March 28, 2024

Amazon’s Tablet, Kindle Fire, Undercuts iPad’s Price

But Jeffrey P. Bezos, Amazon’s founder and chief executive, has another word for it.

“I think of it as a service,” he said in an interview on Wednesday. “Part of the Kindle Fire is of course the hardware, but really, it’s the software, the content, it’s the seamless integration of those things.”

Amazon is counting on its vast online warehouse of more than 18 million e-books, songs, movies and television shows, as well as access to a selection of Android applications, to help it beat competitors like the iPad and the Nook from Barnes Noble. Previous Kindles were only e-book readers with black-and-white screens.

The access to content is important as Amazon transforms its business into a digital retailer and responds to consumer demands for mobile devices, lest it wind up in a retail graveyard like Borders, a former peer.

“It will appeal to a different set of customers who are magazine readers and cinema fans,” Mr. Bezos said.

The other advantage Mr. Bezos is counting on is price: the Fire will sell for $199 while the cheapest iPad sells for $499. Amazon began taking orders for the Fire on its Web site on Wednesday; it will start shipping them Nov. 15.

Mr. Bezos took the stage on Wednesday at a news conference held in Manhattan to show off the Kindle Fire. The tablet, which weighs less than a pound and can fit comfortably in the palm of a hand, builds on the company’s popular line of e-readers.

Amazon is hoping it appeals to a broader audience that also wants to browse the Web and stream music, movies and video from a mobile device. The Kindle Fire also has access to a virtual newsstand that includes content from magazines like Wired, Vanity Fair and Cosmopolitan.

Amazon custom-built the Fire’s mobile Web browser, called Amazon Silk, so that it loads media-rich Web pages faster by shifting some of the work onto Amazon’s cloud computing engine, called EC2. “It’s truly a technical achievement,” Mr. Bezos said.

The Kindle Fire’s 8-gigabytes of memory is capable of storing 80 apps and either 10 movies, 800 songs or 6,000 books. The tablet also includes a free cloud-based storage system, meaning that no syncing with cables is necessary.

The Kindle Fire is missing some things the iPad 2 has — most notably, a camera and a microphone for video calls. The Fire can send and receive data only over Wi-Fi, not cellular networks.

The device’s $199 price tag is less than half that of many tablet computers on the market, including the HTC Flyer, which also features a 7-inch screen but sells for $499 at Best Buy. The Kindle Fire will also compete with the Color Nook e-reader, developed by Barnes Noble, which has enjoyed healthy sales at $249.

Amazon can afford to charge less because it hopes to make up the difference by selling books, movies and popular television shows. Customers may also be more inclined to pay $79 a year for Amazon Prime, which gives them access to Amazon’s movie streaming service and free shipping, which in turn, encourages more shopping at Amazon.com.

Because Amazon sells its family of Kindle devices through its own Web site, it does not need to share revenue with another retailer. And in most states, customers do not have to pay sales tax on those devices.

“If you price your products in such a way that no one can compete with you, that has to be a good thing in the end,” said Scott Devitt, an analyst at Morgan Stanley.

On Wednesday, Mr. Bezos also introduced two new touch-screen Kindles, and a slimmer monochrome-screen Kindle, that range in price from $79 to $149.

Apple has secured a strong lead in tablets, selling more than 29 million iPads in the product’s first 15 months on the market. Mr. Bezos says that he expects shoppers will put both Kindles and iPads in their carts.

By entering the magazine-selling business, Amazon has also planted a flag in a digital marketplace that has so far been dominated by Apple.

With another player — particularly one that is as large and influential with consumers as Amazon — magazine companies could suddenly find that they have a useful bargaining chip when it comes to negotiating with Apple.

The price of magazine subscriptions on the Fire are higher than what readers would pay in print. Condé Nast, publisher of magazines like GQ, Vanity Fair and Glamour, is selling most of its publications for $20 a year, nearly twice what it charges in print.

Jeremy W. Peters contributed reporting.

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DealBook: Founders Now Take the Money and Maintain Control

Illustrations by Quickhoney

In a small office in San Francisco, electronic music blared as several programmers loomed over two computers. David Morin, the founder of Path, a social network start-up, gave the signal and the company’s site and iPhone application went live.

Within three hours of its Nov. 15 introduction, the site had tens of thousands of visitors.

Since then, Path has walked away from takeover talks with Google for as much as $100 million, according to a person close to the company, and raised $11 million from 27 investors. More revealingly, Path has turned down more than that from at least that many investors.

“I was humbled by the level of interest — we’re trying to build something that is deeply meaningful,” Mr. Morin said. “As long as I’m doing my best to lead, I want to keep going.”

For every Facebook, Groupon or Zynga, known for its Farmville game, there are scores of lesser-known start-ups like Mr. Morin’s that are raising millions in financing at steep valuations, turning computer programmers into paper millionaires overnight.

