Self-Publishing

Peter McCarthy and I have a new business and publishing has a new digital marketing service


Today Peter McCarthy and I are formally announcing a new business which is a partnership between us: The Logical Marketing Agency. What we’re doing is applying the most modern and sophisticated digital marketing techniques and capabilities to the challenges faced by book publishers and authors — and therefore agents — and, because the same techniques apply — also by brands.

This business has been in gestation for about 18 months, since Pete and I first started working together on other projects. We are building on what he learned during nearly two decades in publishing, first working for The Reader’s Catalog and then The New York Review of Books, followed by six years at Penguin very early in the digital transition, and then six years at Random House. At Random House Pete’s job was, explicitly, to figure out how books would be sold in the future. So for several years he was tasked with experimentation, using the books from publishing’s most extensive and diverse commercial list and the resources of the world’s biggest trade publisher.

As my Idea Logical colleague Jess Johns and I came to realize how much Pete knew about the digital marketing challenge all publishers are aware is important but woefully under-equipped to tackle, we saw the great opportunity in “scaling” him. The Logical Marketing Agency is our vehicle to make Pete’s knowledge available and useful to every publisher or author who wants to make use of it.

Over the past six months or so, we have done initial, relatively small small digital marketing jobs for more than a dozen clients. They have included both major and smaller publishers in the US and the UK, authors, literary agents, and brands that aren’t publishers. By working with this initial group of beta clients, we have learned how to shape our offerings to directly apply what we know to publishers’ and authors’ and agents’ perceived needs and pain points.

First we thought about the two key elements that need optimizing: titles and authors. Titles need easy discoverability; they need to be found in the right places, at the right time, by the people who are likely to be interested in them. This often involves a nuanced understanding of search as it exists in environments like Google, Amazon, Apple, and others but can also encompass other means of enhancing a book’s reach into its likely audience(s). Authors need optimized web presences, so that their credibility and personal networks are grown and enhanced regularly and so that their reputation as authorities on the subjects that matter is confirmed on the Internet.

Of course, the key for titles is the metadata: the long and short descriptions of the book that are accessed by all the retailers and search engines and the BISAC (or, in the UK, BIC) codes that identify the book’s subject matter (and, therefore, its audiences).

Pete’s key insight about title metadata — one that is very hard for most publishers to accept, frankly — is that it can’t be done properly without research. You start by positing what the audiences for a book are or, in the absence of hypotheses, how to figure out what they are. Then you look for them online and find out more about the makeup of those audiences: who those people are, where they hang out online, what they’re interested in and what they believe, and what words and phrases they use when talking about the author or the subject(s) in the book. Then you have to research the search terms that matter, to find out which ones are used most frequently and by whom. It is probably not surprising to learn that the “right” search terms might not be identical in Google and Amazon. And from there, one can keep going, analyzing what Pete calls the “meaningful back end data” that results from good outbound social media marketing. You can learn who it is that is engaging with and what their beliefs are, where they live, and other attributes that can be used to properly position each piece of marketing collateral. And, that’s a process that can keep going for a long time if the vein is rich.

How long does this research take? If you know what you’re doing, it can be done in an hour or two. How many publishers have the know-how and the staff to spend a couple of hours researching before writing descriptions of all their new titles? According to what we’ve found over the past few months, the answer is “not many”. Or “almost none”.

Getting the descriptions and metadata right is what Pete (and the Logical Marketing Agency) calls “foundational”. You must do it or everything else you do afterwards sits on a shaky base.

But there’s another level of knowledge that can be helpful beyond the foundation. What can you do to further promote a title beyond getting its core discoverability right? Well, there are potential paid media opportunities (keywords you might buy or audiences you might target through well-placed banners or other ads). There are other books or other things that have audiences to whom the book would appeal that give keys to other potential promotions. Each of these can lead to further SEO efforts around an author or title web site, new social media tactics to employ and more. You can take what is gleaned in the original research to find new ways to target the audience and that chain, in some cases, can be extended productively many times. The research that turns up those opportunities is something Logical Marketing will also offer, through “comprehensive” title analysis, a deeper drive than “foundational”.

We are doing the same for authors, offering a “foundational” author audit and a “comprehensive” one. But for authors we have found demand for even more research and analysis. Major publishers have bought customized author audits from us for authors they wanted to poach from other houses and for authors of their own they wanted to do a better job for and, often, compare with other authors’ efforts. These are really in-depth reports, 50 to 100 pages in length and filled with data, interpretation, and actionable insights. They often require an execution team to handle implementing the suggestions, though, increasingly we will be offering those services as well. The more complex an author’s online footprint — whether from many books or from many other things in their career — the more work this takes, but the more value there is. A long career and a long list of prior books can bury the messaging to surface and focus on the current book. It is ironic that authors with the biggest online presence can be the most complex to maximize for a particular project.

Recently, we have had two of New York’s biggest literary agencies try us out. One of them was looking for a picture of how one of their biggest authors was doing. The other had specific objectives in mind for their authors and asked us to look at the online footprints of three of them — two very big, one a little less so — to recommend how to achieve those objectives.

There are two additional elements we have only dabbled with so far, but which could become a big part of our business and service suite in the future: backlist and running campaigns.

Getting the most sales out of the backlist requires two things working in tandem. First of all, the backlist metadata has to be optimized. That requires research too, although a bit different research than for a forthcoming title because people have read it and people have talked about it. That gives clues to audience and nomenclature that are much more reliable than what one can discern for a yet-to-appear book. If publishers don’t have the staff time to do by-title research for their new books, imagine how hard it would be for most of them to do it for their whole backlist. It is safe to say that no house is staffed to do this.

The other necessary piece to optimize backlist sales is a tool that will chart the news and social graph — trend analysis — that then can bounce each day’s developments off the backlist metadata to find titles that can benefit from current attention. Of course, that opens up the question of “what attention?” Sometimes a change in metadata will produce a big result, tying the title to current interest. But sometimes more effort will make sense, like a digital media campaign. This has, of course, been tried by certain houses and has sometimes been successful. But it is our belief that this kind of work has not been executed optimally. Paradoxically, often the problem is that it is done too broadly. But it is important work we have some new ideas about how to do it well and at a cost-effective scale and pricing.

And that brings us to the final component of our suite of services, for now. We will run digital marketing campaigns for publishers. We did one of these last Fall for a live event, rather than a book. Since our conversations with publishers and self-publishing authors repeatedly confirm that running campaigns is a real pain point — they know they don’t have the staff for it and they sometimes know they don’t have the skills or experience either — we see that as a big part of our business going forward.

Brands are like authors. They have online presences; they have reputations; they have audiences that have characteristics that, once understood, enable you to reach them better and to find them in other venues. In fact, authors are brands. Publishers know that and we believe that what we do for authors would work for many other brands.

So it is with high expectations and great confidence that we can be helpful that we launch this new business.

One thing we’re going to add shortly is a self-service offering for independent authors. The service organizations we know who do the tech and distribution work for self-publishing authors all say they need marketing. That looks like an opportunity to us. If you want to get ahold of us, you can email us at [email protected] A web site with more about our services has gone up at that address as well.

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It is not news to publishers that they have to engage directly with their readers


Since the merger that has created Penguin Random House, there has been precious little speculation (except by me, as far as I can tell) about what this new behemoth in trade book publishing could do to exploit their scale in new and innovative ways.

Their scale advantage is huge. PRH has something in the neighborhood of half the commercial trade books published, bestsellers and below. (You see numbers as low as 25% for this and most of the time estimates put it around 40%.) For several decades, the big US book clubs — Book-of-the-Month Club and the Literary Guild — demonstrated that having about half the books was “enough” for very large numbers of people to feel comfortable that their choices of what to read from within that group of titles would be sufficient for most of their needs.

My initial hunches, still totally unrealized, were that PRH would launch a subscription service with just their own books and, through the use of vendor-managed inventory, create exclusive channels of store distribution that wouldn’t be available to any of their competitors. (One senior executive from a competitor to whom I described this scenario said candidly, “we’d make our best books available to them for their proprietary channel if it were the only way for us to get the distribution”.)

One PRH executive kindly explained to me the company’s inherent resistance to the subscription model, which would seem to appeal most to the heaviest readers looking for a bargain. As the largest player in the market, PRH isn’t looking to reduce the spending by the people who are the biggest sources of industry revenue, which a successful subscription offer would inevitably do. (That subscription model, or “Netflix for ebooks”, is complex in ways that are often ignored, but which Joe Esposito spells out very clearly.) Of course, that doesn’t mean the company wouldn’t consider it in an environment where subscription services were taking a big part of the audience (certainly not the case yet, but watch what happens if Scribd or Oyster or Entitle or the new Rooster succeed). It does seem to say that they won’t be pioneers in this field. And there is no sign yet that they’re taking up my idea to use VMI to create their own bookstores, either.

But PRH UK — echoing what was said to me by RH US CEO Markus Dohle some years ago — has now announced it is becoming a consumer-focused publisher. Hannah Telfer, who was made “group director, consumer and digital development” in January, says discoverability depends on “building a direct relationship with consumers”. And she claims “our scale” is a key enabler of doing this “properly”. This is refreshing, since most of the industry thinking about how they would use scale seems to be more about consolidating warehouses than getting smarter about talking to consumers.

One article in The Bookseller details staff changes and initiatives around this goal. (And another expresses some skepticism about whether their plans are adequate to the task. That second piece suggests they need to think about selling direct, a recommendation I have expressed some reservations about.) On the one hand, the first article suggests some really broad, company-wide objectives, including “the potential for Penguin Random House to be a cultural and entertainment powerhouse; a home for all audiences”. At their recent sales conference. CEO Tom Weldon described the opportunity for PRH “to create the blueprint for a publisher brand as a consumer brand and, in doing so, capture the attention of the world for the stories, ideas and writing that matters”. That sounds like one big brand.

At the same time, there was clear acknowledgment of the importance of what we call “verticality”, or “audience-centricity”. An “audience segmentation project” was announced. So was cross-imprint attention to specific subjects, with “cookery” and “crime” cited. One tool that it is clear Penguin Random House has and will use is called Bookmarks, described as “the Random House readers’ panel”. New plans call for it to “become a PRH resource, giving all parts of the business access to over 3,500 readers through surveys and focus groups”.

