How I Built This with Guy Raz - Audible: Don Katz

Episode Date: November 1, 2021

Before mp3 players came along in the mid 1990's, listening to audiobooks was a pain. The number of titles was tiny, narration was dull, and if you wanted to listen on the go, you had to juggle a bunch of clunky cassettes. Don Katz faced these frustrations every day while jogging. He was an accomplished writer who thought there was something special and intimate about hearing an author's words spoken aloud. He wondered: what if audiobooks could be purchased online and downloaded onto a dedicated player? At the time, the concept was so new that few people knew what he was talking about. But in 1997, with no direct experience in tech, Don and his partners launched the first digital player for audiobooks. Audible was slow to gain traction and took a beating during the dot-com bust; but its luck changed with the release of the iPod and a timely partnership with Apple. In 2008, Amazon purchased Audible for $300 million, and today Audible has the largest audiobook catalog in the world, with over 600,000 titles. See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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walking distance from so much of the city, made it feel less like a visit and more like we were actually living there. Plus, taking a trip is the perfect time to host your space on Airbnb. Your place with all of its personal touches and its amazing location could make someone else's vacation even better. Your home might be worth more than you think. Find out how much at Airbnb.ca.ca. So you guys go public in the fall of 1999, and by the spring of 2000, the dot-com bubble burst. It crashes. Yeah.

There were 1,500 public internet companies at the beginning of 2000 and 140 at the beginning of 2003. But it was that kind of, you know, of decimation. And the stock price, you know, which was once $29 or something, it went down to $4. Wow. At the end of 2000, four cents. From NPR, it's how I built this, a show about innovators, entrepreneurs, idealists, and the stories behind the movements they built. I'm Guy Raz and on the show today, how in the era of clunky cassette tapes,

Don Katz created a whole new kind of audio experience, online and on demand with Audible. Back in the mid-1990s, back before you could plug in a pair of earbuds and choose from hundreds of thousands. of different books, millions of different podcasts, or tens of millions of different songs. Back before any of that, a former journalist-turned-writer named Don Katz had a problem. During his daily jog in New York City, he would listen to books on tape, literally on tape, as in cassette tapes. And Don wondered, why do I have to lug around a cassette player and then flip the cassette to side B in the middle of my run? Surely there must be an easier way, he thought. And in fact, at the time, there was.

MP3 technology existed, except almost no one used it. In the mid-1990s, compact disc sales were on a tear. It would take another seven years before CDs began to decline. But Don was optimistic. And at the age of 42, he decided to ditch his successful career as a writer, and try to start something he knew nothing about. A tech company. A company that would create a digital audio catalog of books and storytelling and spoken word

and deliver those stories to users through a device specially designed to play that audio. And as you will hear, in the early days, not many people came to the party. The technology was way ahead of its time, probably too ahead of its time. In fact, Audible, the company Don founded, almost collapsed in the early 2000s when its stock price hovered at around four cents a share. But today, of course, Audible holds the biggest audiobook catalog in the world. It dominates the space with a library of over 600,000 titles. And the company is now part of the Amazon family, which bought Audible for $300 million in 2008. But getting to that point was painful and full of setbacks.

And the story includes a cameo appearance from none other than Steve Jobs. Don Katz was a staff writer for Rolling Stone magazine during its heyday in the late 70s and 80s. He grew up in Chicago in the 50s and 60s and strongly identified with his dad who owned a small business. So my father was just incredibly kind of smart kind and, you know, You know, it's a cliche, but he was one of these guys you would want to be your kind of, you know, best friend. I looked up to him. I probably wished he was home more because he was, frankly, like I became, someone who worked a lot. And he was also, he'd been a war hero.

He ran away from home basically at 17 and was behind enemy lines, highly decorated. Where was he? Italy or? He was in the black forest in Germany. And he didn't really talk about it. He wasn't one of those guys, but he had different purple hearts. Every time I broke a leg in hockey or something, I would wake up and find the purple heart on my pillow.

And your dad, from what I understand, he had a music store in Chicago called, I guess, called K musical instruments, and it was. It was actually a guitar manufacturing company. Yeah, my dad made guitars. he made them for Sears, silver tones. But I remember that there were some pretty great bands of the era, one called Spirit, that had a fantastic guitarist named Randy, California, who only would play K's and the like.

But my dad's kind of claim to fame at that time was that he put chord books in guitars and started this whole idea that you too can play the guitar. And it alienated a lot of the musicians including Barney Kessel and Les Paul and people that he was friends with because they were infuriated to say that their instrument was any more easier to play than a violin. And of course he said, yeah, but you know it is.

And so it ended up that my family was all in Newsweek magazine taking our guitar lessons together because my dad had decided to be part of this you two can play the guitar, which was part of the whole mid-60s folk music kind of movement. So I think back, and he was definitely somebody who also liked to challenge the status quo, which I think I have come by honestly. So was he financially successful? He was financially successful in the way of a rising entrepreneur of his time. But very tragically, he went out to play tennis at 47 years old on a Saturday, and I got a call when I was in college saying that he died playing tennis.

It's very suddenly of a massive heart attack. Wow. And it really marked my life in so many ways. It was definitely a formative experience. I've heard, and you probably have heard this too, that there's a lot of patterns of fatherlessness in highly entrepreneurial people, whether it's through abandonment or early death, including taking ridiculous risks as a journalist in the early part of my career,

where I could have easily gotten killed several times. I think I was working out his heroism and other kinds of things. So, you know, you come to these things a little later in life, but it is interesting to reflect on it. So for college, I know that you went to NYU and you majored in English. And from what I understand, Ralph Ellison, like the, Ralph Ellison, the invisible man, Ralph Ellison was a professor there. And you kind of had an opportunity to sort of work with him to be tutored by him. Right. He taught me how to read in a way that I fully didn't understand.

And I knew that I loved more than anything, the sound of literature. And I was just, and how it felt to me. But Ralph actually kind of flushed it out in a way that it became something that I was fully able to understand. He also gave me. the, I think, the confidence to try to be a professional writer, which I proceeded to do for 20 years. Was Ralph Ellison your thesis advisor? Yeah, he basically was.

And Ralph was a deep and exacting intellectual, so I had to work really hard and read really hard. Anyways, it was an amazing experience. He would sit with a big stogie, and he had this amazing story for telling boys. with his Oklahoma. I've said that his voice was like a coal car coming out of my mind, and I would just be mesmerized, and he was a big supporter.

