Saturday, September 4, 2010

Jeff Bezos,

By Brian Morrissey on Mon Sep 14 2009

On Nov. 19, 2007, in New York City, Amazon CEO Jeff Bezos spoke at a launch event the company hoped would define the Internet's foremost bookseller's next act. Amazon's 45-year-old founder called books "the last bastion of analog." He had a plan to change that.

But not everyone thought Bezos had the winning formula to drag books into the digital world. Amazon's device, the Kindle, which was in development for three years, launched to mixed reviews.

A fawning 4,700-word Newsweek cover story dubbed it the iPod of books, yet many doubters cited the sluggish growth of the e-reader market over the better part of the past decade. The influential tech blog TechCrunch sniffed that it was "ugly" and "Amazon just didn't design a good device." Others asked who would pay $399, then pay $10 more for a digital book?

Forrester Research predicted the device would follow the example of its predecessors and end up a flop as a mass-market product. Bezos, who is known for his nasally guffaw, got the last laugh. The Kindle was a fast success. It sold out in five and a half hours and was out of stock until the spring of 2008. The item's status as a must-have device was solidified when Oprah Winfrey declared on her show last October that she had "fallen in love" with the Kindle. Could a company hope for more heading into the holiday shopping season?

Amazon keeps Kindle sales information close to the vest, but analysts estimate it sold between 300,000 to 500,000 units in 2008—quite a bit more than the 50,000 Forrester had forecast. Citibank expects Amazon to sell 1 million of the devices this year and predicts Kindle will be a $1.4 billion franchise for Amazon in 2010.

The Kindle's success is testament to Bezos' belief that great service trumps a glossy image. Much like the iPod did to generic MP3 players that came before it, the Kindle created a seamless, dead-simple system that made getting a book a snap thanks to a wireless download system backed by Amazon's recommendation engine. Downloading a book can be done in 30 seconds. That's the eureka moment that fuels word-of-mouth appeal, according to Eric Frost, a partner at Zeus Jones, a Minneapolis marketing strategy firm.

"It's a tough experience to beat," he says. "This is the kind of experience that book lovers will do the marketing for [on their own.]"

Unlike most marketers, Amazon didn't have to look far for its target audience. More than 61 million people visit its site a month, per Nielsen. "The primary customers for e-readers are people who read a lot of books and buy a lot of books, especially online," says Sarah Rotman Epps, an analyst with Forrester. "Amazon has a direct line to those customers."

All these advantages mean Amazon could afford to launch a new product without much in the way of traditional advertising. According to TNS, Amazon spent just $200,000 on Kindle ads in 2008—that meant no TV and only a smattering of print and outdoor ads. That's keeping with the Amazon ethos that casts a wary eye on advertising—the company famously pulled its TV advertising in 2006 and plowed the money into providing free shipping. "Advertising is the price you pay for having an unremarkable product or service," Bezos told investors at a meeting in May. (Amazon did hire Berlin Cameron United in August. Its assignment is for the overall brand, not Kindle.)

Instead, Amazon has relied on the reach of its site and word-of-mouth appeal. It has taken steps to combine the two, adding an option for Kindle owners to show off the devices to potential buyers. It's a testament to the power of the Kindle that hundreds of such impromptu meetings have happened, all thanks to Amazon's foothold with book buyers.

The unorthodox approach so far hasn't slowed Amazon. Kindle has raised awareness of the entire market for e-readers. According to a Forrester survey, consumer awareness of e-readers jumped from 63 percent in mid-2008 to 87 percent a year later. Conveniently enough, Amazon has established the Kindle as synonymous with the category. Amazon is keeping the pedal down with the February debut of the Kindle 2, which is lighter, sleeker and faster. There's also a large screen version, Kindle DX.

Though the e-reader segment has plenty of room to grow—Forrester estimates just 1.6 percent of consumers have one—Amazon's hold on it is far from assured. It faces reinvigorated competition from the likes of Sony and Apple.

"There will be more devices that are sexier than Amazon's, that will be innovative and will force prices to come down," Epps says. "Amazon has to leverage its biggest asset: its connection with the book-buying consumer."