Vertical

Being on the road in London and on my way to Frankfurt, where we have two Publishers Launch Conferences coming up on Monday and Tuesday, I don’t have time for what my British friends would call a “proper” blogpost, with a bit of research (I admit I never do much) and some links. But I’ve been thinking about something over the past month which I ran by a marketing VP at a major house last week. It looks like one of the really big questions facing the major houses in the next couple of years, so it seemed worth airing in the run-up to publishing’s largest global gathering.

Here’s an assumption that is not documentable; it is my own speculation. I think we’re going to see a US market that is 80% digital for narrative text reading in the pretty near future: could be as soon as two years from now but almost certainly within five. We have talked about the cycle that leads to that on this blog before: more digital reading leads to a decline in print purchasing which further thins out the number of bookstores and drives more people to online book purchasing which further fuels digital reading. Repeat. Etcetera.

We’re already at the point where new narrative text units sold are well north of 25% digital (percent of publishers’ revenue is lower than that, of course) and we are still in a period that has lasted about five years (soon to end) where the penetration of digital has doubled or more annually. (I italicized that to emphasize that what I’m talking about doubling is the percentage of sales that are digital, not the absolute number of digital sales. Several people misinterpeted that when I made to it previously.)

Of course, penetration will slow down before it reaches 100%. I’d imagine we get to 80% in 2 to 5 years, then then to 90% in another couple of years, with the last 10% stretching out a long time. How long did it take after the invention of the car before the last person rode their horse to town?

Now here’s a fact which is documentable, and would be documented right here on a day when time wasn’t in such short supply: brands that are not publishing houses are directly publishing their own ebooks with increasing frequency. Magazines and television networks and web sites are recognizing the reality that self-publishing ebooks is something they can do themselves without the complications (or revenue-sharing) that working with a publisher would require.

This is not a surprise to me, but it does really raise a point that major publishers have to consider: can book publishers add enough value to the ebook publishing process to persuade another brand with content credibility, one that has direct contact with the vertical community that is the audience for their books, to do their ebooks through the publisher rather than directly?

This is an existential question for big trade publishers. They have forged partnerships with other brands, even media brands, for many years based on their unique ability to deliver printed books competently and to put them on bookstore shelves. Those are things that a magazine, a broadcast network, a movie studio, or a packaged goods company couldn’t do for themselves.

Which leads to the conversation I had this past week with the marketing VP. We were discussing marketing topics suitable for Digital Book World this January. This house is doing some very important things that wouldn’t have been on their radar a few years ago: SEO, of course, but also developing vertical communities and organizing a corporation-wide effort to gather names and data and direct contact with readers (handicapped by the fact that they almost never actually consummate the transaction). I raised the question: “will publishers be able to persuade these non-publisher brands that it is worth giving up margin and some control to work with publishers in the years to come?”

“That’s a very tall order,” he said.

Random House has apparently succeeded in doing this a couple of times recently. They have made deals with two political web sites (Politico and Real Clear Politics) to do ebooks related to the 2012 presidential election. This is a big deal. It wouldn’t be a big deal if the principal output were print; Politico and RCP can’t do print. But they could do ebooks without Random House; literary agents all over town (among others) are lining up to offer the tools to enable that.

And the profound danger to the big publishers is that if outfits like Politico and RCP start by doing their own ebooks, who is to say they’d stop there? It would be a natural extension to start publishing other people’s ebooks themselves once they had built up a network and infrastructure to sell these files successfully. The thing for trade publishers to fear is that they would lose their role in the value chain, vertical by vertical.

Developing skills and capabilities that make their ebook-publishing ability superior to vertical brands is going to be essential for publishers’ survival as the skills and capabilities to do print publishing become less important commercially over time, as they will. Even if you disagree with my aggessive expectations for ebook market penetration, I think you’ll be able to substitute your own and come up with pretty much the same conclusion.

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One very lucky thing for those of us who are in the habit of predicting the future is that very few people keep score on us. We mostly keep score on ourselves. When I want to remind readers of something I said previously, I link back to it and call it forward it again.

But there is one belief I had and stated repeatedly early in the ebook era that was wildly wrong, hopelessly wrong, and then proven clearly to be wrong. I bring it up now because it belongs in this post identifying a more current error, one which hasn’t been proven yet but about which I’ve learned enough to want to walk back.

When I started reading ebooks in about 1999, there were a couple of dedicated ereaders just becoming available: the Rocket Book and the Softbook. Neither of them interested me or very many other people either. Both failed pretty quickly.

Just about simultaneously, ebooks were first being delivered to hand-held devices. I discovered the magic of putting books on my Palm Pilot, a device I had in my pocket all the time. I had started carrying a personal digital assistant in 1986; that was a Psion Organiser with a 2-, then a 4-line screen, which would not have worked for ebooks. But the Palm, which could carry a chunk not so different in extent from what I see now on my iPhone, worked fine.

The original dedicated devices came and went without much notice from anybody. Meanwhile, I continued to read on my Palm and its successors. The shopping experience at Palm Digital was terrible, the choice of titles was extremely limited, and the ebooks cost just about as much as the print books. But I shifted over, as much as I could, because I was hooked both on the utter convenience of always having books in my pocket and because I genuinely found it preferable to read on something so small and light and have book reading, for the first time, totally manageable with one hand.

When the Sony Reader arrived and didn’t do much, I wasn’t surprised. Sometime before it debuted, I wrote or said somewhere that if you carried a personal digital assistant, nobody should have to explain the value of ebooks to you. And if you didn’t carry a personal digital assistant, they might not actually have any value for you. At that point, most ebooks purchased were read on laptop and desktop computers.

That’s why I was pretty sure the Kindle wouldn’t work. Who wanted another device to carry around just to read books, I figured? What’s the advantage in that?

I neglected to think through that people do things for lots of different reasons. And I really underestimated the degree to which the book-sized page is a requirement for a lot of people, even though it might be a transitional one. Anyhow, I was really, really, really wrong. And even though I switched back from Kindle to iPhone reading the minute the vast selection available through Kindle (and now through Nook, Kobo, Google, and Apple) was available to me on the device I was always carrying, I fully accept that most people are willing to carry something around to do their reading on a regular-sized page. Lesson learned.

It is now clear to me that another concept that was an important part of my future view is in pretty desperate need of reassessment. It also appears to be being proved wrong.

It was evident pretty early that the Net facilitated the formation of communities around interests. Putting that together with my thinking about the distinction between the unit of sale and the unit of appreciation (shortcut to understanding: the former is the album and the latter is the song; the former is the cookbook and the latter is the recipe) made me think that the big online aggregation of content for sale would also ultimately be challenged. If you went to a web community to get advice about how to build a deck or plant a vegetable garden, I figured, you’d just pick up whatever were your content purchases — books or whatever else, physical or virtual — from that same site. You wouldn’t need a separate site to go buy content from.

In other words, I expected one of the ways to monetize a community would be that you could sell it stuff, particularly content.

Although I know that O’Reilly operates in a special marketplace, I saw the success they have had selling directly to their community — both their own publications and their subscription aggregation Safari — as a sign of what we could expect to develop in other verticals.

I don’t think so anymore.

The first rude awakening for me was when OpenSky changed its business model. OpenSky began with the proposition that they would facilitate just about any web site to sell just about anything. As I understood it, if you had a blog about cooking, you could arrange to sell your favorite pots and pans right off your own site. OpenSky would source the product and operate the back end. You’d just have to pick out what you wanted and decide how much margin you could demand.

