Demand_Creating What People Love Before They Know They Want It

by Adrian Slywotzky

  From the start, the basic E Ink technology was highly promising, enabling the company’s founders to draw some $150 million in start-up capital from companies like Intel, Motorola, Philips, and Hearst Interactive Media. But the circuitous path from innovation to demand would prove to have many more twists and turns.

  With the benefit of hindsight, E Ink’s CEO Russ Wilcox has described the “naïveté” he and his colleagues brought to the start-up process:

  We understood that it was probably going to take two years to make something that people wanted to buy. And in terms of making something that looked good, we did that. But what we didn’t see in the beginning, and learned over time, was that it would take another two years to go from something that looked good to something that would look good for many years under all operating conditions—in other words, to achieve stability and robustness. And then it would take another two years to get something that you could reproducibly manufacture, at an affordable cost point.… It’s a very complex system design that combines chemistry, materials science, electronics, optics, and mechanical engineering.

  By 2004, E Ink had been developed to a point where something close to Joe Jacobson’s early dream of an electronic book was feasible. Sony’s Yoshitaka Ukita had licensed E Ink technology to create the Librié for the Japanese market. E Ink, which had been running on fumes, saw its revenues soar that year. Finally the company had a chance to put its technology in the hands of thousands of customers.

  And, once again, the magical link between technology and demand failed to materialize.

  The crucial factor, as Ukita told us years later, was the nature of the support given to the Librié by the Japanese book industry. Mindful of Sony’s reputation as a brilliant creator and marketer of electronic products, the publishers assumed that the Librié marked the beginning of the end for the print-on-paper era in their industry. And they hated the idea. Fearing loss of control over their own products and their elimination as needless middlemen, the publishers decided they had to battle the e-book with everything they had. And they chose to do so in characteristically oblique Japanese fashion—by supporting it.

  When Ukita met with the publishers, they were outwardly positive. They praised the technology and complimented Sony on its coup. They promised to provide access to their publishing libraries, and they even offered to invest in the new product. To all appearances, Sony had succeeded in creating a powerful network of allies in its quest to revolutionize publishing in Japan.

  But in reality, the publishers had quietly resolved to provide Sony with just enough cooperation to kill the Librié altogether. Each of the ten leading publishers agreed to give Sony access to one hundred book titles. A thousand books might sound like a lot. But visit any bookstore and count off a thousand titles from the shelves that surround you. You’ll soon realize that this amounts to perhaps one corner of a typical bookstore or Barnes & Noble outlet—enough to engage the interest of a browser for five minutes or so, but not much more.

  It didn’t help that the Librié had to be physically tethered to a PC to download books, which was awkward and inconvenient, or that ownership of an e-book expired after an arbitrary sixty-day life span. But it was the passive aggression of the Japanese publishers that delivered the fatal blow. Sony’s device was well designed and technologically remarkable—but what good is an e-reader that provides access to just a handful of books and snatches them away if you don’t read fast enough? It was the Curse of the Incomplete Product—the cardinal error of One-Click World—spelling doom for a technically superb device from one of the world’s great consumer electronics companies.

  A cool piece of technology with a badly designed backstory is like a movie that features big-name stars … along with ludicrous dialogue, impossible-to-follow editing, and laughable special effects. Neither one is destined for box-office glory.

  WHICH BRINGS US, at last, to the breakthrough success of the Kindle—an overnight sensation thirty-five years in the making.

  Many CEOs are every bit as smart, knowledgeable, and hard-working as Jeff Bezos, founder of Amazon. But Bezos has a couple of qualities that distinguish him as a great demand creator.

