Recently, I came across an article in the NY Times about Jeff Bezos’ speech at a conference about disruptive business models.

I googled the article and found that Wired magazine hosted a conference called “Disruptive by Design,” the first conference that I know of focused specifically on disruptive business models.  They have a video library of all of the speakers.

Two stood out.  The first was Wired’s editor-in-chief, Christopher Anderson, who is more famously known as the author of Long Tail: Why the Future of Business Is Selling Less of More.   He has introduced a new book: Free: The Future of a Radical Price, which was the primary topic of his speech. (You can get the e-book and audiobook free here.) He suggests that as things go from bricks to bits, and with the internet as a frictionless marketplace, you get perfect competition where prices fall to equal the marginal cost of a product.  Since the marginal cost of “bit-based” products (e.g. software) is nearly zero, he suggests that that they may eventually be free.  Using Google to search is free.  You can get free operating systems (e.g. Ubuntu).  And so on.  But he is not suggesting that this is a world of no profits.

“In the digital marketplace, the most effective price is no price at all, argues Anderson,” in a review by Publisher’s Weekly.  ”He illustrates how savvy businesses are raking it in with indirect routes from product to revenue with such models as cross-subsidies (giving away a DVR to sell cable service) and freemiums (offering Flickr for free while selling the superior FlickrPro to serious users).  A generational and global shift is at play—those below 30 won’t pay for information, knowing it will be available somewhere for free, and in China, piracy accounts for about 95% of music consumption—to the delight of artists and labels, who profit off free publicity through concerts and merchandising.”

Interesting stuff.  But it was Jeff Bezos’ speech that caught my eye.

I myself got an Amazon Kindle a few months ago and haven’t read a physical book since.  I absolutely love it.  It isn’t just the slick design (it looks and feels like an Apple iPod/iPhone).  I was floored by how easy and fast it was to get it setup, buy and then download my first e-book.   It literally took me just two or three minutes to open the package, go online through the Whispernet wireless service), search for a book, buy and download it and flip to the first chapter.

The business model is seamless—the ability to get books in seconds—is a key element of its success.  According to Bezos, of the 350,000 titles available in both physical and Kindle formats, the Kindle comprises 35 percent of those sales, all in less than the two years since the Kindle was introduced

Apple is credited with revolutionizing the music industry through the iPod and iTunes.  The iPod was an innovative, single-purpose product that, while initially expensive, gave people the ability to handpick just the songs they like for 99 cents.  It now completely dominates the market.

Of the 92 percent of teens who said they owned a media player, 86 percent said they owned an iPod.  The iTunes Store is said to control 97 percent of legal music downloads by teens.  iPod market for teens nearly saturated?” – April 8, 2009, Ipodnn.com

Amazon may have more competition than Apple did, with Google being the biggest.  In February, Google announced the availablity of 1.5M books optimized for mobile devices using Google’s Android software.  These aren’t mainstream books like those on Amazon, but Google is working hard on that, with a recent $125M settlement with the U.S. Author’s Guild .

But if Amazon plays its cards right, I think they will likely stay in the lead.  They’ve already dropped the price to $299.  Just as Apple has an entry-level iPhone at $99 and Ipod Shuffle at $79, there will likely be entry-level Kindles soon. And the Amazon has what I believe is a big advantage with its single-purpose device.  Both the single-purpose device and the business model will just get better and better.   For example, you can now get a Kindle iPhone app that turns your iPhone into a Kindle that accesses your virtual Kindle library.  The app even synchronizes the page you are on with your Kindle.  In his speech at the conference, Bezos made a great point about why single-purpose devices often make more sense than a multi-purpose device (e.g., a netbook or a smartphone):

“It’s a myth that multi-purpose devices are always better…I like my Swiss Army knife but I’m perfectly happy with my steak knives.”

But disruptive leadership is not only about demonstrating success by creating, disrupting and leading in a new market.  It is also about how you lead.  I’ll close with some great leadership quotes from Bezo’s talk.

  • “Know when to be stubborn and when to be flexible. Be stubborn on the big things, and be flexible on the little things.”
  • “You don’t change your strategy because certain audiences don’t understand it. Not if you have conviction.”
  • “You have to be willing to fail, be willing to think long-term, and be willing to be misunderstood for long periods of time.  If you can’t do these things, you should limit yourself to sustaining innovations (vs. disruptive innovations). You typically don’t get misunderstood for sustaining innovations.“
Now the challenge is to take these mature market disruptions and find a way to make breakthroughs in the developing world.   More on this here.