Vertical

What shoved other news aside this morning was the word from Seth Godin that he won’t be publishing books with publishers anymore. This is another early indication that it is going to get harder and harder for trade publishers to sign up books.

It is not the first one. Thriller writer J.A. Konrath discovered the virtues of publishing through Kindle about 16 months ago. With the help of audience-building through his own blog, plus completed manuscripts that the New York publishers didn’t buy, he was pushed into learning how to monetize his own work without a publisher.

Last December, the news was that S&S author Stephen Covey had taken his backlist to ebook publisher Rosetta which had, in turn, made a temporary exclusive deal with Amazon. The motivations, apparently, were a bigger share of the ebook pie and the unique marketing capability Amazon has to really push something direct to appropriate consumers. That deal seemed to be with the original publisher’s explicit consent. (Agent Andrew Wylie recently formed an imprint to do the same thing with a batch of his clients’ backlist apparently without prearranging consent, although no lawsuits have been filed to date.)

At the last BookExpo, one of the leading agents in New York told me he is working hard to learn about self-publishing options because his authors are asking him about it.

Last week, one of the leading publishing consultants to “brands” told me that the 25% standard ebook royalty was pushing her company’s clients to think harder about self-publishing.

And it happens that right now I’m reading a book about my favorite subject (baseball history) called “A Year in Mudville” (about the Mets inaugural season) that was self-published through Smashwords but which, in editorial quality, exceeds many titles I’ve read from established houses. I don’t know whether author David Bagdade didn’t want to bother with the bureaucracy of pitching trade publishers, was rejected by them, or just chose the control and better margins of Smashwords, but Smashwords rather than one of the established players is dividing with the author 70% of the nine bucks I gave iBooks for the purchase

This way lies destruction.

Many years ago, my friend and sometimes colleague Mark Bide and I were talking about threats to the scholarly journal paradigm. For those not familiar with how journals work, it might be an eyebrow-lifter. Universities pay professors’ salaries and encourage them to write peer-reviewed articles. The journals get the articles for free, operate the peer-review and publication process, and then sell the collection of articles back to the university’s library. So the university both pays for the content’s creation and purchases it in its published form. Since the beginning of the web awareness, it has been predicted that disintermediation of journal publishers would occur.

What Mark told me was “watch the level of submissions.” That is, he believes the first sign that journal publishing is in trouble will be if the professors stop sending in their articles. So far, that hasn’t happened (that I’m aware of.)

But it’s going to be happening in trade.

On an email list I read, you can detect the annoyance of publishers who point out that neither Konrath nor Godin would be where they are today if publishers hadn’t invested in them and built their fame. There’s some resentment that neither Konrath nor Godin emphasize this point and, by not doing so, seem to suggest “anybody can do this.” I’m not sure that they’re saying “anybody can”, but it isn’t necessary to push that idea to do real damage to publishers’ futures, because the authors who can do this are among the the ones publishers need the most.

Starting in the 1990s, publishers started to ask “what’s the author’s platform” when they signed up books. In those days, they were asking whether the author had a radio show, a newspaper column, a speaking circuit, or extensive media contacts that could give them a leg up to promote the author’s book. But with the turn of the century and the development of inexpensive websites and blogs, authors were able to build their own platforms. And, lo and behold, they were able to build them faster and better if they had legitimately published books in the marketplace.

Publishers should have remembered the axiom that you should be careful what you wish for. This was, perhaps, the beginning of the unbundling of the publisher’s suite of services to the author. It used to be that the publication of a book was the platform and the publishers’ publicity and marketing efforts worked to capitalize on it. This was all part and parcel of the package: paying an advance; editing and shaping the book; putting it into a distributable (printed and bound) form; getting it known; and, of course, getting it into a store where a customer could buy it.

Publishers still pay advances although they’re doing their best to scale them back. Many don’t provide the same level of editing services that they used to; they often expect more books to be delivered by each of their editors and they also lean to agents they can trust to do a lot of the work of putting a book in shape. Putting it into distributable form isn’t nearly as hard as it used to be and doesn’t require inventory investment if the form is digital. Getting it known is something that Godin very articulately and accurately suggests he can do better himself. He is not alone and authors who can do this are explicitly what publishers are seeking. And getting the content into the customer’s hands is a drastically different proposition in a digital context than it was in the pure print world of 20 years ago, and digital distribution can be done with far less investment and far less organizational muscle.

So there’s less for a publisher to do for an author than there once was. And the publishers sent that signal when they started to focus on the author’s own ability to promote and then, over time, turned that ability into a frequent requirement for publication. If the publisher is going to do less, the author wants to pay less for it. Joe Konrath is very clear about the advantages he sees in getting the lion’s share of the revenue his books generate, rather than a mere author’s royalty.

But, somewhat more ominously, making more money through disintermediation does not appear to be the primary driver for Seth Godin. What Seth seems to be saying is “I want flexibility. I want to use what I write in whatever is the best way to build my overall career, revenues, and audience. I don’t want to be locked into publishers’ schedules and bureaucracy.”

That’s a massive challenge for big trade houses but it will be of increasing importance to big authors, particularly big non-fiction authors. It is much easier for a publisher to provide real value if they’re vertical. On the same mailing list I mentioned above, we got a comment from a biggish independent publisher who claims that the house is finding more and better ways to work with authors and really investing in them. But, we are told, they are all in verticals.

Godin may be a unique case. There are unique aspects to Covey and Konrath too. But it is not comforting for trade publishers to see that authors have alternatives, that as ebook sales rise the viability of the alternatives grows, and that the authors most likely to strike out on their own or look for new partners are those with the strongest existing connections to audiences.

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A year ago — even six months ago — it seemed like Amazon and its Kindle device had an insurmountable advantage in the ebook device and platform competition. Despite our admonition that Amazon’s dominance of ebooks was much more fragile than their dominance in online print bookselling, even we were impressed and sometimes daunted by the enormous percentage of ebook sales that were being made through the Kindle ecosystem.

Then Barnes & Noble introduced the Nook through their 700 stores last December and Apple brought the iPad to market in April. Nearly overnight, it seems, Amazon has gone from the dominant player to the leading player with a share that was often in the 80s for many titles having fallen to the 50s.

Three entirely new ebook platforms are now poised to make their debut. Each of them has an angle, or a USP, that the others don’t and that the vendors, devices, and platforms that preceded them — notably Kindle, iBooks, Kobo, and Sony — don’t. The three new platforms are Google Editions, Blio, and Copia.

Google’s special proposition is ubiquity; Blio’s special proposition is enhanced feature sets; and Copia’s special proposition is building social networking right into the content consumption platform.

The new entrant that is subject to the greatest anticipation, of course, is Google Editions. Whenever they go live (which they say they “hope” will be sometime this summer, which has another 6 weeks or so to run), they are likely to be offering the largest selection of ebooks from any single source. Google has a staggering number — millions — of public domain books but they will also have professional and scientific books not published on most of the prior ebook platforms. Their well-promoted proposition is their cloud model, which will allow their ebooks to be read on any device that can support a browser.