And, you know, later, even the audible transition, right at the time he died, he was incredibly supportive of what I did. So you graduate from NYU, and you're sort of thinking that you want to be a writer, but it's not that easy to do so. And you did what lots of people do, which is you decide to go to graduate school and to continue studying. I assume you went to London, to the London School of Economics.

Yeah. Am I assuming correctly that you didn't really know what you wanted to do? You wanted to kind of buy some time? Absolutely. In fact, I thought at the time, almost everybody thought if you didn't know what you should do, you should go to law school. Yes, right. I studied the European economics and politics and international history. And I was living with my old friend, Barbara, who was a rock writer.

She had gone to be a rock and roll writer in London. And so we just paired up and shared a flat. And so I would come home and there would be, you know, Rod Stewart and Keith Richards. And so that's who she hung out with. And your roommate, Barbara, this is somebody you knew from college. From high school. From high school, well. And just to make money, Barbara got me little gigs reviewing albums for the British music press.

Like MelodyMaker or NME. Exactly. New Musical Express sounds. And I'll never forget I wrote one about Frankie Valley and the Four Seasons. I got to interview Frankie Valley and the like. And I was just kind of trying to figure it out. I matriculated for a PhD, but I just didn't know what I wanted to do. All right.

So you're doing a little writing and kind of getting into the music scene in London. And I guess one night you're out of dinner and you meet a guy who winds up kind of launching your career in journalism. What's the story? Absolutely. Sitting next to a guy named Robert Greenfield, who introduces himself as a Rolling Stonewriter. And we just get chatting. And I basically told him about some of the things that were going on, notably what was going on in Spain at the end of Franco. And I talked to him about what was going on in Northern Ireland because I had a very different perspective on the world because I was based in London and reading the European press.

And he said, you know, you should package one of these things and write this guy, Jan Wienner, who work with a Rolling Stone, a letter with some ideas because you could just, you know, write about things. These are great stories you've got. And I went ahead and I sat down and I wrote this letter, the two or three ideas. And presumably it's a handwritten letter or typed letter that you write. No, no, I typed it up on my, you know, right, right, on my typewriter. And you pitch an idea for an article, which was what? What did you write in the letter? What was a pitch?

One of them was that at the point Franco, who was ancient, begins to die, the great dictator of Spain, it would be very interesting to illuminate the liberation movement of the Ata Basque separatists and the perspective of this last dictator going down. And that basically the last of the World War II era dictators and it would be an interesting story. And I get a telegram saying, go to Spain. And I'm not so sure anyone I work with at Audible or my children know what a telegram even looks like. Yeah. You know, because that's, that was the fast way to get to me.

It was to say, get out of here, go, go write the story. And it basically said, write, you know, write five to seven thousand words and we'll pay you $1,500 and reasonable expenses. This sounds like a dispatch from Hunter Thompson, right? He would say, oh, and reasonable expenses are me on winter. But, I mean, you get this telegram from him. Just curious, did you have a mild panic attack? Because you were 23, and Rolling Stone was hugely influential by that point. The attack that actually, I think, attacks all people who go way out with crazy ideas, whatever they are,

which is that, oh, my God, I'm a fraud, and they're about to find it out. Yeah, right, yeah. That's exactly what happened. But it's not the only time of my life that, you know, I've got a... you know, had that feeling. So I had no idea what to do. And I got myself to Madrid. I knew I'd have to get basically credential to cover what was supposed to be a funeral. And so what happened was all of the World War II era journalists who were still around, the Wired Service guys, they all descended on Madrid for almost like a last hurrah. And they took me under their collective wing and showed me a whole lot of

stuff about how to be a more traditional journalist. And I sat down and I wrote this story. And it came out as I'd written it. And on the cover, it said, Dispatch from the Valley of the Fallen with my name on it on Rolling Stone magazine. Now I'm 23 years old. And I was like, I can't believe this. And, of course, because I really hadn't been a student journalist, I just wrote. You know, I didn't know that, as it was explained to me later, that usually they like to edit these things a lot. But they didn't. They didn't. They just put it in.

And so I guess, I mean, you start writing more and more pieces for Rolling Stone and eventually some other publications. And he starts to travel more like to Northern Ireland and I think you went to Ethiopia and a bunch of different war zones. Yeah. But, I mean, you were so incredibly young when you were getting those bylines. I read a story, and I love the story, that you were so self-conscious about being, like, quote, found out that, you know, because you were so young, that whenever one of your American editors would come to London, you would actually not be there deliberately, like you, so you wouldn't have to meet them face to face? I thought if they saw how young, I think I looked like I was 12 when I was 20. three years old. I was incredibly self-conscious and I did try to be out on assignment when the editors I was working with, you know, telephonically were in town for a while. And eventually when I

revealed myself and I met them, they did exactly what I expect to say, oh, come on, you're not done. They were incredulous that I was putting out this precocious stuff. Imagine. So I guess you stayed in Europe for for several years and I guess by the late 70s you moved to New York to work at Rolling Stone. And I think you also got married around then. How did you meet your wife? I met my wife Leslie in 1982 on a river raft trip in Pennsylvania out of Jim Thorpe, Pennsylvania. And we were both with different people. We kind of hit it off. And I went off to China for National Geographic and spent literally months traveling the Silk Road.

It was an incredible trip, but it was long. And when I got back, the relationship with my former girlfriend was over. And she said to me, I know who you're going to call what people said, Leslie Lars. And that she was right. Because you had connected with her on that river after trip? Definitely. I thought she was great. And life went on from there, and it's been an amazing marriage, and just about nothing I can think of that has been good for me.

She hasn't been an amazing part of, including memorably referring to my sudden U-turn from writer to entrepreneur as a non-toxic midlife crisis. Which we'll get to in a moment. But, I mean, at that time, you were still a journalist for Rolling Stone. You got this great job. You're getting paid and a salary. When did you – I know that you wrote your first book, which was the story of Sears, the department store. I guess the history of Sears and then kind of like the rise and fall of it.