  One is that he is incurably inquisitive about how things really work. He is also obsessively customer-oriented. He summarizes his business strategy this way: “Whenever we’re facing one of those too-hard problems, where we get into an infinite loop and can’t decide what to do, we try to convert it into a straightforward problem by saying, ‘Well, what’s better for the consumer?’ ”

  This isn’t just lip service. All the elements of Amazon—from the crystal-clear design of its website and the simplicity of its single-click shopping system to the seamless incorporation of offerings from thousands of other retailers and the unobtrusive but always-available value-added features such as customer reviews and individualized product recommendations—all are tailored to make the consumer experience as easy, pleasant, complete, and satisfying as possible. They apply this principle even when it appears to hurt sales. For example, recognizing that customers with large collections of books or CDs sometimes mistakenly order a product they’ve previously purchased, Amazon provides a warning before the “confirm order” button gets pushed. Yes, this discourages a few sales, and some in Amazon considered it unnecessary. But Bezos said, “We know this is a feature that’s good for customers. Let’s do it.” In the long run, happy customers will return to Amazon.

  Bezos and his company have followed this approach from the beginning, when they were running yearly deficits because they offered services that seemed impossible to turn a profit on, and have maintained it to this day, having become the world’s second-most-valuable retailer (trailing only Walmart) and one of the most profitable.

  The other special quality Bezos exhibits is a certain kind of eyesight that few people have.

  Back in 2004, an ordinary person looking at Sony’s Librié might have said, “Oh, that’s a cool device. Wonder if anyone’ll buy it?” A typical book retailer would probably have turned up his nose, sniffing, “We’ve seen these electronic readers come and go. My customers love the feel and smell of real books.” Both responses would have been understandable.

  But Jeff Bezos looked at the Librié—evidently he first glimpsed it at a business conference where E Ink’s Joe Jacobson was demonstrating it—and said, “Uh-oh—this is a machine that could destroy my business.”

  Now, this wasn’t literally true—a Japanese-only reader with access to a rental library of just a thousand books posed no threat to Amazon. But with just a little bit of imagination, Bezos could envision a next-generation Librié—one with multilanguage capabilities, a wireless connection to the Internet (so that books could be purchased almost instantly rather than being downloaded through a separate computer link), and access to a vast online bookstore like the one Amazon itself maintained, or (and here Jeff Bezos might have shuddered just a bit) the one Barnes & Noble had launched in 1997. In other words, an e-reader that backed up its amazing display technology with an equally brilliant backstory.

  Such an e-reader would have the potential to revolutionize book buying, sweeping away the remaining hassles that Amazon itself had been unable to remove. “I’ve got millions of customers who love getting books from me in two days,” Bezos must have thought. “What if somebody else can deliver them in two minutes?”

  Bezos ordered thirty Libriés for his staffers to play with, to study, maybe to disassemble and tinker with. And soon he was in touch with the E Ink people to ask, “How can we work together to build a better e-reader for the U.S. market?”

  In a way, it was an utterly bizarre project for Amazon to tackle. Amazon wasn’t a maker of electronic gear, like Samsung, or of computers, like Apple, or of wireless-enabled phones or equipment, like Nokia—any of which would have seemed a more natural partner for E Ink. But Bezos was doing what he does best—working backward from the customer’s hassle map, sussing out the new forms of demand that map implied, and th
en asking, “What will it take for Amazon to meet that demand?” If the answer was “Building a great e-reader,” then that’s what Amazon would do.

  Bezos set up the project carefully. When a company is successful and growing rapidly, it’s hard to fund and manage a potentially revolutionary product or service within the mainstream corporate environment. There’s too much potential for internal rivalries, budgetary pressures, imagined threats, ingrained assumptions, and habitual behaviors to subtly derail the project. So Bezos assigned the job to his right-hand man, Steve Kessel, a person whose visibility and recognized clout meant he’d have little trouble marshaling the attention of people within and without the company. He gave Kessel a new title (senior vice president of digital) and created a separate business unit to house the project, giving it the Ludlumesque name of Lab 126.

  Located in the technology hotbed of Cupertino, California (both for access to the best talent and to insulate it further from the pressures at corporate headquarters in Seattle), Lab 126 was handed over to the day-to-day leadership of Gregg Zehr, a wunderkind with previous stints at Palm, Linux, and Apple. Zehr in turn hired a collection of other brilliant technology types. They set to work designing the world’s best e-reader—including the backstory elements that the Librié had failed to deliver.