Google is also offering a wholesaling service to enable any bookstore or any web site to sell their ebooks. (What that means, of course, is that their “largest single source” claim could be usurped by their own resellers, who might have added other titles from other places.) Their arrival adds another option for potential ebook sellers who had previously been served by Ingram’s wholesaling operation or their competitor, Content Reserve, which has also reached the book trade through Baker & Taylor.

Google is working the OEM channel as well and not limiting themselves to Android-powered devices in doing so. They’ll have apps available in multiple marketplaces, including Apple. And they are offering to power sales on publishers’ own sites. We’ve seen no announcement of publishers who have accepted this proposition, but it would seem likely that some, particularly smaller ones, will find it attractive.

Baker & Taylor has been developing its own ebook platform, Blio, in concert with futurist Ray Kurzweil and the National Federation of the Blind. We were first shown Blio last December and were really impressed with its crisp presentation of integrated text-and-pictures pages. They showed us a tool kit that made it pretty easy for publishers to enhance their print books for electronic delivery with sound and video, and even to fiddle with the design in the Blio platform. Because of Blio’s roots as a tool to bring reading to the sight-impaired, the ability to adjust font sizes, a capability which all ebooks offer, had to be integrated into their delivery of complex page layouts.

We have been expecting Blio’s debut in the market for some time, and we’ve been expecting to see many highly-illustrated books, like college texts, that have not previously been in the offerings of Kindle, Nook, and Kobo. Highly illustrated books would work fine on the iPad, of course, but they were not a priority for initial inclusion for iBooks (the dedicated Apple ebookstore) and they were not what publishers would put into the eink-reader platforms that didn’t handle that material well.

Blio has announced that it will power the store Toshiba is creating to support its tablet release. Since that is expected in the next month or so, Toshiba’s offering of Blio titles will probably be their debut in the marketplace.

The tool set for Blio was what really captivated us when we saw it last December. When we saw it at the time, Blio was delivering a Blio-ready ebook from the publishers’ print PDF, and then, within Blio, the publisher could enhance the ebook. At the Untethered conference in June, Blio announced a partnership with Quark by which Blio files could be created directly from Quark. Blio says they expect the Quark release to be in beta later this Fall. Blio plans to integrate its tools into other creation software in the months to follow.

Blio introduces another format into the ebook world: rather than epub or PDF, they are using Microsoft’s XPS platform. Right now, Blio itself is handling the conversion of titles from either PDF or epub into XPS, but the Quark arrangement and the others that will take place will allow publishers to deliver XPS-ready files to Blio, cutting past the conversion queue that now exists.

The open questions have been: when will Blio arrive and what will be the retailing environment for it when it arrives? They say they have 200,000 titles committed to their platform. (They can’t just pick up the ebooks of others; they’re not vanilla epub.) The Toshiba store won’t contain them all because titles are coming in faster than the conversion process can ramp up. Blio, like Google and Copia, expects lots of OEM installation. They project that Blio could be on more than 50 million devices by the end of 2011 and that they will be working with “traditional retail partners” in 2011 as well.

Copia made a splash last week when they announced their line of ereaders, including a larger-than-a-phone-screen color model which will be $99 when it comes out in September. Since Copia is a creation of DMC, and DMC is historically a hardware company, using their own hardware to launch the platform makes great sense. But OEM relationships, and an ability to deliver their platform to any device through client apps as well as through web browsers, are part of the strategy too.

The Copia platform’s unique proposition is that they combine social networking right into the platform in which content purchasing and consumption take place. Amazon’s announcement of an integration with Facebook moves them in a similar direction, but Copia would seem to be going much further than Amazon: enabling the sharing of the content consumption experience itself among friends or a personal network. This could be critical for reading groups, areas of common (vertical) interest, or for educational applications. Inside the Copia network, users can readily share their notes and annotations. And to make it easy for people to get started on their platform, Copia enables the import of existing contacts from Facebook, Twitter, and LinkedIn.

Other ebook platforms have demonstrated the power of syncing the reading experience across platforms; you can pick up your book on one device and it will tell you where you left off on the last device. Copia takes that a step further, syncing the social experience, including the sharing of notes and recommendations as well as the reading itself, across all the devices you want: smartphones, tablets, computers, or ereaders. We saw this demonstrated on their forthcoming iPad app.

What also impressed us about the last Copia demo we saw is that they have apparently licked the problem of allowing an epub file using Adobe DRM to move painlessly into their platform, regardless of from what ebook store it was purchased.

In addition to the hardware plans they revealed last week, Copia has also announced that they will be a launch partner for Windows Phone 7, the mobile operating system Microsoft is putting forth to compete with iPhone and Android. [Maybe we know a bit more about Copia than others do because they are our client, but like all the players in this very competitive market, they're not tipping their cards before they play their hand any more than their competitors. Even to us.]

All three of these operating systems come from substantial players. Blio is being delivered by one of the two book wholesalers in America with true national and international reach and relationships with every publisher in the country. Copia is being delivered by a company with long hardware development experience and a long history of partnership with consumer electronics retailers and phone companies. And Google Editions, of course, is coming from a tech company that has had deep involvement with virtually every book publisher in the world as it has developed Google Book Search over the last seven years.

Of all the current players, Sony would seem to be the most challenged. They have the weakest device, the weakest store, and the weakest strategic position with the industry and with the public. All of the rest either have something important and unique for the developing ebook marketplace and, in many cases, they also have an outside proposition that will keep them in the ebook game regardless of how well they do in it. Whether Google’s ebooks sell 10% of their projections or 10 times their projections, they won’t be going away. Same with Apple. Same with Amazon. So I think we can expect a multi-player ebook market, with some incompatible formats and a lot of incompatible DRM for some years to come. And the players currently in the game can expect their sales to go up but their market share to go down when the three new entrants join the fray this fall. That much seems certain, but very little else does.

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The last post I did got more attention than anything on the blog in quite some time, but for somewhat different reasons than I intended. My central point about what increasingly common ebook growth predictions would mean for brick-and-mortar sales (that they’d decline sharply over the next five years) was that it diluted the core value proposition of the major publishers. Most of my comment traffic wanted to talk about the fate of bookstores, not the fate of general trade publishers.

Then yesterday, my friend Michael Cairns had on Persona Non Data a post which really delves into the point I was concerned about: what are the competitive advantages of big publishers? As Cairns points out, it is those things that can scale; the aspects of the operation where size presents a big advantage.

I learned long ago in a talk by industry legend Martin Levin that an acquiring publishing company looks primarily at an acquisition target’s revenue, not its cost structure. The cost structure that counts is the acquirer’s own cost structure; the revenues from the target would be ported over, but the costs would mostly be left behind. True marginal costs, like the cost of picking a title off a warehouse shelf, might remain. But the costs of collecting the order, processing the order, and shipping the box out the door with another book in it (not including actual postage) would not rise at all. Nor would the costs of accounting or negotiating the printing contract or (unless there was a step increment that required a warehouse addition) the cost of storage.