And the book came out in like 87. Why did you want to write a book about Sears? Well, I kind of thought, how weird would it be to take this, you know, this history? hippie counterculture storytelling and write about a big old American company and what happened to it. And I wrote another letter. I wrote a letter to the CEO and chairman of Sears, a guy named Ed Telling, who was famous for never having given an interview, completely introverted guy. The beat reporters couldn't get anything out of Ed telling.

And basically, I said that if he can deal with the Great American Corporation of the 20th century, changing itself so as to continue to be the most beloved and trusted company of the century. It's a matter of historical record. And he just decided that he'd let me in. And this was really rare, because as you all know, corporations tend to be, you know, Pentagon-like in their control over the truth. And so I proceeded to show up as a bearded. still looking quite young guy.

And people who worked at Sears decided I was okay because I had sold Ed Telling on something they never thought anybody would sell a lot. So I was a salesman in their eyes. And I just tried, you know, I spent years on this. Wow. And did I get an MBA in real time? I'm wondering if Ed Telling,

because he was widely reviled by the business press, right? he was considered to be a disastrous leader. In the end, one could argue, he redeemed himself. But do you think that he wanted you to write this book so he would come out being redeemed? I think he wanted to be part of history. I think he, like so many of these Sears guys who they came and transferred their battlefield loyalties from World War II to this Heartland Corporation, they lived these lives where they would move 14, 16 times.

I mean, that was part of a corporate life. life in those days. But boy, oh boy, it was a pretty epic task to then turn it into this, you know, this tale of America. But it was a tale of hubris. It was a tale of the final founders sewing the seeds of the destruction of the company. I have a whole chapter I remember in there about the building of the Sears Tower. They had made this genius conception of every customer thought Sears was the friendly guy down the street, the member of the Kowana's club. And that Sears was this localized reality. And once they built that tower and said that they're one of the most powerful companies in the world, all the bad stuff started happening because it was

just thought to be such an unfortunate statement of their purpose. But that company's story is very much about the end of what ended up happening in the 70s 80s, is Americans realized that other countries actually sometimes were even more productive than they were. And all that wake-up call was part of that story. You were a runner, right? Or were a runner or maybe a store. Well, I'm a hockey player who runs or did run a lot so as to keep in shape. But I definitely liked to run. And my regimen when I was living in New York as a writer was to take off in Riverside Park and run several miles at the end of the day. And while you ran, what would you listen to music?

Well, I ran with a partner and we would just chat the whole time. Or I listened to the early audiobooks. On cassette. On cassette. And a Walkman. Painful it was. At a Sony Walkman in a belly pack knocking around. And I just remember the utter irritation of trying to change the

tapes when you're aerobically taxed and how because you rented them in these big brown boxes that they would often not work at all, which was really irritating when you're a couple miles from home. But I remember listening to, you know, John Reed's 10 days that shook the world. I would take on these long, you know, kind of books and jog along and listen. But at that point, I was the only person I knew who did that. Okay. So I think this is the early 1990. And during this time, I guess, you're also researching another book, which I think it was a book about like the burgeoning tech industry. Yeah. So at what point were you like, wait, I might have a business idea here.

Like, how did that happen? So I had this book contract. I began to connect with people who were teaching me what I didn't know about technology. And one of the people who was my key contacts was my college roommate from NYU, Ed Lau, one of my close friends to this day, who was a computer frigginian genius. And we were talking about signal compression, basically about analog to digital signal compression. And I was asking all these questions about how text fit through the Internet, which was, wait for it, the phone lines. There was no broadband at all. And these discussions were happening in 93, 94,

and he had this thought. He said, you know, you could get voice through the phone line. You could be compressed. And we went back and forth and I said, Ed, you know, if you could take audiobooks and send them through the phone line, the cost of the packaging and all those tapes wouldn't be there. could lower the cost. I remember saying we liberate the signal, meaning how do we get the audio into my belly pack? So I can watch, go around with it. Or how are we going to get it into cars? Because that's where people have a lot of time. I remember thinking, if you took these audio books, you could actually liberate time for people. And we got kind of more excited about it. And I got more and more interested in what it would mean to do this because nobody else was doing it.

Okay, so you're thinking of making some new type of digital device or like a system for playing audio. So what did you start to do? So throughout 1994, I spent time trying to find anyone I could find to talk about a future that involved these little devices that were filled with the sound It's the soundscape of culture. Basically, the soundtrack of culture. I remember talking in various ways. Or the sound of civilization. I remember all these things coming out saying,

can't you see it? And like, people thought I was out of my mind. I mean, I couldn't find anybody who knew what I was talking about, except for Ed. And we just decided to write it up into a business plan. To do a business plan to create. To create a company that we decided should be called audible words. And it would be a company that made, what, books on tape that were digital?

Believe it or not, Guy, it was actually a solid-state cassette. It was a cassette that you hooked to the phone line. That was the first patent. And that the idea was you'd have the signal come over, you'd capture it in the cassette flash memory, you'd push it into the tape bed in your car, which incidentally everybody had at that point. Yeah.

And you'd be able to listen. And we just played with. with it, but I have to tell you, I wrote the business plan, and it was like a 110-page narrative. What was the story? It was a narrative saying what? The story was that we would occupy this time of people's life, which was, and we said when your eyes are busy, but your mind is free, we would create a higher level of purpose that the AMFM Radio was for everybody. It wasn't just for you.

And you would be able to program your own listening time in the future through digital technology and that we would have a company that would sell a solid state digital device as well as content. It would be about books and literature. It would allow you to listen to fresh air and marketplace and all these shows that played at 2 o'clock in the afternoon. And we got a patent together on a downloadable system for media that would be captured by a solid state device. And I remember it was $14,000 that I put on my credit card. Wow.

And because, you know, what did we know? Now I know, of course, without a portfolio patents are worthless. But, you know, at that point I didn't. So that was the first thing we did. But we actually started to get really excited about this. So instead of terrestrial radio, you could get it delivered through the internet instead of an audio book on tape or a book or a speech on tape or some kind of, you know, inspiring, I don't know, inspirational thing. You just basically say, this business is going to deliver this stuff to you through your phone line to do the internet. I didn't play up the book part of it because the business itself was so infinitesimal and small.

What I said, what I did was I realized through just basically. journalistic research that 93 million Americans drove to work alone every morning. At that point, only Department of Transportation number, which you could extrapolate to hundreds of millions of hours of time people sit in traffic. I then matched the sociological data that showed that the most frustrating time of people's days and least valuable time is sitting in traffic. And I basically just, we said, if we only penetrate 9% of them at $10 a month for a service that enriched their lives, here's how big the business would be.