  “If anyone is going to destroy our online shopping business model,” Jeff Bezos had decided, “it’s going to be us.”

  MEANWHILE, SONY’S UKITA hadn’t given up on his e-reader dream. Even as the team at Lab 126 set to work, Sony was tackling the flaws of the Librié. The new Sony Reader was introduced into the American market in 2006. Although the Reader still didn’t have its own wireless link, it did boast a large (six-inch diagonal) screen with improved contrast and readability as compared to the Librié. The buttons were better designed and the device felt comfortable in the hand. Reviewers waxed poetic. Descriptions like “beautiful,” “extraordinary,” “elegant,” and “amazing” were tossed around.

  In an attempt to upgrade the Librié’s disappointing backstory, Sony worked assiduously with publishers to assemble an attractive list of book titles to sell through Connect, its corporate version of the Apple iTunes Store. There was just one problem: By the time the Reader was introduced, Connect was already moribund, having failed dismally in the competitive race against iTunes. The resulting shopping experience, though an improvement over the Librié, was less than scintillating. One reviewer wrote in 2007:

  Though Sony threw in the towel on the music side of its online store Connect earlier this year, the e-books division is still alive and healthy. Well, it’s alive, anyway …

  Sony claims more than 20,000 titles for the store, and the selection certainly seems varied enough to keep readers occupied. The store is simple to use, if spartan, with capsule reviews from Publishers Weekly and space for user comments. Unfortunately, that space is largely empty; even such popular titles as Freakonomics, The Tipping Point, and Stephen Colbert’s I Am America (And So Can You!) have no comments yet. This sort of thing makes Connect feel like a ghost town filled with vending machines; you can get what you want, and you know that people must come through to top up the supply of Cokes, but boy, it sure looks empty.

  We can’t help but wonder what the history of demand might have been like if Sony had teamed up with a major bookselling chain such as Barnes & Noble or even with a big independent bookstore like Powell’s, in Portland, Oregon, or Denver’s Tattered Cover, rather than using its own retail site. The Sony Reader, preferably equipped with a wireless connection for downloading contents and coupled with an online book source nearly as extensive as Amazon’s, might have opened the floodgates of e-reader demand while Amazon was still perfecting its own device.

  But it didn’t happen. Sony failed to fully grasp the make-or-break importance of backstory to the future of the e-reader—despite having witnessed how backstory weakness had spelled the doom of the Librié. The new backstory Sony crafted was improved, but not by enough. Another near miss was added to the lengthening saga of the e-reader. Would this be the fatal blow that finally spelled the end of E Ink and, perhaps, of the quest for the holy grail of electronic book publishing?

  No—because fourteen months later, in November 2007, Amazon released the Kindle.

  Strictly as a reading device, the Kindle offered no significant advantages over the Reader; in fact, it was slightly less sophisticated than the Sony device. (For example, the Kindle offered just four shades of gray rather than the eight boasted by the Reader.) But the screen-to-screen standoff paled in importance against what you saw when you looked behind the screen.

  Kindle’s advantages began with its wireless connection for downloading books—a crucial infrastructure link previous e-readers had failed to include. In truth, using a USB cable attached to a PC is not terribly onerous. But every added step, every extra restriction, every additional piece of gear needed to perform an activity makes a product dramatically less magnetic. Unplugging the PC wire gave Kindle users freedom—and gave the Kindle an essential touch of magic.