So, as Cairns demonstrates in his piece, most of the scaleable overheads and operational costs publishers have are related to print book operations. It is very difficult to scale the parts of the operation publishers can focus on in a digital delivery world, which would be title acquisition, development, and marketing. Those functions require person-power, and if you want to do more of it you have to hire more people. That’s the definition of something that doesn’t scale. And what doesn’t scale is what doesn’t offer advantage to a large player.

The only way we can think of to apply scale to marketing is to market repeatedly to the same audience. That implies “vertical.” Have you read that anywhere before?

A friend from Amazon was in the office this morning making a different point, which, on reflection, is also about scale. Amazon uses algorithms that have been 15 years in the making to set prices for their books. Publishers under the agency model are setting their own prices but without those years of experience, without algorithms, and without adding expertise — or even personpower — to their staffs. Pricing knowledge is also scalable (what you learn pricing the first ten books makes you more effective on the 11th). If publishers believe in the future of the agency model, perhaps pricing expertise would be a tool they could use to persuade authors to stick with them five years from now if brick-and-mortar sales go the way I fear they will (dragging the publishers’ main value proposition down along with them.) But pricing expertise won’t happen by accident; it will have to be developed rigorously and iteratively over time.

In one more post-script, I dug up an old post from back in the early days of the blog when it had far fewer readers than it does now. It tells the story of Ingram’s creation of the microfiche reader and their subsequent growth, which I called the first big supply chain tech disruption. If you like these posts and never read this one, it may be worth the click.

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One of the recurring characteristics of “change” is that the first iteration of something new looks a lot like what it is replacing. So it has been with ebooks and ebook retailing. The ebooks themselves have, for the most part, been the same as the print books except rendered on a screen instead of on paper. And when we say “the same”, we mean right down to duplicating meaningless blank pages and the legend often found in print books that tells you how many printings the book has had. (This still happens frequently; I’ve just experienced it on The Big Short which I’m now reading in B&N’s reader.)

And ebook retailing has also imitated print book retailing in that the emphasis has been on the assembling the largest possible aggregation of book title choices in one place. This is a paradigm that makes intuitive sense in the physical world; once I’ve driven to my local superstore, I don’t want to find the mysteries are here but the cookbooks are in a store down the block.

It has been a long-established “fact” (although I question if it is still true, as we’ll explain later) that the larger is the selection of books available in a single location, the more powerful is the magnet to attract customers. My father found this out when he was in charge of the Brentano’s chain in the 1960s. Their Short Hills, New Jersey store was the worse-performing store in the chain until they doubled its title selection. And then, like magic, it became the best-performing store in the chain.

Amazon dot com reproved the point when they went into business in the mid-1990s. Although they were not the first online bookstore, they were the first to really attempt to carry everything. In fact, they went beyond carrying everything by providing a database (obtained from Baker & Taylor, in which there is another story) that not only showed just about all the books in print but also books that were no longer in print! Conventional publishing and retailing theory at the time would have said it was a bad move to return suggestions in search results that were books not available for sale. But, of course, it built their competitive advantage. They rapidly became the best place to search because of the completeness of their database and, actually, confirming to a customer that “what you want is a book that was indeed published but is not now readily available” made it easier to sell the customer a substitute. Whereas the the store (online or off) that didn’t have the unavailable book but didn’t also provide that information found it harder to close the alternate sale.

The point about the importance of selection was proven again by Amazon when they launched the Kindle in November, 2007 and lit the fire for what is still a spreading conflagration of ebook reading. Before Kindle, there were perhaps 100,000 ebook titles available as PDFs that could be read on a full-function computer, but not nearly as many in formats that could work on smaller devices (Palm, Mobi, Dotlit). Amazon launched Kindle with about 150,000 titles and used their market power to get big publishers to put more and more of the newest, hottest books into their format closer and closer to publication date.

There were other features of the Kindle (the ability to load books wirelessly and instantly without going through an intermediary device; its easy-to-read e-ink; its built in dictionary; Amazon’s deep relationship with very large numbers of online book buyers; and, of course, eye-catching prices relative to the print edition prices of the hottest new books) that fueled its near instantaneous success, but the robust title selection was a critical element.

So to that point — one could say to this point — the largest possible selection in one place has been as important to the success of an ebook retailer (obviously: online) as it was historically to a print book retailer with a physical store.

Early in the decade, it occurred to me that the magnetic power of the large selection in one physical store had sharply diminished. When Dad doubled the inventory of the Short Hills Brentano’s, he delivered a selection that the consumer couldn’t match for many miles around. When Barnes & Noble and Borders got Wall Street money to replicate the Bookstop model of 100,000+ title superstores in the early 1990s, they were enabling consumers to find conveniently books which had previously been obtainable only with great effort. But the limitless shelf space of online bookselling undercut that advantage and by the early part of this decade, it seemed to me that the consumer was finding the unlimited availability of titles online which could be delivered in a day or two so powerful that the large selection in a store that might be available immediately had really diminished appeal.

But there’s another thread of bookselling history on- and offline that I believe will soon become the dominant paradigm for ebook retailing. And, of course (just so you are reminded what blog you’re reading), it fits into the concept of “verticality”.

Publishers have known for a long time that good deals can be made and large sales can be registered through what we call “specialty retailers”. (The label for these sales in a publishing house, and others such as sales to catalogers or premium sales, is “Special Sales.”) The store that sells the tools and materials to refinish your floors can sell you a book to explain how to do it. The store that sells computers and paper and ink can also effectively sell resume or how-to computer books. The garden supply store can sell books on how to make your roses bloom.

Amazon and other online merchants (and not just of books) have long operated “affiliate” programs by which a web site can earn a commission on sales made at the primary merchant by referring a customer. This generally works by having the affiliate site promote a particular book title; when the site visitor clicks on the link, s/he is delivered to Amazon or BN.com’s page for that title. If the customer buys, the referring site gets a commission. These revenues don’t often amount to big money for the referring sites (although they sometimes do), but it is believed (but as with All Things Amazon, we don’t have the critical data to confirm) that, cumulatively, referrals from perhaps millions of affiliates deliver significant volume and customers to Amazon (and others.)

This is as far as “special sales” have gone in the ebook world. But the guess from here is that this is about to change and that the change we’ll see in the next few years will obliterate the notion that “all subjects in one place” is a significant marketing advantage, online or in a store. Many book sales, and particularly ebook sales, will move to “contextual” resellers. Your accountant’s web site will sell you the book(s) that help you understand a new tax law or how to ready your business for sale. Your favorite sports web site will sell you the new biography of Alex Rodriguez. And your favorite “Literary Review” newsletter and website will take care of your needs to acquire fiction directly and without your having to shop the vaster stacks of an online superstore.