Of course, the more different ways the company wants to use that panel, the more difficult it will be to get meaningful data from it. In fact, it would seem that what is really called for is an ongoing “panelization” process, by which new people are being added all the time to a number of panels that can answer questions about different communities of interest. One panel can’t serve all purposes.

This brings two topics into bold relief that have not historically been part of a book publisher’s thinking or skill sets.

1. It calls for new and nuanced thinking about brands.

2. It calls for a multi-faceted plan for engagement with individual consumers.

Advice directing publishers to think about branding for consumers is plentiful these days. Since I first started thinking and writing about publishing and brands, something disruptive occurred which I wasn’t thinking about at the time: self-publishing. My original notion was that the challenge was establishing brands with clear vertical, audience-centric identities. Probably the best example of doing that successfully in the big US houses has been Macmillan’s establishing of Tor as a brand for science fiction and tor.com as a destination site for science fiction devotees. It is well over two years since I wrote about tor.com having hundreds of thousands of email addresses that they could address with promotions that got very high open rates.

Tor.com gives Macmillan’s science fiction list a clear label of not-self-publishing. But outside Tor, for their general list, Macmillan uses many imprint names. A novel might be published as St. Martin’s, Holt, Farrar Straus, or Thomas Dunne Books (among others), each of which probably has “meaning” to buyers at major accounts, big libraries, and major book reviewers, but which means precious little to the general public. Does the average person know those names better than they know, let’s say, Thomas & Mercer (the new imprint of Amazon) or Mike & Martha Books (a name I just made up)?

(Please note that Macmillan is being used here for illustrative purposes; every major house has the same issues with imprint brands that are really intended as B2B signals, not for the consumer.)

But ultimately, it is important for Macmillan, and for every publisher, to stamp “major publisher” on their books to let the public know “this is from a long-standing and established book publisher” on the assumption, which I would share, that people who don’t know the names would still trust an institution rather than a self-interested individual to “pick” their books.

(Obviously, most people choose their books because of the author, the subject matter, a recommendation from a friend, or even based on some combination of the cover, the description, and the price. How much of the audience would be influenced by knowing that a major publisher was behind the book? We don’t know that, and we don’t know whether that number will grow or shrink based on the always-increasing output of self-published material that has not gone through a publisher’s editing and formatting rigor. And, by the way, doing aggressive branding means the publishers need to pay even more attention to their editing and formatting. Each instance of an inferior branded product hitting the marketplace will weaken the value of the brand.)

So here’s the rule about branding. Each major house should pick one name that is an umbrella. It goes on every book to establish the company as a major source of quality literature, enjoyable reading, and book-packaged information.Trying to target more precisely than that should be the job of the “imprint” brand under the umbrella brand. And that brand should be vertical, identifying subject or audience. That’s Tor in the Macmillan example above. Note that right now Macmillan is not a brand being used by any of the US companies in the Macmillan family.

The plan for engagement with consumers is much more complicated and has many components. One is simply collecting email addresses and permissions to ping people and then utilizing them. Turning almost all the marketing efforts you can into components of an email-gathering machine is a big part of this. This is a game everybody should be playing: all the retailers, all the publishers, and all the authors. We know from recent assignments at our digital marketing business that the smartest literary agents are figuring out how to help their authors do this. We can’t be far from the day when an agent will routinely ask a publisher “how many relevant email names do you have to promote my author’s next book to?”

But email lists, as the PRH UK statements suggest, are just one aspect of consumer engagement. And the statements from PRH also implicitly claim that a much bigger company has advantages in pursuing it. Aside from their ability to analyze existing email addresses among their signups or that they find through other means (hitting their web sites, self-identified in social media) to understand and reach audiences better, large companies can create special interest verticals to pull traffic (driving email signups) and give themselves a range of promotional opportunities. We see Simon & Schuster doing a lot of that kind of work. I’ve become a daily fan of “250 Words”, an email from their new business book web vertical that summarizes the core proposition of a business book every day. Whether that, or other vertical efforts of this type the house is trying, can turn into a remunerative web community or even a good place to get a book launched, is still an open question. But it is the kind of experiment that could produce a launching pad that could really help S&S with business books.

We touched on the notion that creating dynamic panels of consumers to tell you things — things you can ask all the time — is also a real value. We are aware of a niche magazine which routinely uses Twitter to ask its readers for opinions about various things, like what angle to take on a story. They get very fast responses that way. We know that Osprey, the military history publisher, routinely asks its audience for opinions when they are choosing among subjects for development of a book. (And it is relevant to note that Random House UK has hired Osprey’s energetic and visionary CEO, Rebecca Smart, to run their Ebury imprint. That’s another way to employ scale: hire away the best smaller-company executive talent!)

A good approach for a big house that can harvest large numbers of email addresses would be to routinely ask consumers whether they would like to be polled about questions that will guide the house’s publishing and marketing strategies. Doing that would give them fresh names all the time. What Osprey does with their specialist audience could become routine practice to a house with a big enough email list. Consumers could be asked about whether a topic is a good one to sign up before the house makes a commitment. They could also be asked about packaging and pricing. And if that kind of interaction were built into the house’s practice, over time they’d learn when consumer opinions are a good guide to follow and when they’re not (because they won’t always be!)

We are in the earliest days of big publishers changing from near-total dependence on intermediaries to reach their markets to having direct relationships with consumers. For now, most houses are pretty quiet about what they’re doing, partly because they think they’re inventing something and partly because they don’t know how well any of this will work. But relative silence shouldn’t be interpreted as relative inaction or inattention. It isn’t news to the big publishers that they need to talk to audiences directly. Penguin Random House has advantages of size relative to the others in the Big Five, but the rest of them have advantages of size relative to everybody else.

Note to readers: because of glitches and fiddling not worth detailing, the last two posts didn’t go out through our normal email distribution (which makes some people refer to this blog as my “newsletter”!) If you didn’t receive posts entitled “Getting Mark Coker Right This Time…” and “Sometimes One More Calculation…” they are linked here for your convenience.

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Getting Mark Coker right this time and agreeing with him up to a point


On Tuesday, for the first time in the five years I have been writing this blog, I did a post I would like to take back. (But in the interest of the public record, and because there were several comments of value, I’m leaving it up.) This is the post that I should have written the first time.

Mark Coker, the founder of Smashwords, wrote a Huffington Post piece in which he asserted that indies are now responsible for 15% of the ebook market in dollars and on their way to 50% by 2020. The initial post of mine misread Mark, and assumed that the 15 percent and 50 percent claim were about units, not dollars. Mark set me straight, but, unfortunately, that other post focused on trying to translate what I thought were unit shares into dollar shares. Sorry…

At first I had thought I agreed with Coker’s overall numbers, because I thought an estimate that indie ebooks were 15 percent of the total units was reasonable, rising to 50 percent in six years. But dollars are another story. (Note: Michael Cader’s independent examination of the numbers determined that indie/self-published ebooks were, at most, 11 percent of the ebook dollars and probably less. Cader’s generous calculations put the unit share percentage at about double that, in the low 20s. I believe his logic and numbers would also support my view that it is something less than that, which would put me near to Coker’s dollar estimate for my units estimate: about 15%.)

If indie ebooks were 15 percent in dollars today, then they would be 30 or 40 percent of units because they are priced so much lower than publishers’ ebooks. Is that possible? I suppose it is. I thought in the middle of last year that in the aggregate indies sold the number of units equivalent to one Big Six publisher, but not anything like 30+% of unit sales (even though Howey’s examination of 50,000 Kindle titles led him to assign 27% of the units sold to indies.)

If they are 30 or 40 percent of units, and nobody I know has read any, does that suggest a cohort of people who really prefer indie ebooks and read them in big numbers? And if indie readers form a “separate” market, is it growing or is it static? In other words, do indie ebooks draw on a particular pool of readers, so that we have two separate competitions going on for eyeballs and ebook sales?

We note a piece this morning at Good EReader that calls for the segregation of the self-published titles at ebook stores, because their sheer number interfere with discoverability for publishers’ books. That’s bound to be an unpopular idea in many quarters, but it is something that could happen if any one retailer offers it as a choice to consumers (which is the way to do it: as a filtering choice, not a hard-wired default). If consumers liked it in one place, the practice could spread.

Regardless of whether there is one competition for readers for all books or separate ones for indies and publishers, wouldn’t we expect the flood of titles to make it harder for everybody to make sales? (This is a point that Peter Turner brought up in the comment string to the prior post.) Chances are, yes. And that could mean even more authors will be forced to go indie because publishers are likely to respond to a shrinking market and more challenging discovery by reducing their outputs.

But it is also true that more challenging discovery means more skill doing it and more tools to reach customers have value. So the ability of established publishers to have “better odds”, to get their books to rise above the “noise” of a large title output, should improve (relatively) over time.

Coker did a great service to all of us putting the ebook sales indies achieve into a larger perspective. And, in doing that, he might even have understated the current case for their importance.

What Coker did was point out that the 15% ebook dollar share for indies was within the estimated 30% of the market that is ebooks, 70% still being print. Doing math with his share number, he concludes that self-published ebooks are taking 4.5% of the dollars in the overall market. I’d put them at somewhere between half and two-thirds of that.

But, in fact, the 70% of the market that remains print contains a lot of titles that have very little, even no, ebook sales at all. These are illustrated books or reference books or even kids’ books that have not worked commercially in a digital version. We don’t know how much of the 70% of books that are print are “readerly” books that are equivalent to the 30% that sell in ebooks, but it isn’t nearly all of them. I think it would be conservative to assume that non-readerly books constitute 25% or more of the 70% of the market that is print, which would divide that portion of the market to be 52.5% books that have commercially viable ebooks (the 30%) and 17.5% books that don’t.

So the 30% ebooks overall is really more than 35% for the books that are real ebook candidates (and probably nearer 100% for most of the indie ebooks which would have limited or no print sales). In other words, the ebook share for the books that can work as ebooks is already a bit bigger than an overall summary would suggest. But, despite that, indie ebooks are somewhere in the low single digits as a percentage of industry revenue.

I think that’s very important to keep in mind. Indie ebooks are not yet commercially important if we think about consumer dollars. (But, of course, as Hugh Howey and Coker point out, the author keeps a lot more of those dollars.)

There are two big questions going forward.