Well, apparently that business model just didn’t work. They’ve switched OpenSky from a commerce platform for bloggers to a “social network for shopping” with celebrity, expert, and author curators. I’m not much of a shopper, online or offline, so I’m not one to judge how appealing it might be compared to competition. There is some evidence that the new model works and OpenSky feels like they are now taking off. But it isn’t any longer the perfect match for the vision that I had when I first saw it, and it probably didn’t work because my vision was wrong.

By extension, I had been figuring that publishers needed to sell direct as well. Big publishers had good reasons to resist that idea which I understood, but which in themselves make me question the idea. Big trade houses are highly dependent on the goodwill of Amazon and Barnes & Noble as well as other retailers, and going into competition with your key channels is risky and problematical. And my vision of the future wasn’t really built around general publishers, anyway.

This month, J.K. Rowling opened her Pottermore site, which is intended to be the exclusive vendor of Harry Potter ebooks. Now, there’s a vertical. It appears you won’t be able to get them at Amazon, B&N, or Google (although Google checkout is “the preferred third party payment platform”); if you want them, you’ll buy them from the Pottermore site (or, as some would point out, get them from a pirate source if that’s easier.) In a ‘d’uh” moment, I read this piece making it clear that this kind of fragmentation didn’t work for musicians and ultimately wouldn’t work for authors. (The book business isn’t the music business, but some lessons do carry over.)

So mark me much less bullish on publishers selling direct than I used to be. It can add value and margin to a vertical site if the costs of running the store can be tightly managed, but it is not likely to produce much in sales very quickly.

In fact, I’m quite sure that fewer Harry Potter ebooks will be sold by the Pottermore strategy than if they were just made available through the standing ebook retail network. The margins might be higher with no retailer to pay, assuming that advantage isn’t completely swallowed up by their own costs of infrastructure (and it probably won’t be.) But not everybody who buys a Harry Potter book from Amazon or B&N (or a Nora Roberts book or a Janet Evanovich book or a James Patterson book) is a devoted fan. Some of them are just choosing their next read and if Roberts or Evanovich or Patterson wasn’t shown to them, they would have bought something else on offer.

There is evidence out there to contravene this post and confirm my original thesis. Our friends at F+W Media, with whom we deliver the annual Digital Book World conference, report success building their retailing business through their communities. A senior executive there tells me they are selling “tens of millions” in content, product, and services through 25 stores attached to the community sites they have developed over the past few years. They achieve an average order value of $40 — not too shabby — and credit a combination of true community focus which builds them large and powerful databases of names, unique curation that includes offering things that aren’t available elsewhere, selling content in multiple forms (book-like, video, webcasts), delivery of “online learning”, and special bundled packages for their success.

F+W is not unique. A smaller company that is their competitor in some spaces, Interweave, also has a community focus and sells direct. Both companies have the content to build a number of different verticals to amortize the cost of a common merchandising and retailing platform.I don’t doubt F+W when they say they’re making it work, and apparently Interweave is too, but that still leaves the question of whether they, like O’Reilly, are sufficiently unusual cases that it would be very hard for other publishers to follow their lead.

I still have my fingers crossed that the Google ebooks program could spawn some unique shopping experiences that will make a difference to the ecosystem in the long run. (This is taking powerful faith at the moment because Google has only barely detectable sales in their first half-year of operation.) By offering the opportunity for curation with personality to be done by a large number of different entities (about 300 bookstores have already started with the program in the US), the Google initiative still offers the possibility of a wide variety of curation choices, or bookstore front ends.

Of course, none of these individual Google ebook stores will have the resources of the big retail players to apply technology to their merchandising. But perhaps they can provide selection and positioning that will create its own following. Whether they apply what they know and their own unique intellectual resource base (because every bookstore has one) to highly local subjects or other verticals with global appeal, they have the opportunity to create online stores that at least some people will prefer to shop. Thousands of such entrepreneurs around the globe might produce hundreds — or dozens — of survivors with large enough customer bases to create the kind of diversity in the ebook retail network that would offer publishers the kind of opportunity they need to add value for a long time. And to do it the way they always have, by managing intermediary opportunities, not by selling direct.

This is not to suggest that publishers don’t need to be building direct contact with as many consumers as they can. Just as authors should do. But forget the idea of a huge number of vertical purchase points for ebooks all over the net. I will.

Google also announced an affiliate program for Google ebooks. That will enable any web site to sell their ebooks and get paid, extending a concept that both Amazon and Barnes & Noble have employed successfully for print books. It looks to us like Google pays more. An affiliate can earn 6-10% from Google, 6% from B&N, and 4-8.5% from Amazon.

This isn’t the original OpenSky vision, however, because that was about all kinds of products, not particularly (or even necessarily including) books or ebooks. Of course sourcing could always have been done through Amazon, but there were differences in the merchandising and pricing opportunities in the original OpenSky model.

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The experience of the most successful self-published author I know of, just described in his newest book, makes a powerful but unintended case that authors who want to really make money are still better off with a publisher.

I discovered the author John Locke a few months ago when I was learning a bit about the self-publishing world from Joe Konrath and Barry Eisler. I tried one of his 99 cent books and loved it. Now I’ve read four. He strikes me as a cross between the long-dead Jim Thompson and the very current Carl Hiaasen. More sophisticated readers than I have told me his plots are derivative. None of the books struck me that way, but it could well be that savvy acquiring editors would have dismissed him if had no track record of commercial appeal.

Locke has just published a new book explaining (and titled) “How I Sold One Million eBooks in Five Months”. It reveals a hard-working, tightly-focused, very sophisticated marketer with a clear plan and the discipline to follow it. Every self-publishing author should read it, of course, which is the market Locke identifies. One of his key tenets is to really understand whom a book is intended for so that the content itself and the marketing approach are always aimed at precise targets.

One of the problems Locke sees with publishers is that he thinks that they will always push to broaden the appeal of a book, which he thinks would diminish its appeal to the core niche audience that he sees as the key to successful author brand-building. I’m about to reinforce that stereotype because it is obvious to me that he really missed identifying a key target audience with his new book. Editors and marketers in publishing houses ought to read it. They have a lot to learn from John Locke’s insights and techniques.

His book will help them make better publishing decisions and marketing decisions. His book will help them make more money.

But if John Locke’s also interested in making the most money, he ought to rethink whether issuing his books at 99 cents without a publisher is really the best commercial strategy.

Let’s do the math. Locke has sold 1 million ebooks at 99 cents each. He gets 35% of the revenue, so that amounts to something less than $350,000 (credit card fees are deducted from the net). There are some production costs involved (he hires a cover designer and he gets help formatting his books), so knock off another ten or fifteen grand. That means his net for nine novels averages out to about $35,000 each. He’s getting no apparent revenue from print and he’s getting no print exposure in stores which would further stimulate online sales. At 35 cents per copy, he’s earning less than the per unit royalty he’d get from a publisher selling his books for about $2.99, the point at which the 70% payment from agency re-sellers would kick in, even if the publisher didn’t yield at all on the now-prevailing 25% royalty standard. And if his books were $9.99, he’d be getting $1.75 a copy from a publisher, or about five times what he’s getting now.

Of course, if Locke himself sold the ebooks at $2.99, he’d be taking in six times more per book, or about $2.10 a copy.

But, either way, he seems to be leaving a lot of money on the table. Without a publisher’s efforts, he’s certainly leaving a lot of marketing on the table too. And the print in stores is only the single most important part of it. Selling even a modest 10,000 hardcovers would net him in excess of $20,000 in royalties, or more than half of what he’s averaged so far from each of his ebooks.

It would be facile, and I think it would be mistaken, to attribute Locke’s success primarily to the fact that his books sell for 99 cents. In fact, Locke himself bristles at that notion. He points out in his new “how-to” book that there are a lot of authors selling for 99 cents that haven’t achieved the sales that he’s achieved. He downplays the degree to which that would be due to the appeal of his writing but instead attributes his sales to his thoughtful and systematic marketing efforts.

