Donald Katz says Audible's customers are highly loyal.
Photo: Spencer Heyfron
By Adam Lashinsky
July 25, 2013

CEO Donald Katz tells Fortune how he turned Audible into a powerhouse, sold it to Amazon, and traded notes with Steve Jobs:

Fortune: You founded Audible in 1995, sold it to Amazon in 2008, and are still running it. How did you get started?

Donald Katz : I was a writer for 20 years, and in the early Internet days one of my articles was ripped off by techies all over the world. I remember thinking that there had to be a way to protect the integrity of professional creativity. I liked to jog with a belly pack full of tapes because I loved listening to literature. My old college roommate, a supercomputer designer in Silicon Valley, explained to me how the compression of digital signals worked and how talking, as opposed to video or music, could more easily be transmitted over phone lines. That’s how Audible was born.

Was there a big market for audiobooks then?

There was said to be a billion-dollar market, which was not true at the time. But because I’d written business books, I knew that some of the key problems in this Victorian publishing business model involved distribution. With digital audiobooks I thought you’d never be out of print and you would have no packaging costs.

For a small outfit, Audible kept good company, including Kleiner Perkins, Amazon, and Apple.

Shortly after we went public, I went to Jeff Bezos and traded 5% of Audible’s equity to have Audible’s audiobook titles in the book details section on Amazon.

And Apple?

Audible wasn’t compatible with Macs, and so many customers complained that I told our customer service reps to email Steve Jobs. I got an email from Steve saying, “Will you stop? I get it.” He said he wanted to talk to me about a project Apple was working on, the iPod, and that he wanted it to be compatible with Audible.

Today you’re a relatively small part of Amazon. How is business?

The average Audible listener consumes 18 to 19 books a year. We have millions of customers, and they spend a couple hundred dollars a year. It’s a really good business, but it’s still not where I think it’s going to be.

In listening to you talk about Audible, it doesn’t sound as if you miss your days with Rolling Stone or as the author of bestselling books about Sears and Nike.

I miss the physical buzz of executing that combination of sentences when you know that you hit it, and there is nothing better. But I’ve loved building a company that affects people’s lives, and in both cases I feel like I got to create something that didn’t exist before.

Connected is an interview series with leaders of innovative organizations. Conversations are condensed and edited. For more Q&A and video, go to fortune.com/connected.

This story is from the August 12, 2013 issue of Fortune.

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