Remind me Again, Why is There a Kindle?

Don't me wrong--I've been the proud possess or of a Kindle (I) since Mrs. Buce presented me with one a couple of Christmases ago. I carry it with me; I've got 100 books on it, including a complete Shakespeare; I was reading on under my little clip-on light, just last night when I couldn't sleep. It's a little beat up around the edges (I am a serial abuser of physical equipment). But we're practically joined at the hip.

And don't get me wrong again: electronic books are here to stay. Complain as we may, they're only going to get more pervasive and, on the whole, better--more readable and more generally usable.

But--why the Kindle? As many have pointed out, what we've got here is an overpriced and underpowered laptop. Is there anything--anything--that can be done by the Kindle, which cannot be done by any computer appliance with a laptop connection?

I can think of only two possible ways of saying "yes" to that question, and neither seems decisive on the larger issue. One: long battery life. The tradeoff of having such a limited machine is that it doesn't suck up much juice. You easily can bang around with it for several days without a refill, if you are discreet about your actual use. And two: instant access to the Amazon honey pot from any place in the US (sic, not yet "the world").

But is that enough? Lately we've encountered the Ipad (I don't own one) which offers--so they tell me--something very close to the same experience. And closer to home--even more telling--I've got that Kindle app on my little $329 netbook. It isn't quite the same as the Kindle itself. To read, I do have to peer over the keyboard. So far as I can tell, I don't have instant access to the Apple net. I don't have a week-long battery--but I do have a battery which runs 6-9 hours (depending on how I use it) which for almost every purpose is, thank you quite long enough. And backlit. Did I say backlit? I could do away with that little clipon light.


So on balance, the difference between the Kindle and the netbook is at best pocket change.
There's also the matter of availability on my mobile. I don't have it right now; turns out my device is too old or kludgy to install. But that's a detail; like everyone else on the planet, I will be buying a new mobile soon, and I'll make sure to get one that will take an ebook app. No, no, I don't want actually to read War and Peace on a 1.5-inch screen. But as a distractor while standing in line at the DMV--oh, I can only dream.

So: had Amazon simply introduced the app first, I can't see why anyone would have bought the app at all. They made one of the oldest of business mistakes: they failed to understand what business they were in. They weren't selling devices, they were selling books, and they could sell them as well or better without the device. Oh and perhaps needless to say--if this is true of the Kindle, I really can't see any future for the Barnes & Noble Nook. And those other guys, those poor forlorn first movers, I forget, name begins with S.

Free Kindle OK!

Some people are all in a twist over the news that most of Kindle's top "sellers" are actually free--nine of the top 10, 64 of the top 100. But is this surprising? Seems to me it is just what you would expect. If a clerk leaves a bowl of free candy next to the check-out counter, it will be free before the clerk goes on her next break. The only difference with the Kindle is that the candy is probably more expensive--recall that the marginal cost on all these books is effectively zero. Granted that the sunk cost has to be something > zero, but I bet not much, and in any event, I bet Amazon ain't payin' it.

Anecdote as data: I scroll the free stuff from time to time, have added a few, have knocked a few off for space reasons (all free, what's the big deal?). I've also bought about 70 books over the year since I got it. I don't know how many I would have bought in paper but I know it is not 70, so Amazon has squeezed something out of me. I suspect that maybe none of my 70 is in Amazon's top 100, but I do suspect my dollars are just as green as anyone's else.

Afterthought: have you any idea how handy it is to have a Complete Shakespeare on your Kindle? Never at loss to complete a quotation. Or for solace in a dark moment. Not very well edited, but good enough, and hey, it's free.

The Best Finance Book I've Read So Far This Year[aka, Cliff Notes for Finance Professors]

The best finance book I've read so far this year (and I've read a slew of them) is Robert C. Pozen's Too Big to Save? How to Fix the U.S. Financial System. But it fits in a somewhat specialized niche. If you are new to the current crisis, it is not the first book you should read on the topic. For narrative framework, I'd recommend this or this, either followed by this. No: instead of overview, what Pozen offers is an analytical framework on virtually every important practical issue in finance, together with recommendations. In short, what we have here is the book that every business/finance professor wants needs. Not to assign to his students: nothing to vulgar as that. What you do with Pozen is stuff it in your top drawer and sneak a peek whenever you want to look brilliant. I can't think of anybody who has covered such a range of issues so efficiently or so well.

But it's not a simple miracle. Pozen brings a lot to the table: he's chairman of a major money manager. He's had a string of posts in the finance industry, with a strong minor in public policy (I assume that he is the same Robert Pozen who, back in a simpler time, co-authored a Ralph Nader report on the state of Delaware). So he has to be in command of a lot of technical detail that most professors don't know (he also authored a couple of academic textbooks, so there is some crossover). What comes closer to miraculous is his talent for exposition: there may be others who can command this kind of detail, but I don't know anybody else can make it march in serried ranks. Pozen has the presentational skills of a journalist (which he is not). In his current guise, it's a blessing.