I agree that his thoughtful and systematic marketing efforts are more important than his 99 cent price. (That’s sort of the point to this whole post!) But there is nothing about what he’s done that couldn’t be just as well done to support a book from a publisher that is in hardback at $20 or more and is a $9.99 ebook. Would he sell as many as the 100,000 or so units he’s averaging per title that way?

Nobody knows for sure, but with the same effort on his part and the additional marketing, exposure, and accessibility he’d gain with a publisher, my own hunch would be that he’d sell more. I’ve read four of the books featuring his major character Donovan Creed and I’m nowhere near sick of him yet. I’m as cautious as anyone about generalizing from my own experience, but I know that if the next one were ten bucks instead of one, it wouldn’t deter me. I pay ten bucks or more for most of the ebooks I read, as do a lot of people.

One of the things that the ebook retailers know for sure but that publishers can only guess about is the degree to which the purchasers of 99 cent books are a market separate from the purchasers of “branded” books at $9.99 and up. Many believe, and I’m among them, that there are distinctly separate groups of buyers here and that people like me, who mix it up, are the exception. If that’s true, there would be some risk for Locke (and to an acquiring publisher) in switching him over to a model which requires that he get his success from a different pool of customers and makes it hard for his existing readership to come along.

But if the markets are distinct, there is also some great potential reward. If there are people who only choose from the cheap books, there are also people who want to choose from the professionally validated books, the ones from the major publishers. The more you believe the markets are distinct, the more opportunity there could be for Locke in using what he’s done to launch himself independently as the springboard to a career as a published author with a major player.

Amanda Hocking succeeded with an independent effort but then signed with a major house. Barry Eisler intended to leave publishers behind and do it himself, but quickly found that Amazon’s publishing program — how long before we start referring to the Big Seven? — actually suited him more than doing-it-himself. Now we do the quick math on Locke and find that it constitutes a weak argument for the economic benefits of self-publishing.

It is important to for us all to remember that we’re still in a world where most of the books are sold in print and in stores; that this is more true outside the US than it is here; and that it will remain true outside the US for quite a while longer than it will here. The challenges of the digital age for publishers are very real and the self-publishing option is much more viable than it was a decade ago, or even three years ago. But there’s still plenty of life in the legacy model. I’d be surprised if some big publishers aren’t preparing offers for Mr. Locke that he’d be obliged to consider seriously if his goal is to make the most money from his writing that he possibly can. If Amanda Hocking could get $2 million for four books, how well is John Locke really doing financially getting less than 20% of that for nine?

The most frequently persuasive argument I can think of for self-publishing is speed to market, particularly for an outsider who doesn’t even yet have an agent. Finding an agent takes time. Getting a proposal up to an agent’s professional standards takes time. Publisher consideration and contract negotiating following offers take time. All of this can often take a year or more; it is rare to accomplish it in six months. And then the publisher will need persuasion to deliver it to the market in less than six months. (This is not irrational on the publishers’ part; maximizing sales in print still requires a long runway because the planning in mass merchant outlets requires assigning specific titles to slots many months in advance. That’s a marketplace reality, not an invention of publishers.)

I think self-publishing as a path to publisher discovery may become a new standard and, if it does, the ebook operations being set up by literary agencies may ultimately be viewed in a different light.

My prediction with Locke is that he will end up getting an offer he can’t refuse from a publisher to create a new character. The Donovan Creed series and his westerns will continue to be issued for 99 cents, but something new will be done the conventional way. And, unless my hunch is way wide of the mark, for the next several years the ones done the conventional way will make Locke a lot more money.

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Nolo Press, the Berkeley-based publisher of books and software on the law for laypeople, announced this week that the company has been acquired by Internet Brands, an internet company that builds verticals. This news should be seen as another one of those things happening for the first time that will almost certainly happen repeatedly in the years to come.

What I’ve been trying to get across aggressively for at least four years, since my “End of General Trade Publishing Houses” speech at the 2007 BEA, is that the world will move to vertical community organization and that publishers have natural advantages to lead those communities. But “natural advantages” are not the same as “divine right”; publishers can also license their content to or be bought by the community creators. That’s what the Nolo purchase underscores.

Taking a look at the web sites for “Internet Brands” (which I hadn’t done before today but I’ll bet not too many others in publishing had either) shows a very impressive array of content and audience development across a wide range of subjects. In fact, the Internet Brands web site provides a bit of a roadmap for a 20th century publisher trying to make it through the 21st.

IB organizes its universe into eight overall headings: automotive, careers, health, home, licensing, money, shopping, and travel. There is a lot of diversity under each heading: verticals within the verticals.

“Licensing” is a bit of an outlier. That appears just to be an outlet for them to sell proprietary technology and under it they have only two offerings. One is software that obviously comes from their automotive vertical which parses information about cars myriad ways to enable sales and fleet licensing. The other is called vBulletin, forum and user-generated content management software for online community creation. These two software offerings would appear to be at the heart of IB’s own business but, like Amazon, they are making money helping other people make money with the capabilities that they required to make money!

The other seven headings are divided into dozens of niche sites. There are more under “automotive” than I care to count — scores — for every car, it would seem, and for certain sub-interests as well. There are 13 sites under “careers”, including dedicated ones for airline, aviation, health, freelance, and work-at-home moms.

There are 13 sites under “health”, nine under “home” (including sites for crafting, gardening, do-it-yourself, and real estate), nine under “money”, 13 under “shopping” (including several different flavors of bargain and coupon sites), and 24 under “travel”.

Diving deeper into the verticals is more than I’m going to do for this piece, but it would seem likely that certain content nuggets could be employed within more than one of their sites.

Under IB’s “careers” heading is a site called experthub.com and it is within that niche that Nolo’s legal information for consumers will fall, although one suspects that Nolo can create content that could apply to many of IB’s sites.

Internet Brands started out in the late 1990s as an array of car-focused sites, which explains why that vertical is so thoroughly built out. After they had been in business for several years, they saw the merit in “scaling” their technology outside the automotive niche. Their sites appear to be a hodge-podge — some are clearly directories to help consumers find resources and to help resources find customers. But others seem to present real services to consumers.

One very law-focused blog covering the transaction notes that Nolo is a much classier content aggregation than the ones IB had acquired previously in that niche. They mistake IB’s Expert Hub brand to be law-focused itself; it isn’t. Expert Hub is also verticalized and includes lawyers, dentists, chiropractors, and accountants among the professionals it will help you find.

It appears that IB is an ad-driven play, not primarily focused on creating community value in the ways we think will ultimately be necessary in addition to user-generated content and curation: sales of a variety of goods and services and real opportunities to connect with others who share your interests and challenges. But they also appear already to be profitable and generating healthy search traffic with their focused aggregations of content. Right now the forums IB has appear to be bolted on, rather than core, but perhaps the Nolo purchase signals a new stage in IB’s growth where there will be an even greater focus on content generation.

Unfortunately, some of the further information links on IB’s site (“press releases”, “SEC filings”) were dead, perhaps because investors took the company private in a $640 million deal last September. But I think we publishing types will want to learn more about IB and any other companies like them because they’ll be investing in us, buying us, competing with us, and becoming us in the years to come.

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The fact that Publishers Launch Conferences will stage half-a-dozen or more events before our next big multi-day Digital Book World blowout next January doesn’t change the DBW calendar. Now is the time of year when we have to start thinking about what the big issues will be at the turn of the year so we can start planning the program. As we did last year, we’ll be calling a meeting of our Conference Council (the 2012 group is currently in formation) at the end of June to brainstorm the topics and our approach to covering them.