That is: curated ebook offerings (a click away from the ability to buy lots more content beyond the curated selection) will be featured on every web site with any significant traffic. Delivering purchaseable content — books right now, but ulimately magazines, shorter articles, and relevant audio- and video-content as well — will become a standard expectation of any site (or web community) that aspires to a true mutual embrace with its site visitors. “What I’ve read lately and liked, and why” is a legitimate offering to anticipate from every blogger or commentator with a following.

Last week, Barnes & Noble held its regular call to announce financial results and future expectations. In that call, B&N expressed the expectation that the ebook world would ultimately settle down to about five players and that they’d be one of them. With that perspective, they saw for themselves a reasonable proportion — say 20% — of the ebook market.

My first reaction to that was “what are they thinking? There won’t be five online booksellers; there will be five million.” A day or two later I had a conversation with one of my personal tech gurus who saw it the way B&N’s statement suggested they did  (”it will consolidate, just like the music business did…”) He also asked a lot of practical questions. On what devices will these ebooks be read? How will all these individual sites deal with the format issues, the DRM issues, the customer service? In other words, “great vision, Mike, but how can it possibly work?”

I think it will work like affiliate sites worked, but in a more sophisticated way. A strong central operator providing scale facilitates the commercial offering of the niche player. The harbinger of the future is the deal announced last week between F+W Media and Ingram Digital. Ingram is setting up all F+W specialist web sites (and they have them for many different vertical interest groups) with the ability to sell both ebooks and print of all publishers to their site traffic. (Although we have working relationships with both companies, we weren’t involved in that deal and don’t know any of the details.)

I believe that the Ingram-F+W deal is the start of something new and big. Both companies are going to find ways to improve on whatever is the starting point. F+W is going to have to learn how to merchandise what Ingram can give them into a unique shopping and content consumption experience for the consumer. And Ingram is going to have to learn how to deliver what they can offer to F+W in a way that enables F+W  to curate and enhance the selection to deliver something uniquely customized to its own community.

If that view of the future is right, the competition among the players who can provide the ebook selection and transaction services Ingram does — those in the game already like Amazon, B&N, iBooks, and Kobo and those saying they’re about to come in like Google, B&T’s Blio, and Copia — is going to take place in a whole new arena. B&N has announced deals like this, where they “power” somebody else’s bookstore. Kobo hasn’t yet, but I’d expect them to; it just seems to me like an opportunity they’d see. This is a bit odd; it puts “wholesaler” Ingram in competition with retailers to create the next round of niche retailers. Ingram obviously has the built-in capability to offer print and electronic book delivery but, of course, B&N has the internal resources to do that too, and  B&T can do it too. There are anomalies to rationalize about margin, but, in the end, customer acquisition through this strategy will be far cheaper than it is most other ways, even if a fixed margin from the publisher is shared with the niche player.

This business hasn’t really begun to happen yet; we’re just seeing the outlines of it. Initially, the competition appears to be about how each retailer delivers its vast set of content choices to the online consumer in a consolidated way. (And usually it has been the same for Ingram. Most of their business has come from large “sell everything” ebook stores.) But over time it will evolve into a competition for niche resellers. Winning is always about delivering the best consumer experience but the challenge will be to deliver the best consumer experience to somebody else’s consumers. White label is the key to the ebook (and book) retailing future.

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The following post is a collaboration with my friend Joe Esposito, the CEO of GiantChair. The post was Joe’s idea, but I contributed enough to its completion to justify a claim of shared authorship. Joe has kindly agreed to allow this received wisdom to be delivered to the world through The Shatzkin Files.

As thunder roared above the mountaintop, God sat on a throne of light. She stroked her braid and contemplated her new shoes.

“Who goes there?” God shouted.

“It is but a poor publisher,” the tiny figure said.  “I have come for guidance in the treacherous ways of publishing in the digital age.  I have oodles of Googles, but no money in my pocket.  What dost thou command?”

“A poor publisher, eh?” God snorted, shaking the trees around them.  “That’s what the angels call a redundancy.”

“Oh, please, Lord.  Help me navigate the shoals of the noble Barnes and the forest where dwell the Amazons.  Take me beyond my borders to a realm of growth and economic success.  My very soul depends on my making buckets of money.”

God looked at the puny publisher and took pity on him.

“Do as I say,” God thundered, “and you will save your heavenly soul and a place for yourself in the value chain.”  She thus proceeded to lay down these precepts–but as God is timeless, they came in no particular order.

1. Thou shalt regard thy former competitor as thy future collaborator.

2. Thou shalt let no intermediary stop you from knowing your customer, nor stop your customer from knowing you.

3. Thou shalt publish no book intended for an audience outside your spheres of direct influence.

4. Thou shalt read Dr. Faustus in all its editions–Amazon, Barnes & Noble, Apple, and Google–and know that Mephistopheles always appears first as a helpmate.

5. Thou shalt not forsake thine own brand.

6. Thou shalt create new brands and master the power and importance of brands.

7. Thou shalt respect and value thy communities with the same devotion thou hath always given to copyrights.

8. Thou shalt recognize that metadata is everywhere and associating it meaningfully is thy job.

9. Thou shalt not fail to test a new marketing channel in order to protect an old one.

10. Thou shalt deliver thy content in every imaginable form that thy customers request or might require.

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As readers of this blog know, I’ve been on the “vertical” trail for a long time and I try to stay abreast of book publishers’ efforts to realize the advantages of subject specialization and community building. I wrote a whole post about the Sourcebooks initiative, Poetry Speaks, when it launched last Fall. I have often referred to the vertical efforts of Hay House and Harvard Common Press. And I’m proud to have had a small role in Sterling’s creation of Lark Crafts and their forthcoming Pixiq site for photography.

But of all the efforts I’ve seen so far, the book publisher who seems to have taken the vertical vision we espouse the furthest — one that elevates community-building above content-selling as the first priority — is Cool Springs Press in Nashville, Tennessee. We spent some time earlier this week talking to Roger Waynick, their founder and CEO, to learn more about what they do, looking for lessons that other publishers can apply.

The thing that was most striking about our conversation with Roger was the frequency with which he referred to “our industry”, by which he did not mean the book business! He meant the lawn and garden business, which is the vertical that Cool Springs Press serves. This is a nuanced but massive differentiator. If a company thinks of itself as a “book publisher”, it is already off on the wrong track. If it thinks of itself as a content- and information-provider for an industry or a community, its self-image will lead to it doing the right thing much more often. And the very first right thing a book publisher with community aspirations has to do is to create a site that has very little reference to books, which they have.

Waynick knew nothing at all about publishing when he started Cool Springs Press in 1994. He was looking for a book about gardening and he started from the highly logical presumption that what he needed was local information, since gardening has to match the geography. A visit to a large and well-stocked local bookstore yielded nothing except confirmation that what he wanted didn’t exist.

So he created it and he created a formula. He found a local gardening advisor with a media presence and created a “Tennessee Gardening” book. Waynick had intuitively done the right thing. Finding content knowledge and promotional capability combined meant that he had recruited what the smartest publisher with experience would have called the best possible author. Before long, he was extending his franchise, creating gardening books by state, one after another. (At this point, Cool Springs has state-specific gardening books for 48 states.)

