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Archive for April, 2011

How Amazon can sell a lot more Kindles

April 11th, 2011 satish View Comments

Amazon today launched a version of Kindle for $114, 18% lower than its full price of $137. Amazon will subsidize the difference by showing ads on the device.

I believe that Amazon will not sell too many of those $114 devices because the problem with the Kindle is not the $137 price.

The real problem is that mass market customers are not willing to trade in their physical book for a digital kindle copy just yet.

Customers buy physical books for various reasons. They don’t buy the kindle version even though it is cheaper because they are scared that they will FEEL like buying the physical book at a later time.

In order to push customers over the edge, Amazon needs to give away the kindle version of the book when ever a customer buys a physical copy of the book from them. Customers who have been buying a large number of books from Amazon in the past will instantly have a large collection of kindle books. The library of kindle books keeps growing as customers buy more physical books, with out having to give up buying the physical book. At some point these customers will buy a kindle for convenience. And once they start using the kindle, they might switch over completely.

They need to nudge customers to use the Kindle and the way to do it is not to give away the device. Customers need the digital version of the books to understand the value of a Kindle.

So Amazon, if you want to speed up Kindle adoption, just give customers who are already paying for the physical book a free kindle edition. You don’t even have to lower the price of the device.

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Why Google needs to build a vertical experience in Travel and also acquire ITA

April 8th, 2011 satish View Comments

Bill Gurley’s post “Google Acquires ITA: Will Deeper Vertical Integration Lead to Higher Revenues?” got me thinking about Google’s intentions.

Bill thinks that Google may lose revenue and makes his case by saying that:

1)      CPC pricing on Google is Irrational today because market places with less sophisticated customers leads to an edge for the market which is Google.

2)      Moving from a marketing channel to a transactional channel will lead to loss of revenue as the customers will stop paying for life time value and demand paying for current transaction value.

Both of these arguments hold for highly competitive markets with some less sophisticated customers where Google plays arbitrator. Secondly the vertical also needs to be an area where users come to Google first instead of going directly to a vertical site like Amazon.

The problem is that both those conditions don’t hold true for travel.

  • Kayak, Orbitz, and Travelocity market directly to the end customer on TV and drive traffic to their sites, which could be leading to a drop in the overall volume of travel queries.
  • Travel sites might also be realizing that a larger share of their customers are coming directly to their site and reducing adwords purchase budgets.
  • Finally, I would expect companies like Kayak and Orbitz to be sophisticated in paying for customer acquisition costs.

So Google needs to figure out a way to regain mind share in travel to grow revenues in this vertical. And the only way to do that is to provide a compelling flight search and comparison tool themselves. That is where the ITA acquisition comes into play.

The ITA acquisition will provide Google with 2 sets of data for free:

1)      Historical data to predict price changes which Microsoft has access to with the acquisition of Farecast. This will allow Google to provide strong recommendation to customers on when to buy their ticket.

2)      Free access to fare prices for all future dates to give recommendation to customers on when to travel. Usually when you search on Travelocity, you need to search one date at a time. If you look at the flexible date calendar for the next month, there are a lot of dates for which no fare is shown. Sites leave dates blank because they use only previous searches to fill out this calendar. If no one has previously searched for a date they will not have the price for that date. I assume they do this because the cost to search for ITA fares for 30 days is much more than the margin they make by selling a ticket. If Google own ITA they do not have to worry about that. And this information superiority will enable them to provide a better solution for their customers.

Finally Bing is investing in travel because it provides them a beach head to gain market share in search. And Google needs to make sure that Microsoft does not gain a foothold in any vertical that will eventually help them gain search market share.

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How Fred Wilson built an amazing community at avc.com

April 8th, 2011 satish View Comments

Fred Wilson built an amazing community that visits avc.com every day and leaves a large number of comments. I have been a part of that community for about 4 years now. These are my observations on Fred’s efforts that helped built the community.

Getting Started:

  1. Write engaging content and take a strong position. Readers will not leave comments unless they strongly disagree with you or strongly agree with you.
  2. Reply in real-time to have a conversation with anyone who comments on your blog post. They will not comment again if you do not engage with them right away.
  3. Identify people who are leaving smart comments and engage them. Make sure they will return to have a conversation with you frequently.

Gaining momentum:

  1. Incentivize intelligent people by re-blogging good comments.
  2. Highlight people who leave good comments & ideas for blog posts by giving them credit for the idea for the post.
  3. Rarely invite a guest post from a star commenter. Fred Wilson’s first guest post was written by JLM.

Engaging a large established community:

  1. Once you have a decent sized community there are a number of people who read the comments sections but don’t leave comments themselves. When one of those new people leaves a comment make sure you reply. If you don’t reply, they will feel that they cannot break into the community and won’t comment again.
  2. Make a new member feel like he is part of the group, then let them communicate with other frequent visitors.
  3. Once you reach this stage, identify leaders of your community and start to high light them. This will start to delegate leadership of the community. They will spend time engaging other newer members of your community.
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