It’s my job to anticipate now where we’ll be in nine months. What aspects of digital change will be most important to us when we convene again at the New York Sheraton and have a couple dozen sessions to explore the issues? This post exposes the current state of my thinking on the subject; I am shamelessly using the opportunity to engage the very smart audience gathered here to help me refine these thoughts and point out what I may have missed. I count 15 discrete subjects here (some of which can certainly be combined) which have made my list so far. (I’ve italicized them so you can count along with me; they don’t all get their own paragraph.)

The biggest subject of all, of course, is “global.” The reality that every publisher anywhere is now able to reach any reader everywhere with no local presence, no inventory barriers, and many of the same intermediaries that deliver content to local customers is an industry-changer that will take a long time to deliver its full effects. Territorial rights allocation is only one of the many long-time conventions of publishing that will be challenged by the reality of global. It looks like the biggest publishers — those with local organizations in many countries — have the biggest challenge to adjust to the new global reality. We see this now as we’re putting together panels for our BEA and London events on the first biggest opportunity of global: the new ease of selling books in any language and of any origin to the biggest ebook market developed so far: ours in the United States.

Perhaps the second biggest subject is one we’ve discussed in this space for a long time: “vertical.” Even the most avowedly “general” of the big “general trade” houses are beginning to recognize the urgency of direct contact with individual customers. Once that becomes an objective, it quickly becomes apparent that audiences cluster around subjects or genres: verticals. We anticipate some dramatic reorganizing of the imprint, publishing, and marketing structures of the major houses as they develop their audience-centricity. There might even be enough development along those lines to warrant conversation about it at DBW 2012.

Two more categories of change will be in the “sales models” and “product models” publishers will employ, neither of which have had anything but the most minor adjustments since the mass-market paperback became a force just after World War II. We’d expect somebody big to try a subscription model, a la O’Reilly’s Safari or what we get with cable TV, for the consumer market sometime soon, maybe before next January. (In fact, a James Patterson Book Club, which is a sort-of new subscription model, was announced just today!) And the new Amazon Singles program for shorter-than-book-length content is accelerating the awareness of publishers and authors that the length requirements for printed books do not extend to digital ones.

All of this will lead inexorably to more “ebook first” imprints, divisions, and initiatives. I’d guess that by January, several (if not all) of the major houses will have “programs” offering content for sale which is too brief to be delivered as a bound book. We first reported on a program of this kind from Harlequin at BISG’s Making Information Pay conference several years ago. It was an outlier then. It’s more of a pioneer now. This week we heard that Hachette has a short fiction program in its Orbit imprint. Last week in London we talked with friends at Pan Macmillan about a short ebook program they created at the end of last year to capitalize on the many Kindles and iPads that were delivered as presents for Christmas. (Of course, we’re putting that on the program for our London conference; the coordination challenges within an established operation to pull off something like this are not trivial.)

Part and parcel of verticality is direct audience contact and retention. When we wrote a couple of posts last summer about direct marketing techniques publishers had to make part of their standard operations, we were a bit early to get the true trade publishers’ attention. By next January, every publisher’s consumer emailing list will be a component of its marketing effort. A part of this work, of course, is effective use of social media, a subject publishers keep learning more about and which we’ll certainly try to cover — in our way, which is looking for scale and replicability — in January.

Metadata is a subject that just doesn’t go away. It is disappointing to hear from industry bodies and retailers that many publishers haven’t gotten the core metadata totally under control yet. We covered the basics at Digital Book World 2011; in 2012 I hope we’ll be talking about things like rationalizing the BIC (British) and BISG (US) subject codes, which have developed separately to address each market’s idiosyncrasies but which need to be harmonized to enable the full potential of globalization.

Over the next two years, I’m expecting the most disruptive change to take place in children’s book publishing and illustrated book publishing. When the catalyst for ereading was the Amazon Kindle, as it was starting in late 2007, straight text worked but not much else did. Now that Barnes & Noble’s Color Nook and the iPad are devices of choice for millions of people, illustrated material and rich color can be delivered as well as text. In the children’s book area, there have been a slew of new entrants, probably led by big publishing veteran Rick Richter’s Ruckus Media. The illustrated book business hasn’t really surfaced in a big way yet, but it almost certainly will by next January’s Digital Book World. I’d expect it to be a major topic of conversation since illustrated books are far more complex to “convert” and present the opportunity to enhance in ways that may soon become requirements.

The recent news from O’Reilly that they are using Ingram’s services to be able to deliver printed books without holding stock signals another new topic that will be of widespread interest: building a virtual inventory infrastructure. This topic also came up in a discussion at London Book Fair with Sara Lloyd and James Long of Pan Macmillan, one company we’ve found that is very consciously preparing for a 50% ebook world. Decentralizing their print production to reduce inventory and manufacture closer to the point of delivery is very much on their radar screen. (In fact, the whole question of how publishers have to adjust their organizations and overheads to cope with a 50% or more digital book marketplace is one we’re featuring at our Publishers Launch show in London.)

As I write this, it has been nearly a month since we’ve had a lot of conversation about authors doing their own publishing, but we got very familiar with the names Amanda Hocking, John Locke, and Barry Eisler in recent weeks because they’re doing just that. That trend can do nothing but accelerate between now and next January.

This is requiring agents to reconsider their own business models. We’re at the dawn of an era where agents will be publishers themselves and business advisors, not wholly dependent for their revenue on their ability to get advances and royalties from publishers. The first Digital Book World conference in 2010 was the first digital publishing conference to feature agents prominently in the conversation and we talked then about how business models might change. This January I expect we’ll be able to stage some conversation about how new models are working out for those who have tried them. (One of the agents we’ve put on the program at DBW is Scott Waxman, and his Diversion division doing ebooks has 20 books in the market and 10 more about to hit.)

And the last two subjects that we almost certainly should be discussing at DBW 2012 are the still-critical but diminishing segments of a publisher’s marketplace for printed books: brick-and-mortar retail locations, particularly bookstores and mass-merchants and the place so many people have discovered and acquired their reading material, the public library.

The decline of bookstores has been duly noted in The Shatzkin Files and, of course, the bankruptcy of Borders has everybody’s attention. Less well-publicized has been the decline of book sales in the mass merchants. (Tactics for arresting that slide will be the topic of a presentation by Tara Catogge of Charles Levy at BISG’s Making Information Pay conference, another one we get our hands dirty on, taking place on May 5.) As the brick channel for printed books continues its inevitable decline into insignificance, the state of play and the tactics to adjust to the loss of sales and, perhaps more important, merchandising exposure, will be a topic we’ll discuss again, as we did with independent bookstores and heads of sales departments last January.

And how to deal with libraries in the ebook world is a question vexing many publishers. Two of the Big Six just don’t sell them ebooks at all; one company has tried a number-of-loans limitation. We are intrigued by a solution pioneered by Bloomsbury in the UK — a “shelf” of books the library licenses a year at a time for online reading only. We aren’t covering it in our London show because we think most of the UK market is familiar with it but we’ll be putting it on the agenda for Digital Book World next January.

Next week I’ll give you a preview of the first two Publishers Launch Conferences programs: for international visitors to BEA and the Americans who work with them (on May 25) and, with the Publishers Association, our program for UK publishers (on June 21.)

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I spoke last week to a group in Montreal convened by the English-language Publishers of Quebec and the Quebec Writers Association in a small auditorium at the Atwater Library. The Atwater Library is a private library with very limited government funding which is more than 100 years old. (The Globe and Mail article that quoted me says it dates from 1828.) It occupies a nostalgia-provoking building on a downtown corner across from a small park and a long slapshot away from the site of the no-longer-present Montreal Forum, where the Canadiens played for many years (and where I was fortunate enough to see a game once in 1958.)