1. How fast will the indie self-publishing ebook market continue to grow at the expense of publishers who do it for profit? (All of the calculations from Coker and Howey about the benefits to indie authors assume they do it themselves, not through some new-fangled indie-first publisher or aggregator. If they do it through anybody else, new or old, the author share will decline. Every participant takes a cut.)

2. For any individual author, how does the decision of whether to do it themselves or sign with a publisher look?

On the first, I think one key question is whether we now have a bifurcated market: one group of people reading the bulk of indie books and another group reading the bulk of published books. There is certainly reason to believe that we do, although this is something that only the retailers really can know for sure.

I believe we do have two markets. Part of that is genre-driven. Many readers who habitually consume romance, thrillers, and sci-fi have found less expensive digital-first and author-published alternatives perfectly satisfying. They read lots of units. So it is likely that a concentrated cohort of readers is responsible for a big chunk of the indie books.

(There is probably a third market because we know there are also bargain shoppers. Though traditionally-published titles are discounted, there are still price bands where the indies largely own the marketplace.)

If that is the case, then indies compete with indies more than they do with publishers. And since we believe that a big part of indie sales growth will be driven by indie title growth, it could be that the sales will have trouble keeping up with the titles. That would mean the path to success for each individual indie author would get harder.

Note that this would not affect a self-published author who had built a name and a brand by being published first, except to the degree that self-publishing gets handled differently by retailers or that discovery metadata is not as professionally produced. In general, the distinction between authors who had publisher help building their brand before going indie and those who created success from a standing start has not been underscored as much as it should be in these discussions.

And that leads us to the second point. As Coker has pointed out in his piece and in the comment section of my previous post, some authors like to have “control” of their process. As print books become less and less important, those authors have more and more inherent reason to be attracted to a self-publishing model.

I believe that those authors who like “control” are already more ubiquitous in the self-publishing world than in the overall population of commercially-capable writers. It stands to reason that they would be early adopters of the digital self-publishing opportunity. My hunch is that most authors want to write, and to let publishers handle their business. They don’t want to do the administration and marketing work necessary to self-publish. And that’s even before they get to the difference between getting paid in advance for a book and having to spend money to put a book out.

But it is also true that the deals we see today are not necessarily forever. Publishers have held the line on 25% of their revenue as the author ebook share (apparently with some limited exceptions and, of course, situations for big authors where unearned advances effectively deliver higher royalty rates on everything). If they have to raise royalty rates to keep authors, they probably will. E-only publishers and digital-first imprints at traditional houses are already establishing new standards. Amazon just reduced the author take through their Audible subsidiary. Will the day come when they decide to take a bigger share of indie author ebook sales? Why not?

Authors will have a shifting set of commercial propositions to consider, along with their personal preferences for “control” or “help”. And that’s before we get to other things not reflected in any comparison of what they earn from a self-published ebook versus a publisher’s ebook: print revenue, unearned advances, and having somebody else doing a lot of work on your behalf.

So while I largely agree with Coker’s 10 trends that will lead to enormous growth in the number of indie-published ebooks we will see, I think a grain of salt is needed about how economically significant they will be either for the industry at large or for the vast majority of individual authors following that path even though they are bound to grow quickly. It turns out that the previous post started out with a misunderstanding that led me (and therefore my readers) on a wild goose chase but, in the end, the headline message was right. Even over the next few years, the changes we’ll see around how authors get their work to their readers are more about evolution than revolution.

As it happens, The Great Debate at the London Book Fair is about whether big publishers or small publishers will “win” over time. Ken Brooks of McGraw Hill Education and I have the “big” side; Stephen Page of Faber and Scott Waxman, who is both a literary agent and owner of an ebook publishing house called Diversion, tout the “small”. Michael Healy of CCC moderates. If you’ll be at LBF, check this out.

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Declarations and forecasts of Great Change in the book business need specificity to be useful and often do not provide it


A recent post here that incited a long comment string and another on FutureBook that was quite unrelated from the estimable Brian O’Leary have helped me formulate some thinking which I hope can be helpful in evaluating any “Great Change” post that arises about publishing. And they do, indeed, arise often.

O’Leary’s post builds on a theme he is persistent about pursuing, which is that communication, which in his writing seems to conflate with publishing, is moving to a linked-and-continuous conversation rather than a set-content-package (like a book or a magazine). The post suggests that the “books”, such as they are, will emerge from the conversations.

This recalls for me a comment I heard a few years ago from the father of digital publishing, David Worlock. David told me, “surely, in time, the number of books created within the network must exceed the number of books created outside the network”. By “network”, David meant “Internet”.

I don’t know how long “in time” was intended to be in David’s mind, but I figured “decades”. And in that time frame, I agree.

The other long-ago wisdom I keep recalling as I read predictions about our digital reading future is what was always said by Mark Bide when we began our “Publishing in the 21st Century” conferences for VISTA (now Publishing Technology) in the 1990s. Mark always reminded the audience that “book publishing is many different businesses” so that everybody would keep in mind that what we said about trade might not apply to sci-tech and what we said about books for lawyers and accountants doesn’t apply to publishers of college textbooks. What brought everybody together was the form of the “book”, which was already then a weak unifying principle for what were really many very different businesses.

This is now more true than it was when Mark used to say it 15 or 20 years ago. In trade, which is the part of book publishing I know best, we are seeing that the business of publishing genre fiction is different from kids books, which is different from serious non-fiction, which is different from illustrated how-to, which is different from serious fiction. Travel books and computer how-to have suffered serious erosion, and some of us would expect to see cookbooks do the same, if they haven’t already. I base that notion on my belief that cookbooks, like travel and computer how-to, are books where “the unit of appreciation doesn’t equal the unit of sale”. O’Leary put it differently but makes a similar point:

The use of bundled media as the dominant form of shared content is ending. This trend has already affected newspaper, magazine and some types of book publishing. As readers look to customize their own content consumption, it will continue.

This makes me confess that I confidently and erroneously predicted in the 1990s to a close friend deeply involved with newspapers that they’d be “dead in five years”. I saw what Brian is talking about: that the bundled media idea meets its match when people can bundle their own. And I was directionally correct about the trouble the newspaper business was heading toward. But The New York Times is still dropped off at my door each morning (although I have often read a lot of it in bed on my iPhone before I cross the apartment to pick up the paper version) and most American cities still have a daily paper, even though many of them have bitten the dust in this century.

The extended discussion in the comment string of the prior post had to do with to what extent publishers serve authors, and to what extent authors are better off eschewing publishers and working on their own. Unless and until publishers turn digital marketing at scale into a clearly compelling proposition, their power to serve authors effectively diminishes with each closing bookstore. The less bookstore- (or brick-and-mortar retailer-) dependent any book is, the less additional benefit in sales and exposure can be delivered by a publisher (although a cash advance and somebody to handle all the business aspects of putting a book out will still be both helpful and persuasive to many authors). Bookstore shelf space, and printed books, seem to be suffering slower erosion over the past year or two than they did in the several years before that. Michael Cader has made a convincing case that we actually know that for a fact. But, even if we accept the fact, whatever erosion continues will affect different books and authors to different degrees.

As I was reading Brian’s post, which advocates delivering information with plentiful links that would allow reader-controlled exploration of the topic at hand, I thought about the book I am reading right now. That is Doris Kearns Goodwin’s excellent “The Bully Pulpit”. It’s complex and the web is loaded with material (about Theodore Roosevelt, William Howard Taft, and a cast of characters who were the muckraking journalists of the time) that could provide additional facts, depth, and color. But the valuable deliverable here is that Goodwin has sorted through all of that and more and delivered a masterful telling of a complex holistic story. That’s what I’m buying and enjoying. “Enhancements” would almost certainly undercut its core value to me as a reader. Links would just be distractions that would make me lose the thread of the coherent story.

Nonetheless, what Brian is saying might be true for me if I were reading a book explaining some aspect of economics or technology. And it might be true for a history scholar who was reading “The Bully Pulpit”.

So generalizations about the book business, whether they come from a self-published author or an industry expert like O’Leary, really require us to do a little parsing to make them useful. We’d be steering toward a more constructive conversation if we posed three questions every time somebody posits a Great Change we will see in the book business.

1. Which books, exactly, should we expect to be affected by this particular Great Change? This is necessary to specify now that most people would agree that “books” has become a pretty worthless generalization.

2. How soon can we expect a meaningful change in the perceived utility, and therefore the demand, for the affected books? That is, are we talking about a change that is already happening and evident and having a commercial impact (travel books are suffering and have been for years) or one we expect to see in the future (readers abandoning longer form books for shorter content choices) for which we might have only the scantiest evidence is affecting commercial reality today?

3. How likely is it that whatever the Great Change is going to be that publishers are well-positioned to affect or control or accommodate it? Brian suggested, and I wholeheartedly agree, the answer is “often not”. That being the case, the prediction of the Great Change should not necessarily be accompanied by the prescription that the publisher should change behavior to address it, although it seems to me they almost always are.

That last point is a very important one. Publishers, like all businesses, succeed on the strength of their expertise and their commercial network. Many would agree that the function of children’s books and craft how-to books could be better served if they utilized elements that are possible digitally — animation, video, interactivity, audio — and that would improve the utility of a digital version over a printed book. But does that mean that today’s book publishers can “own” that future business, if both the creative requirements and the marketing and distribution are well outside their prior experience?

Could a publisher of travel books have created Trip Advisor? Does the publisher-created Cookstr do the job of digital assistance for a cook better than allrecipes.com or cookbooks.com or betterrecipes.com? It doesn’t take a lot of deep thinking to see that a publisher’s skill sets are not the best match for building an interactive internet business where content is a component of the strategy but everything else about it is different from publishing books.

Over time, I expect the book business is going to get smaller, whether the number of books consumed goes down or not. Among the reasons for that is that, over time, the intrusion of self-publishing entities will be even more disruptive than self-publishing authors have been. Another reason is that wome information dissemination that has taken place in books will move away from books. It might also be true that the overall public appetite for reading longer forms will diminish, although any publisher with digital distribution can address that by changing the mix of what they publish.

Whether “book publishing” or “book retailing” shrinks, disappears, or changes form depends on how widespread across the various silos of interest and utility we call “books” today are the many disruptions that will affect those verticals in different ways and at different speeds. And generalizing about what these changes mean, let alone delivering advice that isn’t informed and bounded by an understanding of how any particular book or author or publishing program fits into the time and scale of any particular change, is as likely to be wrong and harmful as it is to be correct and illuminating.