Dot-com video Video: The Dot-com Boom, Then and Now.

Part of the reason is supply and demand, as a wave of capital chases a limited supply of deals. But a more tectonic shift is at work in Silicon Valley. Investors are putting a significant premium on young, visionary entrepreneurs who grew up with the Internet and now seem best positioned to direct the future of the social and mobile Web. Generally in their mid-20s or early 30s, today’s start-up founders are becoming more assertive in funding rounds, securing better terms and, in many cases, cashing out part of their investments well before an initial public offering.

The Silicon Valley money network Graphic: Click for a fuller picture of the Silicon Valley money network

“The resources available to founders, to create and control their company’s destiny, have evolved in their favor,” said Sean Parker, a former president of Facebook and a founder of Napster. “The job of being a founder and executing against a big vision of the future has gotten easier.”

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Last year Quora, a question-and-answer site, raised $11 million at an $86 million valuation months before its debut. In February, Uber, an on-demand car service that uses mobile phone apps, raised $11 million at a $60 million valuation. And Color, a photo-sharing application, raised an astounding $41 million in March, before it opened for business. The round was led by Sequoia Capital, a venture capital firm that once invested a more modest $12.5 million in Google, back in 1999.

“For the next-generation opportunities around the Internet and social networks, I believe the biggest opportunities will be driven by young founders who maintain their C.E.O. positions,” said Jim Breyer, an early investor in Facebook and a partner at Accel Partners.

In the postrecession environment, young entrepreneurs are finding relatively easy access to capital, as venture capitalists open their wallets wider and a new crop of angel investors move in. Venture capital investments rose 19 percent, to $21.8 billion in 2010 — the first annual increase since the downturn, according to the National Venture Capital Association. The number of angel investors, meanwhile, surged 22 percent to 727 last year, according to data from research firm CB Insights.

The founder of Uber, Travis Kalanick, says the boom in angel investing and the popularity of networking services, like Angel List, a site that matches entrepreneurs with investors, have made financing significantly more accessible.

“In 2001, you took the money you could scrape — I would talk to 150 V.C.’s and maybe one of them was interested,” Mr. Kalanick said. Today, Uber has more than a dozen investors and a long line of suitors.

At the same time, the cost to start a Web business has dropped precipitously, thanks in large part to the availability of low-cost cloud computing services. The mobile games company TinyCo, which recently raised $18 million, ran on a shoestring budget for two years before its first financing round. Its founders, Suleman Ali and Ian Spivey, said they scrimped their way to profitability, using free software services like Google applications, renting office space from other start-ups and paying freelancers for art. Mr. Morin, who fondly recalls stacking servers during Facebook’s early days, says he operates Path through the cloud, with Amazon Web Services.

And so, with just a pinch of capital, a start-up can go live, rapidly build up a user base from the Web’s vast population and validate its thesis in a short period of time.

“There’s never been a company ever that has grown as fast as Groupon or Facebook, because no one could reach such a big audience so quickly,” said Ben Horowitz, a co-founder of venture capital firm Andreessen Horowitz. “The ability to build a company that gets to $1 billion in revenues in less than two years is unprecedented.”

David Morin of Path, a social networking start-up.Peter DaSilva for The New York Times David Morin at the San Francisco offices of Path, a social networking start-up that had its debut in November. Since then, it has raised $11 million and passed on an offer from Google.

The swell in resources coincides with a shift in attitude, as more Internet founders stay in the chief executive role with the support of their venture capital backers. That was not always the norm. The early generation of Web companies is littered with examples of founders who backed down from the day-to-day responsibilities as their companies took off. Less than two years after Yahoo’s beginning, its founders Jerry Yang and David Filo hired Tim Koogle as chief executive. One year after eBay was founded, Pierre Omidyar hired Jeff Skoll to lead his company in 1996.

“In the past, a lot of the top venture capitalists thought founders were replaceable, or that they were best replaced,” said Marc Andreessen, the founder of Netscape and venture capital firm Andreessen Horowitz. “It’s been a huge education.”

Mr. Breyer of Accel Partners recalled that when he first invested in Facebook, in 2005, several investors asked him who he thought should replace Mark Zuckerberg as chief executive. Today, those questions have largely receded, he said, as investors put a greater premium on the founder’s vision.

“In 2004, 2005, we saw that social applications and social networks were becoming absolutely central to the Web,” Mr. Breyer said. “The only founders who really understood the implications of how that would change, were founders who didn’t grow up with the very first generation of Internet companies.”

As these factors coalesced, a founder’s bargaining position at the negotiating table has also improved. Several years after the dot-com bust, a wave of progressive financing terms started to gain traction in Silicon Valley, led in part by founders who were burned by past investors. Through the spread of these ideas via the Web and word-of-mouth, more founders are securing advantageous financing terms, including higher valuations and stronger board control.

