Amazon Kindle, the sleeping social network

Since Amazon launched the Kindle, I've become a regular reader of something like 30 to 40 books at a time. It sounds terrible, I know, and I confess this with no small degree of sheepishness.

It works only because of that list, only 1 or 2 at the most are ever fiction. I tried to juggle more fiction books and kept forgetting who the characters were, and the Kindle X-Ray feature is not sufficiently advanced to solve that problem. Often the only X-Ray description of a character is a link to the first page in the book in which they're mentioned, sometimes it's a Wikipedia entry, sometimes not even the right one.

I wish the Kindle had something like TV's “Previously, on Lost” recaps but for just one character, summarizing all that had happened to them, but just up until that point in the book. Actually, I need this feature for television, too, I often have to read recaps of Game of Thrones just to understand who some random bearded person was on that episode and how they're related to some other person who I also don't remember.

Anyhow, the reasons I read so many non-fiction books simultaneously:

  1. I have the promiscuous attention span of your typical modern information addict.
  2. I crave more novelty and diversity in my daily information diet than is offered by working through one book at a time.
  3. A lot of non-fiction books are written, packaged, and priced for an outdated age when physical books had to justify their shelf space with some minimum page count. Thus, many books are too long, padded with lots of extraneous anecdotes, and they lose my attention every time I run into a passage of fat. It's like an attention speed bump. Business books are particularly egregious on this front. If Kindle singles had been a thing from the advent of publishing, maybe we wouldn't turn up our noses at shorter books priced at a dollar or two. Some folks have done some experiments in selling short e-books (longer than a blog post, shorter than a book), and I hope it continues.
  4. The rise of blogs and Twitter have have acclimated me to flitting about from one article and topic to another. It sounds unproductive, and I do think I have to actively switch that mode off when doing deep dive work, but at other times it's exhilarating, like standing my mind up from its desk to take a stroll around a dense metropolitan block.
  5. Many of my best ideas come from the interaction between concepts in different fields, and reading books about different topics simultaneously increases the number of such boundary collisions.

The problem with browsing my Kindle library from a thumbnail or list view is it confronts with a whole bunch of titles without any hint at where I'd left off in that book or what concept I was sitting on. This introduces micro-friction, first in the decision of which book to open, then in trying to regain flow within that book. I know, if I just read one book at a time this wouldn't be a problem, but stay with me here.

What I'd love is for my Kindle to open into some type of home feed that sits on top of my entire Kindle library, serving up chunks from all the books I'm reading into small chunks, interweaving them into what would be something like a series of blog posts. It would replicate the way I catch up on articles across the internet every day. Instead of having to do this manually in my Kindle, dipping in and out of books by hand, the Kindle could use some simple algorithm to do this for me.

If you came to the end of one of the passages in your home feed and wanted to continue reading more from that book, you could just tap a Read More link at the end and it would unfold the next chunk. These passages would be short enough to read in one sitting, or perhaps you could dial in a rough range of how large a chunk of information you want served up at a time. If you weren't sure of context on a passage, you could easily click a link at the top that would present a summary of what had gone before, perhaps chapter headings and all passages you'd highlighted, or chapter headings and some summary of each of them. Or maybe, to keep things simple in a first iteration, it would just pull back in the preceding section.

Amazon could build this themselves, or they could open up some API for other developers to build some such functionality on top of the Kindle ecosystem, a strategy they are quite familiar with. The Kindle ecosystem, already the market leader, would level up into a more powerful, useful, and sticky platform. That so much knowledge in books is still locked away behind an old copyright system is unfortunate, but I'm not suggesting that Amazon make books free. The publishers would never go for it. Instead, this feed would sit on top of just books readers had already purchased for the Kindle. I know that today I can access my own Kindle notes and highlights via the web, but it's still a more cumbersome process than it should be.

Lastly, and most importantly, I'd like Amazon to build a true social network around books and readers. I've tried Goodreads, and then later I tried it again. That's not the answer. The site is a bit of a confusing ghost town, and it seems oriented around finding a book to read, which the Amazon site and other resources already do a good enough job solving.