So remember Bide’s decades-old admonition that the book business is not one business. It is the one generalization about books and commerce that has been true for well over a century and will continue to be true as long as books — printed or conceptual — continue to be something worth discussing.

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Comparing self-publishing to being published is tricky and most of the data you need to do it right is not available


I have a certain pride of discovery in super-successful indie author Hugh Howey. It was nearly two years ago that I learned about him on a trip to LA to organize a conference that didn’t happen. The Hollywood grapevine told me about his novel-of-assembled-novellas, Wool, which was a sudden major self-publishing bestseller and that he had a movie deal. I got in touch with him and his agent, Kristin Nelson, and learned that he was making $50,000 a month in royalties, and had a host of foreign deals as well as the movie deal. Meanwhile, the publishing establishment couldn’t come up with an offer that would sensibly entice him to give up his indie revenues. I read his book and loved it and then had many interesting exchanges with Hugh and Kristin, which resulted in them appearing on the Digital Book World program in 2013, 13 months ago.

He’s a terrific guy who has achieved a phenomenal success and maximized it in a very clever way. But I think he’s a much better author and self-promoter than he is a business analyst.

At the beginning of the year, Howey offered his advice for publishers which reminded me of an old saw of my Dad’s, which was “when I was a kid, everybody wished their father owned a candy store.” Hugh’s advice for publishers is to eliminate things that annoy him (non-compete clauses, length-of-copyright licenses, New York City offices) and to lower prices, give away ebooks with hardcover purchases, and pay authors monthly.

Now, none of these things is necessarily a bad idea, and some of them will almost certainly come to pass, at least for some authors in some contracts. And I remember when Wiley moved from 3rd Avenue to Hoboken that they figured they got a competitive advantage of permanently lower rent at very little sacrifice of efficiency. But none of them are things a publisher would do just for the hell of it; they’d have to see a competitive advantage or a competitive necessity. The piece he wrote advising the publishers (which he addressed to HarperCollins but which he meant to be generic) didn’t even attempt to prove that these changes were either commercially advantageous or necessary.

But giving this advice to HarperCollins or any other big publisher is not dangerous to anybody’s health. Unfortunately, Hugh’s latest business inspiration — a call to arms suggesting to independent authors that they should just eschew traditional publishing or demand it pay them like indie publishing — is potentially much more toxic to consume. (The agenda here is unclear. Is Hugh most interested in getting more authors self-publishing or in organizing authors to demand better terms from publishers? It’s hard to tell, but there is an agenda, it would seem.)

The long story short is that Howey analyzed a bunch of Amazon rank data (apparently a single day’s worth, 1/28-29/2014, which has so many obvious problems associated with it that all by itself it raises questions about what of value can be gleaned) and from that extrapolated some breathtaking (and breathless) conclusions that go way beyond what the data could possibly tell anybody. The analysis purports to compare how authors do self-publishing versus how they’d do with a publisher and comes to the conclusions that they make more per copy on average self-publishing and maybe even sell more and make better books to boot. (For much more and better analysis of the data biases, I’d check Dana Beth Weinberg’s post on this subject. Her objections and my objections have very little overlap.)

My problem with the whole exercise is that there is a long list of relevant facts not included in the data and therefore ignored in the subsequent analysis:

1. Author revenue from print sales.
2. Getting an advance before publication versus having costs before publication.
3. Unearned advances and their impact on author earnings.
4. Getting paid for doing the work of publishing which goes beyond authoring.
5. Current indie successes where the author name or even the book itself was “made” by traditional publishers.
6. Rights deals.
7. How well Amazon data “maps” to what happens elsewhere. Is it really projectable?
8. The apparent reality: flow of authors is self- to traditionally-published, not the other way around.
9. Publishers can raise royalty rates (or lower prices) when it becomes compelling to do so.

Each of these could be a big or small part of the story, but every one is relevant.

1. Author revenue from print sales. Authors not only make a lot of money on print sales, but print in stores (as opposed to printed copies available through Amazon) is also a marketing element. This all still matters. In a comment on Howey’s site, one author estimates her Amazon sales as anywhere from 10% to 30% of her total sales. Obviously, for some other authors it is a lot more than that, maybe north of 70% of their sales. Which kind of author are you? And if you’re the kind selling mostly on Amazon, is that an inherent characteristic of your appeal or a deficiency in your non-Amazon distribution?

2. Getting an advance before publication versus having costs before publication. Although Howey cites one author who turned down an advance to self-publish, those stories appear to be few and far between. I was really struck by one such author announcing nearly two years ago that he was doing this, but, in the end, that author took a publishing deal — not a self-publishing deal — from Amazon. And the size of the advance is also a consideration that Howey’s analysis doesn’t touch on. It can’t, because that data — however relevant — isn’t available. (But then, can you draw valid conclusions without it?)

 3. Unearned advances and their impact on author earnings. Unearned advances are a substantial part of author compensation. I know of one Big Five house that calculates that they pay more than 40% of their revenue to authors and another which says that number is in the high 30s. That’s not all digital, some of that is print with manufacturing and warehousing and shipping costs associated with the revenue. How can you compare how authors are compensated if you don’t calculate the benefits to authors, meaning the resulting higher percentage of the revenue they’ve taken, of unearned advances? That relevant data is also not available.

4. Getting paid for doing the work of publishing which goes beyond authoring. Frankly, the biggest omission to me is the eliding of the costs — in time and money — of doing the work the house does for an author. Howey mentions that editors and cover designers can be hired. That’s true, and good and competent ones too. But is a good writer necessarily a wise chooser of an editor or of a cover design? How much does it cost if you don’t get the right one the first time? (We know publishers aren’t perfect at these jobs either, but they’re bound to be better most of the time than somebody who hasn’t ever done it before.) And is that how you want to spend your time? Authoring is a job but doing the work of self-publishing is also a job. And it entails real risk. Advising a writer to self-publish without considering these things is like telling somebody who’s a good cook that they might as well just open a restaurant.

5. Current indie successes where the author name or even the book itself was “made” by traditional publishers. Another factor any author self-publishing has to consider is the likelihood of success, which is much greater if the books are backlist (have some fame in the marketplace) or even if just the author has been previously published. Successes like Howey’s, from a total standing start with no prior writing track record, are quite different from others who have reclaimed their backlists and used them as a platform to build a self-publishing career. Now, that data could be obtained. Wouldn’t you like to know how many of the “indie authors” at various income levels were cashing in on what was originally publisher-sponsored IP and how many started from scratch? (It’s more challenging, of course, to assemble the data by the author rather than by the book.) But I sure think it would be necessary to understand before drawing conclusions about who should self-publish.

6. Rights deals. Howey himself has benefited from having a stellar agent who has made foreign and movie rights deals for him across the globe. (She even made a print-only deal for Wool with S&S.) Yes, you can (if you’re lucky) do this like Howey did: finding an agent to represent his self-published material. But that’s another thing to find and manage that comes with the deal (and the advance check you get to cash) if you do a deal with a traditional publisher (although, admittedly, you would probably have had to find the agent in the first place, and self-publishing could be a way to do that.) Nonetheless, you get more rights-selling firepower on your side if you’re with a publisher.

7. How well Amazon data “maps” to what happens elsewhere. Is it really projectable? A massive flaw in the analysis is the biased nature of the data. Amazon’s sales profile is not the same as the market as a whole. (One day of data isn’t a projectable sample either.) One agent pointed out to me that they are weak at selling mass-market fiction, for example, and that their ebook sales tend to the fresh and new, so they don’t get a bump when a mass-market paperback comes out. But we can be pretty sure that Amazon sells ebooks more successfully than the market as a whole, because Kindle has the biggest installed base and Amazon has the most book customers. This bias of sample is compounded by the focus on genre fiction. No matter how big a percentage of those niches is served by Amazon, it is important to remember that it is where they are relatively strongest in relation to the big publishers. If we were comparing literary fiction or biographies — both of which have lots of worthy authors too — the chances are the cost of an Amazon-only distribution strategy, or an ebook-only distribution strategy, would be far higher. And the chances of success would be far lower.

8. The apparent reality: flow of authors is self- to traditionally-published, not the other way around. But I think part of the motivation for this piece was frustration in the indie author community at the fact that many of the best ones get signed up by traditional houses, who view indie publishing as a farm system, and very few established authors will actually turn down an advance to go indie. They’ll reclaim their backlist and self-publish it, or do a short ebook on a subject that is timely and can’t wait for print or be made longer. But there has been very little evidence that I am aware of that publishers are having wholesale difficulties getting authors to come aboard with them on a traditional deal.

9. Publishers can raise royalty rates (or lower prices) when it becomes compelling to do so. Which brings us to the final point that I think is relevant and ignored. As Howey and others have pointed out, the early days of ebook publishing appear to have been good for publisher margins. They can afford to give authors more. (In fact, I encouraged them to do that before their accounts come after them for the extra margin in a post nearly three years old.) But they’re not going to give it out of some spirit of generosity or because Hugh Howey (or Mike Shatzkin) thinks it would be a good idea. They’ll give it when it is a competitive necessity to do so.

So my advice about Hugh Howey’s advice is simple. Totally ignore it if you’re not a genre fiction author; there’s precious little evidence or thinking in it that applies to you. And if you are a genre author, be very clear about the extra work and extra risk you take on in order to get some extra margin. Both will be required for sure whether the extra margin materializes or not.

Self-publishing is definitely an incredible boon to commercial writers and they should all understand how it works. Increasingly, literary agencies see it as their job to provide that knowledge.. It is almost certainly a good idea to self-publish for many writers who have reclaimed a backlist that has consumer equity. It is a perfectly sensible way to launch a career, either before going after the commercial establishment or as a part of the strategy to engage with them. (Editors in the big houses are well aware of the self-publishing successes; it’s a new farm system.) If an author has access to markets, it can be a better way to get short or very timely material to them faster. But to say it has its advantages and applications is a far cry from saying that it is a preferable path for a large number of authors who could get publishing deals.