In 2003, large Nashville publisher Thomas Nelson embarked on a strategy to expand out of their religious publishing niche. (They didn’t ask me…) They acquired a few smaller publishers with non-controversial publishing programs and Waynick took the opportunity to sell his business. For the next few years, until Nelson management changed and the strategy changed to re-focus on their core business, he consulted to them and stayed somewhat in touch with the business he’d created.

But when the strategy at Nelson changed, Waynick was ready to buy his company back and turn it into a real content vertical. In 2007, he regained control of Cool Springs Press, set up trade distribution through Ingram Publisher Services, and started to invest seriously in the capabilities he needed to be more than just a book publisher.

Waynick’s key insight was that the lawn and garden customer was looking for solutions. And solutions, to be practical, had to be local. So he constructed a taxonomy around plants (roses, gardenias) and around actions (planting, weeding) to tag the content in his state-specific books. Waynick estimates that, since reacquiring Cool Springs in 2007, he’s spent a dollar on upgrading, tagging, and curating old content for every four dollars he has spent creating new books. And he invested that money upgrading his content repository with faith, but no clear plan about how he’d get it back.

In a formulation that echoes what we’ve heard earlier from Harvard Common Press talking about cookbooks and recipes, Waynick said he needed to see his content as a database of information, not as a collection of books. And just like Harvard Common, he looks at his database for “what’s missing” to direct him about what new content he needs to acquire.

He continued to build on his special retailing network. (Ingram handles Cool Springs’s trade sales, but Waynick maintains the relationships with the lawn and garden trade directly.) He recalls that, when he started, it seemed wildly counterintuitive to a national chain to put a Tennessee book in only the Tennessee stores, and so forth. But his sales were so robust that the skepticism quickly melted away. He built closer relationships with those special retailers by custom publishing: putting together books especially for a particular retailer. His path was smoothed in all these things by his author relationships; many of them were, like his first author, local gardening experts with radio shows popular with the core audience.

This year, for the first time, substantial revenue has flowed to Cool Spring from content licensing. About 10% of Cool Springs’s revenue will come from licensing content to web sites and creating apps for other players in the lawn and garden space. About 25% will come from the book trade, 35% from home center book sales, 15% from individual lawn and garden centers, and the balance from other special outlets like hardware stores.

The way Waynick sees it, the licensing side of the business has just begun to work. Next year will be far larger than this. He expects licensing sales to surpass book sales for his company in 2012.

Cool Springs has an online bookstore at gardenbookstore.net. In his retailing capacity, he sells the books of all his competitors. The day we spoke, Waynick pointed out that only two of the 15 books on his retailing front page were his publications; the rest came from other publishers. Perhaps because he’s a “customer”, he says that more and more of his competitors seems receptive to collaboration, allowing him access to their material for his efforts to provide content to retailers and wholesalers in the lawn and garden industry.

Waynick is not terribly concerned about competitors. Having been the first to act on the insight that gardening is local and that content has to be developed with a highly local point of view, and then having invested to put his content into shape for re-use, he really sees no other player that can deliver the variety of relevant content that he can. And now he’s moving on to a new opportunity that he is uniquely positioned to exploit.

Reflecting the initiative by First Lady Michelle Obama, school gardens are springing up all over the country. Waynick says that over 3000 new ones were created last year. Working with school administrators, Waynick is developing curriculum for the schools from his content. This also puts him in a position to help his retailers and his authors find additional opportunities. And how convenient is it for him that education in this country is organized the same way his book program is: state-by-state!

Waynick also recognizes the value of his author base. He does his best to keep his authors working, and not just on books. They blog for him and create content for his licensing clients as well.

One point that Waynick made in our conversation is an important one for all publishers to take on board: the presentation of content needs to be sensitive to the audience. Too often, he says (and he’s right), publishers end up with catalog copy meant to sell a book to a store buyer being presented on a web site to an end user customer. The copy is wrong for the purpose. He credits his distributor, Ingram, with having a system that helps him deliver the right metadata to the right places.

The future for Cool Springs Press looks very bright. Waynick is already providing content for a number of national retailers, including one of the brand leaders, which is what has jump-started his licensing revenues. These players see good content as a critical competitive requirement. They represent a growth market for web content, apps, and custom books and the growth opportunities they will offer will far exceed the rate of shrinkage in the traditional book market.

What we think will be interesting to watch going forward is how much Cool Springs moves into the business of selling things other than content to the audiences they keep growing and nurturing. They’re certainly positioned to do that.

But the important thing is that they can readily withstand shrinkage in the book trade or even in the printed book business. They’re bound to become an increasingly important marketing mechanism for all their competitors, who will become increasingly dependent on them for exposure to the consumer audience. And they’re in that position because they’re vertical and because they were willing to invest in their long run value to their community.

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Big publishers have to be very happy about how things have been developing in the ebook world over the last six months or so. In that time, we have gone from a situation in which Kindle appeared to so totally dominate digital reading that Kindle-only publishing seemed an imminent threat to disintermediate publishers to one where it is not only Amazon’s hegemony that is threatened. Even their position as the ebook market leader isn’t safe.

Although one of the big factors in this change, the iPad, was unforseen at the time, we wrote around 16 months ago about the possibility that Amazon’s position leading the pack on ebooks would be hard to defend in one of the first posts on this blog.

As the ebook world has evolved (so far), we have the following “facts on the ground.” You will see from this recitation why so many people outside commercial publishing see eliminating DRM as a key to ebook marketplace efficiency. Our guess is that, regardless of the merits of the idea, going DRM-free is a non-starter for the big houses because it will be a non-starter with most big authors and most big agents.

1. If you buy an ebook from the Kindle store, you can read it on many devices within the Kindle reader software. That software is currently available for the iPhone, iPad, iPod Touch, PC, Mac, and Blackberry with Android reportedly on the verge. If the Kindle book has no DRM, though, you can read it on any reader that supports the Mobi format or you can use a program like Calibre to convert your Kindle book to epub, which can be read on just about all other devices.

2. But if you buy an ebook from Kobo or BN (through their “reader” software, not for the Nook), you can do the very same thing (and Kobo’s Android app is at least a bit ahead of Kindle’s; it was announced over the last weekend).

3. If you buy a book from iBooks, the iPad bookstore, you can only read it on an iPad and, soon, on an iPhone. That is, unless it were DRM-free which is, some are told, an option for publishers.

4. If you want to read on a Kindle device, you can only read books you buy from the Kindle store (unless you select from DRM-free mobi files, which leaves out the biggest books).

5. If you buy a Nook, you can theoretically read epub content obtained elsewhere by putting it through its DRM paces at Adobe Digital Editions, but it ain’t easy. My expert on these subjects, Kirk Biglione, points out that this is one of the big advantages of loading devices through wireless means (which sidestep having to deal with ADE) rather than computer synching. Because ADE is a challenge for most people, the interoperability across devices promised for epub files is, for protected files, more theoretical than real.