Right. And that's how we were able to get, you know, what's now very small amounts of money, but was then to us a lot of money to make audible. Before you went out to seek capital for this, right? Because you were writing a book, how did this idea just take over your mind? Because all of us get ideas. We've all had a business idea. And sometimes it captures us for a week or two weeks.

But this was really... No question. I think there were multiple things inspiring me at the time. One was I just thought it was interesting that I daydreamed about this more than I was daydreaming about the next paragraph or the next day's writing. The other thing was I kept good. going to people who I otherwise respected, who thought I was crazy. They thought you were crazy because you had a great gig and you were respected.

They were so dismissive of it. Yeah. Yeah. I mean, it was like they just didn't get it. I mean, even people who took the time said, why don't you just package it and try to sell it to Sony for $25,000? It might be something they're interested in. It was such a dismissive reaction to it.

And that made me more inspired to go ahead and try to do it. Yeah. When we come back in just a moment, turns out that building a new type of audio player and a new type of audio marketplace and a whole new type of audio experience is hard. And that's before the dot-com bust. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR. Hey, welcome back to how I built this. I'm Guy Raz.

So it's around 1995 and Don Katz is trying to build an audio player and platform for audiobooks, interviews, comedy, and more. What will become audible? But first, he has to raise money. And one of the first people he calls is a former source from the world of tech, a guy named Tim Mott. And Tim Mott was a great entrepreneur and is a great, great, great. Great person. He was one of the founding people at Electronic Arts, the three people who developed electronic arts.

Yeah. And when Tim Mott read the primitive business plan, he called me up and said, I would fund this. This is amazing. Don, when you went to your wife and you said, hey, I want to do this. I want to start a business. What was her reaction? Was she like, go for it? I think at one point she said it was a – it sounds a little sexist now, but she said it's better

than a blonde. She'd already been such an amazing partner for someone who was willing to live without a net because, you know, I was freelance and book writer and everything. But I was scared. I mean, I had three kids at a mortgage. You were 43? I was 43 years old. And I took an 85% year-over-year pay cut to start Audible. And meanwhile, from what I know of the story, you were looking for a business partner and you wanted it to be Ed Lau, who's your former, your former.

former roommate, the guy who was that computer genius, but he wasn't able to join you, right? So you needed to find presumably someone else, right? Yeah. I went out to find a new, you know, science partner and found my, you know, lifelong friend and wonderful person, Guy story, who was a senior person at Bell Labs. And Guy decided to, you know, hear the siren song, and he joined me early. How did you convince him? How did you convince him? Or how did you... I basically said, I don't know if we're going to overcome what a venture capitalist would call the tech risk, you know, and the execution risk.

But whatever we build, we're going to put in front of consumers. And you'll forget to say that. And I said, you don't have to take the 85% your pay cut I took, but you have to take 60. And you're going to get all these options. And a guy jumped into the merry band. Your initial backer, Tim Mott, put in, I think, like $400,000 in seed capital. Yep. And what did you know at the time about how to, you know, like how to deal with equity and valuations?

I mean, now, of course, every company, it doesn't matter what the company is. It seems like their perceived level of valuation is $20 million. Oh, my company is valued at $20 million. And you're like, what are you making? Nothing. We're giving ourselves a $20 million valuation. How did you know how to do that and how to, you know, because... I literally trusted Tim and, you know, I was a fast study as journalists are.

Yeah. And so I was picking the stuff up and taking it in pretty quickly. And Tim's first round was, you know, allowed us to evolve the team. And we took over a doctor's office in Montclair, a single room. In New Jersey. where I'm speaking in New Jersey. Yeah. And we painted it on a Sunday and moved in on a Monday. So now we moved out of my attic and had a place to gather.

Yeah. And then Tim and I hit the road for California. To raise more money. To raise more money and also begin the process of building the first download system, the first way of actually securing the intellectual property. This was years before the terms about digital rights management were there. because I'd had so many outside magazine articles ripped off on the Unix Internet and people put their own names on them and the like that I kind of had this idea that this kind of professional-grade creativity might need to be protected. So a company very well-known called IDEO, which does industrial design, came in, and they were totally excited about all this stuff, including everything from the idea of securing the IP and the download system and building a...

device with us. So that process started. And yeah, we went out and spent a lot of time going up and down Sand Hill Road, getting to know people. All right. So you're able to secure the capital. I think, I guess a few million dollars to get an audio player built. But also, I mean, you've got to, you've got to get content for that audio player. And you were going to be the CEO of the company. You were going to manage people and manage a team. Is that right? Yes. So I was president and CEO, and Tim was chairman, and we formed a board. And I believe this idea of seeing the future and seeing these opportunities and doing something that had been done and persuading people to be part of it was the most important thing. But it is also true

that managing people is a different art and science. But I did have all those years of watching both entrepreneurs and others lead. To me, it just sounds incredibly overwhelming, like an overwhelming amount of things to do. I understand that you had written books about leaders, but you'd never had like a leadership position at any of the publications where you worked. You weren't an editor at Rolling Stone.

Were you nervous about becoming a manager of people in any way? I was definitely nervous, but I was on point, you know, look, I definitely felt more concerned about having put $3.5 million into play that was other people's money and feeling deeply responsible to them and to others, particularly people who left perfectly good jobs, because a lot of these people left really nice jobs to join this vision of the possible. So, yeah, it was incredibly stressful. But you did say that part of the thing was about getting the content. And I would argue that probably our original funders discounted how hard it was going to be to convince the gatekeepers of the content that existed to see this particular future. What was the content that you envisioned being on this player? Because you had two paths, right?

You've got two things you've got to do at the same time. You've got one team building the actual device that's going to play the stuff. and then presumably another team getting the content. So what did you think the content was going to be? I thought the content would be, frankly, what it became, a mixture of literally the best possible public expression in words. You know, if the Churchill Club had profound speeches, I wanted to carry that. Gotcha.

We turned the San Jose Mercury News into an audio program. You have people reading the newspaper as content? Yeah. Okay. So what else? What other kind of content? Well, we got some of your buddies at NPR so we can have Car Talk or Marketplace. Car Talk, which was owned by those guys, so you didn't have to deal with NPR.