The topic of the talk was whatever I wanted it to be so I riffed on what I think are the two big themes of digital change in publishing: vertical and global. Readers of this blog have seen material on both. Vertical refers to subject-specificity, or, if you prefer, audience-specificity. I posit that publishing across subjects — as all the biggest consumer publishers do — is made possible by bookstores, who sort the books onto shelves that make sense to customers.

An important component of the “vertical” argument is the inevitable decline of bookstores. What leads to that is the inexorable movement of customers from shopping in stores to shopping online, combined with the “critical mass” requirement for a bookstore. Some people say a bookstore will close if it loses 10% of its business; I usually say 15%. Obviously, it varies with the store. Just as obviously, a store doesn’t need to lose all its business, or even half of it, before it would be economically unviable and forced to close.

As stores close, shopping in them becomes less convenient. As the remaining stores cut back on the shelf space they can devote to books, they become less attractive. All this drives more and more people to buy print online or to switch to ebooks.

Since the single most critical skill set for consumer publishers for the past 100 years has been being able to put books on bookstore shelves, this is a frightening development for any trade publisher paying attention.

The global trend is more encouraging for people in publishing today and it is particularly more cheerful for publishers in small countries who deliver content in big languages. That means Canadian publishers in both English and French should benefit enormously as the ebook infrastructure builds out and puts them closer to customers all over the world.

Partly because we were in a library and partly because somebody asked, I also ruminated about the future of libraries. The Toronto Globe & Mail reported it this way:

And libraries? “Libraries make no sense in the future,” Shatzkin said on stage in a library that dates back to 1828. Anyone with Internet access already has access to far more books than were in that library, he pointed out. “There is no need for a building.” There will be an ongoing need for librarians, however; their skills will continue to be in demand, as will those of editors.

This quote, which was really off-hand, is clearly annoying a lot of people. So I thought it would be worth devoting a post to the subject of the future of libraries.

First of all, the key word is “future.” I find myself making the point repeatedly that the infrastructure for printed book creation and distribution has had mostly organic change for about 100 years now. It’s a well-developed capability. Publishers know how to make printed books well and efficiently; they know how to find and serve the customers for them. They know how to print them at scale and, over the last dozen years or so, 1-at-a-time. The special requirements that libraries have to prepare books for shelving are met seamlessly by Ingram and Baker & Taylor.

The print book infrastructure is like a network of roads, sidewalks, and superhighways. Everything gets where it wants to go by well-established paths.

Ebooks live in a different world. There are no superhighways and, for many books and many markets, there isn’t even a beaten path yet. We’re still hacking our way through the jungle. So, for the most part, the world we’ll live in when there is a fully-built ebook infrastructure only exists in our imagination today.

The world I was describing in the quoted and paraphrased section of my talk is imaginary. It is expected (at least by me), but it isn’t here yet and I wasn’t trying to suggest that it is.

In a fully ebooked world, which I expect we’ll be living in 10 or 15 years from now, print books won’t be extinct, but they’ll be either exotic or very purpose-driven. They won’t be common or an ordinary way to deliver content, the way they are today.

I also expect a world where all of us will have access to, or personal ownership of, many screens. Through those screens, we’ll also have access to a variety of content that is suggested by what the Internet can deliver us today. My hunch is that, by then, our “basic Internet” (think “basic cable”) subscription will include access to more books than exist in most libraries today, with shedloads of others available for usually nominal and occasionally substantial additional fees. We may have to choose a screen (or two) to carry with us when we leave our house in the morning (or not — there will be screens to borrow at Starbucks and the hotel lobby and the waiting room at your dentist), but we’ll have access to content for it (or them) wherever we are and at any time. Since the same screen will deliver us our tools for personal productivity (the blog post I’m working on, the shopping list for the cheese store on the way home), probably connect us to our money, and, of course, contain our calendar and directions to the party we’re supposed to go to this evening, carrying additional “stuff” — whether a book, a magazine, a newspaper, or a notepad — will be a long-discarded anachronism.

The core purpose — the founding purpose — of a library, around which other things have grown, is to deliver access to printed words. Even the smallest local library almost certainly had more content housed within it than any individual had in their home and, in most cases, far more content than would be available at any local store. It was the books in the library that initially defined the library and attracted a core of patrons to it. When all of us have access to more books on our screens than are in the library, what’s the point to the library?

At least, that’s what I was thinking.

The very thoughtful Gary Price, who is a library and information professional who has spent far more time considering libraries this or any other week than I have in my lifetime, posted his ruminations on this subject, triggered by the paragraph in the Globe and Mail but going way beyond them. Gary raises some good points worthy of response (about which he has posted additional thoughts since I saw and wrote about them.)

He wonders what kind of libraries I’m talking about. Simple answer: consumer libraries. Libraries that serve a professional constituency — academic or otherwise — are outside the scope of these predictions.

Gary observes that statistics show that libraries are being used more than ever. I don’t doubt that but it doesn’t undercut my belief about where things will be in 10 or 15 years. Newspapers had record years for profits in the mid-1990s.

Gary observes that many people use the library for more than books, specifically citing their mission in providing technology education and to provide Internet access, and making the point that not everybody has access to the computer and the Internet at home. In my opinion, all these objections will be almost entirely mooted in the next 10 or 15 years.

(A parenthetical point. In the US, at least, the poor will almost certainly always be with us. People will be left behind by change; our country routinely permits that. I’m a liberal Democrat; that’s not an aspect of America that makes me happy. Libraries will vanish faster than the need for them does. I predict what I believe will happen, not what I want to happen.)

He points out that there are special collections, archives, and other materials found in library buildings and that they, as well as some books, might not be digitized anytime soon. Perhaps true, although a lot less true in 10 or 15 years. But what percentage of today’s libraries would that kind of material keep open? Particularly if we’re talking about libraries for consumers? A small percentage, I’d warrant.

As others have, Gary points to the community events that take place in a library as a counter to my argument. I don’t think it is. I didn’t say community centers would cease to exist. There are many community centers that aren’t libraries. The fact that it is convenient and sensible for a town to use its local library building for other purposes doesn’t mean they need to keep the library to serve those other purposes. In fact, there will be lots of empty former retail storefronts to use as community centers all over America in 10 or 15 years.

One of the people at the Atwater in Montreal told me that they are reducing their shelf space for books (like a lot of bookstores, I might add.) If we get to the day when the store is still called Barnes & Noble and it has one shelf of books and is otherwise full of stationery, plush toys, and reading gadgets, is it still a bookstore? If the Atwater converts itself over time into a commmunity center with one room that has some books in it, will it still be a library?

I don’t think so. Others may disagree, but I would call that a semantic argument, not a substantive one.

Gary’s last point, which has nothing to do with anything I said, is to ponder what happens to the books and other materials in a library if the library shuts down. He hopes they don’t end up in a dumpster. I take no position on that (if they have value at the time, they won’t), but I would point out that many libraries today, unlike the situation a few years ago, won’t take your contribution of books when you clean your shelves at home. They have no place to put them and many, like Atwater, have less space for books, not more. I know libraries try to hold used book sales to make money, but I imagine we’re going to find that libraries will be causing books to be destroyed in the future, from necessity.

I did make the point in Montreal, which the Globe and Mail picked up and Gary applauded, that librarianship will be needed by people long after buildings full of books are not. That’s going to require an entirely new business model that hasn’t been invented yet. Consider that part of the paved infrastructure that we’ll have in a decade or so, but can only exist in our imaginations at the moment.