6. The Sony Reader is like the Nook: theoretically able to handle anything epub but made much more difficult by Adobe DRM. Sony is also suffering at the moment from having no apparent mobile strategy.

7. Bottom line: DRM creates hassles if you try to read on anything except the platform on which you bought. But Kindle, Kobo, and BN Reader (not Nook), provide a pretty seamless experience across devices.

8. The promise of the presumably-imminent Google Editions is that you will be able to read them on all systems that browse the web (except that Kindle’s browsing is not going to provide a terribly satisfying experience and Sony, which doesn’t provide a web browser, is probably left out of the Google Editions party).

So the e-ink devices generate the real lock-in, or, more often, lock-out, problem. It is your Kindle device that locks you into the Kindle store; your Kindle file can be ported to a non-Kindle device using the Kindle reader software.

This is a mixed, but probably mostly negative, blessing for future sales of Kindle devices. On the one hand, consumers who figure this out will be increasingly unwilling to chain themselves to a reader that makes them buy files they can’t use elsewhere. On the other hand, the spouse of a friend cracked her Kindle a few days ago and because of the hundreds of books she’d bought over the years from the Kindle store, couldn’t really consider purchasing any other reader as a replacement. So she bought a new Kindle.

So while the Kindle store almost certainly still has the most titles of any ebook retailer, Amazon is definitely facing some uphill battles selling devices to new customers. Even before the iPad hit in April, DigiTimes reported that Nook devices outsold Kindles in March. (Could this be the power of 700 retail locations talking after the cream of the online customer base had already been harvested by Amazon over the past 2+ years?) Then they reported yesterday that total e-ink monochrome ebook reader sales were 700,000+ for April and May, of which 37% were Nook and 16% were Kindle. In the same two months, of course, Apple reports selling 2 million iPads. So, in two months, iPads outsold Kindle devices about 20 to 1.

That means that even if 2 million new iPad owners, on average, buy 1/3 as many ebooks as 700,000 new single-purpose ebook device purchasers, the larger, full-color, web-ready screens sold in the last two months would be responsible for as much ebook consumption as the book-dedicated devices.

Meanwhile, the device prices are coming down sharply. Kobo announced a $159 device on sale at Borders a month ago. Since then Borders announced their own branded device for $119. Then Barnes & Noble cut the price of the Nook to $149 for the wifi model and $199 equipped with 3G. Many had been anticipating a price cut before year-end by Amazon from the $259 level they have maintained; but the B&N move forced their hand and Kindle just announced they were coming down to $189. Because aside from all the competition that Kindle faces on the device side, the Agency model has made it harder for them to keep customers loyal with a pricing advantage on the biggest books.

What this adds up to is that a much more diversified marketplace is developing for ebooks than publishers would have dared hope for a year ago. This, in turn, makes the customized ebook offering that Ingram is enabling (as they announced last week in a deal with F+W) even more powerful, because more and more devices — and therefore consumers — will be able to readily take advantage of ebook offers that aren’t served up from the Kindle store. Since one of the great unmet challenges of book sales on the web is merchandising — making it quick and easy for consumers to find what they want — curated offerings on specialized sites might really work better for a lot of people. And then Amazon will feel some of the pain that big publishers do, being horizontal in an increasingly vertical world.

On the other hand, big publishers have apparently lived past the danger of a massive problem: the possibility that authors could find most of their audience by setting up with Kindle alone. There is still more complexity to be added. Google will arrive shortly with a big splash. Newcomers Copia (a client of Idea Logical) and Blio are still planning market entries in 2010, and they each have some unique propositions the current players do not. The more different places an ebook might successfully be sold; the more variety in the way ebooks get merchandised; and the more benefit that can accrue from effective distribution of files and metadata; the more a publisher with some savvy will look like a sensible option to an author who might be thinking of a do-it-yourself effort.

There was a conference called Untethered last week. I didn’t go because it was an “all publishing” conference about technology, and I am skeptical about any horizontal approach. But there was a panel of publishing CEOs asked to estimate how much of book sales would be ebooks five years from now. The high guesses were 40-50%. I think they’re low. And if the question is what percentage of the books that are narrative writing are ebooks by five years from now, I think they are way low. (Apologies to the first batch of people to see this post and those who got it by subscription because I hadn’t quite finished this thought when I put it up. I saw it later and fixed it.)

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I had occasion during this past week to speak at the global strategic meeting of Harlequin. Often when I am asked to speak, even internally to publishers, I am explicit told “we want you to scare the hell out of them.” Since I think of myself as a pretty unthreatening guy, I’m always a bit disconcerted by the reality that I’m doing that. But, of course, my core message is not very comforting to most people in the legacy publishing business. (And, I hasten to say, Harlequin never made that suggestion, nor, as this post should make clear, is it really relevant in their case.)

The message is scary for most because the essence of what I’m saying is that publishers over the next decade or two will have to change the way they think about how they deliver value. Their core asset base will shift from being the intellectual property they own or develop to the audiences they command. Publishers with vertical content offerings have a big head start to making that adjustment and general trade publishers hardly know what to make of the message at all.

I think my argument is pretty simple. It has two principal components.

I posit that the price of content must go down because of the laws of supply and demand. Even though digital delivery does actually increase “demand” (because people can consume more media if they have the means to do so always at hand), it increases supply much more. You used to need a publisher to spend some money and to commit an organization to get content into “supply”. Now you just need an internet connection. So I see downward pressure on the selling price of content going far into the future. This does not mean that eventually all content will be free, but it does mean that everybody will consume more and more free content and, therefore, be generally less willing to pay money for content to augment what is free.

The second component of my argument is that audiences for content will be (mostly)  aligned around interests. I call that “vertical”. The most successful legacy consumer media, including all of the biggest book publishers, tried to satisfy a wide range of interests, which I call “horizontal”.

I put those two things together and I say that getting from today (selling content) to tomorrow (selling audiences) depends on using today’s asset to build tomorrow’s. This might sound like something close to insanity if you’re Random House or Simon & Schuster or Penguin. It can make a lot of sense to you if you’re F+W Media or Hay House or Chelsea Green or Cool Springs Press. It seemed to make total sense to the people at Harlequin.

To prepare for the Harlequin conversation, I made a list of “most important things to think about” for them going forward. Here it is. If you’re really a vertical publisher, it should be a useful road map. To the extent that makes no sense at all, it indicates that your company is locked into competition for a pool of revenue and sales opportunity that will shrink, slowly for a while, but only for a while.

1. Use content as bait. When you make the leap that the eyeballs you own are the key to future monetization, not the copyrights you own, then you readily see the value of exploiting the content to attract eyeballs. This means many different things in different contexts, and, of course, the content-selling model still provides most of the cash and will for quite a while, but this is a key principle to apply. The free and freemium strategies you use will be different if your objective is to build a loyal community than if  you have the more immediate objective of selling something on the back of the giveaway.