The reading social network I want is around discussing ideas in the text itself. I want the ability to see the notes and highlights of my friends on books we've both purchased, and I want the ability to respond to their notes, or at least to like them. I want them to see my public highlights and notes, and I want them to be able to respond to those. My initial graph could be based on Facebook or Twitter or other social networks I connect, but users could establish their own accounts/usernames so I could find them manually as well.

I would love the ability to follow certain notable folks and see their public notes and highlights. I've long wanted to travel to Texas to see David Foster Wallace's archive, to see what notes he jotted in the margins of books he read. What if those were just published on his books by the keepers of his archive through an account they opened? Imagine seeing Malcolm Gladwell's notes on Bill Simmons' The Book of Basketball, or Mick Jagger's notes on passages about him in Keith Richards' biography Life. What if every time a person was mentioned in a book, they'd receive a notification, like a notification that they'd been tagged in a Facebook photo? At a basic level, we'd have a lot more crowd-sourcing of fact-checking, but at a higher level the book becomes an opening to a dialogue.

Perhaps some notes could come at a fee, but I see most of the being free. Imagine being able to pose questions to authors directly in their texts by posting them as a public note. Just as authors started frequenting Amazon to see what their Sales Rank was when that feature launched, now authors would be constantly revisiting their own books to participate in a dialogue with their readers. Books would go from two dimensional to having a z-axis composed of an infinite number of onion paper layers available to scribble on.

Such a platform transforms the purchase of a book into the beginning of a lifelong relationship and dialogue around its ideas. A copyrighted text become not just paywalled content, a locked fortress, but an open platform for contextual conversation. Over time, each book would become richer and richer, a living tome.

Real and virtual book clubs could use Amazon Kindle books as the platform for discussion. You could easily do this by defining and saving a group of readers. Different people read at different speeds, but as each member caught up to a discussion they could jump in and participate. If you weren't a member of a book club, you'd still be part of the book group defined by all the other readers you were following, so everyone would be in a book club on every book in their Kindle library if they wanted to. If they didn't, a setting would allow them to turn off the feature easily, just as you can turn off group highlighting in the Kindle today.

I'd allow users to post links to excerpts or passages or specific page locations in other texts in their Kindle library. If another reader came across that pointer and didn't own the other book being referenced, they'd just see a truncated excerpt (assuming it exceeded some fair use word count limit), with the ability to 1-click purchase that book to unlock the full reference.

This would be a new form of book cross-merchandising for Amazon. I envision that my home feed could include highlights and notes from other readers I was following, and again, if I didn't own the book they were referencing I'd see a truncated excerpt with a buy button to unlock the whole text.

This may sound a lot like the basics of modern social networks and hypertext. And it should. No need to reinvent such elegant ideas, refined over so many years. The real benefit here is unleashing the virtues of networks and hypertext on the massive corpus of text locked up inside books. There's real gold inside those books which have been vetted by publishers and refined by editors and authors over numerous drafts.

That these tools are largely applied just to articles and blog posts that have been written since the invention of the internet is a shame. So many books are still read decades or centuries after they've been published, a decent sign they contain much timeless wisdom.

I suggest Amazon as the best company to launch such a social network because most people I know buy ebooks for the Kindle so the cold start problem for this network isn't as severe. If Amazon for some reason runs with this idea, then I have one more feature request. Please make the Kindle hardware touch screens more responsive. I largely use my iPad to read my Kindle books because typing on a Kindle hardware device is for masochists. The severe latency leads to all sorts of typos and missed keystrokes, I've largely given up trying to highlight or jot notes on Kindle devices. I use my Paperwhite only when I travel, only for books I expect to read without doing much highlighting or annotating, and especially in sunlight where my iPad screen is primarily good for reflecting sun onto my face and evening out my tan.

Prime Day

More than 90 years ago, holiday shopping found its official start the Friday after Thanksgiving, eventually becoming Black Friday, the biggest shopping day of the year. Over the years, Amazon has helped make Black Friday even more of a global online shopping phenomenon. Next week, Amazon turns 20 and on the eve of its birthday, the company introduces Prime Day, a global shopping event, offering more deals than Black Friday, exclusively for Prime members in the U.S., U.K., Spain, Japan, Italy, Germany, France, Canada and Austria. On Wednesday, July 15, new and existing members in the U.S. will find deals starting at midnight, with new deals starting as often as every ten minutes. They can shop thousands of Lightning Deals, seven popular Deals of the Day and receive unlimited fast, free shipping. Not a Prime member? To participate in Prime Day, Amazon customers can sign up for a 30-day free trial of Prime at amazon.com/primeday.
 