How about writing a whole post about libraries and not mentioning the HarperCollins limitation on ebook lending? Maybe another day…

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My generation of publishers is distinguished by a few that really understand the opportunities and value to the enterprise of selling backlist and creating evergreens. Peter Workman is the master of this. Quite aside from the intrinsic quality and appeal of much of what he publishes — which is considerable — he has always pushed books based on their markets and the opportunities, not based on the date they were first issued. Charlie Nurnberg was the same way at Sterling. He has often reminded me that “every book is new to the person who hasn’t heard of it yet.”

Peter and Charlie, and other publishers and sales executives who also stressed the backlist, learned that in the physical world it became a game of managing inertia. The first challenge, with chains or independents, is to get a quantity in the store that will sell. The second challenge is to get it reordered when it sells. That requires fighting inertia because most books don’t get ordered for most stores and most books that are stocked only get an initial order and no re-order.

But after a while, you can get inertia on your side. If the book is seen to have “backlisted” (think Workman’s “What to Expect When You’re Expecting” or a perennial Charlie built called “Gemstones of the World”), it becomes one of the books that is put on auto-pilot with computers, and then it will get re-ordered as long as its performance passes a periodic review which is usually not frequent.

Most publishers “learn” (institutionally) that it isn’t worth promoting backlist. To begin with, most publishers aren’t staffed to do it: the head counts and working processes of publicity and marketing departments are built around the requirements of “launching” books, not “piloting” them. And there’s logic to this. Marketing should always be dedicated to books which are available for purchase. Up until 15 years ago, a book not in stores was not nearly as available as the ones which were. And up until very recently, the non-store sales for most titles was growing to significance, but actually growing pretty slowly.

The fact that the availability differential between new titles and backlist is sharply reduced and shrinking fast is a very significant change. When I came into the business, it was a sign of knowledge and savvy that you didn’t spend money promoting a book that wasn’t in the stores. That meant “don’t promote too soon before publication.”

And it also meant that any promotional opportunity for a backlist book was only seen to have value if you had the lead time to push books out before the promotional event occurred. This fundamental of publishing has been painstakingly explained to authors for years, usually triggered when they call their publisher to tell them they have a major newsbreak occurring the day after tomorrow.

This piece of wisdom becomes less important every day. Soon it will be anachronistic sophistication for those of us who are saddled with it.

Publishers, agents, and authors are all seeing bumps in backlist sales because of newly created ebook availability. It would be my hunch that, sure as there is such a thing as word-of-mouth, the ebook backlist sales will spark a pop in print sales for the very same titles. Alert publishers and the retailers that have stores and also have insight into ebook sales (you know who you are) will probably find ebook sales and online print sales good leading indicators of what should be brought back into stock in the stores as well.

Remember those ebook catalogs I suggested might be a good idea? Why not start by putting one with an entry for every title by an author into every ebook by that author? That’s a pretty obvious opportunity. I’ll make my last publishing prediction of 2010: anybody not doing this by the end of 2011 will be seen as “behind.” (It might be that any agent not already suggesting this, if not insisting on it, is behind now.)

Every ebook sold offers a publisher and an author a significant opportunity for engagement with a real human being who will, almost certainly, buy another ebook in the future. The Peter Workmans and Charlie Nurnbergs of 21st century publishing will build their success on that fact. How well that opportunity is exploited is a future success trait that should hit many consciousnesses soon. (That’s why we tried to stress the importance of direct-response marketing knowledge in two posts some months ago.) As people wake up to these opportunities, how they’re pursued is likely to become the focus of some extensive discussion along the value chain (between publishers and retailers, between publishers and authors, and among publishers).

PS. The first time I met Charlie Nurnberg was in about 1974 at the suggestion of my father. (Len said: he’s a smart guy; you ought to talk to him.) That day Charlie explained to me about granting permissions for excerpts. You do it, he said, and you require a credit line that reads “from Title X by Author Y, published by His Publisher, Address, book price plus $1.25 postage and handling”. That’s how he always did it and money just rolled in. Sometimes the credit line was appearing in Readers Digest with 20 million or more readers. Charlie worked for a small publisher called Frederick Fell at the time.  (They had one huge author, but that’s another story.) With a standard device, he turned regular engagements into revenue streams. There’s a thought worth preserving in that.

I write this in my home aerie, 17 floors above snow-covered 2nd Avenue, within 10 minutes by foot or subway from just about all of American trade publishing. Like everybody else, most of my information exchanges are online, but the intense proximity of literally ALL of consumer publishing’s editorial, marketing, and business decision-making is, at the very least, an extraordinary daily convenience. (Last week Connie Sayre and I saw seven major company CEOs for 30-to-60 minute meetings in between lots of other work. Try that in any other industry and any other town.) It is a frequent source of joy. And it is an indispensable component of whatever knowledge feeds my consulting practice and this blog. One question that it is fair to ask is whether, in a wired world where we SKYPE today and will have conversations tomorrow with a hologram apparently sitting in the next chair, does Manhattan still matter? I believe that it still does and that it still will but I will admit to being as sentimental about the dense and quick-paced Manhattan gestalt as some people are about the smell of the paper and the smell of the glue. (And I’m well aware of how sentimentality can cloud their thinking!)

And on that flight of fancy, I wish everybody a Happy New Year and a healthy and prosperous 2011.

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It’s a pre-holiday week and a busy one following a busy one last week. So time for blogging is limited and, besides, all you readers have presents to wrap.

But there is one subject to ruminate on just a little bit that came up repeatedly during last week’s business. Constance Sayre of Market Partners and I are doing a joint exploration of ebook royalty rates for a presentation at the Digital Book World conference in January. We created a survey to allow agents to tell us anonymously what kind of deals they were striking and we got about 130 responses. (Market Partners’ newsletter, Publishing Trends, has a report in their current issue, released today, on what the agents said and the full data will be released for our attendees at Digital Book World on January 26.) We decided to balance our presentation by giving publishers an opportunity to give their side of the story, also anonymously (except, since we interviewed them, we know who they are. The agents, having responded online and in privacy, can’t be tied back to their answers. Connie and I are good at keeping confidences.)

We spoke to seven CEOs last week, a couple of whom were joined by colleagues who actually do the contract negotiating. What they told us about ebook contracts is what we’ll talk about at Digital Book World.

But just about all of them made an ancillary point and that’s our subject today. The point they made is that the main task ahead of them in the next few years is to completely reinvent book marketing. There was clear acknowledgment across the board of something that has concerned us for some time: that inevitably declining retail shelf space means a commensurate decline in critical merchandising capability.

Changes are definitely occurring. The big publishers are undeniably SEO-conscious, investing real effort thinking about what search terms apply to each book they publish. They’re all experimenting with Facebook and Twitter and other social networking sites as well. Various community-building tools, including the very ambitious Copia platform that launched a few weeks ago and the John Ingram-funded start-up Rethink Books and its new Social Book capability, are now being tried out. The established ebook vendors, notably Kobo and Kindle (on my radar screen; I’m sure Nook and Google too), are building social capabilities into their platforms. And the established book discussion networks like Goodreads and LibraryThing are continuing to add participants, books, metadata, and conversation that constitute raw material for marketing the next book from any publisher.

There are two questions big publishers need to be asking about all of this. One is “does it scale?” The other is “does it adequately replace the stack on the front table of a highly-trafficked bookstore as a way to generate attention for a new publication?”

If marketing efforts don’t scale, then a newcomer or a smaller press isn’t handicapped competing against a major. And if the new techniques don’t compensate for the lost front table spaces, then publishers are going to need something more. And effort that doesn’t scale takes time, which costs money. Publishing margins have never been robust enough to allow publishers to increase the percentage of revenue allocated to marketing and remain profitable.

