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In the 1990s, Mark Bide and I used to chair a program for VISTA Computer Services called “Publishing in the 21st Century.” We’d do a “white paper” every year and run conferences twice a year each in New York and London. The subject was digital change in publishing and the purpose was, simply, to think it through.

The conferences developed a pattern. Mark would open the show with a summary of our research. He’d be followed by a couple of outside speakers and then I’d wrap up with what we took to calling a “walk on water” speech. I got a lot of practice doing big vision stuff.

Part of the pattern was that Mark would start each conference by reiterating that book publishing is not one business, but many. The procedures and business metrics for a publisher of directories bore no resemblance to that of a college textbook publisher; a sci-tech publisher had a different business and, in many ways, a different business model from a trade publisher; and so forth.

General trade publishers are, in my opinion, the most challenged of all by digital change. They have the superficial advantage of having their marketplace “go digital” later than all the others, so there would seem to be an opportunity to learn from the mistakes and the successes of others. But that advantage is illusory because of unique aspects to trade.

Recently, for a new project I’m working on that will become public in the next couple of weeks, I was challenged to enumerate what distinguishes trade publishers’ 21st century problems from everybody else’s. I think all of these things are challenges unique to trade publishing or they have substantially more impact on trade publishers than on any others:

* their channels to get printed books to the customer are consolidating and shrinking which means a loss in margin to intermediaries with more clout, a compressed sales window that leads to more risk-taking with initial placements of inventory and higher returns, and, as volumes shrink and returns increase, actual distribution costs per unit sold will rise as well;

* their principal marketing channels are atrophying, and the new emerging ones are more granular and transient, increasing per-title marketing costs;

* the biggest authors have increased clout for many reasons, increasing title acquisition costs;

* the new technologies both lower barriers to entry for additional competing titles and keep old and even used books alive forever in the marketplace, increasing competition;

* they have unique legacy issues: the backlist rights tangles and undigitized backlists that still sell robustly in print require additional investments now to forestall ultimate sales erosion.  As the overall sales shift to digital some titles on those backlists, depending on rights, might not be able to go (and perversely, could have the copyright licensed for print but effectively orphaned for a digital version);

* they have agents, who have their own challenges (unless they represent one or more of the biggest authors and even that model might be threatened as more digital change evolves) while they add complications for publishers trying to find their way to new models with uncertain costs and revenues.

Trade publishers, much more than their counterparts in school, college, academic, and professional, are bound to the format of “the book”. That is partly because the “value adds” that other publishers can use to justify different (higher) pricing are not natural adjuncts to trade books. Trade publishers can’t boost prices and margins by adding homework helpers as is done for school books, self-testing as is done for college texts, and value-added aggregation, searching, and productivity tools as is done for academic and professional publishing. So the lessons being learned by other publishers just don’t port to trade, any more than the new paradigm for music (give away the content to sell concert tickets) can transfer to books.

Even within trade publishing, there are distinctions that matter. The business of the Big Six general trade houses is quite different than the niche (sometimes called “enthusiast”) businesses run by publishers like F+W Media, Chelsea Green, or Hay House. Niche publishers who have depth of content in verticals can do things that the general trade houses just can’t.

For example, F+W Media has refocused its company around verticals. They used to see magazines and books as the businesses they were in with titles related to crafts and writing; now they see crafts and “writing” as the businesses they’re in with books and magazines in each. That enables them to share marketing costs across many books and magazines and it enables them to market much more effectively to the markets they serve. F+W’s book business is challenged by all the same factors as everybody else’s, but reinforcing their vertical organization creates alternatives, sometimes allowing them to convert essentially consumer audiences to professional audiences so that tricks from other publishing businesses can apply.

Here’s a recent anecdote that, for me, sums up the uniqueness of our challenge.  In a recent conversation with a very sharp and Senior Marketing Person at a major house, I raised a pet question of  mine these days. “What’s the new ‘standard treatment’ for a trade book?” Used to be galleys to selected pre-pub review media, a press release with and without review copies to lists of varying sizes and care of curation, size of the catalog page, and then things we can do for all mysteries, all cookbooks, etc. What should it be now?

So SMP says back to me, “there isn’t one.” But there has to be one, I said. Because only 10% of the books are going to get any unique marketing effort, so 90% have to get something standard. What should it be? If PW and The NY Times and the list of review editors at the various papers and the “usual suspects” aren’t the right thing to do anymore, what is? Or do the 90% get nothing?

What that captured for me is that the Achilles heel of trade publishing has always been that publishers have to reach audiences as numerous as the books they publish and they have mostly marketed books one-by-one, book-by-book. That’s what no other branch of publishing would even attempt. Marketing effort per title is the real point of scarcity in this business — more than quality product and more than shelf space. People outside the trade don’t think about that because, frankly, it’s a problem that doesn’t occur anywhere else. But it’s in our industry’s DNA. And we’re going to have to create some unique answers.

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In three prior posts, we’ve explored the initial conversation that surrounded the announcement that Sourcebooks would delay the ebook release of Bran Hambric; sketched out what we think are the four stages of ebook adoption; and looked at how publishers see the early “establishment” stage, which is where we are now.

