Denis Altudov's Blog

This holiday season Amazon will change the mobile industry in a major way. I don’t have inside info, but aggregating the public knowledge produces a conclusive prediction: a $200 Android tablet with a book reader, an app store, and free 3g+ wireless internet. A “Super-Kindle” if I may call it that. Of course the internet is not going to be entirely free, rather it will be subsidized by the content providers and the app developers.

Already you can buy a book on the current Kindle device and have it delivered at no extra cost, and with no prior data contract required, because Amazon has negotiated the connectivity contract with cell carriers on your behalf and bundled the amortized connectivity cost into the price of the book. The difference with a smart phone data plan is subtle but psychologically very important – with Kindle a user only has to pay when and if he obtains certain tangible value in return, a book he liked enough to shell out the money; while with a smartphone data plan a user pays for a data plan today, and he gets some value out of it sometime next week, or not at all. There is a huge number of people who are unable to overcome this “pay now, get something later or never” gap, and most everyone else overcomes it with hesitation and resentment.

Now, there is no reason not to apply the same model to the mobile apps. The user will pay nothing upfront for the internet connection, but he will continue to pay his yearly dues for the “Remember the Milk” to-do app. The app developer will in turn pay for his share of user’s traffic to Amazon, who will pass on the money to the mobile carriers. That’s the pricing model required to get the remaining half of the US population on the mobile device bandwagon, and Amazon will deliver it.

Supporting evidence:

1. The rumors about Amazon shipping their own Android tablet are widely circulated, including the FCC leaks and the Jeff Bezos’ famous “Stay tuned” comment.
2. Kindle (current models) SDK is in Beta that it’s not likely to ever come out of, but the monetization thinking is entirely evident: http://www.amazon.com/kdk
3. Amazon has their own Android app store. Why did they bother with making their own? Well, now it’s clear why they absolutely need one.
4. Amazon Web Services has huge experience with making pay-as-you-go computing services. If anyone can do this, it’s them.
5. Amazon already has billing relationship with million of Kindle users and many more regular shoppers. They don’t need to do a lot of convincing to get people started. And it’s one of the best audiences in the world – people who like paying for things. Similar to Apple users, and unlike Google users.
6. Amazon strives on low margins, and they can also use content/app subsidy to drive down the hardware prices to the levels Apple can never reach due to their always high profit margins.

The described above seems to be a very likely outcome, and it will have the most reaching consequences:

1. The users will be much more likely to adopt a mobile device, given the low entry cost and no upfront ongoing commitment.
2. The developers will work had to reduce bandwidth usage (incidentally increasing speed), and thus the end-user cost. Current model promotes bandwidth waste as no individual developer is ever held accountable for his data usage.
3. Amazon has enough clout and a direct incentive to negotiate the best rates with the carriers. This sort of “collective bargaining on steroids” will drive down the rates.
4. Amazon, not the carriers, will own the data pipe billing relationship with the end users. Apple wrought billing control of mobile app purchases form the carriers’ hands, and it did a much better job of it; and now Amazon will do the same with the data pipe.
5. The developers of connected apps will have a perfect excuse to bill users recurringly, thus have enough cash and incentive to actually support and update their apps. The users in turn will become accustomed to such recurring app pricing schemes, same as they became accustomed to make one-time purchases on the iPhone, which will then drive up the conversion rates. Note that recurring billing does not necessitate commitment – the user would only pay for the app if he’s using it.
6. Consequently, the users will enjoy lasting, well-maintained apps.

This coming change is so profound, I would say it is as important to the mobile computing world as the emergence of the original App Store on the iPhone, if not more so.

And when the apps get taken care of, there is no reason not to try extending the same model to web browsing – a web site operator who wants to be seen on Super-Kindle can either charge the end user a quarter to read the article with the help of Amazon’s payment API, kick back some advertising revenue, or find some other way to pay for the connection. Unlike the app situation, the web sites idea is much less certain, but the potential is so huge it would be “Super Stupid” not to try.

The “Baltic Dry” index reflects cost of leasing a large cargo ship. When economy does well everyone wants to ship cargo, demand is high, ships are expensive. When economy does poorly only few people want to rent a ship, the price falls. The chart below demonstrates everything that’s wrong with this economic recovery. Simply put, there isn’t one. The goods, they just aren’t moving.

By now I can say I have successfully bootstrapped my own software business, starting with some very vague ideas in 2005. I’m not out of the woods yet, but I have made enough progress to gain confidence in my choice – the most precious of all commodities. If you want to achieve the same but substantially faster than me, I recommend these four things:

1. Read a book by someone who has done it before many times.
2. Come listen to him talk, and ask questions.
3. Listen to a guy who interviewed hundreds of people who became exactly that – creators of their own self-funded software businesses.
4. Hang out with like-minded people, people who created or are still creating their software business.

That, and a lot of hard work, is all it takes to succeed. But hard work is nothing when you know you’re doing the right thing.