Mr. Parker, who in 2004 was pushed out of Plaxo, a start-up he co-founded, says venture capitalists robbed him of his full equity stake. As the first president of Facebook, Mr. Parker tried to protect Mr. Zuckerberg’s interests by laying a foundation that would make it very difficult for future investors to strip Mr. Zuckerberg of his equity or his control. In the company’s first major round of financing, a $12.7 million effort led by Mr. Breyer and Accel Partners in 2005, Mr. Parker pushed for a high valuation (near $100 million) and created a board structure that would guarantee two board seats to Mr. Zuckerberg. When Mr. Parker resigned from Facebook later that year, he gave Mr. Zuckerberg control of his board seat as well.

Later, as a venture capitalist, Mr. Parker helped pioneer a new class of stock, called Founders Fund or FF shares, which made it easy for founders to sell their shares during funding rounds without jeopardizing the value of common shares.

“Up until Founders Fund came along, the general venture capital rule was that founders could not take money out until everyone else did; this changed the V.C. model quite a bit,” said Don Dodge, a Google employee and an angel investor who invested in Mr. Morin’s company.

Others in Silicon Valley also introduced and popularized pro-founder documents, including Ted Wang, a lawyer with Fenwick West, who created standard deal documents for early (or seed) investments; and Adeo Ressi, who runs the Founder Institute, a start-up incubator. Mr. Ressi teamed up with Yoichiro Taku, a lawyer at Wilson Sonsini Goodrich Rosati, to introduce “F” class shares, a class of stock that guarantees founders twice the number of voting shares held by other board members. At least 200 companies have used “F” class shares, according to Mr. Taku.

In this environment, investors like Yuri Milner, the founder of D.S.T. Global, have thrived. Mr. Milner, a Russian billionaire who is widely considered a founder-centric investor, has spearheaded giant capital fund-raising efforts at billion-dollar valuations for late-stage start-ups, like Facebook and Groupon.

Since his first major investment in the United States — a minor stake in Facebook in 2009 — Mr. Milner has poured hundreds of millions of dollars into American start-ups, often asking for no control, or even a board seat, in return. In many of the D.S.T. deals, founders and early investors have had the option to convert some of their stakes in the company to cash. As his fortunes grow, Mr. Milner, who recently paid $100 million for a mansion in Los Altos Hills, Calif., has put pressure on other venture capitalists to follow suit and offer similar terms.

“Yuri’s visionary bets focused on exceptional founders,” said Shervin Pishevar, an angel investor and co-founder of the Social Gaming Network. “Now, like a rubber band, we’re chasing him.”

As founders see their strength grow, analysts are wondering what implications this might have for Silicon Valley. On one hand, the new wave of start-ups could produce gains in innovation and the creation of game-changing companies akin to Google or Microsoft. Young entrepreneurs, flush with cash, say the surge in capital also gives them the freedom to build significant companies without distraction.

“By taking money off the table, you’re expunging a big source of risk, allowing you to focus on the interests of the company you’re building instead of your own,” said Andrew Mason, the 30-year-old founder and chief executive of Groupon. He said he was able to sell some of his shares in D.S.T. Global’s initial Groupon investment, a $135 million round last April.

But there are also concerns that the widespread enthusiasm has led to an inflation of company valuations and unrealistic expectations. At some point, many of these start-ups will probably falter and money will eventually become tighter. Mr. Dodge says the average valuation for young start-ups held at $1 million to $2 million for several years, but in the last two years, that range has more than tripled, to $5 million to $6 million.

“Investors are dropping checks in early-stage companies and giving it away like Halloween candy,” said Mr. Taku, the Wilson Sonsini lawyer.

Matt Cohler, a general partner with Benchmark Capital and an early employee of Facebook and LinkedIn, is troubled for another reason. He’s worried that the popularity of entrepreneurship will siphon talent away from the larger start-ups, businesses that could be the next Facebooks. As a generation races to the gold rush, rising start-ups will inevitably struggle to find an army of whiz-kid engineers.

“My fear is, what if all these talented people are too thinly spread among too many small-scale opportunities and it becomes too difficult to aggregate really talented people to solve important problems?” he said.

It’s already a concern for Mr. Kalanick, the founder of Uber, who is looking for engineers at reasonable wages. As more talented prospects start their own companies or take lofty offers from the likes of Google or Apple, engineer salaries are soaring. He estimates that the salary for an engineer has jumped 25 percent in the last year.

Despite these worries, many in the Valley say they believe a new class of giants will emerge from the swarm of start-ups.

“In the next decade Groupon will not look like an anomaly; there may not be 50 $50 billion companies, but there’s probably going to be 50 $1 billion companies,” Mr. Pishevar, the angel investor, said.

Article source: http://feeds.nytimes.com/click.phdo?i=c9b8ff943807436a322aa13fe25ea777