This post is about the other stakeholders: authors, retailers, distributors, and, of course, readers.

In the “vision” stage of ebook adoption, which ended with the launch of the Kindle in November 2007, authors were virtually powerless. With ebook sales even for established books struggling to make triple digits, publishers were gunshy about accepting digitization costs for books other than the biggest sellers and it hardly made sense for authors to make the investment on their own. With the exception of genre fiction, particularly romance and sci-fi, where vertical audiences were able to cluster early, the ebook world was inhospitable to the author working on her (or his) own.

That has changed dramatically. Today Amazon Kindle as well as web services Scribd and Smashwords make it easy for an author to upload a pdf or doc file and publish an ebook. While Amazon appears to be paying authors only about 35% of the selling price to access its army of device users, Scribd (80%) and Smashwords (85%) pay much more. Barnes & Noble’s ebook announcement yesterday didn’t mention author-generated ebook content, but with their goal being clearly to offer as many titles as they can, one must assume they’ll figure out a way to get at it too. So there is a clear path to the public developing for anybody with ebookable content; the challenge will be driving audiences to the content.

At each end of the bell curve, the publisher doesn’t contribute much to that equation. Small books and unknown authors often get little or no support from a publisher; big books and big authors often don’t need help to alert the public to their content. So after several years of publishers driving down ebook royalties to the current Major League standards of 15% of retail or 25% of net, we can expect to see the pendulum swing back to the author. Big authors will negotiate far higher ebook royalty rates; small authors will turn down small advances in favor of self-publishing as the ebook market grows (and the physical books, remember, can be delivered through a variety of POD self-publishing options.)

The biggest book retailers basically stayed out of the ebook game during the vision stage. Both Barnes & Noble and Amazon made a pass at the ebook business, but gave up on it pretty quickly (although Amazon first bought the Mobipocket format, which became the foundation for the Kindle software.) That made sense; there was too small a market early in this decade to occupy the attention of corporations doing billions in sales on printed books.

There were other complications which ultimately left ebook retailing to the smaller players. Early in the vision stage, the two big formats for handhelds were Palm, which displayed on Palm Pilots, and Microsoft’s dot lit, which displayed on handhelds that used the Windows operating system. Adobe Reader software, which was installed on PCs, began back then and has been used continuously to this day. Early in the decade, Palm’s model was to keep control of the sale of Palm ebooks, first through “Peanut Press” and then through the “Palm Digital” store. That meant no other ebook retailer could sell Palm books. When Palm became, by far, the preferred format for handheld ebook reading, they left the general ebook retailers, including B&N, without access to the heaviest users of ebooks on devices.

Mobipocket was created as a cross-platform ebook reader that would work on both Windows and Palm software. The first indication that Amazon would look for a path to ebook hegemony was when they bought Mobipocket in 2005 (they bought BookSurge, the print-on-demand capability, at about the same time.) But even though Mobi ebooks would play on multiple platforms, the market was apparently too small to interest Amazon.

The Palm Digital store became Ereader in 2007 and the Ereader platform, just bought by Barnes & Noble, will work on almost all devices (except Kindle and Sony Reader) now. In the final years of the vision stage, before Kindle, ebooks were sold by independent bookstores (Powells being the most successful) and dedicated ebooksellers like Diesel ebooks. Discounts off publishers’ established prices were only offered in targeted and time-limited promotions and seldom offered even as much as 10% reductions. The stores were “powered” primarily by Ingram Digital, which replicates its print-world role as a digital wholesaler. Competing with Ingram was an upstart company in Cleveland called OverDrive, whose wholesaling operation is called Content Reserve. Content Reserve became the primary supplier of ebooks to libraries.

When Sony Reader came on the scene in September 2006, publishers had four formats to convert their ebooks to: Palm, Microsoft dot lit, Adobe, and Sony. Adobe, which played on PCs, was at that time by far the market leader in titles available and sales. But publishers, still seeing very little market, would not necessarily convert each ebook into all formats. At a time when Adobe had over 100,000 titles available, there were perhaps 40,000 on Palm and fewer than that on Microsoft or Sony.

Amazon’s arrival with the Kindle changed everything: title availability jumped, prices were slashed, delivery was vastly simplified, and the biggest online book-buying audience in the world was constantly pushed to think about ebook reading. That signaled the shift from the vision stage to the establishment stage.

Another critical development that enabled the movement from the vision stage to establishment was the development of the epub format by the International Digital Publishing Forum, the ebook trade association, facilitating use of ebook content across platforms.

Now in the establishment stage, the big book retailers — Amazon, Barnes & Noble, and Canada’s Indigo — are in, competing in every possible way: price, selection, and merchandising. B&N and Indigo are trying to appeal to ebook readers regardless of the device they want to use. Amazon has suggested they’ll go that way, but so far are only pushing the Kindle format for Kindle or iPhone. Prices at Amazon and at B&N are clearly being subsidized in pursuit of a larger customer base. That is going to make things very difficult for the independents or any new entrants to make a go of ebook retailing.