Amazon is creating its own shopping holiday. Economists and retailers have long debated what would happen if there were two Christmases a year instead of one. Would that just move consumer spending around or would it increase the share of the pie? Amazon doesn't have to worry about that here because they're just focused on their own revenue, and if this shifts retail spending share to them, all is good.

It can be dangerous for a retailer to become dependent on sales, but Amazon is a special case. Restoration Hardware has a twice a year sale on its towels, also on its lighting. Customers feel a bit silly buying those items from them any other time of year. Criterion DVDs go on sale at 50% off from time to time. To buy one at any lower discount feels like you're leaving money on the table.

Amazon has such a large catalog of items, and the items it puts on sale are so random, that it's immune to creating artificial seasonality with its sales. Its customers buy from them so often that it's not practical to wait until items go on sale to shop there.

Besides, the core of Amazon's value is everyday low pricing, so most customers feel like they're getting a great deal on most everything purchased there anyhow. A bunch of random deals on Prime Day are just gravy. And if this goes off well and becomes an annual occurrence, it may drive more people to join Amazon Prime, even better for Amazon because of the loyal customers Prime memberships create and the increase in shopping volume and frequency from that cohort.

The new coastal culture wars

At Amazon.com, all the irritation and wasted time of a shopping expedition are gone—the search for a parking place, the surly floor clerk, the sold-out items, the perversely slow person ahead of you at checkout. You don’t have to think about how much the cashier, with her wrist in a splint, makes per hour. The Internet’s invisibility shields Amazon from some of the criticism directed at its archrival Walmart, with its all-too-human superstores. Online commerce allows even conscientious consumers to forget that other people are involved.
 

Emphasis mine, in this passage from George Packer's article on Amazon vs the book publishing industry, from the February 17, 2014 issue. The piece was titled “Cheap Words” and the subhead read “Amazon is good for customers. But is it good for books?” 

Granted, it's tough to represent the pro-Amazon position when so few people will speak on the record or comment on the piece, but I will say I've read enough pieces on the tech industry from what you might call East Coast institutions to detect some coastal cultural bias in each direction. It's not surprising when software is eating the world and cultural influence shifts towards the West Coast for the liberal elite of, say, Manhattan, to turn a nose up at the hoodie-wearing, ping-pong playing, nouveau riche of Silicon Valley.

Packer has written a lot about Amazon in its ongoing battle with publishers, but he's not the only writer I've detected some of this tone in. His example stood out to me, however, because of the New Yorker's typically neutral tone. Here's a straw man of a cashier, or straw woman, as it were, and her wrist is in a splint. Why not just end her arm at the elbow, in a stub, like Charlize Theron's Imperator Furiosa?

Silicon Valley has enough real problems (Amazon included) that need addressing that shouldn't be obscured by conjuring false bogeymen. That so many have cast book publishers as some sympathetic white hat in this story is one of the more absurd developments in recent media history.

Amazon Dash Button

Announced today, Amazon Dash Button is a branded single-purpose button you stick somewhere to press when you need more of a specific product, like Charmin toilet paper or Tide detergent.

[Because it came out the day before April Fool's Day, many people thought it was a prank, one of those fictional products tech companies love to release each year on April 1. Wasn't it Arthur C. Clarke who said “Any sufficiently advanced technology is indistinguishable from a tech company's April Fool's joke”? Something like that. April 1 in the tech world is like the entertainment world's red carpet, a ritual of dog and pony show and savage critique. We all know our parts. It's already begun, it seems like 80% of them are from Google. 20% time may be dead, but even 1% time from some fraction of a lot of computer engineers is one of the more powerful matters on Earth.]