  More important was Amazon’s unmatched catalog of e-books for sale. After more than a decade building the world’s biggest online bookstore, Jeff Bezos had developed working relationships with every major publisher—and having pioneered Amazon’s “Search Inside the Book” feature in 2003, he’d even amassed experience with digitizing texts. Now he deployed these advantages to make the e-book experience unforgettable. On the Kindle’s launch day, there were 88,000 e-books available for download, including practically all the current New York Times bestsellers—more than four times the number available from Sony. Better still, anyone with an Amazon account could buy them with a single click. Most were priced at ten dollars, a significant discount from the typical cost of a trade paperback or especially a new hardcover book. Subscriptions to the New York Times and other online periodicals were also available, making the Kindle a handy alternative to the familiar laptop for keeping up with the news online.

  Yet another backstory strength available to Bezos was his company’s ongoing relationship with some 65 million online shoppers—including several million avid book readers whose buying habits (and e-mail addresses) were known to Amazon. If visitors to Sony’s online bookstore felt they’d wandered into a “ghost town,” Kindle users found themselves in a friendly, familiar setting where book recommendations tailored to their preferences and lively reviews by readers with similar interests jostled happily for their attention.

  Look at the Kindle, and you don’t see the wireless connection, the relationships between Amazon and publishers, the vast and easy-to-use online bookstore, or the personalized book recommendations. But all these backstory elements—invisible yet powerful—dramatically enhanced the e-book experience, giving the Kindle the magnetism its predecessors lacked. Despite the hefty price tag of $399 (and the fact that the device was available only through Amazon, not in any stores), the first production run of Kindles was sold out within five and a half hours.

  Suddenly—after thirty years of trying—e-reading technology had tapped a mother lode of demand, thanks mainly to the multiple advantages that Amazon offered to consumers over and above the E Ink screen itself.

  Based on our interviews with dozens of readers, we believe another factor contributed to the emergence of demand for an e-reader in 2007: the growing ranks of green-minded consumers. A significant number of our interviewees volunteered, unbidden, the fact that they hated thinking about the trees sacrificed to print the newspapers, magazines, and books piling up in their apartments.

  There are still traditional book lovers who refuse to touch e-readers because “I love the feel and smell of paper in my hands.” But their numbers may now be matched or even exceeded by those who feel guilty about the old-fashioned pleasures of paper. This was probably a modest factor in the successful launch of the Kindle—but a real one whose importance is still growing.

  For all these reasons, the Kindle achieved the demand breakthrough that E Ink
had been searching for. By the end of 2008, one analyst estimated Kindle sales at 500,000 units, making it a roughly $200 million business—a startling leap forward for the nascent e-book industry.

  True to its nature as a customer-centric, demand-focused company, Amazon didn’t stop at Kindle 1. Within fourteen months (in February 2009), an improved Kindle 2 was released, featuring a modest price reduction (to $359), a sleeker and more ergonomic design, quicker refresh times for the E Ink display, and new text-to-speech technology that enabled the device to “read aloud” the texts of books. Like its predecessor, the Kindle 2 flew off the shelves. In October—just in time for holiday sales—pop culture icon Oprah Winfrey declared on her show that she had “fallen in love” with the Kindle 2. (E Ink employees today grin when they recall the thrill of gathering in the company’s big central workroom-cum-meeting space to watch TV images of Jeff Bezos handing out free book-filled Kindles to the cheering members of Oprah’s studio audience … and the sudden terror of realizing that their new biggest problem would be manufacturing E Ink displays fast enough to keep the machines in stock.)

  In May 2009, a third Kindle model was added to the lineup. The Kindle DX has a larger (9.7-inch) screen, can read PDF files (as well as Kindle-format digitized books), and can be rotated for use in either portrait or landscape mode. And in August 2010, yet another model appeared, with modest performance improvements and a dramatically reduced price—$139 with a Wi-Fi connection, $189 with 3G.

  Perhaps most important, Amazon’s Steve Kessel, now known as senior vice president of Kindle, claims that Kindle owners buy books at a rate 2.7 times greater than when they were shopping via mail, the old-fashioned way. To adapt the familiar razor/razor blade analogy, imagine if Gillette could come up with a way to make its customers want to shave 2.7 times as often! Talk about creating new demand—and building a company’s bottom line.