As we proceed in the establishment stage, we can expect publishers to start selling digital downloads and we can expect most web sites to offer vertically-curated offerings. The big horizontal aggregators will thrive for the next few years as the market grows, but the verticalization of consumer attention will eventually chip away at their sales.

The distributors are, or have been, Ingram and Content Reserve. (I say “have been” because Barnes & Noble’s just-announced deal to power the Plastic Logic content offering  positions them as a competitor to Ingram as a digital wholesaler, although there is no suggestion as to how far they want to go and, as of now, several days after the announcement, nobody else to my knowledge has raised this point.) CR has recently done a deal to provide service through Ingram’s print-world competitor, Baker & Taylor. The subsidized discounting taking place at Amazon and B&N is going to make it very difficult for the distributors’ horizontal customers. Ingram may recognize this problem as being similar to what they faced when they tried to launch ebook wholesaling the first time in the late 1990s and Amazon responded with deep discounting.

The distributors have to find new opportunities through web sites that don’t think of themselves as content-centric or content-sellers now (they’re communities.) The trick will be to curate the set of offerings in a very granular way, but there is a marketplace that will develop there that will be served by aggregators.

For ebook readers, it is definitely the best of times, so far. Because of the epub standard developed by the IDPF, most ebooks can be offered for use on multiple devices without high conversion costs (which, in any case, are easier to bear now that there are real sales.) More and more titles are available and, despite the Sourcebooks experiment that triggered this series of posts, we are moving to a standard of ebook release when the book first comes out. I believe we’ll start to see ebook releases ahead of the book before long. The competitors have prices of the content to the consumer plunging. The choice of devices is proliferating and, of course, that means the devices will cost less in the future too. The deployment of smartphones that can also be used as book readers continues to increase. The pieces are in place for evolution to turn to revolution and, when it has, a few years from now, we will move from the establishment stage to “transition”. That’s when the printed-book world as we have known it for about the last century will change into something completely different.

Due to a little programming change we did, I haven’t been alerted to comments and I haven’t been answering them for a little while. I will clean this up on Friday (and then this message will disappear…)

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Andrew Savikas of O’Reilly Media and I definitely agree on some things, the principal one being that it is going to get harder and harder for people to get paid for content. And it is going to become more and more necessary for a publisher to be branded as “of value to the community” to have any business at all. But Andrew sees the governing paradigm as “service”, and he, sometimes very logically and sometimes tautologically, can explain content purchases as actually being service purchases. And, indeed, sometimes they are.

We all are prisoners of our experience and Andrew draws heavily on O’Reilly’s. O’Reilly is a unique publishing company because its audience — its community — is as tech-ept as the publisher itself. O’Reilly has a coherent product offering, which is, in and of itself, a “service.” It is also, in and of itself, a “vertical.” And that’s where Andrew and I differ in our interpretation of what we’re seeing when we look at the same thing. O’Reilly is actually serving a vertical (so we’re both right). But the question for the larger publishing world is, “which (“service” or “vertical”) is the real core concept?” Which is the one that best enables other publishers to visualize and build a business model that will work for them?

Of course, either paradigm breaks down if you try to suggest it is universal, and particularly that it is universal today. To defend the “nobody pays for content, just for service” meme, Andrew must attribute your willingness to pay for a movie as the price for a social experience, or the price of having somebody put it on a big screen for you and sweep up the popcorn that you spill while watching it. I’d say you’re just buying the content in different forms whether you go to the movie or rent the DVD, but that wouldn’t fit the meme.

The clinching metaphor in Andrew’s piece is that we aren’t actually buying food when we go to a restaurant (because, if we were, we’d just buy it at the grocery store.) This is tricky, because, indeed, you do want that hamburger cooked and served on a bun and you want a place to sit while you eat it and maybe some ketchup supplied. So, in fact, you’re buying both food and service. You wouldn’t patronize the restaurant if they didn’t give you the food, so it seems a bit of a stretch to say it isn’t what you’re buying!

But Andrew wants to explain a phenomenom he sees over and over again at O’Reilly: that they are able to sell their content even though it is available free in some other form. He sees the indispensible component that allows that to happen that the content is somehow packaged to be more useful and therefore performs a “service.”

I’d say the indispensible component is that O’Reilly has a trusted brand in a community, which means the community looks to O’Reilly for answers. That enables the company to sell their content in contextual ways that would not be accessible to a publisher that had the same content but did not have the same community attention, the same brand.

Andrew believes that service is what the O’Reilly customer “is paying for when they buy one of our Cookbooks (which contain “Recipes” for how to accomplish specific tasks with a particular computer language or technology, often culled and curated from material and techniques previously published in blog posts, mailing lists, or help forums). I asserted that rather than the content itself, people are paying for the preparation of that content, to the extent that it helps them solve their problems more quickly and conveniently. When you think about what we do as a service business, then it makes perfect sense: readers are paying us for the service of finding a bunch of great and interesting stuff, and putting it together in a convenient package. It’s the convenience of not having to find it themself, and the concise package that saves them from having to dig through a bunch of web bookmarks or search results.”