Right. By 99, I'd signed up Robin Williams to do original programming for us. And yes, we wanted the audiobooks too. But it was many, many years. We had much more content that was just different kinds of public content. Whatever you could get. Yeah, that we either narrated or other things before we had a lot of books. But the first download, when it finally happened, was in October 31st of 97.

It was men are from Mars and women are from Venus, the self-help book. And I remember it was to a customer in Cave Creek, Arizona. And it was done at a then pretty famous technology conference called The Agenda Conference, which is where we unveiled the service and gave everybody from Bill Gates to Steve Jobs and Michael Gill, this digital audio player we made. And I'm sure the majority of them were sought in half back in various labs when people got home to see what's inside them. The idea was way ahead of it. time. And often when that happens, businesses don't make it because they're too early, which

I think it's 95% of the time or something like that on the metrics. And we were, I think we were seven years before the vibrancy of the market. So it's a very unusual story to be alive that long. So you have this device that comes out in 97. And how did the user experience this device? It was you buy this thing. It's in a docking station. And then what? You go to the Audible website, and there's a menu of things. You can get car talk. You can get the speeches from whatever, the Commonwealth Club, whatever it was. And you would, all a cart, buy those things. And then they would download to this device that was connected to your computer through a serial port. Am I describing this right? That's exactly right. That's how it worked. And now, it did take a long time to come down. The Internet was incredibly

choppy over the phone lines before broadband. So we had really sophisticated resume features, which ended up being another thing people celebrated for our tech chops later, because it would drop off. And that way, you know, it was always kind of waiting for you in the morning. Yeah. And then you were supposed to drive to work and come home and put it back in the dock and get to work smarter than the guy in the next cube, as we used to say. And that was it. Now, it should be said, it sounded like crap. I mean, the audio quality was not good. It literally sounded like somebody talking to you with a COVID mask in the bottom of a bathtub or something.

It was just not good audio. But we kept pushing the science forward. So Guy and I would go around and visit these rocket scientists who develop codex. Sure. And we would work with them. The codex is, I should say, I say sure, because I'm an audio. Right, but it's basically a software algorithm that deals with the compression factor of the audio and gives you, you know, relative sound clarity versus not.

And we did push the labs out there to make much better sounding audio, you know, even month over month, that allowed us to the clarity to go up. But in the end, you know, the user experience was really clunky and primitive, to the point that when I meet people who were original customers, I always say we should have been paying you. Don, when you pitched this idea to investors, you talked about 93 million commuters, people in their cars, not using that time valuably.

Well, this device was not designed for the car. So who was, when this came out in November of 1997, did you sell any of them? Was it successful? We didn't sell many, but the people who got them, they did use them in their car. They plugged them into a little speaker that sat on their seat. We gave them a cassette converter that we had that would...

Oh, yes. You could put that in your cassette. Remember that? Yes, and then they would play out of your speakers. Exactly. And you could plug that into the output, yeah. But it cost us $208 to make that little device, and we tried to sell it for $215.

dollars. Wow. And that was a lot of money for people to get something that, you know, was of that quality and mostly that they didn't even understand what it was. So, I mean, it comes out in 97, and this is your product that all these investment banker, you know, venture capitalists and stuff, to put money in. And it sounds like it was a bomb. It was kind of a bomb, but it did. We didn't ever stop to think that way. We just kind of went forward thinking, like, what are we going to do now? And, of course, the tech deliverables were so difficult. I mean, I have to tell you, being in the hardware business to this day, if it is not an easy business, as anyone who makes hardware, we'll tell you.

But I just remember missing a milestone. There was a big milestone for another funding. And I get to this company called Flextronics, which is a very sophisticated contract manufacturing company that was making the player. And I just said, what do you mean it's another three months? He said, we're out of crystals. I said, what do you mean we're out of crystals? He said, do you know about crystals? I said, I think I know about crystals. He said, well, done, you can't shit a crystal. He said, it turns, because they had to grow them. They had to grow the friggin' crystals. Wait, these are crystals for the liquid crystal display? Yeah, these were like traditional

crystals that were in the device. And you know, you couldn't believe how, you know, how complicated it was to get this thing built. Don, at a certain point, I guess, in the first years, you ended up bringing on a guy named Andrew Huffman to become the CEO. And he died. I mean, 1999. He was just there for a couple of years.

Yeah. So Andy Huffman was a pure tech guy. And, you know, really good guy, but he was absolutely a pure product and tech guy. Yeah. And in that period, what I was doing, and I were talking 99, was convincing my venture capitalists that they weren't the cowboys anymore because what was going on was a bizarre situation in 98, 99, where companies like ours were going public. And they were grabbing a whole lot of money.

It was a... This was the boom, the dot-com boom. And it was very much a bubble, but it was a bubble that I did not want to miss. Because if nothing else, my London School of Economic Training is like, when capital costs almost nothing, you probably should take it. So I just, we pushed forward. You went to your investors and you said, I want to go public. Yeah. And then, of course, most of them said, what are you talking about?

You know, you only have 3,800 customers. So Robin Williams had come in and bought like 500,000 shares of common stock before we went public. He was part of the road show. And he was because he's a techie guy. And so it was a blast, actually. And the whole thing of selling of going to Europe and selling this. It was a real experience. And how did you do, by the way, when you went public?

Great. We walked away with almost $40 million. We had 5,700 customers. So the investors made a great return. Yeah. But in that year, a few months later, Andy, at 39 years old, was a University of Maryland basketball star, was playing basketball on a Saturday with people like Ralph Samson. It was a great NBA star from the past and others in a New Jersey game. And he died of a brain aneurysm.

And this was, you know, one of those moments where I, I. I realized that was the only person of the 38 of us who'd ever experienced sudden loss and trauma. And I brought in actually a great friend who was a grief counselor, and we kind of worked this through together. But it ended up, I think, stealing those of us who were left to a survivor mentality that probably served us well. All right. So you guys go public. in the fall of 1999, and by the spring of 2000, the dot-com bubble burst. It crashes.