On the one hand, the Dash Button is built off of some of Amazon's strengths, much more so than others they've tried. It is dirt simple, almost like one of AWS's primitives but in hardware form, and it's meant to make shopping easier, something they've always tried to do, from reducing shipping prices to 1-click shopping and onwards. Short of having products magically order their own replacements when you're close to running out, it's about as easy as it can be to replace a frequently used consumable. It is exclusively for Amazon Prime members, another perk to throw under the umbrella of that subscription, and I'm a huge fan of subscriptions a business model.

Dash Button ties in to Amazon's customer experience strengths, bypassing its weaknesses. When many people say they don't like Amazon's UX, what they usually mean is Amazon's UI. And yes, I agree, Amazon could really use more design leadership and skill on that front. The Dash Button doesn't have any visible software UI, though. It's just a physical doohickey, and it looks okay. I can't speak to the sensation of the button as it depresses, but I look forward to a detailed discussion by John Siracusa on some future episode of ATP.

[Perhaps the greatest return on investment thing that Amazon could do, in my opinion, is hire a design expert, have that person report directly to Jeff, and give that person final say-so on all major UI decisions. I've often said that who reports directly to the CEO is a tell for what a company values, and as far as I know design doesn't have a seat in Amazon's C-suite.]

Beyond UI, though, are many often overlooked elements of UX, especially in retail, and on those matters Amazon is world class. Customer service, packing, shipping, payments, returns, replacements. No company more reliably and consistently ships you stuff you order as quickly or reliably. And, if something goes awry, you just know they'll make you whole, no questions asked, unlike many other companies. It's that repeated execution that's made them one of the most trusted brands in the world. The Dash Button plugs directly into that whole incredible logistics network.

I hate the term Internet of Things, it is just an awful piece of tech jargon, but the Dash Button is one of the more practical of the early entries into that space. I know customers are only supposed to be able to ask for faster horses, but that doesn't mean they want to pay $35 to change the lighting in the living room to purple from their smart phone. It means they just want to get places faster.

Or in this case, they want faster horses delivering their stuff. As Amazon knows better than almost any company, the customer demand elasticity curve is highly sensitive to shipping costs and shipping time. I thought Amazon was joking when Jeff went on 60 Minutes to unveil their early testing of drone delivery (I thought at the time that some other planned reveal fell through so they scrambled the drone experiment as a last minute replacement since the segment had already been teased in CBS promos), but their continued testing there shows how much they know that being able to ship products in near real time is the next rung in Maslow's retail hierarchy of needs. They are being attacked by horizontal players in that space (companies that just specialist in delivery, like Instacart and Postmates, for example), and they will continue to press forward with their vertically integrated strategy. May the best player win; I'll be on my sofa waiting.

On the flip side of the ledger, the Dash Button feels like an intermediate way station on the journey to some more elegant solution. I suppose it's possible this is the endpoint for shopping replenishment in the home, but I personally don't want a bunch of branded buttons stuck all over my apartment. I can see why a brand would love a button that locks a user into their product line, but it's possible for a technology to be too primitive, too low level.

What level of abstraction do you settle in at? That's always the trickiest of product decisions, and it depends a lot on the context. Screen size, how you input data, app launching modality, all of that matters. The app Yo was widely ridiculed released on the iPhone, but there's the germ of something fascinating there. On something like the Apple Watch, with its extremely limited screen size and input modality limitations, being able to send a slight vibration to your loved one's watch with one tap, perhaps with an accompanying sticker? Just to let someone know they're in your thoughts? Powerful. I will never underestimate the power of ambient intimacy. Loneliness is one of the two grand eternal problems in tech (the other is boredom).

My bet is still that some solution with a higher level of abstraction and functionality will win out in this replenishment shopping space, but for now, the Amazon Dash Button is an intriguing first crack at it. I just need one for Harmless Harvest Coconut Water. I'm always running out, and because it's not heat pasteurized it's perishable so I have to buy it locally (delivery services like Instacart don't deliver perishables). I but it from CostCo for the discount (that stuff is not cheap), but I hate fighting the madding crowds of CostCo. I brave that capitalist jungle, though, because I am as addicted to Harmless Harvest as most people are to coffee.

Give me a Harmless Harvest Dash Button, and, if you're really evil, program it to work only occasionally, on some random interval, and I'll be pressing that thing like a rat in a Skinner Box mashing on the response lever.