First of all, distinguishing between “paying for content” and “paying for preparation of content” is a pretty fine line. Every piece of content bought and sold in the history of man has been “prepared” in some way. Repackaging, recombining, and repositioning content — selling the same content with different preparation — is within the experience of every publisher of any size.

And it is also nothing new for content to provide a service (and, it is not necessary to be cute about it, like claiming it provides the “service of entertaining you.”) It isn’t a stretch to say that any Dummies book is providing you a service, just like any other how-to book. A book that shows you how to get start a corporation or get a divorce is providing a service. Those books had been around for decades before there was an Internet.

But how does the capability of O’Reilly to sell that content (as a service) look when viewed through the “vertical” lens? Like a natural, I’d say. When you’ve got the attention of a community, you can present the same things to them in different ways and at different price points, in context, because you are familiar with them and their needs in a very immediate way.

Andrew’s piece concludes with a lengthy quote by Kevin Kelly defending the enduring role of PSLs (publishers, studios, and labels) in a paragraph that starts, rather confusingly, with touting the value of two aggregators who are not Ps, Ss, or Ls (Amazon and Netflix.) The point to the graf is that creators (of content) need aggregators “for the distribution of the users’ attention back to the works.” Kelly and I are in solid agreement on that: the publisher’s main job (and “service” to the writer!) is that the publisher makes the user aware of the work.

So Kelly’s point, which is the final summation quote from Savikas, is about marketing, not about service. And marketing, as we have said repeatedly, most recently and elaborately in the Shift speech, is the reason that publishers have to get vertical.

The distinction between what Andrew is saying about “service” and what we say here about “vertical” is nuanced. Rarely can”service” be delivered broadly; it has to be targeted so vertical becomes a sine qua non. And anybody really trying to build a vertical will do it by offering service and tools, which they would hope would also lead to the ability to sell content.

Our vision has been that content should be used as “bait” to attract community members and, indeed, that services are a key component to keep communities involved. We believe that, before long, very few publishers who don’t have real brand identification to communities will be able to profitably sell content.

Without disparaging the notion that service needs to be a much more important component of publishing thinking that it has ever been before, I am still convinced that the “vertical” lens, rather than the “service” lens, is the place publishers have to start to understand how their businesses will be changing in the 21st century.

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As the reality of the shrinking marketing opportunities for general trade books and the continuing verticalization of audiences through the Internet takes hold, we can expect to see some unusual changes (by historical standards) in trade publishing over the next few years.

It seems inevitable that retail shelf space for books is going to be diminishing. This, in and of itself, doesn’t have to mean a reduction in title exposure to the public; Indigo in Canada has said that they’ve cut store inventory but increased title selection by going to more frequent replenishment. That’s a good strategy. The problem in this country is that Barnes & Noble has already been employing it for years, so they don’t have the same opportunity to create further improvement by doing it going forward. They already replenish every store from their DCs every day! And since B&N’s share of the retail book shelf space is likely to be growing since their competition is more challenged than they are, in the US we must expect a declining opportunity to promote books through bookstores.

This is a major problem for the Big Six (in alpha order: Hachette, HarperCollins, Macmillan, Penguin, Random House, and Simon & Schuster) because they require, and plan for, continued sales growth. If overall industry sales of books in stores is going to go down, and it is, then all of the Big Six can’t see their sales go up.

That signals consolidation going forward. We should expect to see at least one get sold to another in the next two or three years. But the traditional method of consolidation — one company acquiring another — will probably not be the only way these companies respond to the increasingly difficult market conditions they’ll face.

Two types of commercial transaction that have been almost unknown in consumer publishing will be pretty common by the middle of the next decade, both of them coming under the overall heading of “publishing portfolio rationalization” which I think all the big houses will engage in.

These changes I’m expecting will start when trade publishers recognize that marketing effectiveness and controlling marketing costs are both dependent on niche focus. Costs which have been traditionally associated with “imprints” will increasingly be seen to be sensitive to subject niches. As marketing activity shifts increasingly to the web, it becomes more and more expensive to market a book that is directed to a different audience than previous books the company has published.

So what happens then? Publishers figure out how to “trade lists.” Look at the situation now with a number of players in the sci-fi arena. Macmillan (Tor) and Hachette (Orbit) are trying hard to build online communities; Macmillan just took the heretofore unusual step of setting up to sell the sci-fi books of all publishers to its audience.

The history of the online world suggests that one of these communities will “win”. In fact, the likelihood is that we’ll see the day when the leading sci-fi site has twice as much traffic as the one in second place, which will in turn have twice as much traffic as the one in third place. Why would the one in third or fourth place keep trying then? Their books would sell better and be marketed more effectively through a competitor’s site. So why wouldn’t they sell off their list to the competitor in that case? I think they would.

Perhaps there will be symmetry and the publisher in first place with sci-fi will be in third place with romance, so they’ll be a buyer in one genre and a seller in the other.

