but the business has been occupied by Apple, and Amazon does not even have an idea of a music device or service, so this road does not work; The "film and television market" has not yet been digitized, and it seems that there is an opportunity, but the threshold for entry is too high, because it is difficult to obtain copyrights, and the communication network at that time could not support consumers to play a large number of videos, so it is difficult to popularize; Finally, Bezos set his sights on one last market: the e-book market.

For starters, books remain Amazon's largest single category and the one most closely associated with the company. Secondly, the overall scale of the e-book business is very small, and there is no better carrier except for reading on PC, and reading on PC is definitely not a good experience. Finally, the success of iTunes/iPod in the music space has led everyone to believe that consumers will want an e-book that pairs with a mobile device, can provide consumers with any book and sell it at a low price, and they can buy, download, and start reading in seconds.

Eventually Amazon came up with a bold idea: to create its own e-reader, even though it could take years, even though Amazon had no experience with hardware. But Bezos argues: "What's more important than reinventing a book?" ”

Bezos's idea was quickly met with opposition from everyone. "We are an e-commerce company, not a hardware company!" I (Bill Carr) also think that it is not reliable, we should partner with third-party equipment companies that are good at designing and building hardware, and stick to our own business: e-commerce. I told Kessel that he didn't know anything about hardware, and that his old Volvo didn't even have a car stereo!
But Kessel immediately retorted to me. He reminded me that in order to provide a book buying and reading experience that delights customers, we need to build an e-book store and a reader that is deeply integrated with reading devices. Through background research, it was found that relying on third parties, while less operationally and financially risky, is more risky from a customer experience perspective. If we start with the customer and work backwards, then the most logical conclusion is that we need to create our own readers.

The second point he makes is that, like any company at a crossroads, if you think that the long-term success and survival of a company depends on a particular capability that you don't have today, then the company must have a plan to build or buy that capability. If we want to ensure a differentiated, good customer experience at the far end of the value chain, we shouldn't outsource the project, we have to do it ourselves.

So we got started, and the process was difficult, but the potential rewards were huge.

In September 2004, Amazon hired Gregg Zehr, a Silicon Valley veteran who previously served as vice president of hardware engineering at Palm Computing and Apple, and set up a separate office in Silicon Valley (rather than Amazon's headquarters in Seattle) to tap into the Silicon Valley's tech talent pool. At the same time, two experienced and trusted VPs of engineering at Amazon built and hired a software engineering team in Seattle to build a cloud or back-end system.

In April 2005, Amazon acquired Mobipocket, a France-based startup that developed a software application for reading books on PCs and mobile devices.

In the early stage, Amazon also gave the device a name: Kindle.

By mid-2005, the development process for the Kindle project was longer than expected and consumed more money. During a finance team review, there was a heated discussion about the staggering increase in spending. At one point in the debate, Bezos was asked bluntly, "How much more would you be willing to invest in the Kindle?" ”

I remember vividly the scene when Bezos calmly turned to Tom Szkutak, Amazon's CFO, smiled and shrugged, and asked rhetorically, "How much money do we have?" ”

In this way, he demonstrates the strategic importance of Kindle and assures the team that the size of his investment does not put the company at risk. In Bezos' opinion, it is too early to abandon the project.

The rest of the story, everyone knows. In 2007, the Kindle was officially launched, four years after Jobs' "sushi meeting". On the day it came out, the Kindle sold out in less than six hours. Amazon has changed since.