Steven Soderbergh's 2014 media diet

Steven Soderbergh posted a list of everything he read and watched in 2014. His media diet is as diverse as his artistic output, and no day epitomizes that as much as Dec. 4.

Reading his list, I wished I had kept such a log myself. Is there a website or app that makes that easy? I suppose Letterboxd could have been that for movies, but apparently I haven't been using the Diary function correctly because it shows my last activity as having occurred years ago.

It's still surprising to me that there isn't a better website for tracking books I've read. I tried Goodreads, I was really hoping it would be the one, especially since Amazon bought it and most of my reading is on the Kindle, but that site is an eyesore and a mess. That Amazon hasn't built a great social network for reading, especially with their dominant market share of ebooks and their ability to track highlights across the community, is such a wasted opportunity.

Anyone have any alternatives to suggest?

How Apple Pay innovates on top of the US payments stack

One of the difficulties of building innovative payment services in the US is that we're a nation that loves our credit cards. We may totally overvalue the random rewards and points and other benefits the credit card companies give us, but since the merchants often cover a lot of the cost of those benefits, we'll take all the rewards we can get, as financially irrational as that may be.

[Aside: Some cards have annual fees, and the credit card users that carry a balance each month subsidize other users who pay off their balance in full each month, but many credit card rewards would be acquired more cheaply just by paying for them directly. A free lunch remains a rare thing.]

This presents a cost problem for payment startups: if you build a payment service that leverages your users' credit cards, you have to pay companies like Mastercard, Visa, American Express, and so on their fees. But if you charge merchants an additional markup on top of this fee when one of your users pays with your service, merchants have very little incentive to accept your payment method.

You could just pass through the fee, but then you have to make your profit elsewhere. Or you could be bold and charge less than the credit card fees, but then your entire business is a loss leader. The more you sell, the more you lose. Ask Square how that model has worked out from a cash flow perspective. Paypal was able to reverse the bleeding by making it near impossible for its users to pay with a credit card instead of with an eCheck or any Paypal balance they might be carrying. I know this because I tried to switch to using a credit card when logged into Paypal once and ended up in this strange endless loop where I kept adding a credit card to use and then not being able to find it. I tried several more times in a row until I decided to just take a rock and hit myself in the head repeatedly because it was less painful and frustrating.

An echeck costs Paypal some negligible amount, I recall it being something like $0.01 from my time at Amazon, and using the Paypal balance costs Paypal nothing, of course. That means whatever Paypal charges the merchant on that transaction becomes profit. It's not easy to get all the way there, though. You have to encourage enough usage for users to want to give you their checking account information so they can withdraw any balances they might have. Once you have that, you can enable money to flow the other direction, as an eCheck, too.

Payments, as a multi-sided market, will always present entrepreneurs with this chicken-egg conundrum. To get merchant adoption, you need a huge number of consumers carrying your payment method, but to get consumers to want to use your payment method over their beloved credit cards, you need a ton of merchants to accept that payment method.

Which brings me to Apple Pay, which launched today. I didn't realize today was the public launch until I was at Whole Foods buying breakfast this morning and saw this at the checkout counter on the payment terminal:

I hadn't downloaded the iOS 8.1 update yet or added any credit cards to Apple Pay on my phone, so I didn't use it just then, but I went back later after I had added a credit card and tried it out, and it was painless. Held my phone up to the terminal, Apple Pay popped up on my screen and asked me to verify with Touch ID, and that was it.

There are many reasons to think Apple Pay might succeed where so many other alternative payment methods have failed.

First, Apple is building off of the existing credit card system rather than fighting customer inertia. As noted above, so many US consumers love their credit cards and the rewards they get from them. Apple Pay doesn't ask them to give that up.

Another thing about credit cards: most consumers find them easy to use, not that much of a hassle to bring out and use. To surpass them, an alternative has to be as easy or easier to use or magnitudes for the consumer or much cheaper for the merchant. Apple Pay fulfills the first of those requirements once you've added the cards to Apple Pay on your phone, something that can be done as easily as snapping a photo of the credit card. Touch ID has finally reached an acceptable level of reliability, so the overall user experience is simple and solid.