2. Be sensitive to low-overhead competition and be prepared to imitate their new models. We’re heading for the day — actually we’re already in it — when it won’t take a big organization to reach a lot of book readers. (We’ll be transacting half our book purchases online in the next couple of years.) When companies smaller than yours are offering cheaper products with different delivery models — subscription, print-on-demand, whatever — watch them closely and try what they’re doing so you understand it. (Of course, Harlequin was already very much onto this idea. They just launched their own low-price imprint, Carina Press.)

3. Grow! Acquire competitors, or coopt them. Once you’ve defined the audiences you are going after, you have defined the way in which you will seek “scale”. If somebody else is going for the same audience you are, you want first to hope they don’t see it as an audience-acquisition play (and most publishers don’t yet.) While you’re fortunate enough to have competitors who are still focused primarily on monetizing IP, they’ll want to work with you if you have access to an audience that might buy their IP. Then you can use their content as bait to attract eyeballs for your community.

4. Find multiple ways to engage your audience. For community-building, it is not nearly sufficient to deliver product offers online. You have to figure out ways to make your community come to you; you have to figure out ways that members of the community can create value for each other. A key metric for you is how frequently you touch each member of your audience (or, even better, how frequently they touch you). The number of people absolutely guaranteed to open an email you send them will be an important measure of the health of your asset base.

5. Sell everybody else’s ebooks (the recent F+W and Ingram proposition). Almost nobody in your community gives a damn about which books are yours and which are somebody else’s. They want entertainment or information or to solve a problem; if you’re serving them as a community you don’t win by cutting them off from what they want because somebody else published it. A complete (but curated) ebook offering is a first step in the right direction. Ultimately, of course, you want to offer all the print books and all the other “stuff” that is relevant to the community, information-based or just plain products. That’s part of your monetization potential.

6. Build multiple brands with meaning. There are a very small number of companies whose name itself has true consumer meaning as a brand. (In fact, Harlequin is the leading one.) But if you can appeal to a community, you have an oppotunity to build a brand. Brands are shortcuts for consumers; they orient us as to what to expect in products or services, including social cred, quality, and  price. For as long as we have robust print delivery (and I think that might be as little as another five years), we have an opportunity to deliver URLs to people offline. That’s not as “efficient” as delivering them online (where the recipient can immediately click through) but it offers the chance to reach a lot of people who might not be online explorers. (I don’t want to give away Harlequin’s trade secrets here, but I was taken aback to hear how many senior citizens are in their audience; people who might well not be available to be pinged online.) But don’t use a book to push people to promote a generic web site where they’ll arrive and say “why am I here?” Deliver them to something relevant, something that will entice them to come back; a site you can, in good faith, urge the reader of a book to visit with the expectation that it will extend the engagement between you and your reader, to your mutual benefit.

When I deliver this message to the general trade community: publishers, authors, agents, retailers, the reaction is often a blank stare. That’s understandable; getting from a horizontal trade publisher to becoming one that “owns audiences” is a long and winding road. It is a totally rational decision to say, “that’s not the business I’m in; I’ll stick with what I’m doing until I’m the last one standing.” But there were no blank stares from the people at Harlequin. They know they have a large and loyal audience that cares about their brand. Even if the game changes from IP to eyeballs, they can readily see how they can still play.

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Several very recent conversations have come together for me.

1. Joe Esposito, the new CEO of GiantChair, says metadata is the key to publishing in the future; he describes metadata as the modern equivalent of Allen Lane’s discovery that cheaper paperback books sold in mass merchant locations could boost book sales. Of course, Giant Chair is very much involved in metadata as a way to help publishers find marketers and customers.

2. F+W and Ingram have come together to make a deal enabling niche web sites to sell the full range of applicable ebooks to their community. Of course, finding “applicable” ebooks will be dependent on the quality of the metadata that publishers provide to Ingram. I really liked seeing this happen, because it is the first significant example of something I’ve predicted and advocated: that publishers who want to go after communities should sell the books of their competitors and that all web sites should deliver curated ebook stores of the titles of interest to their site visitors.

3. A list discusses whether the publisher has a role in the future, what it is, and how the spoils in a new world should be divided between the publisher and the author. One observer points to the nuances in royalty rates: the royalty implications of the wholesale model versus the agency model, whether or not the commission paid to the agent is or isn’t deducted from “receipts” for purposes of calculating royalties, and what the competitive implications are for publishers going after authors. This gives rise to the next question: are publishers differentiated on royalty rates alone, as though each publisher would sell the same number of books? And that gives rise to the next point: understanding, quality, and richness of metadata can determine how successfully publishers can sell a book.

4. One of the biggest issues for publishers in managing and providing quality metadata is associating all the works and editions of them for each author with that author, and while that challenge intensifies when they look at the author’s books published by others, the fact is that most current royalty systems have plenty of problems keeping track of the multiple titles and editions of any author that they themselves have published.

5. Filedby, the directory of author web sites I co-founded with Peter Clifton, has a new metadata clean-up service called Author Data Advantage that makes it simple and economical for publishers to organize their works and edition data properly tied to each author and to keep it that way as new works and editions are created. Filedby’s service, which any publisher can avail themselves of, can tie all the editions of a work together, relate them accurately to each author or other contributor, and provide each of the authors with a unique ID. That allows the publisher to tie the marketing, reviews, conversation, community, rights, and digital promotions back to the right work and the right author.

Metadata work for publishers is, really, a bottomless pit, since it is, in effect, “information about the book” and there is no limit to that. There will be no end to the categories of quality, interest, and association each book can have attached to it. How many books published in years past, for example, should now be associated with “Gulf oil spill?” If you published one discussing whether using chemical dispersants is a good idea or not, I think you’d probably want somebody googling “Gulf oil spill” to find it, wouldn’t you?

The list conversation referred to above was really about the difference in royalty rates offered by publishers and how the authors cents-per-copy is affected by the agency versus wholesale model. My own hunch is that this won’t matter much in the short run because dollars offered in the advance will still be far more important to the authors’ and agents’ decision than selling policies that can change between signing and publication. In the longer run, differences in the ways publishers handle metadata might be relatively more important because it will affect how many copies they sell.

In an earlier post, I made the point that we’re approaching the day that half the sales of new books will be made online. All the sales of books online are highly dependent on metadata. Very robust metadata can enable a book and author to get discovered when more minimal, even though correct, metadata would omit it from the conversation. Incorrect metadata can prevent a book from being found even if the customer knows pretty much what they’re looking for.

Metadata, what it is and how it affects discovery and sales, is a subject that every book professional will find increasingly important to understand and master in the days to come.

Last year I wrote a post suggesting that one way publishers might deal with piracy is by posting sabotaged files on offending sites, rather than just playing whack-a-mole. This triggered more than a few hostile reactions. I found it ironic to see yesterday that the new Stephanie Meyer ebook could be the occasion for software mischief-makers to come into conflict with copyright mischief-makers, using infected PDFs of a book many people want as a way to gain entree into people’s computers with malware. So now the hackers who want to attack your operating system are the allies of the publishers who want to discourage people from downloading ebooks from anything but clearly-authorized sites.