I can’t “prove” this so I won’t try, but it bears further emphasis that it still looks like the number of authors who start as self-published and then get “discovered” by the establishment and switch over is still larger than the number of authors who say “keep your stinking advance” and turn down a deal to do the publishing themselves. None of the parties involved is stupid — not the traditionally-published authors, nor the self-published authors, nor the hybrids — not even the publishers. And they might not be evil, either. As for self-interested debaters, they exist on all sides.

PS: I HATE long comments. If you disagree with me and want to use my space to make your case, please be concise. (And frankly, although I also prefer you to be concise if you agree with me, I’m made less cranky when I get long-winded support.)

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The future of bookstores is the key to understanding the future of publishing


One of the subjects we have been probing for a long time is the inevitable impact that increased purchasing of books online would have on the shelf space at retail and what that would mean to trade publishers. (You’ll see that this speech that is well more than a decade old also says publishers are going to have get audience-centric, or vertical, as well.)

Of course, there has already been one shock to the system — one “Black Swan” event — which was the closing of Borders stores in 2011. That suddenly took about 400 very large bookstores out of the supply chain. Since then, the anecdata about independents — which includes encouraging, but unaudited, financial information from the BEA and a lot of rah-rah from thriving indies (a fire we threw a log on with a great break-out session at DBW last week) — has been very upbeat (although Bowker data seems to suggest Amazon gained more from Borders’s passing than anybody else did). And while B&N has continued to show some sales slippage, its more drastic setbacks have been in the Nook business, not selling print in stores.

One distracting fact for analysts considering this question has been the apparent slowdown in the growth of ebook sales, suggesting that there are persistent print readers who just won’t make the switch. The encouraging fact is distracting because it is incomplete as far as predicting the future of shelf space at retail, which is the existential question for the publishers, wholesalers, and bookstores (and, therefore, by extension, for legacy authors too). We need to know about changes in the division of those sales between online and offline to really have a complete picture. If ebook takeup slows down but the online buying shift doesn’t, the bookstores are still going to feel pain.

This point about the key index being online sales versus offline sales rather than printed book sales versus digital book sales is a key one that we’ve been hammering for years. It was nice to see Joe Esposito emphasize it in a recent post of his addressing some of my favorite questions about Amazon.

We had a panel of four successful independent booksellers at DBW. One of them, Sarah McNally of McNally-Jackson, has recently been quoted as saying she worries about the future of her Soho bookstore when her lease is up. (Rents rise quickly in that part of the city.) Meanwhile, she’s taking steps to move beyond books to retailing design-heavy but perhaps-more-enduring retail goods like art and furniture. (And, in that way, McNally-Jackson takes a page out of Amazon’s book, not limiting themselves to being a bookstore brand.)

A friend of mine who is a longtime independent sales rep says that even the successful indies are finding it necessary to sell books and other things — cards, gifts, chotchkes — to survive. The mega-bookstore with 75,000 or 100,000 titles or more was a magnet for customers in the 1970s, 80s, and 90s. It isn’t so much anymore because the multi-million title bookstore is available through anybody’s computer. This is a fact that makes the number of successful stores a weak indicator of the distribution potential available to publishers. If replacement stores carry half the inventory of the ones that go out, we can have a lot of indie retail success stories but still a shrinking ecosystem into which publishers distribute their books.

In general, the proprietors of successful indie bookshops and their trade organization, the American Booksellers Association, paint the times as hospitable to independent bookselling. They dismiss the skepticism of people like me that believe that the current surge of apparent good fortune is due to a window of time (now) when Borders’s closing removed shelf space faster than Amazon and ebooks had removed demand for books in retail stores.

It has been an unspoken article of faith that bookstores would not go the way of stores selling recorded music or renting and selling video, both of which are segments that have just about entirely disappeared. The physical book has uses and virtues that a CD, a vinyl record, a DVD, or a videotape don’t, not the least of which is that a physical book is its own “player”. But it also provides a qualitatively different reading experience, whereas the other “physical” formats don’t change the consumption mode at all. Of course, that only helps bookstores if the sales stay offline. People ordering books online are overwhelmingly likely to order them from Amazon. In other words, it is dangerous to use the book’s ability to endure as a proxy for the bookstores’ ability to sustain themselves. The two are not inextricably connected.

But the fate of almost all trade publishers is inextricably connected to the fate of bookstores. There are only two exceptions. Penguin Random House is one, because they are large enough to create bookstores on their own with just their books. The other is publishers who are vertical with audiences that open up the possibility of retail outlets other than bookstores. Children’s books and crafts books are obvious possibilities for that; there aren’t a ton of others.

The feeling I had at Digital Book World is that most people in the trade have either dismissed or are wilfully ignoring the possibility that there could be such serious further erosion of the trade over the next few years that it would threaten the core practices of the industry. With more than half the sales of many kinds of books — fiction in the trade area, of course, but also lots of specialized and professional and academic topics — already online, many seem to feel whatever “adjustment” is necessary has already been made. They got support for optimism at Digital Book World. Stock-picking guru Jim Cramer touted Barnes & Noble’s future (because they’re the last bookstore chain standing) and, from the main stage, the idea was floated that Wal-mart might buy and operate B&N as part of an overall anti-Amazon strategy.

All that is possible, and I have no data to refute the notion that we’ve reached some sort new era of bookstore stability, just a stubborn feeling in my gut that over the next few years it will turn out not to be true. I don’t mean to ignore the positive signs we’ve seen over the past year or so. And the overall decline in physical retail versus online purchasing affects all retail, not just books, so it is possible — some might say likely — that the rent squeeze will ease. It isn’t just bookstore shelf space that seems to be in oversupply compared to demand; that’s broadly true of retail. So your gut may differ and would have some logic to support a contrary point of view.

But my hunch (and this is not a “prediction” as in “this will happen; take it to the bank”) is that shelf space for print in Barnes & Noble and dedicated bookstores could well shrink by 50 percent over the next five years. What CEO or CFO of a trade publishing house would consider it prudent not to consider that possiblity in their own planning?

Obviously, less shelf space and more online purchasing change each publisher’s practices in many ways. They will want to deploy more resources for digital marketing and less for sales coverage. They will want to own less warehouse space and less inventory, changing the overall economics of their business. As we’ve been saying for years, they’ll find it sensible to become more vertically consistent: acquiring titles that appeal consistently to the same audience. Each house’s own database of consumers will become an increasingly important component of their equity: an asset that provides operational value today and balance sheet value if they become acquired.

But, most of all, publishers are going to have to think about how they maintain their appeal to authors if putting printed books in stores becomes a less important component of the overall equation. It is still true that putting books in stores is necessary to get anywhere close to total penetration of a book’s potential audience. Ignoring the in-store market obviously costs sales in stores but it also costs awareness that reduces sales online. (After all, stores are very aware of the “showrooming” effect: customers who cruise their shelves with smartphones in hand, ordering from Amazon as they go!)

But that’s today when the online-offline division may be near 50-50 overall and is 75-25 for certain niches. If those numbers become 75-25 and 90-10 over the next five years, the bookstore market really won’t matter that much to most authors anymore. Whether through self-publishing or through some fledgling publisher that doesn’t have today’s big publisher capabilities but also doesn’t have their cost structure, authors will feel that the big organizations are less necessary than they are now to help them realize their potential.

Higher ebook royalty rates, more frequent payments, and shorter contract terms are all very unattractive ways from the publishers’ perspective to address that issue. So far the marketplace hasn’t forced publishers to offer them. If bookstores can hold their own, the need to move to them may not be compelling for a long time. But if they don’t, most legacy publishers will have very few other levers to continue to attract authors to their ranks.

We are already seeing big publishers quietly moving away from publishing books that haven’t demonstrated their ability to sell as ebooks: illustrated books, travel books, reference books. That implies an expectation that the online component — particularly the ebook segment of it — has already changed the marketplace or certainly will soon. Adjustment of the standard terms with authors is a shoe that hasn’t dropped, but if the marketplace continues to change, it might become very hard to keep things as they’ve been.

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Nine places to look in 2014 to predict the future of publishing


The digital transition of the trade book publishing business, which I would date from the opening of Amazon.com in 1995, enters its 20th year in 2014. Here are some of the ponderables as we close out the first two decades of a process of very rapid change that is far from over.

1. What’s going to happen with retail shelf space for books? The market for the kind of narrative reading that comprises the bestseller lists has gone anywhere from half to three-quarters online, ebooks and print combined. The rate of movement has slowed, but it hasn’t stopped. It has now been two full years since Borders shut. Barnes & Noble continues to close stores as leases expire. Independents are, anecdotally, reported to be holding their own, but they’re definitely challenged to deliver on the online component and, so far, the successes have depended on individual entrepreneurs running good local stores, not any formula that is replicable or scalable. When will we see a stable “floor” for bookstores, a sustainable foundation from which year-to-year fluctuations won’t persistently be down? I don’t think it will be in 2014, but it’s the most important bunch of tea leaves to read for some segments of the business.

2. Illustrated book publishers are likely to be the most attentive of all to the bookstore shelf space question. Six years into mass ebooks (as dated from the Kindle) and three years into good hand-held delivery of graphics (as dated from the iPad), the digital version of illustrated books have not found the market that the digital version of novels have. The illustrated book publishers learned to be global over the past four decades, so many have avenues to market that aren’t changing as fast as the US bookstore network has. But the reduction-in-shelf-space line on the graph or the sales-of-these-books-as-digital-products line, or both, have to start moving in the opposite direction or there’s a major problem brewing in that very large segment of our business. Will 2014 be the year that somebody cracks the code for delivering how-to or art-book material in a digital form that will replace shrinking print revenues?

3. As 2014 dawns, we have a host of ebook retailing models that deviate from what the book business has always done: sell one book at a time for a price for which the starting point of reference is one set by the publisher for that book. Safari, created by O’Reilly and Pearson, showed a subscription model more than a decade ago but it was for professional books. 24symbols, based in Spain, is a sort-of granddaddy of this business in the trade segment, being about three years old. They are joined by Oyster, a new start-up dedicated to ebook subscriptions and Scribd, an old start-up originally dedicated to being YouTube for documents. And Entitle, formerly called EReatah, has a slightly different subscription proposition that is more like a “book-of-the-month-club” in its structure. An even newer start-up called Librify has an offering for reader-organized book clubs in the offing. Amazon already has a lending library for its PRIME subscribers, which amounts to the same thing, and a subscription of content for kids on Kindle Fire. With so many experiments in play, we ought to get a picture by the end of 2014 of the degree to which this model appeals to consumers and whether the economics are enticing enough to get big authors and big publishers to play with more enthusiasm than they have demonstrated so far.