Of course, book retailers share in the difficulty. As much as publishers have depended on retailers to sort the books out into sections and featured areas and to bring the customers into contact with them, the retailers have depended on the publishers to make the public aware that a book exists.

This is a big problem with many aspects to it and this is supposed to be a relatively short pre-holiday post, so I want to drop just two conceptual thoughts on it: one a principle and one a suggestion.

The principle is that “investment marketing” must replace “expensed marketing”. “Expensed marketing” is what publishers have always done: promotion for a single title that has no lasting payoff or value. That’s an ad in the paper or online, a press release that gets picked up and run immediately and has no value next week, or a free copy of the book that might result in a review of that book or, most of the time, result in nothing at all. (Thank goodness that, at least, those review copies can be far less costly to distribute in digital form and for that it is worth mentioning another relatively new service called NetGalley that facilitates distribution of electronic copies for promotional purposes.)

What I’d call “investment marketing” is an effort that yields a result of ongoing value: a batch of email addresses that can be pinged at no cost to promote a future book or a relationship with a web site or a blogger that adds to the promotional arsenal available in the future. This concept is particulary important on the social marketing side, which is labor-intensive.

I was glad to have the concept validated in a conversation with a leading digital marketer that we recruited as a speaker for Digital Book World. She agreed that in order for digital campaigns to make sense, they should be on behalf of a block of books — by an author or on a subject — rather than pushing one title.

This is a sea change for publishers who have always marketed one title at a time. It is particularly important to implement as the distinction between backlist and frontlist for promotion — which was always partly rooted in the reality that backlist might not be available at retail months or years after its initial publication — makes less and less sense.

The suggestion is to attack the search and discovery problem, the browsing problem, the serendipity problem, the substitute for the stack of books problem. Or, maybe we’re better off envisioning this as the “replacing the marketing clout of the book clubs” problem.

Introducing a simple concept: the book shopping or book marketing app.

I would happily pay a subscription fee to somebody who would put into app or ebook form a periodically curated catalog of recently published books on baseball history. I want to see the title, author, precis, table of contents, sample material, publisher selling copy of all kinds, and reviews. I don’t care if the purchase is “in app” or if I can click my way to the landing page for the book at my favorite ebook retailer (and I’m easy: I have four of them!)

I am sure regular fans of romance, sci-fi, historical fiction, business books, popular science, and many other subjects share the same frustrations I do with shopping for ebooks now. Any search you do returns more dirt than diamonds, more chaff than wheat, more noise than signal and, for the subjects nearest and dearest to me, far more books I have either already read or already rejected than that are new and of interest. It would be ever so much easier to have all this information presented in an app or an ebook that I could peruse at my leisure, online or off, and which would have proper navigation rather than a constant struggle with pointless links and back buttons.

I think we’ll see publishers and retailers delivering this, or something like it, before the end of 2011.

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In a conversation earlier this week I learned that the big Hollywood talent agencies have come to the recognition that “audience aggregation”, a component of what I have been calling a “vertical” strategy, needs to be incorporated into their thinking going forward. This was signaled very strongly recently when longtime publisher Steve Ross took his fledgling business offering self-publishing advice to authors with him to the Abrams Artists Agency where he set up a new department for them to represent authors rights to publishers.

What does that mean? It means that the celebrities will start increasingly try to “own” their audiences: to gather them in networks, bind them with various content offers like newsletters or other material from the person they “know”, and sell them stuff. The people managing the careers of movie stars are seeing the writing on the wall. The intermediary structure that connected the stars to their public — studios, producers, theatrical distribution — is suffering the pain of all media: declining prices for content because of the increase in supply and consumption habits changing because of more and more quality screens and digital delivery.

Many authors, of course, are trying to do the same thing. They have web pages; they collect the names of those who want to keep in touch with them; and they are, increasingly, selling them stuff. Sometimes the stuff is content (with a way blazed by Joe Konrath and his successful conversion from published author to self-publishing author, so far almost exclusively through Amazon) and now, thanks to Open Sky, they could be selling anything at all.

So the authors and the movie stars are getting ready for the day when they have to bring real live customer contact to the party if they want to be invited. But the big publishers are lagging behind here. Why? One reason is that the big accounts appear to have intimidated them from selling direct to consumers.

This is the kind of thing you don’t know for sure from the outside. Conversations between publishers and their top accounts, like conversations between publishers and the agents for their top authors, are private and closely guarded. But it has been anecdotally reported in the past that Barnes & Noble is not happy if publishers sell to consumers. And I’ve also heard that Amazon has told publishers that if they charge any price lower than the suggested retail in a direct sale, Amazon will consider that lower price to be the basis of their discounts, not the suggested retail.

That threat effectively prevents any publisher from selling direct unless they operate on the agency model and have eliminated price competition in the marketplace. (Of course, under the agency model, all sales are considered sales by the publisher, except, of course, that they don’t have the names or the customer relationship!)

In a business that is built on the leverage of intermediary trading partners who aggregate customers, which trade publishing is, very few are in a position to gratuitously annoy the two most powerful levers they have.

So the publishers have been reluctant to be seen to be selling direct. This concern also applies, for the same reason, to the wholesalers Ingram and Baker & Taylor. Both depend on bookstore business for their survival and it is, perhaps, an enlightened position not to compete with their core customers so neither company sells directly. But it is very constraining. Baker & Taylor really needs a full-line store to sell their BLIO ebook platform, but they can’t do it themselves. And Ingram — our client but we have not discussed this question with them at all — serves publisher clients as a DAD and as an ebook wholesaler who could use a retailing capability; but it is a very longstanding Ingram policy not to compete with their bookseller customers.

That’s the context in which LibreDigital announced their new SkyShelf service last week. SkyShelf is a direct-to-consumer ebook sales capability for the publishers LibreDigital serves as a digital distributor, but it gives them a certain amount of “deniability” or distance from it.

In my opinion, the big publishers must face some very critical questions fraught with customer relationship management challenges.

On the one hand, publishers — all publishers — must start forming direct relationships with end users. They have no choice. Authors are doing it. The retailers are doing it. The Hollywood stars and politicians and ballplayers they want to write books for them are doing it. Part of what the publisher wants to get paid for is marketing. When the most important marketing asset for any book is the number of likely-interested people who can be emailed about its publication, publishers without any names to offer will have a harder time selling their value.

Publishers who do have names on file — from Digital Book World owners F+W Media to Hay House to Harlequin and including others that grow in number every day — are already benefiting. They’re selling more copies expending less marketing money and they’ve got something important to offer authors looking for a publisher.

But it is hard to collect names and build a relationship with an audience if you don’t sell things to them. That’s one place that big publishers are really stuck at the moment. That’s why LibreDigital built SkyShelf to help them out. At the same time they put their competitor Ingram in a ticklish spot because it is hard for them to offer a similar service for the same reason that publishers need the help!

At the same time, the big retailers are pushing their way up the value chain into the publishers’ territory. Amazon has had self-publishing capability that is aimed at authors for a long time. Barnes & Noble invested in iUniverse, one of the first self-publishing start-ups (now part of Author Solutions), over a decade ago. Now B&N has delivered a suite of services called “PubIt” to compete with Amazon’s offering for authors.

Amazon has such a large share of the online print and ebook businesses that, with the publisher disintermediated and the author able to take a much larger share, they can credibly make the argument that a branded author — or one that otherwise does her own promotion and marketing — can make as much money through them alone as through a publisher serving the entire market.

