If you read the N.Y.Times in its coverage of the disruption of the Kindle, you might think that publishers are losing a fortune from the sudden rise in Kindle sales.

Actually, the opposite is true. Amazon is buying Kindle rights from publishers at the same price they’re paying for physical books. And Amazon is sticking with its policy to sell Kindle books at no more than $9.99. So take your average $20 list price hardcover book (if I were a shameless self-promoter, I would use my book The Genius Machine as an example, since it also has a list price of $20. But I will resist the temptation.) The publisher sells it to Amazon for 50% off, or $10. Amazon could sell my the book for $20, but they discount it down to $13.57, and make a profit of $3.57, or maybe a little less if Amazon is paying for shipping.

Now take the same book sold as a Kindle. Amazon pays $10 for those rights, too. And Amazon sells the download for $9.99, thereby earning a gross profit of 1¢ on each copy. On books that wholesale for more than $9.99, Amazon seems to be locked into a loss with every sale. Read more…

Calling in those McKinsey folks to review your profit and loss numbers in the middle of the deepest recession since the 1930s is a little like having Dr. Kevorkian over to offer a second opinion.

“No, really, I’m feeling fine. Just a little touch of the flu.”

“Not at your age. You know, if you were a new publication, you might pull through. But Harold started you back in 1925. That’s a long, long haul for a weekly. But look on the bright side: it’s been a good run.” Read more…

Eleven-thirty Saturday morning in Tiburon, California. The radios are on throughout the house. We’re listening to a live broadcast from London of Beethoven’s Fidelio, the 50th Proms concert of the season, with 26 left to go. The world’s largest music festival — thousands of performers, many world premieres, many of the world’s great orchestras. Of all the glories the Internet has given us, for me, this is the one I would part with last.

Cultural hegemony is a two-way street. American culture, particularly through our dominance of news, television shows, and Hollywood film, tend to suffocate local culture. In many parts of the world our cultural intrusions are resented. But we can’t help it. We hardly notice the local flora and fauna that disappears under our tread. Read more…

Isn’t it great that our kids are stuck with us for a fairly lengthy period of time? If we screw up and say something that perhaps wasn’t the best possible parenting expression, they’re going to be around tomorrow, too. We’re going to get another chance to do better.

This is extremely important in the realm of parenting. Most of us have absorbed the wisdom that our kids will perceive negative comments about themselves so powerfully that it will take from 10 to 20 times the number of positive remarks to create a perception of balance. That’s why we need to hesitate when we tell our kid that maybe they could have tried a little harder on that quiz. Have we already told them on 10 different occasions how great they’ve done something?

I’m feeling the same way about customer service at the moment. Take great care of me (basically just do a good job) and I’ll keep using you. But screw up, especially if it makes me look bad, and it will take a long, long time before I trust you again. Read more…

A few weeks ago I posted an open letter to GM CEO Fritz Henderson on the first day of GM’s entering into bankruptcy protection, offering my concern that Mr. Henderson’s reliance on great GM design to save the company might be a problem since GM had put so much ugly tin on America’s roads. I also noted that GM’s culture needed to change, and this was their last chance to get it right. I didn’t mention that most experts on corporate change say it requires 3 — 5 years to accomplish, if you know what you’re doing.

In an amazing display of exactly what I was talking about, Mr. Henderson tossed my article over the fence and assigned the response to Global VP for all design, Ed Welburn, who wrote a public letter back to “Gerald Sindell of the Huffington Post,” which contained an impassioned defense of GM design, and the thousands of artists and modelers at work around the clock around the world creating beautiful new GM cars. Mr. Welburn invited me to visit GM dealerships, look at and drive the new Chevys, Buicks and Cadillacs. I was also invited to visit to global design headquarters in Detroit and see for myself. Read more…

A few years ago, my son Max and I were at the Guggenheim in New York, spiraling our way down through a show of Very Important Paintings. It was one of those shows that just wasn’t working for either of us. But we like to discuss what we’re looking at, just for the pleasure of comparing perceptions. I suggested we talk about the framing and ignore the art. An added bonus would be that anyone overhearing us would be hard pressed to connect our insights to anything we appeared to be looking at.