4. It is accurate, but misleading, to describe the Penguin Random House combination as a merger of “two of the big six”. It is actually a merger of the two biggest of the former Big Six, and it creates a publisher that is nearly as big as the four others combined. So we now really have a Big One and a Following Four, rather than a Big Five. The big question is what PRH can do to apply what is a huge difference in size as a scale advantage. The hunch here is that proprietary distribution channels can be created by a company that controls approximately half the most commercial books in the English-language world. Whether that will manifest itself as ebook subscriptions, special retail distribution using vendor-managed inventory, or the creation or purchase of marketing channels for its exclusive use — or all of the above and more — will be one of the most important things to watch in 2014.

5. The financial reports from big publishers in 2013 have been mostly encouraging. It looks like the shift to ebooks has had the impact of improving publisher margins and profitability. But can those good times last? Publishers now face a world where there is a single dominant bricks-and-mortar retailer, a single dominant internet retailer, and, as noted above, a single dominant publisher. Agents want to keep competition alive, so they’re going to be sensitive about pushing the Following Four too hard or allowing too quick a migration of authors to the industry leader, but the retailers won’t be so accommodating. Another pressure point on margins will be ebook pricing. It has been driven down by successful self-publishing and the the court’s elimination of agency as a protection. Now big publishers have discovered “dynamic pricing” — lowering prices on a book temporarily to spike sales and awareness — adding their own activity to the list of forces reducing margins. Both the top line and the bottom line will be harder to maintain in 2014, but how it will turn out is an open question. After all, most of these things were true in 2013 and margins still improved.

6. Literary agents have been dabbling with publishing for the past several years since ebooks and POD have made it possible to do it without inventory or an organization. Agencies have started publishing operations (E-Reads, Diversion, Rosetta) and many more have brought on the expertise to give authors help with digital services (Curtis Brown, Writer’s House). Publishers have expanded into author services with speaker’s bureaux, but, so far, none has thought to add literary agenting services except for the time-honored practices of selling rights (foreign, paperback, book club), which was part of their publishing process. Might a publisher either create or ally with a literary agency to create a way to “own” an author’s entire career? If one tried this in 2014, it wouldn’t come as a total surprise.

7. Simon & Schuster has made a number of pioneering deals for a publisher of its size. They offered print distribution service to bestselling indie author John Locke. Then they made a print-only deal — which the big houses pretty much said “we will never do” — with another indie with a hit, Hugh Howey. Now they’ve extended an idea they started a few years ago and signed a deal to give Yankee shortstop and icon Derek Jeter an imprint to be a publisher. Jeter has the ability to focus public attention on any book he wants (although certainly more with some topics than others) and he’s an articulate spokesperson with a strong personal following. S&S had done this in 2007 with 50-Cent; Hachette more recently gave an imprint to Chelsea Handler and HarperCollins gave one to Johnny Depp. Will celebrity imprints become a common idea? There will be plenty of attention paid to how Jeter’s initial efforts work. Or it may be that some other athlete or actor, musician or politician, will be the next experiment with this model. In any case, this is something else to watch in 2014.

8. It has been happening quietly but it has been happening: we increasingly have two separately-operating book businesses: Amazon’s and everybody else’s. This starts with the numbering system: Amazon uses its own ASINs, rather than depending on everybody else’s ISBNs. It extends to the titles available: Amazon has an untold number, but certainly hundreds of thousands, that it either publishes exclusively or which authors or small presses publish exclusively through them. And it has service offerings from Kindle Owners Lending Library to its recent Matchbook offer to pair ebook and print sales, which range from “extremely difficult” to “impossible” for any other publisher-retailer combination to match. How far can this go? Can Amazon create a closed world which is more profitable for an author or publisher than the whole world that includes everybody else? Or have they already?

9. And, in that same vein, we have what would seem to be an unsustainable dichotomy in the ebook marketplace as a result (I would say, editorializing here) of the Justice Department’s lack of understanding about where power really lies in the book business. Apple insists on “agency pricing”: publishers set prices, Apple keeps 30%. Amazon — for everybody except the former Big Six — insists on the wholesale model which gives them 50% of the publisher’s set price to divide as customer discount and margin as they choose. This has resulted in all publishers except the biggest being forced to put two prices on their ebooks: a ”digital consumer retail” price (intended to be a selling price, for Apple, and lower) as well as a “list” price (intended for the retailer to discount, for Amazon, and higher). When the distinction began, the agency price couldn’t be discounted. Now it can so the only real differences are the margins and the hard-to-explain-or-justify publisher-set prices. Only the biggest publishers have the clout to overcome the marketplace power of Apple and Amazon to dictate how the sales structure will work. Everybody else lives in an Alice in Wonderland world. I’d expect something to give on this in 2014.

Many of these questions will be explicitly discussed at the biggest and best Digital Book World ever, coming up in less than two weeks. It has become the premier global gathering of book publishers talking about the impact of digital change. We’ve counted them up and there are 156 speakers and moderators on the 2-day DBW program, plus dozens more in DBW’s workshop program and the Publishers Launch Kids conference hosted by Michael Cader and me and programmed by Lorraine Shanley of Market Partners International. You can’t spend that week with us without bumping into smart people who are getting great things done.

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No, Mike Shatzkin did NOT say that publishing is spiraling down the drain


As part of the promotion of the Digital Book World conference, I do some interviewing with the very capable Jeremy Greenfield, the editor of their blog. And Jeremy takes our conversations and chops them up into short pieces around the themes of our show. Since the focus of Digital Book World is “how digital is changing publishing”, Amazon is a topic of great interest and one we try to address in an original and enlightening way.

In my interview with Jeremy, for which he published very brief but entirely accurate excerpts, I did say that publishers would face a real selling job with authors when Amazon’s share grows by another 25% from its current base or if Barnes & Noble closed. Neither of those things is likely to happen in the next few years. If and when the day comes that one of those things does happen, not all publishers would be entirely defenseless even with today’s arsenal of capabilities. And Jeremy’s piece closes with my suggestion that publishers can help themselves by doing “digital marketing at scale, which is audience-centric in its thinking.”

Despite how this is interpreted in some circles, it does not add up to publishing “spiraling down the drain”.

Amazon is already truly disruptive and it isn’t clear to anybody but those on the inside of Amazon exactly how disruptive. I’ve written earlier that we know nothing about the used book marketplace they host and foster, which we must assume cuts into sales, particularly of bestselling books which have many copies in circulation. A recent discussion on a mailing list I’m on revolved around what we don’t know about how many ebooks are being published. Why? Because Bowker, which issues ISBN numbers and therefore helps us count the titles going into the marketplace, doesn’t necessarily get to touch (and count) titles that stay entirely inside of Amazon and therefore only use the Amazon “ASIN” substitute for the ISBN. Other ebook retailers will handle titles without ISBN numbers, but only Amazon has a large enough market by itself to make a substantial number of self-publishers work with them alone.

And now we have the anomaly of sales reporting from the AAP, once again working without totally internal Amazon IP, that suggests ebook sales are going down. Are they going down? Or are self-published titles exclusively inside Amazon taking share away from the part of the business we can see and count for ourselves and masking the ebook sales growth that is actually taking place? I have no evidence, but that strikes me as a more likely reality than that ebook sales have actually fallen year-to-year recently.

What that means is that we are developing two publishing businesses. One of them includes all of us: all the publishers, all the retailers, all the industry bodies counting books and sales. And one of them is “private” or “proprietary”; it is Amazon. They are publishing an unknown number of titles selling an unknown number of copies netting an unknown number of dollars under a numbering system nobody else can crack or track.

Actually, Amazon is not entirely alone in wanting proprietary titles. Perhaps there are some within Nook or Kobo, but hosting proprietary titles to establish themselves in the market is the declared strategy of upstart retailer Zola Books. Last week they announced exclusive titles from Joan Didion and her late husband, John Gregory Dunne. They think having showcase titles of this kind will enable them to crack the ranks of established ebook retailers. I think it would take a lot more of them than they’ll ever get to make a dent, but time will tell. And if they don’t sell a lot of the ones they have, it will become impossible to persuade anybody else to give them such an exclusive on any basis.

But Amazon, being more than half the market already for a lot of genre fiction, can use painless (to them) financial incentives to induce authors to give them exclusives through the KDP Select program. So they get them in numbers none of the rest of us can count but which could conceivably be large enough to actually make industry figures inaccurate.

My assumption is that Amazon can do more for a book inside Amazon than a publisher or author can working Amazon from the outside, all other things being equal (although the U-turn from the ambitious Larry Kirshbaum publishing program might cast doubt on that). And the publisher takes a big share of the Amazon-generated revenue. That means that the publishers have to make up the difference in revenue for the author in one or both of two ways:

They have to do a superior job publishing the book — editing, positioning it in the marketplace, selling rights, and sustaining a marketing effort that will be largely digital — so that it sells more even inside Amazon than it would without those efforts. In other words, they have to assure that “all other things” do not remain equal.

They have to sell lots of books outside of Amazon so that the revenue from the larger publishing ecosystem makes up for the Amazon-generated revenue that the author shares with the publisher.

The shift that has taken place so far is apparently not crippling publishers at all. There are no clear tallies about this, but it certainly feels like there are more authors moving from self-publishing to a publishing house (to borrow a term that usually has a different meaning in our business: “discovered” by publishers because of their self-publishing success) than the other way. So either they’re able to make more money, or they really appreciate the full bundle of editing and marketing services a publisher provides, or they value the broader exposure through a publisher’s entire distribution network more than the perhaps-higher revenue they could make from fewer sales through Amazon alone, or some combination of the three.

My point, and what should be a broad industry concern, is that the publisher’s challenge continues to get steeper. Amazon’s share is growing in relation to the rest of the market and more and more service offerings for editing and marketing are making it ever-easier for authors to entertain a non-publisher option. There is a very small but growing population of authors with lengthy backlists who have gotten their rights back, or secured their ebook rights alone, and are able to consider alternative paths to market.