Perhaps most importantly, Apple Pay starts on day one with a good whack at both the chicken and the egg. On the merchant side, Apple managed to corral an impressive number of partners, from credit card companies (the big 3 of Visa, Mastercard, and American Express) to banks (all the biggest like Bank of America, Chase, Citi, Wells Fargo). On the merchant front, Apple Pay's marketing page claims over 220,000 stores which actually makes this the weakest link of these three groups but still a decent starting point for day 1. That will be the hardest nut to crack, but more on this point later.

On the consumer side, whether that's the chicken or the egg, Apple has a massive and growing installed base of iOS and iPhone users who can use this system. The only other technology company I can think of who could tackle this space is Amazon given their huge database of consumer credit cards, but they lack the device or app installed base to fulfill on a good user experience for enough users.

Apple Pay offers some additional benefits, like added privacy, something Apple has been touting across the board as one of their key consumer benefits, though I'm still not sold it's a huge selling point for most average consumers. Still, it's worth noting that Apple doesn't keep records of your transactions, and you don't have to hand over your credit card to some waiter or clerk who then has access to the card number, expiration, and security code. Again, I think this is of minor psychological comfort for the vast majority of consumers, but it's at least not a negative.

But more than anything, my excitement for Apple Pay stemmed from this post by Uber:

The beauty of Apple Pay is that it simplifies Uber’s signup process to a single tap. If you have an eligible credit card already added to Apple Pay, you don’t need to enter it again to ride with Uber. Instead, merely place your finger on the Touch ID sensor of your iPhone 6 or iPhone 6 Plus, and your Uber is on its way. No forms, no fuss. We’re calling this new Uber feature Ride Now, and it’s the product of a close collaboration between Uber and Apple over the past few months.

How it works:

  1. Open the Uber app and tap Ride Now.
  2. Tap Set Pickup Location, enter your destination, and confirm your request.
  3. Place your finger on Touch ID to confirm payment, and your Uber is en route!

The rest of the Uber experience remains exactly the same. A receipt for your ride, with the fare breakdown and trip route, is sent to the email you have for Apple Pay; riders rate their drivers at the end of each trip. Existing Uber users are unaffected and can continue using Uber as before.

Innovation in payments in the US has been difficult because of the entrenched incumbent stack, but Apple has just moved up the stack and innovated above it all. What they've done here is abstracted away the credit card number entirely. Extrapolate out into the rosiest future, and perhaps someday the only time you might have to remember your credit card number is when you get it in the mail and input it into Apple Pay. Who really cares what the number, expiration date, and security code are. If you can prove you are who you say you are with Touch ID, that's a more efficient way to prove your identity and grant authorization for the payment.

But we're a long ways away from that day, and for now, 220,000 stores is actually not close to a majority of merchants. The Uber example, though, demonstrates the near-term potential.

I long ago memorized all my credit card numbers and security codes just so I wouldn't have to deal with the hassle of pulling the cards out every time I had to punch the number in for an online transaction. Still, it's a hassle, especially on my phone, to have to either enter my credit card details or to go round trip to 1Password to remember my crazy long, random, difficult-to-memorize iTunes password.

Apple Pay reduces that pain by a lot. A whole lot.

Even if its near term impact is restricted to making payments in apps on my phone, that's a big deal, and perhaps sufficient incentive to me to actually upgrade to one of the new iPads with Touch ID.

When Amazon first received its 1-click patent, one of the first and only companies to license the patent was Apple. It paid off for both sides. For Amazon, Apple's license strengthened the patent, allowing them to enforce it against companies like Barnes & Noble (for the record, I don't believe in software patents like these, but that's a topic for another day). For Apple, the 1-click license allowed them to enable users to purchase songs off of iTunes with 1-click, one part of a superior experience that spanned iPods and the iTunes music store that catapulted them to the digital music throne. Can you imagine the painful it would have been to go through multiple steps to purchase each single?

What Apple has done with Apple Pay is extend 1-click purchasing to the mobile app world and many real world stores as well. Or maybe we should call it 1-touch purchasing.

Years later when we look back on WWDC 2014, I suspect Apple Pay will be the most important announcement by a wide margin.