So I think when a company goes public, the officers have to hold their stock, right? Like, they can't sell the stock immediately. So, I mean, did anybody make money off of Audible going public? Yeah, a bunch of venture capitalists certainly did because. Because they could. Yeah, a couple of them. And here's the term in the day was like, you know, yeah, I would. never have sold. I mean, I thought, you know, I thought it was, you know, I was told it was immoral

for a founder to sell a share of stock. And I took that fairly seriously. But some of our VCs, right after we went public, began to, as the term was, puk out their shares in very public filings. And they were right. Yeah, I mean, they made a lot of money off Audible and because what happened next was not pretty. But, you know, I should say for context, I've heard that there were 1,500 public internet companies at the beginning of 2000 and 140 at the beginning of 2003. So there were combinations there. There were, you know, some takeover there. There were other things that went on. But it was that kind of, you know, of decimation. And the stock price, you know, which was once $29. or something, it went down to four cents at the end of 2000.

Four cents. When we come back in just a moment, how Don was able to chart a new path for Audible with help from one of the smartest and scariest people in Silicon Valley. Stay with us. I'm Guy Raz, and you're listening to How I Built This from NPR. Hey, welcome back to how I built this. I'm Guy Raz. So it's 2001. The dot-com bubble has burst. Audible's stock price has plummeted,

and Don Katz is trying to stay calm. I was incredibly anxious, but I just kind of had an attitude about it because we weren't out of capital yet. And we had investors who had not given up hope. And it felt like, there was just always another reason to keep fighting. But still, Don, I mean, your stock was down. You guys weren't profitable yet. I mean, the market for what you were making hadn't really taken off.

So how are you strategizing? I mean, how are you going to guide the company through such a tough time? Well, what happened during this period of time is we did hunker down. And when you went public, you had to basically be trained to say one thing to all the fund investors, which was, we are technology agnostic. And what that was code for was that we will not build or say the word platform. Because the word was in the 90s, and life has changed a lot, is that if anyone said they were building a platform, Microsoft would make it their business to destroy your company. Right. And so, which, you know, if you look at some of the suits against myself, there was some pretty good evidence. It was true.

Yeah. So we decided to not be technology agnostic. And during this period when nobody was looking, we decided to take our pretty good science and call this the audible ready platform, which would be the de facto way that spoken word was transmitted and played back in the new generation of MP3 players that were coming out. Okay. And we not only got all those deals done, we had Texas instrument chips that were already audible ready. So when the dust started to clear a little bit and life started to get a little bit better, we come out with all these MP3 players, which people were buying at the time, with our bits

inside the device and our marketing collateral inside the box. So it kind of got hard to compete with us at that particular table. time because we were of all these different companies that wanted to be doing the same kind of thing in a pretty good position. So that was one of those, you know, I always think, you know, you get to where we got by having about 51% of the things you're doing being smart. C-Named us the number one entertainment app on the web and, you know, things that made us feel pretty good. But as you, you know, also point out, the financial stuff got really dark. being a public company was not fun.

Yeah. I mean, it would still take a couple years before MP3 players would take off. And, of course, that happened with the iPod, which we'll get to in a moment. But how were you getting rights for audiobooks? Because audio books were still books on cassette and books on CD. So how are you getting the rights to get digital versions of that? Was it hard? was it pretty easy.

No, it was definitely hard, and it was difficult to bridge a world that is very much not technology-focused. No, publishing, no. Book publishing is people who love books, meaning that they're willing to get paid less or they have the wherewithal to not get paid a lot. And they go into a world and usually they stand for the status quo and they usually resist, you know, technological change in particular in others. It's a longer story, but it's been like this forever. So it was difficult, but eventually we did start to break through and be able to carry these audio books at a different cost. And then the other thing that we did figure it out was the subscription model.

Yeah, how did that, because from what I understand, it was up until this point, it was you buy a player, which you're asking a lot of people. You're asking them to spend $200 on an MP3 player, and then $10, $5 on a book. That's a lot to ask people, right? Yes, and that was the challenge. So what if you just got an audiobook a month and a player and you get a year's subscription?

And that really helped. That helped a lot, particularly since at that point, we had these audible-ready devices that other people bought, but we started giving away a lot. little blue MP3 player called the Otis. We got rid of the audible mobile player and let that become the artifact it needed to be. And the Otis was free if you got a subscription. Yep. And we just gave them away. And what was the commitment? You had to do a year subscription? It was a year's commitment. And what was the price? It was actually $9.95 for two audiobooks when we started.

Okay, a month. Yeah, a month. And it gained traction. Yeah. And frankly, the, you know, the phone call I got around this period from Cupertino, California, from Steve Jobs, was a ray of hope that was really meaningful. Okay. So let's talk about this. Steve Jobs calls you in 2001, and he said, hey, I like this thing you're making. He did. He said, more than that.

He said, tell me about this round-tripping, how you bookmark the content. He said, I want to hear more about this. And then he asked all sorts of questions about the tech. and very enthusiastically, which was kind of ironic because, you know, Steve was kind of known for a, you know, not invented here view on tech. Stealing stuff, yeah. So, but he was very, very focused on this. And he went on actually to talk in ways that we began to have fairly rich conversations because we shared this historic view of the interplay of technology and invention and culture. this whole idea that, you know, from chisels in caves to parchment, you have this amazing

creative unleashing. He understood, I was surprised for what I thought would be a pure tech guy, the golden age of radio and how, you know, what that meant and how the music business exploded with creativity when it's shifted from sheet music. I mean, so we talked about this kind of stuff, and he told me that he would weep copiously when he listened to Edmund White read Charlotte's Web. And he's, you know, he, so he just basically decided to tell me that he had this plan around this iPod and that I went home and I remember telling my wife that Steve said he's going to spend $15 million marketing their audio player.

And I said, can you imagine if we had $15 million to market, you know, at Audible? And this one thing led to another, and the second generation iPod came out. It worked commercially with Audible. So basically you would plug in, because you used to have to plug in your iPod to your computer through that interface, and you would go to the Audible website, and that would download directly to the iPod. Yep. And that was it. And so you would load up, and they were these sweet little devices.

They were very cool. The only thing we didn't get to do was put our... marketing collateral in the boxes. So it didn't say audible anywhere? It did say that it was audible ready. And that was that term that we'd kind of coined at the time and that it started to mean something, at least in the world of people buying MP3 players. So we were able to garner our cost structure to be for the stakeholders who were going

to get this. So we were able to target market to the people buying these newfangled players. and we were basically, you know, compatible with all of them. And once we started giving away minis instead of, you know, our own player, it started to get better. All right. So just to be clear, instead of giving away your own devices as a way to get people to subscribe, you started to give away the Apple iPod. And I think you did that for several years.