The bottom line is that we can expect to see reshuffling as publishers trade off areas they can’t afford to market to for others where they’re going to expend the marketing effort and want to have the most possible content to dominate the niche and from which to extract a payoff for their efforts.

The second kind of reshuffle we’ll see will involve smaller publishers or third party aggregators taking content off the Big Six’s hands. Each of the big publishers has a few titles in niches such as interior design, health and nutrition, or gardening that they don’t have the critical mass or bandwidth to do anything significant with. Many will be in niche areas that others, often smaller publishers, are developing aggressively. Since the Big Six are going to be financially challenged in the new environment and looking for ways to become more “focused”, selling off clusters of a dozen or two dozen titles will seem sensible. And from the niche players’ point of view, they’ll see the opportunity to sell copies to their growing web communities, or to use the content to make those communities grow even faster.

Horizontal lists that were built for the 20th century publishing ecosystem will not prove to be the right mix for the marketing machines for content that will be evolving in the 21st.

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I had the good fortune to spend a couple of days last week in Toronto to speak at a conference on “Giving it Away”, how the culture of “free” is affecting the book business. My workshop sessions were called “Giving It Away with a Purpose”, by which I meant using content as “bait” to build community.

Since this was a workshop, most of the 90 minutes in each session was spent hearing from my audience about their publishing and marketing challenges and trying to help them see how the concepts of vertical and community applied to their particular examples. One of the many pieces of wisdom I’ve picked up from Mark Bide over the years is that we often “learn what we think by saying it”; questions from the audience force me to articulate things that might have been lurking in the back of my mind but had been left unsaid, even internally.

And what I learned that I already knew from these exchanges has to do with “critical mass” and its role in the shift from horizontal to vertical.

I read a piece about a month ago (who knows where, but I think I was originally steered to it by the ReadWriteWeb daily email) about the “X of Y found this review helpful” found on Amazon. What the article explained is why you don’t, and won’t see this employed effectively on any other bookseller’s site. Of all the people who buy books on Amazon, only a small percentage of them write reviews. (Many books don’t have reviews on Amazon; you are often invited to be the “first” to review a book.) Then of all the people who read the reviews, only a small percentage of those will comment as to whether the review was helpful. And a small percentage of a small percentage is an tiny, tiny percentage.

So only when you start out with the number of book customers Amazon has, which is a multiple of BN.com’s customer base (which is, presumably, in second place), can you get enough reviews and enough ratings of the value of the reviews to get a meaningful “Y” for “X of Y found this useful.”

And that was not what we talked about in Toronto.

In the course of my presentation, I talked about FiledBy.com, the new venture offering authors free web sites of which I am a co-founder. Carolyn Pittis of HarperCollins, a very acute thinker about digital strategy, pointed out from the audience that FiledBy is totally horizontal: it’s about book authors of all kinds. She wondered if my own new venture might contradict my own theory about verticals.

Temporarily, it might, although the initial “vertical” of FiledBy is book creators (there are sites there not just for authors, but also for illustrators, editors, and others who are credited with creative contributions to books that have ISBNs.) But the creators of FiledBy are very aware that as the number of authors registered with us grows, we will be able to put authors together by interest, creating sub-communities of mystery authors or history authors or knitting authors. And we intend to do that.

Earlier in the presentation, I had expressed the thought that Facebook and Twitter are like AOL for Internet 2.0. AOL (and Compuserve and Prodigy) made the online world, and then the internet, easy for everybody to use. As the internet itself got easier to use, the on-ramp wasn’t necessary anymore and, in fact, the parts of AOL that are healthy today are the verticals they created in the early part of the 21st century when they (belatedly) saw this coming. Soon we will see social networking and short messaging tools everywhere and we will be more likely to employ them in verticals, among people of similar interests, than in the world at large, which is what the horizontal communities are.

Communities require critical mass. It’s great be able throw out a question for the community to answer, but if nobody’s there, it is ineffective. If only 20 editors and 10 agents were on PublishersMarketplace, the deal database wouldn’t be worth much.  By the same token, growth in a community enables niching to get more and more narrow and deep.

Soon, publishers are going to see that they that they require critical mass by vertical in order to do cost-effective marketing. That is going to lead to a reshuffling of publishing portfolios, which will be the topic of a subsequent post.

Another big piece of ebook news landed this morning. ScrollMotion has announced that one million titles are on their way to them from LibreDigital! One always presumes that publishers want every title they have on every possible platform so that similar announcements will come from other ebook players soon, but this is another huge stride forward for the ebook business. And for ScrollMotion.

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Last week I went to a “brown bag lunch” session organized by Daily Lit featuring Gail Glickman Horwood, head of digital strategy for Martha Stewart Living and a veteran of nearly 15 years in the web business for magazines and for AOL. Gail was an engaging and knowledgeable presenter and she stressed two points, one that will be familiar to readers of this blog and another that we will explore a bit further today.

The familiar one is “vertical.” Among Gail’s examples were that Martha Stewart has found a real nugget in “cupcakes” which is, literally, a slice of a slice of what the overall brand connotes. But she cited some eye-popping numbers (which I didn’t write down and have already forgotten) for the page views they got with cupcake features on their site. And Martha Stewart’s web operations reflect the understanding that even her very focused brand covers multiple niches: they separate gardening from cooking from fitness.