What we have here, then, is a comprehensive aide-memoire, but Pozen goes it one better. At the end of each chapter he offers up a "summary"--some of them not a lot shorter or less detailed than the original, to serve as an aid to an aid. I wonder if he has a third version tucked away in his laptop somewhere--the superlong version, written before his publisher made him cut it down to a book.

I almost wrote that the book was "about the current crisis," but that's not quite right: Pozen covers a range of issues, and if they all seem to be related to the current crisis, it is more because of the reach of the crisis than the narrow relevance of the issues. So what we have here is not quite an encyclopaedia, but an impressively extensive review of so many of the issues that concern anybody who cares about finance.

With so many specific practical recommendations, it is hard to provide a useful summary but it is possible to note some patterns. Pozen is clearly a guy who likes markets but has seen enough of them to know that they don't just invent themselves. Virtually all of his solutions, including those that involve some kind of government intervention, seem pretty clearly directed at making markets function better.

In the current uproar, he is refreshingly unimpressed by some of the popular shibboleths. He seems to have no truck, for example with the "all-Jimmy-Carter's-fault" school of policy criticism, which argues that all our travail can be laid at the door of those who wanted to increae home ownership. In the case of FNMA and GNMA, for example, Pozen seems much more impressed by the pressure the mortgage-buyers experienced from the CEO of Countrywide Finance than anything they may have felt from Chris Dodd or Barney Frank. He's similarly unpersuaded by those who say it was all the fault of marke-to-market accounting. Pozen does his best to lay out the classic case for truth in disclosure; on the way he provides an admirable nontechnical introduction to the narrow accounting issues.

On the other hand, Pozen is no more impressed by the idea that it was all the fault of the repeal of Glass-Steagall. Pozen makes a fairly sophisticated argument here. He grants that commercial banks gained some new freedom after repeal. But he says that many of their goals they had already achieved interstitially years before outright repeal. And (we are getting close to the point now) some banks exercised their newer, broader powers; some did not. The kicker is that those who did use their broader lending powers appear to have got into no more--and perhaps less--trouble than their brethren who did not. I might add:there might be other reasons why repeal of Glass-Steagall was a bad idea, but if Pozen is right, then culpability for the late meltdown is not one of them.

This is so rich that it seems captious to ask more of it. Still, one's appetites are insatiable and every frontier is a horizon. For example, I wish he had used a bit more of his formidable power as an explainer to throw some light onto the process of securitization--to show why the core idea of securitization really is quite a good one, while the recent innovations are justs betrayals of its good name.

Similarly, although Pozen didn't pretend to write a big-picture book, I'd love to know how he feels in general about the "asymmetry" issue that Barry Ritholtz treats so well: to what extent, for example, does he think we can blame our troubles on the shift to corporate structure at the great investment bank, and the corollary institution of heads-I-win, tails-you-lose incentives. And if I am on the right track so far, why (in the name of all that is holy) did shareholders ever let them get away with it.

And just to show I kept my eyes open, let me offer one policy point that seems to me germane to his discussion, but which he didn't touch on. The issue is executive compensation. Pozen is justly (I think) skeptical of the capacity of government to solve the problem of compensation obscenities; the job will be done, if at all, by better structured boards. In general, Pozen favors incentive-based compensation--but much reformed and improved from the phony incentives on offer today. But here's what he overlooks: almost every serious incentive scheme keys executive earnings to stock value. The trouble with this is thar stock value is not asset value. And as against the assets, shareholders on a leveraged balance sheets have perverse incentives from the get-go. They are impelled by the structure of the enterprise to take value-reducing risks. I admit I am not a careful follower of the debate over executive comp, but I don't know of any serious player who pays any attention to this issue. Pozen is ideally positioned to do so; I wish he would.

So, two points off for incompleteness, but it still leaves him way ahead of the pack. Although there is a final irony here. This book is nothing if not "timely": completely up-to-date and apposite to our current concerns. The irony is that it will be out of date next week. So read it quickly, and enjoy.

Oh, but a word of caution: don't get the Kindle (unless, perhaps, you have one of those new giant jobbies, of which I suspect they have sold about two). This book has far too many charts and tables, unreadable in the tiny format. And right now in the mess on my desk I can't even find mine, but that is another problem.

Bubble, Bubble, Toil and Trouble....

Tom Weber puzzles over the mysteries of making money:

Remember when charging $2 for a cup of coffee sounded wacky? When Starbucks arrived in cities across the U.S., it didn’t just bring a better (to some) cup of joe. It also created an environment intended to increase coffee enjoyment—bringing comfy chairs and room to sit. In most of my local Starbucks, those chairs have been replaced by less comfortable, more efficient versions—but the price point of coffee has been moved higher forever.