Although she wasn’t the first, Jane Friedman saw this very early — and it is the opportunity that got things started for her Open Road Integrated Media, probably the largest new publisher built during our current shifting paradigm. Richard Curtis of E-Reads and Arthur Klebanoff of Rosetta were pursuing a similar strategy before Friedman got started, but she found the funding and added the promotional sizzle to build a bigger business faster. (It is still an open question whether the companies that are building themselves by offering more generous royalty splits for already-established backlist have a sustainable business model.)

We’ve said repeatedly in this space that the publisher’s time-honored core proposition has been “we put books on shelves”. That is changing and the new proposition has to be “we will help authors reach their whole audience”. A very smart executive from a major house suggested another formulation that makes sense: “publishers are experts at building author brands.”

Either of those, as a competitive statement against Amazon, will almost certainly reflect a potential advantage for authors. But as the difference between what is Amazon’s audience and what is the whole audience gets smaller, the publishers’ challenge gets harder. And only by doing a smashing job at both publishing in a way that sells more on Amazon and by maximizing the market outside Amazon will publishers retain their power to attract authors in the years to come.

The answers for publishers as seen from here are “verticality”, or “audience-centricity”, combined with scaled skills (and tools) to do digital marketing in ways the authors can’t on their own and which Amazon isn’t likely to develop. The two go together: focusing on an audience enables a publisher to build scaled capabilities to reach that audience that others without that focus will not have.

There have always been publishers that have gone “down the drain” or, more likely, seen themselves become part of some other publisher rather than a stand-alone entity. We will certainly see consolidation in various segments of the industry at the same time that we will see lots of new smaller entrants attracted by book publishing’s diminishing cost of entry. (We call this atomization.) But seeing that things will get harder is not the same as seeing a pending apocalypse, and recognizing there are benchmarks that would signal a real escalation of the challenge is not the same as saying we’re about to hit them.

The topics covered in this post will get a thorough airing at the Digital Book World conference on January 14-15, 2014. (Here’s the full program.) Our Amazon coverage will include presentations from Brad Stone, Benedict Evans, and Joe Esposito, followed by a panel discussion among them. Professor Dana Beth Weinberg combines her data analysis skills as a sociologist with her publishing interest and knowledge as a romance writer to present a unique perspective on the changing dynamic between publishers and authors. And Phil Sexton, the publisher of Writer’s Digest, will present the results of his organization’s survey of more than 5,000 freelance writers, capturing an up-to-date picture of how writers view the choice between working with a publisher and putting their material out on their own.

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Amazon might lose interest in total hegemony over the book business before they achieve it


The industry got the news that Amazon was probably reassessing its own publishing program a couple of weeks ago when it was announced that Laurence Kirshbaum was stepping down as the head of Amazon Publishing and being replaced by a 14-year veteran of the Seattle company, Daphne Durham. Whatever are Durham’s strengths and connections, they don’t include the familiarity with the New York publishing scene and agents that Kirshbaum brought.

While this certainly does not suggest an overall reduction in Amazon’s publishing activity, it does signal a change in tactics. It would appear that the unorganized but united stand by Barnes & Noble and independent bookstores to boycott Amazon-published titles and refuse to give them shelf space made it virtually impossible for Amazon’s publishing enterprise to compete with the big houses for brand name authors. The few that they tried — Penny Marshall and Timothy Ferriss wrote the high-profile titles that were watched — had disappointing results. Whether that was largely because the stores wouldn’t play along or for other reasons (not all books by famous authors or celebrities are equally edited or equally appealing), the overall environment did not leave agents or the authors everybody wants panting for an Amazon publishing deal.

Retreats — apparent or real — by Amazon are rare. (The last one we can recall is when they pulled the buy buttons from Macmillan titles in 2010 to protest agency pricing and very quickly rescinded the action.) But it would be a mistake to think either that Amazon is less interested in publishing than they were before or that the threat they pose to publishers’ relationships with authors is no longer something publishers need to concern themselves with.

In fact, all the recent evidence suggests that Amazon’s market share is still rising. The Bowker numbers reported at the end of July of 2012, trying to measure who got the Borders sales (which were 10% of the total when the retailer went out of business) put Amazon’s total share of the book market at 29%, up from 23% a year earlier. In that same report, it was reported that B&N had gained a point of share, up from 19% to 20%. So Amazon out-benefited B&N from Borders’ collapse by six to one.

Earlier this year, it was reported in Britain that Amazon had a whopping 79% of the burgeoning ebook market. That’s more than they have in the US. It is also apparently the case that Amazon has the lion’s share of the online book sales market in the UK (and, along with their subsidiary company The Book Depository, most of Europe and the English-speaking world).

The share of total sales that goes through their registers is only one measure of Amazon’s disruptive growth. They’re also signing up more and more books directly to their imprints (the genre publishing growth continues unabated and was never heavily dependent on Kirshbaum) and getting more and more books through authors self-publishing. And as they disintermediate publishers by bringing in books directly by either means, they also threaten their competitive retailers in all venues. Although you can be self-published through Amazon and continue to distribute to other channels, they offer financial incentives to discourage that.

In fact, Hugh Howey, the enormously successful self-publisher of “Wool”, told us a year ago that the decision to broaden his distribution base to include Nook and other platforms cost him money. He did it because he thought it was the fan-friendly thing to do but he’d have made more money on his ebook sales if he’d sold fewer units and given up the other formats.

(KDP Select is the program that demands exclusivity. By enrolling, authors get their works in the Kindle Owners’ Lending Library, increased royalties on sales outside the US, and access to additional promotional tools. You can still have your book on sale in physical, “or in any format other than digital”.)

We see Amazon growing into a large and slightly separate book industry of its own. They don’t use the book business’s standard ebook format, epub; they use their own format, mobi. (The Amazon “flavor” is AZW, and they also have the newer KF8.) They don’t care much whether a book has an industry standard ID, the ISBN number. Amazon assigns its own number, unless the publisher has a 10-digit ISBN they can use, which they call an ASIN. They own a must-optimize author page (Amazon’s author page affects an author’s discoverability on Google; the converse is not true) and a must-use book readers’ social network (GoodReads). They have their own print-on-demand operation making it simple for an author to set up both ebooks and print at the same time.

The “advantage” a publisher has pursuing authors is that they can offer a much broader distribution base as well as their honed skill at marketing and publicity. But there’s a price for that; self-publishing with Amazon brings an author four times the revenue for ebooks and somewhat more for every print copy sold as well. Whether Amazon is a quarter, a third, a half, or more of a book’s sale depends on the book, but authors will be increasingly facing the choice Hugh Howey faced: publish exclusively with Amazon and sell a bit less but make a bit more, or publish to a broader audience through a publisher (or on your own) and make less money. Apparently, many authors are doing 90-day runs of KDP Select to get a boost at Amazon, then switching back to broader distribution

Fortunately for the rest of the publishing business, the shift to ebooks and to online purchasing may have stalled. In the US, Amazon appears to have about 60-70% of the ebook business, and ebooks constitute about 30% of the total business. But the ebook share is much higher for immersive reading, higher still for fiction. For fiction, more than half the sales of many titles can be digital. And the print sales are anywhere from 25% to 35% online. So for fiction, Amazon may already be nearing half the total sales for many titles.

We wouldn’t expect the slowdown of the shift in sales to last. New offerings of ever-cheaper and more-flexible devices, more and more cheap ebooks in the market (discounting the backlist ebooks seems to be publishing’s latest most common marketing trick), and the natural growth in digital interaction as older people exit and younger people with new credit cards replace them, pretty much assure that the online sale will continue to grow in relation to the store sale. As that happens, as the 2012 measurements after the demise of Borders showed, Amazon experiences organic growth.

So, when does Amazon’s share growth stop? And who is left standing when it does? Here we have to enter a realm of pure speculation; there are no data points that can help us figure this out.

To answer these questions, we need to look at the book business in segments.

For narrative text, books that one reads from the first page to the last, we’d expect continuing growth of digital. For genre fiction (including YA), which has the additional characteristic of having audiences that consume many titles a year, we’d expect a lion’s share digital market — 80 percent or more — to be common within a couple of years. For those books, Amazon will continue to just eat away at the publishers’ position. More and more of the genre readers will migrate to them because they’ll have an increasing number of titles on an exclusive basis, more — and more aggressive – price promotion, and probably a variety of subscription opportunities. That should lead inexorably to more and more of the genre authors being willing to publish with them exclusively because they’ll be able to reach an increasingly large percentage of the reader base through digital and Amazon alone.

If I were looking for the first candidates not to be “left standing”, we’d expect to find them in genre publishing. In time, the big publishers will increasingly focus on “big” genre titles, rather than lengthy genre lists.

I also expect more DRM-free trials, particularly in genre fiction, so that publishers and third-parties can sell mobi files to existing Kindle customers. For while genres are where Amazon has their greatest potential strength, it is also true that genres are where publishers have the best chance at building brands and direct customer relationships that matter.

More general fiction and non-fiction will be read mostly in digital form in a short time too, although the hardcovers for those books will continue to exist. But for the big players in general trade, there’s another problem besides Amazon to deal with. That’s the new publishing behemoth: Penguin Random House. I would guess (all we can do) that by three or four years from now, the first choice for most authors will be either PRH or Amazon. PRH will provide the biggest reach; Amazon will often provide the biggest potential revenue. The other general trade houses will fight each other for the authors that don’t want to be part of either behemoth.

For illustrated books and children’s books, the environment will be different. Stores will remain important, but there will be fewer of them (and therefore fewer books of this kind published). The bookstore I’d imagine in several years will have far more illustrated and gift books in it as a percentage of the total title mix than it does now.

What I think will save publishers from disappearing, oddly enough, will be a loss of interest at Amazon in taking more market share. This conclusion comes from a combination of something I learned from people at Google about Google and what is clear from Stone’s book.

Last spring, I visited a Google installation that was not about the book business, but about an online game. The game is a big online experiment in engagement. Googlers showing us around were thinking about the revenue potential of the game, which was not supposed to be their primary concern. They had come to the conclusion that $100 million in annual revenue would be achievable, but they didn’t think they’d be able to go after it. Why? Because nobody in a responsible position at Google would take ownership of something as small as $100 million in revenue.