The less familiar one is that “everybody is a publisher.” Gail brought it up in the context of “know your competition.” This is a variation of our suggestion that you must “know your web world”. But the point Gail wanted to make is that competition is “not who you think it is.” It is, she made clear, every web site and every blogger who is talking to the same audience you are about the same subjects you are.

This is at the heart of the publisher’s challenge today. It used to be that meaningful competition could come only from somebody with roughly equivalent capital resources: the ability to publish “at scale.” This is no longer the case. A hundred different bloggers can each be peeling away small fractions of the audience but the cumulative impact is extremely corrosive and, for the publication that relies on critical mass to support scale it can be devastating.

But could what is so threatening today be tomorrow’s opportunity for publishers?

At the heart of Horwood’s presentation and a key to my “shift” argument is that the “act” of publishing — putting content out in a way that anybody can gain access to it — has become trivially simple and cheap. So for any subject, including cupcakes, the amount of “published” material available has exploded. The content is no longer scarce. And while the well-funded legacy publisher with a brand and an audience still has significant advantages, it also has significant overheads.

But let’s look at the problem from the non-traditional publisher’s point of view. Some of these, and the ones that Horwood has focused on, are, essentially, content creators without a publishing business model. Bloggers (like me) write because they have something to say and are willing to build a non-paying audience by saying it. In my case, the blogging fits into a larger business strategy of brand-building that is rewarded with consulting and speaking assignments.

But think about the “publishers” who are not content creators? Who are they? Every brand purveying a product or a service that is not about content creation! Every bank, every insurance company, every manufacturer, every retailer, every accounting or architecture firm, every contractor, every lawyer has a web site. Brands are learning that they should have Facebook pages and Twitter accounts.

But they don’t know anything about content creation, content monetization, or rights. Big companies can be spending many millions a year acting as publishers without knowing these things. That’s the opportunity for today’s experienced publishers.

Exploiting this opportunity depends entirely on vertical content: depth of content intended for a coherent community. The architecture firm, contractor, and lawyer need focused content. Meanwhile, the major publishers continue to focus their attention on horizontal development. The latest example is Penguin’s new web initiative announced today. There is a lot to compliment them on, especially being willing to experiment with new content in new formats. There are things to complain about such as the rendering of really cool technology they have for showing the books, which they got from Issuu. It looks great but on my laptop and my browser (Chrome) the type was a bit uncomfortably small and there was no obvious way to enlarge it.

The main shortcoming of the initiative, from this seat, is that it does nothing to move a horizontal house toward verticality.

Horwood, in her talk, made it clear that non-publishers are frequently asking the Martha Stewart organization for content. Her response to that is cautious, perhaps excessively so from our perspective. But the central point is that the potential for partnership between content-creating legacy publishers and the new crop of web publishers who don’t know about content-creation is an emerging opportunity. Publishers with a depth of content in verticals will be able to benefit; those without it will not.

In the next few years, we are going to see massive reshuffling of the portfolios of copyrights held by the biggest houses when the inevitability of verticals become clear. What’s probably going to happen is that the biggest general trade houses will become sellers and the niche players like Martha Stewart and many others will be the buyers, taking what look like the least attractive and least profitable IP off the majors’ hands. Since the biggest houses will have to shrink, this will look like an opportunity to turn lead weights into gold bars.

But just as department stores found that the business model doesn’t work if all they sell is ready-to-wear, big publishers are going to find that most of them can’t live on fiction and celebrity bios alone. The books that sell most of their copies to horizontal (i.e. mass) audiences through horizontal channels (i.e. general bookstores) are the ones with the least potential for secondary revenue generation in the emerging vertical world. They are the ones that are hardest to convert to loyal niche audiences. We’ll need a big publisher to handle that business, but pretty soon we’ll find we can get along with a lot fewer than six.

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On May 28, I gave a speech called “Stay Ahead of the Shift: How Content-Centric Publishers Can Flourish in a Community-Centric Web World” at BookExpo America. From today (June 12) through Monday morning (June 15), we are able to show you the video of the speech (below). We have also put the slides and full text on the speeches page of our site.

A transcript of the speech is viewable via a new annotation platform hosted by our clients, SharedBook. That platform enables comment on the speech, section by section, in what constitutes an experiment for SharedBook and for us. We hope many of you who see the speech will return to comment.

Please note that this platform is only available to IE & Firefox users. If you are having difficulty reading the justified text, we have found it is easier if you reduce the width of your browser.

After Monday, June 15, the speech can still be viewed on PublishersMarketplace by members only.

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For some reason, I had missed the Mark Bowden article in the May issue of Vanity Fair about Arthur Sulzberger, the publisher and chairman of The New York Times. It’s a painful article, really, describing a guy who seems to be intelligent, decent, and ethical, and who is trying mightily to save his family legacy (the article is entitled “The Inheritance”) And not succeeding in the attempt.