Well, he's right about the $2 part--high priced coffee was a major inflection point (and let's not even talk about putting on a bit of whipped cream and cinnamon and charging $5.95). But I'm not sure it has anything to do with providing a nice environment, or, indeed, providing anything at all. There had been coffee shops with comfy chairs for years that simply didn't have the balls brass to stick you for half an hours' pay for a cuppa joe. The real genius was the one who realized you could get more money just by asking for it.

There are limits here, of course. If tomatoes are going for a buck a pound at the Farmer's Market, I won't get to go home happy just by charging a buck ten. But there seem (in retrospect!) to be an amazing number of products where, if you say: "how about paying twice, five times, twenty times, what the product is really worth?"--the customer will say "oh--okay."

There's probably an impressive range of stuff for which this turns out to be true. My own pet example is still greeting cards. Children: those things used to sell for pennies--i.e., just about what, on a liberal definition, they are actually worth. Maybe the iconic genius of modern capitalism was former Nixon Treasury Secretary William E. Simon, when turned $330,000 into $66 million in 18 months when he flipped Gibson, an obscure second-tier provider of cardboard and crayoning into a first-class money machine.

The other great example, of course, is executive compensation. How else to explain, e.g., Stan O'Neal walking away from the charred wreckage of Merrill Lynch with a $160 million severance check? I love it: Stan O'Neal as the decaf soy macchiato of the corporate world.

Weber, by the way, doesn't seem to believe his own analysis. A nanosecond after that stuff about chairs, he concedes:

In most of my local Starbucks, those chairs have been replaced by less comfortable, more efficient versions—but the price point of coffee has been moved higher forever.

And in any event, his real topic is not coffee, but the Kindle, Amazon's overpriced and underpowered laptop computer--the question of how, and if, it will succeed. Weber's analysis: the secret is that it is overpriced and underpowered. Go read him for yourelf.

Give Away the Pipes, Sell the Bubbles: Amazon Div.

I see that Amazon has introduced its second new Kindle this year--this one at $489. For so many reasons, this is a business that makes less and less sense. As many people have pointed out, this is a product for which the marginal cost is essentially zero: once you've digitalized the book, you don't have to pay for anything except a throb on the ethernet--no ink, no paper, no warehouse, no shipping, zip. Someone has conned Yglesias into reporting "that the post-cleanup conversion process is sufficiently expensive that, at this point, publishers are generally losing money on their Kindle sales." Unless they are digitalizing by carving with obsidian chips on sandstone, this seems vastly unlikely to me. But if true, it raises the larger question--why charge so much for the support system. My friend in the book biz points out--the Kindle is basically a razor, where you want to give away the support system so's you can make it on extra sales. At zero fixed cost (to the customer), you'd sell enough copies of almost anything to justify the digitalizing.

Free Kindles for all! What a program! Of course I never understood Amazon's business model in the first place.

Department of "Can They Do That?"

Scariest story I've read all day (link).

Another Wonky Kindle Note

Researching stuff to load onto my Kindle for a trip to Tunisia, I find The Regency of Tunis and the Ottoman Porte, 1777-1814, with a Kindle (!) price of$152 (20 percent saving over the $190 "digital list price." Or, there's Fountains in the Sand; Rambles Among the Oases of Tunisia at, um let me see here--yes, zero.

I'm thinking, I'm thinking. I'm thinking that these prices need to rationalize.

Times v. Kindle

This one seems to be going viral but I am not ashamed to join the chorus, or pack, or throng:

Printing The NYT Costs Twice As Much As Sending Every Subscriber A Free Kindle

Not that it's anything we think the New York Times Company should do, but we thought it was worth pointing out that it costs the Times about twice as much money to print and deliver the newspaper over a year as it would cost to send each of its subscribers a brand new Amazon Kindle instead.

Here's how we did the math:

According to the Times's Q308 10-Q, the company spends $63 million per quarter on raw materials and $148 million on wages and benefits. We've heard the wages and benefits for just the newsroom are about $200 million per year.

After multiplying the quarterly costs by four and subtracting that $200 million out, a rough estimate for the Times's delivery costs would be $644 million per year.

The Kindle retails for $359. In a recent open letter, Times spokesperson Catherine Mathis wrote: "We have 830,000 loyal readers who have subscribed to The New York Times for more than two years." Multiply those numbers together and you get $297 million -- a little less than half as much as $644 million.

And here's the thing: a source with knowledge of the real numbers tells us we're so low in our estimate of the Times's printing costs that we're not even in the ballpark.

