Amazon's next revolution (pg. 2)

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By Jeffrey M. O'Brien, senior editor

Most companies pursue linear growth, taking stock of competencies and determining where those skills might also apply. Tangential growth usually comes via acquisition. Doing it organically, the way Amazon favors, requires both vision and discipline. Bezos says it's the difference between doing what you can do and doing what you should do. "You can always do what you should do if you're willing to put in the time and energy to develop a new set of skills," he says. "If you only extend into places where your skill sets serve you, your skills will become outmoded."

Warning: Rubbernecking parallel industries for the next great opportunity does not necessarily make for a stable or universally beloved work environment. Many current and former employees glow about their professional growth at Amazon. But to others it's just grueling. "A lot of people leave burned out," says one former director-level manager. "They're pretty brutal in how they handle human capital. They lay off and hire people like a breeze coming in and out whenever they enter new businesses."

By many accounts the company obsessively analyzes and squeezes suppliers, and Bezos reaches deep into the organizational chart to monitor performance, expertly sizing up quarterly numbers in minutes. "He asks the difficult questions. He's extremely blunt and can make a meeting extremely uncomfortable," says a former Amazonian. "That bellowing laugh? He would look at your spreadsheet and laugh you out of the room."

Ian Freed was lured into this culture to help Amazon think about wireless. Now a vice president running the Kindle division, Freed has been involved in telecommunications for more than 20 years, since his days studying at Harvard Kennedy School of Government. When he was hired, the idea for Kindle was being bandied around the halls at Amazon, but nothing had taken shape. "I was Jeff's TA when we first started talking about it," says Freed, referring to a program where a hand-chosen exec shadows the boss for as long as 18 months. "We discussed making it wireless, and that was the line for me. One of the dilemmas today is that, yes, you can get access to anything you really want - sometimes. But getting quality publications whenever and wherever really isn't easy."

It was a key insight. Kindle's display is truly impressive. It causes none of the eyestrain of an LCD screen and dispels the urge to print out a page. At first it seems strange to read long-form narratives electronically, but, as Bezos likes to say, it doesn't take long for readers to get so immersed in the content that they forget they're holding an electronic device. But the wireless connection makes Kindle superior to a traditional book in an important way.

Running on Sprint Nextel's high-speed data network, Kindle bridges the gap between the perpetual connectivity of a mobile phone and the sporadic connectivity - but superior form factor - of a laptop. There's no need to plug into a computer, the battery will last two weeks, and there are no connection fees. And buying a book is a snap. Freed considered slower connections, like a pager network or 2G, but ultimately determined that 60-second downloads would spur impulse purchases. See an interesting author speak on The Daily Show? You can start reading the book before the interview's over.

The plan has worked like a charm. For titles where a traditional paper and an electronic Kindle version are available, 35% of sales already come from downloads, Amazon says. That suggests not only that Kindle owners love their devices, but also that they're buying impetuously. And the wireless connectivity, which Amazon provides free to Kindle owners, has helped Amazon blaze ahead of its main competitor, Sony's Reader, which requires users to connect to a computer, la the iPod, to download books. (Other competition is coming from publishers such as Hearst and computing companies, including HP (HPQ, Fortune 500). Apple is rumored to be mulling a reader too. Chances are they will all include some wireless connection.)

***

If the success of Apple's iTunes Store offers any guidance to Amazon's grand plan, it's that consumers will pay for content when the bar is set low enough. Sure, there's still plenty of piracy, but for many of us the ease of buying digital music has rendered file sharing a quaint anachronism, a past transgression stored away next to memories of that drug-fueled summer following sophomore year. Music and literature make good analogs because they're both consumed over long periods, and so it's no surprise that with a good enough reading experience, people would shift from paper to digital. But newspapers are consumed more fleetingly. Skimmed. Recycled. Forgotten. What's more, the alternative to paying for newspaper content is to get it free, legally, on the web. And yet, as Freed and Bezos note, newspapers are selling well on Kindle, in no small part because of Amazon.com's seamless back-end billing and stealthy delivery. So there are signs of hope.

At the DX unveiling, the Times and the Washington Post both announced test programs in which they'll subsidize the cost of the device in exchange for long-term subscription commitments in parts of the country where delivery is not available. Arthur Sulzberger, chairman of the New York Times Co. (NYT), was on hand as part of the spectacle. "We've known for a decade that an e-reader product would offer the same satisfying experience as printed newspaper," he said. With "each new generation of Kindle, that dream continues to get closer to realization."

But Kindle subscriptions alone, no matter how long the term, will never save newspapers. The business is built on advertising, and as of yet there are no ads in Kindle editions. Look for that to change. "We want it to be a great customer experience if and when we introduce ads," says Freed. "If the ads were annoying, we'd take a step back."

That makes Amazon sound like a gatekeeper to the digital future - precisely the way Apple is in music. Newspapers may not be making enough from their websites to stave off disaster, but at least they have the control to try various models. "We have to be able to own our customers and deliver on our advertising promise," gripes a senior executive of one newspaper with a Kindle edition. "Amazon doesn't have the business model right yet."

Freed plays down the suggestion that he's in control. "It's much more collaborative than that," he says. "Our role is to listen and learn together. We have shown that consumers love the experience and they're willing to pay for it. Ultimately that's got to be good."

Advertisers are of course itching to infiltrate the space between Kindles and their devotee owners. "Our brands are meeting with e-readers. We're definitely excited to test models," says Kelly Twohig, executive vice president of Starcom, which works with Kellogg, Allstate, and Nintendo, among many others. "Anytime we're able to follow consumers, it's very promising."

Advertisers and publishers, especially magazine producers like Fortune's parent, Time Inc., are salivating over the prospect of a color-screen Kindle. (Fortune is available on Kindle and is in talks with Amazon to offer unique content on the device.) Display makers such as Plastic Logic say color is only a couple of years away. But Bezos says the technology is nowhere near ready. So what's next? The only hint he gives about his "10-year road map" comes in reaction to an observation that the wireless connectivity could foster interaction (think virtual book clubs) among Kindle owners. He calls the suggestion "very perceptive."

Wherever Kindle is headed, Bezos certainly seems excited about his renewed focus on bringing long-form narrative to the people. The strong-willed dotcom hero turned bona fide titan speaks about his un-gadget the way a President might hint at a legacy. "Humans record our history through writing," he says. "The Kindle team knows they're working on something really important. It's a team of missionaries."

Missionaries preaching to an industry that's dying to be saved.

REPORTER ASSOCIATE Jessica Shambora contributed to this article. To top of page

Company Price Change % Change
Bank of America Corp... 16.16 0.64 4.12%
eBay Inc 55.89 2.49 4.66%
Hewlett-Packard Co 37.00 1.88 5.35%
Intel Corp 35.15 0.65 1.88%
Apple Inc 100.58 0.01 0.01%
Data as of 4:03pm ET
Index Last Change % Change
Dow 17,039.49 60.36 0.36%
Nasdaq 4,532.10 5.62 0.12%
S&P 500 1,992.37 5.86 0.29%
Treasuries 2.41 -0.02 -0.78%
Data as of 8:45pm ET
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