Thursday, January 28, 2010

Do the Kindle and the iPad ring the final deathknell for the traditional bookstore?

There is a fundamental change already underway in the world of books and it just accelerated yesterday. I don't know whether to be happy to sad.

I have a Kindle. I love it, but I know I am a bit of a geek. To me, evidence that the world of books was shifting forever came when my mother (who is over 70 but how much over is private!) stated that she wanted a Kindle. And then yesterday Steve Jobs announced the iPad which has my kids friends all a'twitter (actually a'texting would be more accurate since Twitter is for old people) about ebooks now.

A couple of days ago I starting researching Amazon in FirstRain and, thinking about this phenomenon, went hunting for interesting content. As with most of our users, I tend to read certain sources and types of content more than others because of I believe they have better insight and are more reliable. FirstRain helps me sort through the noise easily by choosing the content type or sources I want to read. By selecting blogs only, I noticed a story from November titled Amazon (AMZN): “The best is still ahead”

“Amazon announced that its Kindle e-book reader is now its most popular selling item, both in units and in dollars. That led to a big acceleration in revenue growth (28%, the fastest in five quarters), while earnings leaped 67%.”

Expectations are that the holiday season was extremely successful for Amazon as online retailers, by most accounts, took share from brick-and-mortar retailers. The economic disruptions of the past two years have actually meant an acceleration in consumers’ adoption and use of the Internet as a retail channel.

Amazon's earnings call is today so I'll be looking for the transcript on FirstRain tonight (I can't take the time to listen but I will speed read it) since this change to ebooks is such a ground shift in my way of consuming books - which I do voraciously.

But Amazon has bigger plans than my reading addiction. "Amazon is no longer content to be the world's biggest e-tailer. Its new goal is to become the world's leading retailer. Period.”

Aside from the other markets that Amazon has aspirations to dominate, I believe the company will own the market for books, both hard copy and e-books, in the next few years. Sadly the independent bookstore will all but disappear - although maybe there is room for one large single chain for the older readers who like to walk the isles, touch and smell (Yes, one of our engineers at FirstRain actually used the word smell) the books.

From looking into this in our system, it looks like the winner here will be Barnes & Noble (BKS), but I don’t believe the company will grow organically. Over the next few years, Barnes & Noble can prosper by becoming the brick and mortar bookstore choice and Amazon and Apple will garner the rest of the market share for books with both online hard copy sales and e-book sales.

Borders is definitely in decline. It will close an estimated 240 stores during the three months ending January 31, 2010 for a total of roughly 300 Waldenbooks stores over the past 13 months, or close to 70% of all Waldenbooks outlets! Retail analysts at Davidowitz & Associates give Borders Group a 50-50 chance of survival. (Added note - right after I posted this I saw the CEO has announced he is leaving and they are cutting 10% of their corporate staff).

From the Barnes & Noble website, as of October 2009, the company operates 775 stores. However, keep in mind the number of stores Barnes & Noble had at the end of 2004 was 820 so they are also down a bit. The Chicago Sun-Times reports that analysts expect an avalanche of bookstore closings this year. A new report by Grant Thornton report says 10,000 retail stores will have closed by the end of 2009. Of that number, 400 will be bookstores, which is a 500% increase in bookstore closings over 2008.

Within large department stores like WalMart and Target, the small numbers of book titles are probably safe and books will continue to be sold in niche markets like the point-of-sale newsstands in the airport where Hudson Booksellers seems to have most of the market - unless everyone who flys gets an iPad the way everyone who flys today has a cell phone .

Sadly used bookstores will probably disappear as well as no industry undermined by its greatest partisans survives for very long. Remember when CD sales plunged after music could be downloaded? Today, we can find any used book in the World for pennies on the dollar on Amazon and on other sites. “With the Internet, nothing is ever lost. That’s the good news, and that’s the bad news" says author Wendy Lesser in a New York Times piece by David Streitfeld (12/28/08).” But would this mean when I buy a first edition as a gift (as I did for a dear friend's 50th birthday last year) I would not be able to hold it first? Hmmm... not sure about that.

What is certain is that the earthquake for books has hit, the after shocks and still coming - the iPad being the latest - and ten years from now I will probably only be buying the really hard to find history books I read in hard copy. Everything else will be coming from the cloud... another area Amazon wants to dominate but for another post.

Wednesday, January 13, 2010

Will China squeeze the West on rare earth metals in the coming decade?

Here's a really cool use of FirstRain that we've been running - although a scary one at a macro economic level.