Within a few paintings, we had it down. “There’s a beauty. Great sense of mass, and it really works on the wall.” “You think? Seems a little over the top to me, and the felt’s fighting the forest.”

It was so much fun that whenever we happen to end up in a museum together, we just naturally fall into our discussion of the framing. The art has taken a secondary position. Read more…

This is from a speech I gave in Marin, California in May, 2008 to the Bay Area Consultants Network and also had recorded on video for use by my speaker’s bureau, The Bright Sight Group. The material is from a new book I’m working on, currently titled, Value — The Worth of Everything Including You. 

In the course of my work to help my clients understand the bedrock of differentiation, I discovered something that seemed to be a new concept regarding the roots of value. The new theory relates to classic and evolving economic theory, but it also suggests a revolution in the understanding of the meaning of value and of the relationship between value and pricing.

My speech begins here:

Oscar Wilde famously said that the cynic knows the price of everything and the value of nothing.

In classical economic theory, price and value tend to get blended together, almost as if they mean the same thing.

But intuitively, we are always comparing price and value. What is the right medicine worth that heals a child? What is a book worth that changes your life? What is a consultant’s insight worth if it turns your company around?

Wouldn’t it be nice if we had a simple and reliable guide to the nature of value, and maybe even a guide that could explain what the price of everything ought to be?

Read more…

Frontpaged in the NY Times today in an article by William J. Broad and Cornelia Dean is a comparison of the two presidential candidates’ plans for renewing the United States as an innovation economy. Assuming that Obama will win the election, I think it is safe to say that America will return to a deep and long term investment in science education, and in direct investment in the kind of long-term research that most corporations eschew in favor of research that offers benefits in the near-term.

Shortermism is the enemy of innovation. It might even be the enemy of civilization. Read more…

In today’s NY Times Joe Nocera’s column attempts to eviscerate Jerry Yang for his efforts to maintain Yahoo! as Yahoo! instead of letting his creation become watered down so that it ultimately is nothing more than a deadened brand inside Microsoft or Google. Nocera claims throughout his column that the only responsiblity Yang has is toward Yahoo!’s shareholders, and that by turning down various Microsoft offers that would have benefitted Yahoo’s shareholders momentarily, Yang has somehow “shafted” those shareholders. And of course, that would be true if the only stakeholders in Yahoo! were a particular group of shareholders who wanted some immediate one-time gain at the cost of the entire enterprise. But this is not what a public company is all about. Read more…

Today’s Krugman opinion piece in the N.Y. Times finds the distinguished economist pondering the implications of the Kindle, Amazon’s book reader. Krugman suggests that the arrival of the Kindle means that book authors will need to follow the path blazed by the Grateful Dead: give away your core intellectual property (your music, your mind) and make money on T-shirts and other ancillary licensing. What a fabulous idea! Next will come lawyers doing their lawyering for free and making it up with a car wash and shoeshine. Doctors will of course follow, seeing the brilliance of the logic. Surgery: FREE!!! Post-op lollipops, $25,000. Makes sense to me.

Krugman has fallen into a value trap that says because reproduction costs are going down, the underlying intellectual property value also goes down. Part of that thinking leads to the idea that music or books all have the same value. Actually, the value of everything is determined not by what it costs to make or reproduce. Real value comes from how much someone (the prospective consumer)  wants something.

I’ll bet that there have already been a few times in your life when a book came along that changed your way of thinking, or even changed your life. What is that book worth to you? Two dollars? Or more likely, many thousands. What’s a book worth that changes the way you raise your child? What’s a book worth that guides you in starting or turning around your company? The right book at the right time for the right person can be close to priceless. Why then would we price books as if they are interchangeable commodities, as if all book are the same because they are called by the same name: books?

Whoever you are, and whatever you do, fight to the death to keep yourself or your work from being commoditized. It might make the economists happy to treat everything that is inherently unique and the result of special skills as if they were interchangeable, since it makes their models work better, but the reality is, most of what we value most highly is likely to be profoundly unique. Think about the members of our family, or our own greatest gifts, our favorite places, our most cherished art. For everything that counts, the value cannot be set by a commodity marketplace. Value comes from the buyer’s perception. We should price accordingly, or we’re giving it away.