Brad Stone paints a picture in “The Everything Store” of Amazon as, above all, a highly rational company. Jeff Bezos can be impetuous, but he’s not nuts. He is zealous about the things he cares about because he believes they matter: customer happiness being number one on the list. As the book business becomes a smaller and smaller part of the total Amazon picture and the challenges that matter to the business revolve around delivering your fresh produce in 30 minutes, not 90, it is likely that Amazon will have less and less interest in squeezing just a little bit more margin out of the book business. There will be easier places and easier ways to make money.

Amazon achieved the position it has in the book ecosystem through a combination of brilliance, execution, natural forces, and some good luck but, above all, focus. It had to take some big chances with pricing and margin to get where it has gotten, but that’s not really necessary anymore. Doing some very logical and natural things, like the new Matchbook program and rolling out more subscription and pricing offerings (like their new “Countdown Clock” discounts for new Kindle titles) will keep their share growing and their competitors scrambling. They will also almost certainly be coming after publishers for more margin (as will their equally dominant counterparts on the store side, Barnes & Noble), but it would seem unlikely that they’ll see the need to extend themselves to sign up authors or build out their ability to distribute print to other people’s stores.

Amazon will certainly continue to make it difficult for publishers to use price offers as a way of teasing away some of the direct ebook business. Publishers are finding that increasingly tempting as more and more vendors emerge who can solve the tech challenges for them. But even with publishers taking some ebook share directly, and more of them will, chances are that the ebook business will grow faster than the publishers’ shares and that Amazon’s growth, partly at the expense of other ecosystems, will not stop.

So the good news for publishers is that the business they now have will look less and less appealing compared to other worlds Amazon might conquer. That should save them from having a bulls-eye on their backs, but it will remain a very challenging environment where their biggest customer is the most powerful force in the marketplace and growth outside that customer is harder and harder to achieve. The publishing activities of Amazon will continue to get bigger; the industry of other publishers will continue to get smaller. But we are probably in for a period of slow and steady shifts rather than cataclysms.

As long as Barnes & Noble can stay healthy and the other ebook platforms aren’t crushed by losing titles to Kindle exclusives, that will remain the case. And that means “for quite a while” but not “forever”.

Remember that Brad Stone will be joined onstage by analyst Benedict Evans and publishing sage Joseph J. Esposito for a wide-ranging discussion about Amazon at Digital Book World in January.

Note that I also posted on Amazon yesterday. That piece describes three important pieces of their story that didn’t make it into Stone’s book.

And, if you’re from a start-up or your job at a publisher includes meeting with and evaluating start-ups, we really want your response to our survey, which will inform our dialogue about start-ups at Digital Book World.

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Three points worth adding to the excellent account of the Amazon story in The Everything Store


The publication of Brad Stone’s book about Amazon, “The Everything Store”, is the catalyst for a lot of new discussion about the topic most difficult for the book business to discuss. It is pretty much impossible to be in the book business without benefiting from Amazon’s market reach. But it is also pretty standard fare to be worried about what the impact will be on your business as that market reach grows.

Amazon is, at the same time, both the biggest customer for most publishers and many wholesalers and their most potent competitor. They compete with every bookseller for sales, which weakens the brick-and-mortar trade, and thus dilutes the core value proposition that publishers have always offered: putting their authors’ books on bookstore shelves. Weakening the diverse bookstore ecosystem weakens the wholesalers. At the same time, Amazon competes with publishers for authors, both through their publishing programs and through their self-publishing services.

They also compete with the free ebook lending from public libraries and the various ebook subscription services with their Kindle Owners Lending Library, a service offered to their Amazon Prime customers that makes a large number of titles — many published by Amazon or self-published exclusively through Amazon — available for no-additional-payment downloads.

And they are capable of creating propositions that every other retailer would love to match but would find quite difficult to do, such as their recently announced “Matchbook” program which offers a free or very cheap ebook edition to any customer who has bought the print version of that book from Amazon. In fact, many publishers believe in the print-and-digital “bundle” and have made efforts to engineer it for bookstores, but it is hard to do that cost-effectively. It isn’t hard for Amazon.

Candid public conversation about Amazon from other players in the industry is pretty much a non-starter. Every publisher is walking the fine line of trying to make their sales grow through their largest account and, at the same time, somehow growing their sales faster everywhere else.

And that’s just about impossible. For the few years (just concluded) when all ebook sales were growing, publishers were seeing upswings in their business with other digital accounts besides Amazon. But recent evidence suggests that ebooks have hit either a point of serious resistance or a temporary plateau so even that may not be true anymore. It is likely that for many publishers Amazon represents the only significant account that continues to grow.

Last week, Jeremy Greenfield of Digital Book World interviewed me about “why it is so hard to compete with Amazon”. Since this is a topic of such widespread interest but also so hard for so many of the industry leaders to discuss, extending that discussion seemed warranted.

In this post, I want to cite three important aspects of Amazon’s history — important as far as the book business is concerned, although not necessarily to the overall picture Stone successfully conveys of the Bezos vision and the strategy and culture that achieve it — that didn’t make it into Brad Stone’s excellent book. In a subsequent one, I will explore what I think are the two key questions about Amazon that everybody in the book business is quietly asking:

* When does Amazon’s share growth stop?

* Who is left standing when it does?

About those two questions, all we’ll say here is that Stone’s book gave me fresh insight into the possible answers.

Now for those three missing points and why they’re important.

I first raised these questions and wrote about Amazon’s squashing of Ingram Internet Support Services (known as I2S2) about two years ago, but what I think is a very important story didn’t make “The Everything Store”.

As Stone describes clearly, Amazon began its business basically standing on Ingram’s shoulders. They stationed themselves in Seattle, near a big Ingram warehouse in Roseburg, OR. When Amazon started, they were able to take a customer’s order and money; order and receive the book from Ingram and deliver it to the customer, and then sit on the cash for a while before they had to pay Ingram for the book.

Pretty early in the piece, Ingram saw that all retailers could take advantage of this capability of theirs. So they created the I2S2 offering and went out to book retailers to persuade them to use it the same way Amazon did. Of course, at that time Internet retailing of books was a tiny part of the market, but Ingram hoped that the opportunity to offer a cash-flow-positive service to their customers would entice some stores, who were already Ingram customers, to diversify the choices for online customers.

Before I2S2 could get off the ground, Amazon killed it with high-profile discounting to as much as 40% off the cover price, effectively taking the profit out of Internet sales. This move was seen as a tactic to grow the customer base quickly and satisfy the investment community’s desire to see growth in top line and in customer base. That’s accurate. But it also stopped what could have been serious competition in its tracks. Booksellers profiting from their stores had little patience to build online business that was small and would now not even be profitable.

A publishing executive who was at Random House in the late 1990s recalled in a conversation we had last week that Peter Olson, who ran Random House at that time, told him not to worry about Amazon because their share grew by about 1% per year. In fact, that’s probably just reflecting that the consumer tendency to purchase online grew by 1% per year. The executive who told me this story made the accurate point that Olson was proven right about the share growth over many years, with additional surges when events like Borders’ closing took place. (And, of course, he told the story because we both knew that Olson was proven wrong that this 1 percent growth a year was nothing to worry about. “When does it stop…?”)

But imagine if Amazon had not reacted to the existential threat of a multitude of potential competitors by trading their margin for survival!

The I2S2 experience of the late 1990s adds some poignancy to a piece of excellent reporting by Stone about a meeting Amazon had with Ingram early in the century when Amazon’s stock was falling and some industry players were worried about whether they could pay their bills. Stone reports John Ingram making it clear to Amazon that Ingram could not afford an Amazon bankruptcy. Clearly, Ingram’s credit policies had continued to fuel Amazon’s growth in the years that had elapsed when they killed I2S2 with discounting.

The second point that is somewhat more significant than I think Stone portrays it was Amazon’s purchase of the ebook technology Mobipocket in 2005. In those days before there was a real ebook business and an “epub” standard (which Amazon eschews, which is another story not thoroughly enough explored), the two leading reflowable ebook standards were controlled by Palm Digital and Microsoft. Palm’s strategy was to sell the ebooks themselves through sites they owned or controlled. Microsoft was going for the broader play and enabling retailers to sell their format.

But the problem was that the lion’s share of the tiny ebook market read Palm, not Microsoft’s Dot Lit format. So the retailers, one of which was Barnes & Noble, were really hobbled. They could only sell the ebook format nobody wanted. Mobipocket’s format would work with both the Palm reader and the Dot Lit reader, so selling that format would reach most of the hand-held devices then used for ebook reading. If B&N or Borders or anybody else had made a strong push for the ebook customers using Mobi, and capitalizing on the format’s ability to serve the entire ebook market of the time, the effort might have gained a foothold. After Amazon bought Mobipocket, they did nothing with it for three years until they used it as the ebook format for the Kindle. (By that time, Dot Lit was about dead and Palm’s core business in hand-held PDAs was about to be demolished by the iPhone.) Did Amazon buy Mobi to postpone the ebook revolution until they were ready to lead it? It would certainly seem that way.

The other significant item that I think “The Everything Store” underplays is Amazon’s enabling of the used book business online. Although this is a “marketplace” function — Amazon is not the seller of the used editions, independent players are (presumably, although questions have been raised about whether all the marketplace sellers are actually entirely independent) — it was Amazon’s decision to place the used book availability and pricing right on the same page which sells all the editions from the publisher. That means that everybody who searches Amazon for a title is shown the used copies that are available competing with what the publisher offers.

What is the impact of this ubiquitous used book availability competing with new copy sales at the world’s biggest book retailer? Well, actually, nobody really knows. In 2006, Amazon (for some unexplained reason) participated in a study and industry conversation about used book sales. They haven’t done it again between then and now, and since Amazon’s marketplace almost certainly sells the lion’s share of used books, there’s not much point to examining this question without their participation.

We launched a DBW survey today on “start-ups” about which we’ll write more in a future post. But if you are either part of a start-up or in the business development function of a publisher that includes meeting with them, you will find our survey of interest (and we will value your response). You can read more about the survey here or just jump in and start answering questions.

And, of course, Brad Stone, the author of “The Everything Store”, will be one of three great speakers we’ll have talking about Amazon at Digital Book World in January. He’ll be joined by Benedict Evans of Enders Analysis, who has a paradigm for analyzing Amazon as a business that is uniquely insightful, and by Joseph J. Esposito, an industry veteran with a strong background in scholarly publishing who has noticed for years that Amazon is a significant competitor in the institutional market (schools and libraries).

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