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Before the Internet deconstructed the publishing value chain and enabled new models, both publishers and booksellers benefited from a lot of what I’d call “secondary business”. Secondary business was not what they were set up or primarily intending to do, but which they easily could accommodate to earn easy margin that supported their primary operations.

Publishers controlled an apparatus that could make bound books out of manuscripts and put them on bookstore shelves for patrons to buy. These were not trivial capabilities and they were much in demand. Although  the principal business model for a commercial publisher was to select what to publish, develop it editorially in collaboration with the author, and then take the risk of printing inventory and distributing it in hopes that it would sell, sometimes opportunities arose that were less risky ways to employ their skills.

I had my first experience with this kind of publishing in the late 1970s when my friend Caroline Latham was the writer-for-hire and then publishing consultant to a wealthy man named Jack Eisner. Eisner was a Warsaw Ghetto survivor with an exciting and moving story of his experiences on the run from the Nazis during World War II. After the war, he built a very successful import-export business so that by three decades after the war he had the time and resources to deliver his story to the broadest possible audience.

Caroline co-wrote his book, The Survivor. Eisner hired Abby Mann (the Academy Award-winning screenwriter of Judgment at Nurenberg) to write the screenplay for the movie, and the play was written by Susan Nanus. Jack financed the production of the play on Broadway, where it had an extremely brief run.

Caroline engaged me to help her make the book deal. We were working with William Morrow, a fine and venerable publisher. They paid Eisner no advance. Eisner agreed to put up a substantial sum (I think it was $75,000) for advertising and promotion of the book. Morrow made all the decisions about printing and distribution. With a deal like that, they couldn’t lose. And they didn’t, although the book didn’t sell very well in relation to the investment made in it by Eisner. It is worth noting that there is a paperback edition of the book, renamedThe Survivor of The Holocaust, still available from Kensington.

The more common author of this kind for publishers would have written a business book that “paid off” for the author in ways other than trade store sales. Sometimes it just enhanced their reputation and improved their primary business. Some business book authors move large numbers of copies of their books themselves. In bygone days, “selling” your book to a trade publisher (for little or no advance) with contractually-stipulated author buy-backs was a deal that worked for both sides. I remember a very significant trade publisher telling me over a decade ago that “author sales” constituted one of their largest distribution channels.

Working with an established publisher has a couple of distinct advantages: the imprimateur of a brand name is one and their ability to move copies through commercial channels is another. But it also comes with definite drawbacks for the commercially-minded author. The profit on books the author moves is shared with the publisher. And the time schedules for trade publishing are traditionally glacial; virtually every author’s first disappointment is how long it takes from the time their book is completed until the time a publisher puts it out.

One stark example of an author who does better self-publishing than he could do with a trade house is Michael Durkin. Michael is a sales trainer and motivational speaker who sells his own self-published book, bundled together with audio CDs that are simply recordings of his speeches. The package of the book with about six of the CDs sells for $100 and he sells about 25,000 of these a year, mostly through the 100 or more speaking engagements he usually does, plus a few from his own web site. Durkin is so averse to sharing his margin that he doesn’t even try to sell his material through Amazon! Durkin also points out that his book is a fabulous prospecting tool; he uses it regularly as a door-opener. It gets people to hire him for the speaking engagements that fuel his product sales which, if you figure that his cost of goods leaves him with a margin of more than $80 per package sold, is producing a solid seven-figure profit for him annually.

Durkin agrees that 20 years ago he almost certainly would have worked through a publisher with a buy-back arrangement which would have meant a significant hit to his margin. And it would have constituted a very nice subsidy for a publisher.

Bookstores also have lost what is collectively a vast amount of secondary income to the Internet. My father briefly fought a battle in the 1950s to stop the practice of giving wholesalers more discount than bookstores got. Len wanted to force library supply to go through retailers so that library purchases were subsidizing the retail bookstore network, not warehouses that simply extended the publishers’ supply chain. It was a great insight (although both libraries and wholesalers, deeply cognizant of the value-added services wholesalers perform today for libraries, would argue persuasively against it today as, apparently, they did then.)

What often distinguished a successful independent store was its ability to do “back door” trade: serving local businesses, schools, and community groups. If a local reading group needed 10 copies of a book, they’d buy it from their local bookshop. Bulk business, and there is lots of it in every community in America, was most conveniently transacted through a local merchant. Now it is most conveniently transacted through the Internet. When a “back door” book business succeeds (like Jack Covert’s 800CEO-Read business based in Milwaukee and originally spawned by the independent Schwartz Bookstores), it is because it develops a far-flung following (served largely through the Net) rather than a local one.

It only works now if it is built on a vertical principle so it can appeal to a global audience. Being local doesn’t provide enough of a competitive edge for a local purchaser who is looking for wide selection, the ability to buy in bulk, the ability to ship to different recipients, and the ability to handle all that business online.

It is almost impossible to prove this with data, particularly retrospectively, but my intuitive hunch is that competitive independent stores in the 1980s and 1990s outdid their chain competition largely because of their ability to develop and serve secondary business — business above and beyond what is delivered by the traffic that comes in  the front door, shops the displays, and walks out with the goods. If that were true, it would explain why independents seemed to be hit harder than the chains in the first decade and more of the Amazon-led online bookselling revolution.

But all publishers and all brick-and-mortar book retailers earned critical margin in bygone days from sources that have alternatives they didn’t have then, even though neither the publishers nor the booksellers would have identified this business as critical to their survival. That’s another manifestation of the permanent alterations occurring to the ecosystem that spawned and enabled the existence of a general publishing business.

BookExpo America is this week. I’m really sorry I’m missing the Self-Publishing Day on Monday. That’s clearly a movement that is rapidly growing in importance; one we’ll have to “cover” a bit at Digital Book World next January. It’s an increasingly potent commercial force that all elements of the trade community — authors, agents, publishers, wholesalers, and retailers – will want to understand. I can’t make it because I’ve got meetings elsewhere in the city all day Monday. I am planning to be on the floor all three days the exhibits are open. I know many big houses are off the floor in meeting rooms this year; I’ll be paying attention to  how that changes the feel of the show.

I can already tell I’m glad to have Cader’s BEA LunchtoGo app; I don’t believe I’ve had such a simple stand number look-up device. (It has lots of other data and functionality as well, but that’s mainly what I’ll use it for.) I’ve got an iPhone now but I have had a handheld organizer since 1986. I remember a few years ago Frankfurt offered data of this kind for the Palm Pilot which you secured by having it “beamed” from one of the kiosks they set up around the Book Fair for the purpose. The process was klunky and, as I remember, so was the tool. I don’t think the experiment made it into a second year. But Lunch’s tool is much cooler, and it shows how a web site can work just like an app (as long as you’re connected; the data’s in the cloud, not in your hard drive) and dodge the restrictions of the Apple environment.

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