Most of the time when you read critiques of legacy businesses: the Times, the networks, the book publishing industry that didn’t digitize before Google, Publishers Weekly, BEA; you get the writer’s assessment of where they went wrong. It’s the “railroads didn’t realize they were in the transportation business” argument, over and over again.

So when the article castigated the Times for its lack of vision for failing to make a deal with Amazon.com to sell the books out of TBR “because Barnes & Noble was a big advertiser”, I see it as 20-20 hindsight. There were very few people in the mid-1990s (when this took place) who would have seen the day coming when B&N would be playing second fiddle to Amazon in many ways. And there is no assurance — none at all — that if the Times had built this kind of relationship with Amazon, blowing off and alienating a big advertiser, that they would have held the position as “the newspaper that connects you to commerce.” Having paved the way, others would have followed. Unless Amazon were loyal, of course. You set your own odds on that.

I usually don’t buy the second-guessing. There is a reason that successful businesses don’t invent their replacements. It isn’t dumb not to see wholesale changes that will disrupt your entire business model. It is normal. Mistakes get made and the Times made plenty, including buying back their stock at peak pricing starting in the 1990s. In Sulzberger’s case, the inability to see the future clearly was compounded by personal loyalty to the wrong people. He might not have had the best judgment in people pinning his hopes on Howell Raines and Judith Miller, but I find it hard (though not impossible) to think less of somebody because they were decent to people whom they thought were decent to them.

Mark Bowden, the Vanity Fair editor who authored the piece, quotes Max Frankel making a cogent (and not frequently-enough made) and then highly-prescient point about how the net disaggregates. The strength of the Times in the 20th century was that it collected quality reporting and editing across a range of subjects in one broadsheet. You might like the sportswriters better in the News or the TV critic of the Post, but you made the choice of what newspaper you bought based on the totality of what they delivered. 

Of course, it doesn’t work that way on the Internet. You can readily read the Times from Baghdad, the News from Yankee Stadium, and the Post discussion of what was on Channel 2. Now each part of the paper has to stand on its own two feet, so to speak.

Vertical takes over from horizontal.

It was truly visionary to see the power of vertical when Max Frankel, who was executive editor of the Times in the 1990s, did. Frankel was asked near the end of his tenure to think about the impact of “computers” (says Bowden, I’d say “digital change”) on the news business. Frankel wrote two memos; one of them would have required the Times to sabotage its old business model (which is what legacy businesses are quite understandably loathe to do). But the other anticipated the vertical message and, had others been able to see around corners the way Frankel did, could have changed things dramatically. The same strategy still applies today, but it would be much harder to make it work.

The first memo Frankel wrote recognized that because computers managed databases, classified advertising in newspapers was doomed. Frankel suggested a Craigslist solution to the Times before there was a Craigslist. That his bosses didn’t buy it is, to me, totally understandable. Classified ads in the 1990s rescued newspapers from a slump in local advertising. Pursuing such a solution would have threatened to cripple an important revenue source.

But the lesson, of course, is this: if the opportunity to cannibalize an existing business is in the ether, do you want to do it yourself or have it done to you? If anybody at the Times took Frankel’s idea seriously enough to think about implementation, then they apparently missed that point. Yes, they could have done it. But, then, so could just about anybody else.

The second memo was the truly prescient one. Frankel saw the power of disaggregation (and, one might say, reaggregation by individuals!) As Frankel is quoted, “It was the totality of the newspaper that was the marvel, not any of its particulars.” Frankel suggested, in effect, that the Times build itself in verticals: be the place to go for sports, for business, for politics. Go after ESPN.com, the Wall Street Journal, and (before they existed) HuffPo and 538.com.

Would the Times be in a different position today if they had established several verticals ten years ago and built them? I think so.

This is an extraordinary lesson for the Big Six publishers. The power of your aggregation is weakening as well. But it won’t be each book that has to stand on its own, but each subject. The Times had an opportunity to work its way past this problem ten years ago.  Big horizontal trade publishers don’t have ten years. They better start to see the need to build up strength in verticals very soon or they will be envying the current position of the Times. Maybe one of them should hire Max Frankel to analyze the situation for them and write a report.

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Dinner Saturday night. 12 of us. Three spouses who had no particular interest in the BEA. Eight of us with one interest or another in the book business, but no possibility of personally being an exhibitor. And one publishing company CEO with a stand.

Of course, I got my money’s worth. I got in free as a speaker and live in Manhattan. I had several meetings with publishers and distributors on stands they were paying for that could result in assignments. I had other meetings with a bookstore chain and some technologists that came because of the publishers too that also could result in work.

An ROI of pretty much infinity. We all felt that way. Except for the exhibitor.

“No way it is worth it,” he reported. He even had to plan on having four people at the show on Sunday, just to cover the booth when he knew in advance there’d be hardly any productive business conversation. (BEA is fixing this next year by shifting to a mid-week schedule.)

I am always skeptical of any individual’s ability to characterize a show like this based on their own experience. After all, there were considerably more than 20,000 people there. There were dozens of panels going on that had great impact that I didn’t even know were happening, because I was engaged doing something on the floor. But, speaking for me, it was a great show. Lots of fun and lots of business.