Back in August the NY Times ran an article on rare earth metals which prompted us to set up an ongoing FirstRain saved search on the issue. Here's the essence of what it said:

“In each of the last three years, China has reduced the amount of rare earths that can be exported. This year’s export quotas are on track to be the smallest yet. But what is really starting to alarm Western governments and multinationals alike is the possibility that exports will be further restricted.”

The angst is intensifying as many believe China could eventually halt their exports of these elements. This has prompted investors to speculate on the winners and losers which also then gets delivered to us in the daily email report.

To stay on top of this we set up folder with the topic Rare Earth Elements AND China (you can see this in the search bar):

And also set up a daily email report from the saved search to keep us up to date on the issue:

This is where it gets scary. The results of this ongoing report show the growing concern that China will need everything it is producing and it may be only a matter of time until the West is cut off from critical rare earth metals.

For example from IEEE Spectrum this month:

“A single country, China, mines more than 95% percent of the world’s supply of rare earth metals, found in permanent magnets, phosphors, lasers, capacitors, and superconductors. As recently as 2004, China used less than half of the rare earth metals it produced, but according to an estimate by the Industrial Minerals Co. of Australia, in Mount Claremont, China’s domestic demand will overtake its production in less than 10 years. Now Beijing is considering banning exports of some rare earth elements and limiting shipments of others to 35 000 metric tons a year, which would immediately threaten not just electronics manufacturing across the globe but also hybrid vehicles. A Toyota Prius, for example, requires about a kilogram of neodymium for its electric motor and as much as 15 kg of lanthanum for its battery pack.”

or from Resource Investor:

China has a lock on the raw materials required for green energy technology like Indium and Gallium used in thin-film solar modules and Tantalum, which is used in the microchips for cell phones. In addition, China has an abundance of industrial metals like lithium and cobalt, which are used in batteries. If China decides to halt their exporting of these materials, they could essentially monopolize the manufacturing of many sought after components, which will have a large and lasting impact on many industries.

We're headed for a few countries having the "World by its balls" (the quote is courtesy of Business Insider) and here you can read a fascinating presentation. The U.S. has the reserves but it's a small matter of politics (i.e. a very large issue) to get mining going so we don't have our collective balls in a vise.

Tuesday, January 5, 2010

Changing to a new (really cool) vacation policy

We've made a terrific change this year to our vacation policy - which is basically not to have one. As of January 1 our employees can take as much vacation as they need provided they are getting their work done. The idea of doing this for all employees was pioneered by Netflix and we've decided to follow their excellent lead for our US team.

This change is one more thing we're doing to build a great culture. We have a very intense culture today. People work hard, they work long hours inside and outside "normal business hours", from home, from airplanes, and we don't clock or watch the hours they work. So if we don't clock the hours they are here, why should we clock the hours they are not? Why should we be tracking paperwork and forms when an employee takes the day off but we don't do the same for when they work over a weekend.

It is much more trusting and respectful to simply say:

Work the hours you need to to get the job done,

Take the time off you need to take care of yourself and your family and

Talk to your manager about the time you need and how to fit it in with your work.

After all - if we entrust an employee with critical algorithm design, or with talking to customers - why wouldn't we trust them to manage their own time? And one of our five values is "Take ownership for the company's success" so people managing their own time is really consistent with that - I trust them to do what's right.

This is a very popular move as you can imagine and one I am really pleased to be able to do. I asked Ana to give me a Letterman list - the Top Ten reasons this is a great move for our team - here is her list:

1. Each employee gets to make their own decision about when it makes sense to take time off
2. Each employee gets to decide how much time off they need
3. It rewards folks for working smarter, not longer
4. It places trust in our employees - trust gains trust back
5. It differentiates us from our competition - especially when hiring
6. Vacation is good for physical and mental health - so this supports good health
7. It reduces administrative paperwork - always a good thing!
8. It's one less policy we have to document and explain
9. No more accrued vacation liability on our balance sheet
10. It's just very cool to say, “at FirstRain we take as much time as we need, as long as your work is done”

p.s. This last Christmas we shut down between Christmas and New Year to encourage people to take vacation and take a break. It was so popular - both restorative and productive - we're doing it again at the end of 2010 even within this new policy to encourage the break.

p.p.s. The basic idea of not clocking vacation has been around for "executives" for years but for financial reasons - if you store up vacation then the company has to accrue the financial obligation of paying for that vacation on the balance sheet and so, since executives typically cost more, companies often did not accrue or track vacation for VPs and above so they could reduce the accrued liability.

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