I mean, Steve Jobs kind of gave you a lifeline there. And so I'm assuming that pretty soon, you know, after that, you just kind of stopped being a hardware company. Like, because eventually it would have been sort of pointless, right? No, that's absolutely right. And, you know, we were happy to get out of it and basically declare that, you know, hardware was a means to an end. There would be other transmission methodologies. We know we had partnerships with everybody, including the companies that were making CD burners at the time and the like. So I always wanted to be a means to an end.

You had a, I think, by 2005, so you're now completely out of the hardware business. You're focused mainly on licensing audio. And really, you pivot towards audio books. When did that happen? What was the thinking around that? I think it was just because it took off. 2007, we still had 20,000 audiobooks. Now we have many, many hundreds of thousands, obviously.

We had 20,000 audiobooks in 2007 and 45,000 other kinds of. of content, including Robbins' programs, Ricky Jervais' programs, the amazing Susie Bright Erotica series, which was probably... These were pre-podcasts, basically. Yeah, it was before the term podcast. These were like, yes. Yeah, they were all short-form programs. Yeah, they were just part of the repertoire. I mean, you became the global supplier of audiobooks to iTunes already in 2003.

So by that point, it was clear that audiobooks was where you were headed towards. Do you remember what the pivot point was where you were like, okay, we've broken through the publishing industry is cooperating? Yeah. I think that the utility of the service, the idea of positioning this as a way to use your time. Now, it was also true that only about 15% of the books coming out were in audio. So our crusade was always to get more audiobooks made. or to try to get the rights ourselves from the agent and the author to get them made, because we literally would run out of mysteries.

And I would go, at one point, I remember I would put my wallet on the desks of CEOs and the publishing industry. I said, I need more content. So at that point, it wasn't coming. And we broke in to getting the rights ourselves and making a whole lot of audiobooks. We also figured out how to make an audiobooks. for about a tenth of the cost that the, just using technology, you know.

So we just started making a lot of audiobooks and it got better and better. And there was something called Project Hollywood in 2011 and 2012, where we just said, let's just go find out what the greatest actors will do. And when I heard Kate Winslet do Teresa Recan, one of the darkest Zola novels of all the Zola novels,

You know, and people heard what she could do. I remember thinking, we could take this whole thing to a new level and make this about acting as much as it's about a writing. Don, I think by 2005, this is like 10 years since you launched the business. You're 10 years in. It's the first year you actually turn a profit. Yeah. Just reflect on that. I just want to reflect on that for a moment because a lot of, I don't think enough people understand how long it can take, especially with a

complex hardware slash content business like the one you created, how long it takes to actually make a profit. And even up until that point, I think 2005, you were still basically a small business, right? I mean, you only had fewer than 100 employees, I think, right? Yeah, that's probably about right. You took an 80% pay cut to start this business in 1995. Until 2005, did you ever get back to which you were paid in 1995? And salary? Yeah, I definitely, I definitely did if you look at the, you know, the vesting and the equity pieces and all that.

But did you have to, like, cut family expenses and things like that for a while? Yeah, there must have been some hairy moments. But the truth of the matter is, I said, I never really measured my ideas on money. I always thought, you know, the number of customers, the retention rate, the kinds of amazing content we could make, including tons of original thinking, I don't know, that stuff turned me on more. And, you know, I still probably approach things that way. So it's interesting because we did a story about Linda.com, which eventually sold to LinkedIn. And their rise and your rise really mirror each other because you began around the same time. And I think, I think a lot of that has to do with broadband access.

Yes. I mean, obviously broadband access that download that system. They, you know, the trust of, you know, of everything about from the e-commerce system to the system. People using their credit cards, yeah. And then we just started to have, you know, which now we have this massive kind of brand momentum, brand equity. And, like, I mean, people started discovering this thing called Audible. And we started to build up our teams. We started to expand internationally and kind of where, yeah, I admit it, I thought we'd be year three,

which is why, you know, those survival years. But I got to tell you, the warrior spirit of those formative years, that is one of the reasons I still think we're so successful, because the people who work at the company do try to see themselves. as these kinds of people who want to invent and stay ahead as opposed to manage. You had this business plan, right, which was audio delivered to people through the Internet onto devices. But when you think about that, right, do you almost wish that you would have – and there's no way to know, right, that businesses is – most businesses just evolve. Like, there really is no master plan.

Like, Jeff Bezos kind of had a plan, but it – it – unfold in ways that he probably couldn't really have anticipated, although maybe he did. But when you look back, do you often sort of kick yourself and say, God, I should have known from the beginning this was going to be audiobooks and never have wasted my time on the devices on making the devices and just focused on the audiobooks? No, because then you're not going to be the leader unless you take the big risk at the point that people don't believe. And then the question is how early is? But, you know, look, I am stunned by how quickly, you know, some of the companies formed after us did come together.

But, you know what? Most companies are based on productivity improvements. It's like Uber gets you from here to here like a taxi, but it's just, it's better. Most businesses, you know, have some level of productivity improvement, like all software businesses and the like. That wasn't this idea. This was creating a media category. This was basically creating a spoken word category when it didn't exist in the country whose entire literary canon was based on how we talked and told stories. I wanted to basically say there would be a spoken word category called Audible if it had to be that sat next to all permutations of video and movies and TV.

It sat next to books and it sat next to music. And we kind of pried this thing into the light. And that's just a little different than a better way to use your computer. You know, we've told the story of Shopify, which was founded and continues to exist in Ottawa. And Linda.com was in Ohio, California and then Ventura, California. These were not near Sand Hill Road in Silicon Valley or in Seattle. And you were based in Wayne, New Jersey and then moved to Newark, which was not a place where companies were going. I mean, it was still big parts of that city in 2007 were still boarded up.