Martin Levin, whose first ABA was in 1950 and who commented on my previous BEA post, argued with me about my prediction that BEA would soon come to an end. I had to remind him not to confuse what I say I think will happen from what I would hope would happen. It is work to keep those things separate.

Martin said, “being fat is no reason to commit suicide. This show is fat. It needs to go on a diet!” Another trade show veteran from one of the supporting technology companies said very much the same thing.

But wait, there’s another point of view. Make it bigger! Richard Nash and Michael Cairns (two smart guys I agree with a lot, but not this time) both suggest “open the show up to the public.” Frankfurt does! Book festivals in Los Angeles and Miami attract huge crowds! 

Sorry, public participation is not the “solution” for this show. What ails this industry is horizontality! What ails this industry is dedication to the book as a form! Publishers need to understand niches better; they don’t need to try to replicate the horizontal world that is disappearing in newspapers and bookstores through trade shows!

What made BEA such a fabulous experience for those of us for whom it was that was the aggregating of all of the industry players from around the world. And not just publishers! What do Bowker, Bookmasters, and Klopotek (just to name three exhibitors who were important to me at this past weekend’s show) have to gain by having the public come in? The smartest publishers who are beginning to understand verticality — like Wiley or F+W or  Taunton — need to meet the public in verticals. They don’t need to spend a beautiful Sunday fending off people looking for a free novel or a free children’s book. (And, of course, the German model isn’t “free books for the public”. Exhibitors sell the books to the public off the stands! I wonder what the sales tax authorities in New York would say to that…)

I’d love it if Reed would keep BEA going for years and years, particularly when they bring the mountain to me on my very own home island. But I’m still having trouble seeing why publishers will keep paying and, if they don’t, no more show. I’m afraid that what will work for publishers is smaller and more focused, not larger and more horizontal. That may very well not work for Reed. I expect very shortly it won’t work for Reed. I think the rights-trading piece can be revived in a much cheaper form. The retailer-facing piece — horizontally — is a dinosaur. And all the PR opportunities occur because of the size and glitz. Like most horizontal PR opportunities for books, that won’t get replaced either.

My message of verticality is clearly not getting through! The Washington Post was kind enough to feature me on the front page of today’s Style section with a lengthy and, as far as it went, accurate summary of my Shift speech from last Thursday. But, you know what? Not one mention of the central theme: verticality!

These are twilight times for the good old days.

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Michael Cairns has a really good post today that distills a lot of thoughts I have had over the last several years into a clear formulation: that the publisher needs to serve as a “digital concierge” for its author.

Three years ago, Brian O’Leary, Ted Hill, and I did a study of marketing spend for a mid-sized trade house. At that time we articulated the notion of a “new marketing partnership” between publishers and authors. We urged then that publishers do what is necessary to make it easy for authors to promote themselves on the web because, in the modern world, that marketing energy would be indispensible.

What was a fairly forward-thinking suggestion in 2006 has become a common understanding by 2009. Harper has launched several author-centric initiatives. Sourcebooks just unveiled a suite of tools and advice for authors to promote themselves effectively. And, of course, I’m a co-founder of Filedby, Inc., and the filedby web site is all about delivering web promotion capabilities to book authors, photographers, and illustrators at scale.

I guess it won’t surprise any frequent readers to hear that I believe that the success of this concept depends on…verticalization!

The swingeing volume of detail that Michael points out is impossible for authors to navigate (Twitter, Facebook, and Friendfeed are just the start, really) is also really impossible for publishers to navigate as well. I believe that is becoming increasingly obvious in many houses. The web worlds of knitting and beading are quite distinct, even if books on either subject would go into the crafts section at Barnes & Noble. The web world of parenting is one thing; the web world of parenting an autistic child would be quite another. Publishers who don’t specialize, focus their specialization, and learn the web world for the fields they are in are trapped in marketing that is massively labor-intensive and yielding no advantages of scale.

Publishers (anybody, really…) gains expertise by repeated use, involvement, familiarity. Publishers have had credibility telling authors what will work with a B&N buyer, a NY Times book critic, or the booker for Oprah or Today. They’ve worked with these outlets many times before and the author hasn’t. The digital concierge, in order to really help me, has to be able to tell me which of the sites for my book on summer night stargazing will take my posts, link to my blog, generate followers on Twitter. Otherwise they’re just giving me general advice a bit more easily, but no more personalized, than I could get from a web site dispensing advice. Or a book.

This is very much a transitional need. Ten years from now, most authors will have arisen from the ranks of the digital community for their subject. We’re very much in a transitional time (one very important point that will be made in my “Stay Ahead of the Shift” talk next Thursday), and the concierge will be characteristic of the transition.

I’m working hard at BEA. Please join me. “Stay Ahead of the Shift”: Thursday 5/28 at Javits Center at 11. “StartWithXML for Editors”: Thursday at 3. And “Digital Debut Tool Time” Friday morning 5/29 at 9:30.

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