Cities are superlinear, companies are not

But unlike animals, cities do not slow down as they get bigger. They speed up with size! The bigger the city, the faster people walk and the faster they innovate. All the productivity-related numbers increase with size---wages, patents, colleges, crimes, AIDS cases---and their ratio is superlinear. It's 1.15/1. With each increase in size, cities get a value-added of 15 percent. Agglomerating people, evidently, increases their efficiency and productivity.

Does that go on forever? Cities create problems as they grow, but they create solutions to those problems even faster, so their growth and potential lifespan is in theory unbounded.

...

Are corporations more like animals or more like cities? They want to be like cities, with ever increasing productivity as they grow and potentially unbounded lifespans. Unfortunately, West et al.'s research on 22,000 companies shows that as they increase in size from 100 to 1,000,000 employees, their net income and assets (and 23 other metrics) per person increase only at a 4/5 ratio. Like animals and cities they do grow more efficient with size, but unlike cities, their innovation cannot keep pace as their systems gradually decay, requiring ever more costly repair until a fluctuation sinks them. Like animals, companies are sublinear and doomed to die.
 

From a Stewart Brand summary of research by Geoffrey West.

From a long conversation with West at Edge:

Let me tell you the interpretation. Again, this is still speculative.

The great thing about cities, the thing that is amazing about cities is that as they grow, so to speak, their dimensionality increases. That is, the space of opportunity, the space of functions, the space of jobs just continually increases. And the data shows that. If you look at job categories, it continually increases. I'll use the word "dimensionality."  It opens up. And in fact, one of the great things about cities is that it supports crazy people. You walk down Fifth Avenue, you see crazy people, and there are always crazy people. Well, that's good. It is tolerant of extraordinary diversity.

This is in complete contrast to companies, with the exception of companies maybe at the beginning (think of the image of the Google boys in the back garage, with ideas of the search engine no doubt promoting all kinds of crazy ideas and having maybe even crazy people around them).

Well, Google is a bit of an exception because it still tolerates some of that. But most companies start out probably with some of that buzz. But the data indicates that at about 50 employees to a hundred, that buzz starts to stop. And a company that was more multi dimensional, more evolved becomes one-dimensional. It closes down.

Indeed, if you go to General Motors or you go to American Airlines or you go to Goldman Sachs, you don't see crazy people. Crazy people are fired. Well, to speak of crazy people is taking the extreme. But maverick people are often fired.

It's not surprising to learn that when manufacturing companies are on a down turn, they decrease research and development, and in fact in some cases, do actually get rid of it, thinking "oh, we can get that back, in two years we'll be back on track."

Well, this kind of thinking kills them. This is part of the killing, and this is part of the change from super linear to sublinear, namely companies allow themselves to be dominated by bureaucracy and administration over creativity and innovation, and unfortunately, it's necessary. You cannot run a company without administrative. Someone has got to take care of the taxes and the bills and the cleaning the floors and the maintenance of the building and all the rest of that stuff. You need it. And the question is, “can you do it without it dominating the company?” The data suggests that you can't.
 

Lastly, from an article about West and his research in the NYTimes.

The mathematical equations that West and his colleagues devised were inspired by the earlier findings of Max Kleiber. In the early 1930s, when Kleiber was a biologist working in the animal-husbandry department at the University of California, Davis, he noticed that the sprawlingly diverse animal kingdom could be characterized by a simple mathematical relationship, in which the metabolic rate of a creature is equal to its mass taken to the three-fourths power. This ubiquitous principle had some significant implications, because it showed that larger species need less energy per pound of flesh than smaller ones. For instance, while an elephant is 10,000 times the size of a guinea pig, it needs only 1,000 times as much energy. Other scientists soon found more than 70 such related laws, defined by what are known as “sublinear” equations. It doesn’t matter what the animal looks like or where it lives or how it evolved — the math almost always works.

West’s insight was that these strange patterns are caused by our internal infrastructure — the plumbing that makes life possible. By translating these biological designs into mathematics, West and his co-authors were able to explain the existence of Kleiber’s scaling laws. “I can’t tell you how satisfying this was,” West says. “Sometimes, I look out at nature and I think, Everything here is obeying my conjecture. It’s a wonderfully narcissistic feeling.”
 