Parts of it are still bordered up today. I mean, you could just go all the way. Newark was thought to be a scary city. I mean, Newark was everything you heard about Newark was that this was a place that, you know, time had forgotten and that it was. just crime-ridden and had nothing good going for it. That was the word. And frankly, that's why I wanted to move us there. When it came, we were outgrowing this very ramshackle headquarters,

which in Stenley was $12 a square foot with furniture and wiring. Talk about, you know, cost effective. We needed to go somewhere, and I said, let's move to downtown Newark. And besides, we were becoming. coming at that point the largest employer of actors in the New York area, which we've been for a while. And I said the actors can jump on at Penn Station. They can get off at Broad Street Station. The board guys and the, and we had a consultant that said, you're out of your mind. You're going to lose, we think 30% of your workforce simply by moving that far and all the fear factor.

and, you know, we moved in with 120 people and nobody left. And we started to just try to create either models that other companies or other cities could use to just be part of a city's comeback. So what kinds of things were you doing? So one of the first things we did was just said, you can't be a nepotistic intern anymore. You got to be a kid from Newark, and you'll be a paid intern in our little world. So then you get like this corporate culture, which includes these incredible cutting-edge technologists and all these English majors turned into business people like me. And then some of the best actors in the world hanging out.

And these kids, and you start to realize that this is an unusually rich company culture. And, you know, we started paying our employees $500 after taxes rent to frame. And if they moved downtown Newark, to be part of the urban pioneers, I started Newark venture partners, which has become an international level of success, drawing companies from all over the world to Newark to an accelerator. It's anyways, it's just applying the kind of entrepreneurial thinking that gets to create a number. audible to, you know, to social purpose. In 2007, your annual revenue at Audible was like $110 million. And in January of 2008, Amazon announced that they would acquire Audible for $300 million in cash,

which in retrospect, they got a great deal for. You look back on it, especially given that your revenue was $110 million the year before. obviously you didn't control the company, you were a shareholder, but at the time, did you think it was the right move for Audible? At the time, I was the only one who thought it was a right move. So this was me. Look, it was a blast to be a NASDAQ CEO. Even all the trials and tribulations,

there were things about it that I love because it was just another adventure into a new world. But by the time 2017 as they came along, I was really in a moral crossroads because, you know, if you read everything from the law to Milton Friedman, the only purpose of a CEO and a chair and CEO, as I was, is to enrich their shareholders. I mean, that's it. Maximize shareholder profit. That's what it is. And so I was basically working for people that I stopped feeling like I was honestly waking up in the morning.

I was in caring about them. And it was very hard to because a lot of them were freaking computer programs that were whipping our stock around after hours in various complex high-velocity models. And others were 100% speculators who could have cared less about being real investors. And I just wasn't into it. And on top of that, I knew that if I could hook back in with, Jeff and with Amazon, we could have access to several hundred million people with credit cards who were likely to be our customers.

We would go even faster and we'd have that many more millions of people. The freedom to even do the things doing in Newark, that was meaningful to me. And it's somewhat rare. A lot of founders don't, you know, they go away as soon as a transaction happens. Yeah. But in this case, it's an index. depends, subsidiary that works.

You know, it's interesting, a lot of, Amazon has a lot of haters, right? Because it's an 800-pound gorilla on the block, and it's just going to happen.

It's going to be that way. But if you look at Amazon, compared to other giants that acquire their companies, they really do, they have a great track record of allowing their acquisition companies to remain independent.

I mean, look at Zappos. We had Tony, the late Tony Che was a guest on our show, an amazing, entrepreneur. I mean, that company was and is totally independent. Audible is an Amazon company, but it, I mean, you stayed on. I think, I was thinking about this. You stayed on as CEO of Audible after Amazon acquired you for as long as you were the head of the company when it was independent. When it was, so that alone suggests that it was, that it was, you were. It was,

a pretty good marriage. Yeah. It's a pretty unusual story. And I frankly can't believe that it's now longer than my writing career. And also, you know, come on, let's face it, most people know that, you know, senior people at Amazon get paid in Amazon stock. And we did the transaction. The stock was like $50 a share. You might want to check out what it is now. So one way or another, whatever happens from here. It's been an amazing adventure. And not many people I know who have two careers where you get to turn ideas into reality. I've been pretty lucky. A lot of things happen to a lot of people that are lucky. I know you've mentioned meeting your wife, for example, as a lucky moment. And I would say the same about mine. I'm going to have. Or the fact that Jan Wienner said,

go to Spain and cover this thing. And you met all these guys who covered the, you know, You know, the Spanish Civil War, like, hey, yeah, we'll show you the ropes here. You know, somebody who gave you a lucky break or this guy, Mott, who thought your idea was great when everyone else thought it was kooky. So there were a lot of lucky moments, but you also grinded and grinded and worked really hard. But when you think about this story that you've told me and you reflect on it, how much of it do you think has to do with luck and how much do you think has to do with the work you put in? I think it's something on the order of 50.5 to 51% purposeful good calls and brave moments and times when you just didn't give up. The rest of it is definitely luck. Because otherwise, how could I have made so many stupid boneheaded decisions along the way that didn't kill us?

So I think there's a fine line. You're making calls all the time. And particularly if you're a leader, you kind of got to do it. But I don't know. I think about it, you know, about it all the time. But I feel I was out there playing ice hockey last night. And, you know, not many people my age get to play ice hockey. Is that luck? I think it's luck.

And I think it's also that I just made it my business to try to elongate my hockey career. And I do a lot of stuff to make that real. That's Don Katz, founder and executive. chairman of Audible. By the way, a few years back, the company put together a list of some of its most popular audiobooks over the past 20 years. The best-selling memoir was Bossy Pants by Tina Faye. The best-selling business book? The seven habits of highly effective people. The most repeated listen was Harry Potter and the Sorcerer's Stone, which makes a lot of sense. And here's one that all of you can probably guess in advance, the most searched-for author on Audible,

Over the past 20 years was, of course, Stephen King. Hey, thanks so much for listening to the show this week. If you don't follow our show, please do follow wherever you listen to podcasts. If you want to write to us, our email address is hibt at npr.org. If you want to follow the show on Twitter, it's at How I Built This or my personal account at Guy Raz. Our Instagram is at How I Built This NPR and mine is at guy.ros. This episode was produced by James Delahousie with music composed by Ramtin Arableu. It was edited by Neva Grant with research help from Claire Mirashima.

Our production staff also includes Casey Herman, Liz Metzker, Farah Safari, J.C. Howard, Julia Carney and Elaine Coates. Our intern is Catherine Seifer. Jeff Rogers is our executive producer. I'm Guy Raz, and you've been listening to How I Built This. This is NPR.