Are we trying to say the the New York Times should force all its print subscribers onto the Kindle or else? No. That would kill ad revenues and also, not everyone loves the Kindle.

What we're trying to say is that as a technology for delivering the news, newsprint isn't just expensive and inefficient; it's laughably so.

So Nicholas Carlson at Silicon Valley Insider (link, and H/T Joel). Lots of commentators take shots at the argument: is he counting subscribers right? Is he ignoring the showcase value of airport newsstands, etc? But it's plausible and catchy enough that arrests the attention of people like me who don't give it much thought but find it believable anyway.

Local data input: we've been been getting the Fri-Sat-Sun NYT. Mrs. B is a paper person. I will scan it at the breakfast table, but I am as likely as not to repair to the laptop and read the same content there. One thing I do seem to read on paper only is the Sunday book review, and why is that?

LiveBlogging the Kindle Again

My Kindle greeted me this morning with a message of congratulations on being an early adopter. My heart sank. The last thing I want to be is an early adopter of anything--high prices, exponential inconvenience. Indeed, that's why I waited a year. But an early adopter I am and I know (or at least I hope) the inconveniences I am experiencing are not those that will be suffered by those who come later. Here are a few notes:

• It's terrified of water. No, I am terrified of water in proximity to the kindle. I am a clumsy ox: I daily spilll coffee, fruit juice, fizzy water, and would cheerfully spill house paint or battery acid if I had the chance. I trashed one laptop last year with a glass of champagne (it was old). I think Kindle is still a bit on the pricey side, and I'd be pretty glum if I had to buy a new one before I had amortized the old. I don't leave it on the bedside table with a water glass. I'm skittish about taking it out next to coffee. I wouldn't even think of taking it in the shower--oh wait, I don't do that with paper books either.
  

• Keeping track of what's important can be a nuisance. Note-taking is clumsy and inconvenient. "Clipping" is clumsy and inconvenient. Worst, I can think of any way tdo export these notes: if they want a serious academic audience, they are just going to have to figure out some way to team up with Evernote, or Zotero, or somesuch. Oh, and by the way, how do you cite it? You don't get page numbers; you get line numbers, which vary as a function of the selected type size. I assume there is a committee at work on this one somewhere.

• Oh, and footnotes. They promised footnotes. Right now, my Kindle book is Peter L. Bernstein, Capital Ideas Evolving. It has two sets of footnotes: "asterisks" and numbers. Kindle does give links to the asterisks but not to the numbers. I suspect this may just be an operational error (the kind of thing you live with if you are an early adopter?). But if they intend to make it a practice, that's another reason why it will be useless for scholarly work.

Bottom line: I still like it, pretty much. I seem to be using it a lot. It's convenient on the exercycle and in bed. It pops easily into the backpack, although I must be careful to keep it where it won't get rained on, and I'm still carrying a backup book for places where I can't use it. But as the fella says, times change and we must change anon. Or was it anon who said that? More later.

Salmon on Blodget on How Not to Fix the Times

I must say I enjoyed Felix Salmon's ungentle fisking of Henry Blodget re how to save the New York Times even though I am not persuaded by--nor can I follow--every bit of it. But hey, this is still a blog entry, and they don't have to make 100 percent sense now do they? I certainly endorse the idea that you can't treat the newsroom as a theatre for Taylorite efficiency studies. It takes me back to my time in the city room: at some point, some thimble-head sent in a time-and-motion guy whose job was to ask three minutes what the reporters were doing right now: evidently they thought the solution to the problem was to get us to type faster. But a larger issue that they missed, and that Blodget missed, is that a newspaper city room profits from a certain amount of ludic horseplay: it keeps people motivated and alert, and it serves as a great forum for the transmission of ideas (I assume that something like the same philosophy is at work in the loosey goosey management style said to reign at Google). Indeed, if there is a problem with city rooms right now it may be that the new technology has cut down on just the sort of interaction that made the old-fashioned city room thrive.

Still, I think Felix dances around the core economic problem: newspaper readers never paid for content, they paid for paper and ink and delivery; advertisers paid for content. And until somebody figures out how to bring them back into the game (or finds a substitute) the downward spiral will continue.

A final poiint: Felix likes his physical newspaper at the breakfast table, and on the train. News: the New York Times and the Financial Times were offering promotional freebies just this morning-at Kindle, for download. The FT, by he way, is priced actually higher on Kindle than the lowest available street price: evidently they are figuring that somebody (globetrotters?) will be wooed by the allure of instant-anywhere.

[For people who get their fingers greasy at the table, Kindle also offers an "automatic page turner option." I leave it to the reader to decide whether this a design feature or a ludicrous misadventure--haven't used it myself, and doubt that I will.]

Update: Thedeal.com has a nice wrapup on the general blogosphere debate.