The pace of technology has already shifted some of the old company scaling constraints in the past two decades. When I first joined Amazon, one of the first analyses I performed was a study of the fastest growing companies in history. Perhaps it was Jeff, perhaps it was Joy (our brilliant CFO at the time), but someone had in their mind that we could be the fastest growing company in history as measured by revenue. Back in 1997, no search engine gave good results for the question "what is the fastest growing company in history."

Some clear candidates emerged, like Wal-Mart and Sam's Club or Costco. I looked at technology giants like IBM and Microsoft. Two things were clear: most every company had some low revenue childhood years when they were finding their footing before they achieved the exponential growth they became famous for. Second, and this was most interesting to us, many companies seemed to suffer some distress right around $1B in revenue.

This was very curious, and a deeper examination revealed that many companies went through some growing pains right around that milestone because smaller company processes, systems, and personnel that worked fine until that point broke down at that volume of business. This was a classic scaling problem, and around $1B or just before it, many companies hit that wall, like the fabled 20 mile wall in a marathon.

Being as competitive as we were, we quickly turned our gaze inward to see which of our own systems and processes might break down as we approached our first billion in revenue (by early 1998 it was already clear to us that we were going to hit that in 1999).

Among other things, it led us to the year of GOHIO. Reminiscent of how, in David Foster Wallace's Infinite Jest, each year in the future had a corporate sponsor, each year at Amazon we had a theme that tied our key company goals into a memorable saying or rubric. One year it was Get Big Fast Baby because we were trying to achieve scale ahead of our competitors. GOHIO stood for Getting Our House In Order.

In finance, we made projections for all aspects of our business at $1B+ in revenue: orders, customer service contacts, shipments out of our distribution centers, website traffic, everything. In the year of GOHIO, the job of each division was to examine their processes, systems, and people and ensure they could support those volumes. If they couldn't, they had to get them ready to do so within that year.

Just a decade later, the $1B scaling wall seems like a distant memory. Coincidentally, Amazon has helped to tear down that barrier with Amazon Web Services (AWS) which makes it much easier for technology companies to scale their costs and infrastructure linearly with customer and revenue growth. GroupOn came along and vaulted to $1B in revenue faster than any company in history.

[Yes, I realize Groupon revenue is built off of what consumers pay for a deal and that Groupon only keeps a portion of that, but no company takes home 100% of its revenue. I also realize Groupon has since run into issues, but those are not ones of scaling as much as inherent business model problems.]

Companies like Instagram and WhatsApp now routinely can scale to hundreds of millions of users with hardly a hiccup and with many fewer employees than companies in the past. Unlike biological constraints like the circulation of blood, oxygen, or nutrients, technology has pushed some of the business scaling constraints out.

Now we look to companies like Google, Amazon, and Facebook, companies that seem to want to compete in a multitude of businesses, to study what the new scaling constraints might be. Technology has not removed all of them: government regulation, bureaucracy or other forms of coordination costs, and employee churn or hiring problems remain some of the common scaling constraints that put the brakes on growth.

The instant-on computer

A long time ago, when I was at Amazon, someone asked Jeff Bezos during an employee meeting what he thought would be the single thing that would most transform Amazon's business.

Bezos replied, "An instant-on computer." He went on to explain that he meant a computer that when you hit a button would instantly be ready to use. Desktops and laptops in those days, and still even today, had a really long bootup process. Even when I try to wake my Macbook Pro from sleep, the delay is bothersome.

Bezos imagined that people with computers which were on with the snap of a finger would cause people to use them more frequently, and the more people were online, the more they'd shop from Amazon. It's like the oft-cited Google strategy of just getting more people online since it's likely they'd run across an ad from Google somewhere given its vast reach.

We now live in that age, though it's not the desktops and laptops but our tablets and smart phones that are the instant-on computers. Whether it's transformed Amazon's business, I can't say; they have plenty going for them. But it's certainly changed our usage of computers generally. I only ever turn off my iPad or iPhone if something has gone wrong and I need to reboot them or if I'm low on battery power and need to speed up recharging.

In this next age, anything that cannot turn on instantly and isn't connected to the internet at all times will feel deficient.