More specifically:

1. Buy this book: http://www.startupbook.net/
2. Attend this conference in the beginning of June in Las Vegas: http://www.microconf.com/ Tickets go on sale tomorrow April 6th at 9am PST, and the price will go up in a few days, if not hours. EDIT: tickets are now on sale: http://microconf.eventbrite.com/
3. Attend this conference in in early May in Vancouver, BC: http://www.agilevancouver.ca/lean-startup-conference/conference-agenda/meet-rob-walling/

At the second conference you will get a chance to talk with the book author.

At the first conference you will hear the same book author, who will give you depth, my self-funded start-up hero role model Patrick McKenzie, who will give you inspiration, and Andrew Warner who interviewed hundreds of startup founders, and who will give you breadth. You will also meet a lot of like-minded people who will give you valuable peer support and a confidence boost.

This is not a paid endorsement, I write this out of sheer enthusiasm. I wish I could have paid someone money for all of this back in 2005, it would have saved me years of my life. Don’t let yours go by.

If you already know me personally, I can give you a ride to Vancouver. If you don’t, but would like to get to know me, come to either conference and I’ll be happy to get acquainted.

It’s been 6 months since I left my job as a developer at Microsoft (SQL Server) and I would like to finally make good on my promise and explain why I left, what I do now and how it’s working out. Here’s the part one.

There were both fundamental causes and triggers for my decision to leave. The immediate trigger was stress – I was simply miserable under the workload that I have willingly brought upon myself. While the stress could have been “managed” I have instead used it to reassess where I’m going in life.

The reasons to leave.

What did I plan to gain by leaving?

Everyday accomplishments.

SQL Server is a huge product and changing things requires a lot of preparation and research – often weeks or months. Because many different kinds of users need to be served, each new change you want to make has to be vetted against large number of users scenarios. The latter tend to expand as we add features and so we end up with squared explosion in the amount of work that has to be done. This has to get unsustainable at some point.

A smaller product, such as the one I left for, is easier to change. It feels wonderful to be able to get into something, get out of it quickly, and have something to show for it. It also makes me a lot more likely to start things if I know when and how I will finish them, which in turn makes me accomplish more and feel even more confident about taking on other things. A virtuous cycle, if there ever was one.

Actionable feedback.

SQL Server releases new version every 3-5 years. When I write a chunk of code I will know about most bugs in the next week or so, thanks to comprehensive testing, but I will only learn if it was good for the customer a couple of years later. By then the next release is already planned and I can’t go back and change how things are done, and the best option is the next next release. So it’s 5-10 years since I make a design mistake till I can get it fixed. This sort of feedback is not actionable.

When I just joined Microsoft I used not to care about such things at all, but with age I got more interested in whether people find my work worthwhile – and not just my managers, but the people who actually have to use what I created. I believe that shorter feedback cycles are not only possible in the enterprise market, but are necessary for the financial success of the product and for the emotional well-being of people who work on it. Sadly, I felt alone in that belief.

With the product I am working on right now I get feedback daily. I might be irrational, but it feels fantastic and I can’t ignore that. If I want to change something I can ship a beta (it takes me about 10 mouse clicks and one minute to make a release) and get verbal feedback the next day. The mechanical feedback starts pouring in within hours, which is still far too long in my book and I have a plan to get it to under 30 minutes.

Knowing what I know.

A lot of decision at Microsoft are made based on common sense, reason, and experience. In the 1980s that was the best we could do, but times have changed and I have grown to no longer trust common sense, my own or anyone else’s. In the age of the high-speed global networks we can do better than that – we can use actual data and scientific methods. Strong opinions are great, data is better.

While I don’t know everything about how people use my new product, I have the capacity learn anything that piques my interest in a matter of weeks, and often times hours. There is no need to have an opinion anymore.

Keeping what I earn.

Working for someone involves making a deal – you give up what you make and the employer pays you a fixed sum of money each month that you worked. This kind of arrangement is great if you like the stability of the paycheck, but there is a downside – you don’t get to accumulate wealth.

Allow me to explain.

If you wrote a reasonably good book and people are buying it, they will keep doing that for years – it’s called passive income. If you are hired to write a book  you get some amount of money as you write but the moment you stop writing you stop getting paid. The difference is huge – what you get paid by an employer is determined largely by the cost of living, while while what your book earns is determined by how much value your book has brought to the world. This blade cuts both ways – if you make something poorly the employer will shield you form the fallout, at least for a while, but if you make something great your employer will shield you from that, too. Inevitably over the longer stretch of time you get paid less than you contribute and the difference is known as “profit”.

I have grown convinced that the best way to accumulate wealth is to retain meaningful ownership over the fruits of my labor. When I sell my work I should not sell it at cost (wages), but at (the fraction of) the value it brings to the consumer.

The sum of the parts.

In isolation none of the listed reason would have driven me to leave, and in particular all but the last ones could have been remedied working within Microsoft or another company. However, all combined together they make a compelling case for self-employment, the path I have chosen to pursue.

Will I have to eat my own words? Sign up to my blog to find out. I have given myself 18 months from the start to try it out, and I’m already 6 months in.

Today on Oct 27th 2009 I am leaving my 11-year job at Microsoft to run my own business. In this blog I will describe the reasons that led me to do this, how I worked up the courage to make the step, what is the business and the progress as I make it.

Grab the popcorn, it will be fun. And follow me on twitter for the byte-sized updates: http://twitter.com/altudov