It is more difficult and expensive for Barnes & Noble to leverage their store shelves for self-published authors but, to the extent they can, it will be a very attractive lure. I’d be very surprised if they’re not thinking about how to do that. Borders did a deal with self-publisher Lulu a couple of years and a couple of management changes ago. How long will it be before they revitalize that arrangement and add more competition for the authors’ attention?

The names of people potentially interested in a book who can be contacted for free will be the most important coin of the publishing realm in a short time; in some cases, it is already. There are publishers who are emailing to millions of names every month right now, but none of them are the biggest publishers. If gathering names is not a major priority at any publishing house, it surely should be. It’s mission-critical; it’s about survival. Seen in that light, it must certainly be worth some tough negotiating with major accounts if that’s what publishers have to do to make it happen.

This post was provoked by new information, about what the Hollywood agents are doing and about the launch of SkyShelf. But we’ve been pounding this drum of direct contact for some time. We did a pair of posts (here and here) with the help of direct response expert Neal Goff a few weeks ago trying to push publishers in this same direction. Those posts were about how. This one is about why.

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Amazon announced on Friday that the Kindle will make a “lending” feature available, allowing “owners” of a Kindle file to enable somebody else to read the book or magazine or newspaper for 14 days. Each purchaser of each ebook will be allowed to make only one such loan one time. They will not have access to the file themselves during the time it is “on loan.”

When Barnes & Noble announced exactly the same feature with the same limitations for their ereader about a year ago, in advance of the Nook’s arrival, many ridiculed the limitations. Among those who thought the offering was laughable was Jeff Bezos of Amazon.

I think this decision by Amazon makes some key points.

1. Whatever we call it, the “purchase” of an ebook is not a purchase in the way we buy a print book or a light bulb or a box of chocolates. It is a “license” more akin to what we buy when we purchase software online.

2. The corollary to the first point is to reinforce, once again, that publishing is a rights business and that all the thinking publishers do about commercial reality needs to take that point into account.

3. It is more difficult to introduce innovation successfully from a secondary market position. In this case, that’s true for two important reasons.

4. Behavior that has its analog in the non-connected world we used to live in will have entirely different applications with the capabilities that exist in a connected world.

Buying an ebook is a license, not a purchase

There has been high dudgeon in parts of the digerati world over the fact that people don’t “own” their ebooks the way they own print books. This often takes the form of opposition to DRM and pleas for open and standard formats that will allow anybody who acquires an ebook to treat it the way they treat a print book (sharing and lending and re-selling) with the exception, of course, that the person making the original purchase gets to do all these things without giving up possession of the item they bought.

That’s a pretty substantial exception.

Many publishers and many authors have seen allowing just about the same first use rights as ultimately untenable, although there are major exceptions concerning the application of DRM. O’Reilly Media and the new Harlequin imprint, Carina Press, for example, offer all their books DRM-free. They believe, and they are not alone, that enabling some open sharing induces far more sales than it cannibalizes.

Neither of these publishers put software barriers up to prevent behavior that would be commercially damaging, but you can bet if a marketplace developed for the files they sold for an individual user, they would find ways to at least attempt to prevent it. I asked, and Carina has told me explicitly that they still insist on protecting copyright, even though they don’t do so with software barriers.

We’re vending rights

The fact that publishers in the ebook realm are actually vending rights rather than making an outright sale has enormous implications. It means that the relationship with the end user is never done, quite a change from the 20th century paradigm where the end user is never even known! (Of course, publishers’ end users are often not known now because the retailers don’t share that information, but over time, despite some enormous complications because of regulations and entrenched positions, I still believe that is bound to change.)

Publishers run up against the rights question all the time. Enthusiasts for the emerging practice of “social reading”, which is built on the sharing of annotations of various readers, may not be thinking through all of the rights implications. If I write a book advocating gun control, for example, do I have the right to insist that my work not be “sold” with annotations by a member of the NRA taking issue with everything I write? Or, turning the question around, am I happy to have my account of the 1963 World Series turned into a more robust piece of IP with thoughts added by three old sportswriters, assuming I got a royalty on the new product they create?

Agents and authors are going to have to get into this to decide what works for them and what doesn’t. And, no doubt, they will come to a variety of different opinions, which will mean that different books will come with different rights offers. This increases the complexity of managing rights metadata across the supply chain and beyond the supply chain to the consumption chain.

Kindle’s move will increase the uptake for lending on the Nook, but will introduce some competitive disadvantage

The “lending” question was a pretty easy one for publishers to ignore when only B&N offered it. It could require going back to the agent in some cases and, in any case, it seemed to offer no real competitive advantage for any particular book title. I am told (I don’t have a Nook so I’m not sure there is any way for me to check) that B&N had something over 100,000 titles available for sharing, but they offer over a million titles on their site.

Now Amazon will bring their muscle to bear — the same muscle that enabled them to deliver more than twice as many titles on Kindle as had been available on Palm and an even higher multiple of what had been available on Sony when they introduced the Kindle device — to get publishers to agree to license the lending. And publishers will see no reason to discriminate against B&N in this case, so Kindle’s efforts will result in Nook having far more titles available for lending in a pretty short time.

An ebook market share for Kindle that I’d guess is at minimum between three and six times Nook’s will make publishers more likely to enable sharing. But a universe of device holders that much larger also means the sharing feature has that much more actual value. So Kindle’s participation makes the B&N feature more useful, on the one hand, by putting more books into it but disadvantages it competitively, on the other hand, by the same capability being enabled in an ecosystem with so many more participants. Overall, this isn’t necessarily helpful to the Nook, but I think headlines suggesting it will kill the B&N device like this one are, to say the least, a bit overwrought.

Lending isn’t just between you and your friends anymore!

Googling doesn’t eliminate serendipity! While doing some research for this post I was directed to this post on GoodReads where somebody is organizing around the Nook lending feature to enable sharing among complete strangers. This isn’t surprising but it demonstrates the creation of crowd-sourced infrastructure that converts the replication of the physical ownership experience into something that will systematically, without question, convert paid readers into free readers.

Of course, the current offerings from Kindle and Nook where each purchase can, at most, turn into one free rider, is controlled and manageable. But this demonstration of the ability of people to communicate and collaborate in networks should give some credibility to the notion that absolutely free and unfettered sharing, such as would occur in a world totally without DRM, will result in an acceleration of free-riding (or freeloading) replacing purchases.

I do believe we’re going there in the long run. I’ve said repeatedly that the price of content will be pushed inexorably downward and that over the coming decade or two it will be harder and harder to have a business built on selling content alone. But authors, publishers, and all those profiting by today’s content-selling paradigm need as much time as they can get to convert to completely different models. Some may manage to get there through my notion of “verticals” and garnering and then monetizing eyeballs. Others see a path through enhanced content and social sharing that could lead to different monetization opportunities (and social sharing, of course, is a component of verticalization as well.) But almost nobody is “there” (wherever “there” is) yet, and very few people even have an idea of what a future profitable world looks like.

I have mentioned more than once that I haven’t read a print book in three years. And although there are fewer doubters than I used to have, my expectation that the world of books becomes predominantly screen-based over the next decade still raises a lot of eyebrows. But I want to report that we’ve found a book that can not be replicated on a screen or in any app. It’s a great kids book from Workman called “Beautiful Oops” by Barney Saltzberg. The use of die cuts and foldouts and telescoping paper to change what you first see into someting else just wouldn’t have the same impact in an app. Congratulations to Peter Workman and his team for demonstrating that, sometimes, you can’t do better than you can do with print!

We bought “Beautiful Oops” for our 5-year old niece and I will admit that I read it (16 pages, maybe?) before we sent it off. I will continue to say I haven’t read a print book in three years; I’m admitting here that I’ll claim a short kids’ book doesn’t count. But everybody who read to the end of this particular post will know the truth.

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