The Shatzkin Files


Going where the customers are might be an alternative to selling direct


The news that Faber in the UK has partnered with a company called Firsty Group to offer direct-to-consumer services to their distribution clients again calls the question about publishers selling direct. In my recent post about the likely outcome of the DoJ settlement being accepted by the Court, I said I was re-thinking my admonition that all publishers should sell direct because it would appear that Amazon (and all retailers) will now be free to discount ebooks to their heart’s content and therefore can undercut any publisher’s prices if they want to.

It would appear that the wholesalers would have the most to gain from publisher-direct selling. The win for them would be complicated, because the ones with the most to lose would be the retailers who are the wholesalers’ best customers. But, ultimately, as Amazon demonstrated clearly nearly two decades ago and, most recently, F+W Media proved again, anybody can become a retailer of a large selection of print and digital books simply by setting up an account with Ingram or Baker & Taylor. (Amazon started out by having the wholesalers ship the books to them which they then re-shipped to the consumer. F+W works with Ingram on the same model, probably because their own books are combined in many of the orders and they’d lose margin unnecessarily if they had Ingram ship their books.)

Ingram brings a staggering selection of printed books through its warehouse holdings and the millions of titles available to print-on-demand through Lightning, as well as the Ingram Digital ebook wholesaling capability that represents most of the ebooks published. (Setting up distribution for an agency publisher through Ingram also requires the active cooperation of the publisher.) Baker & Taylor is trying to couple its Blio ebook platform, which handles illustrated books but does not have anything like the title selection Ingram has, with its warehouse print inventory, to provide a slightly different combination of titles.

The bottom line is that you don’t have to own inventory to offer a wide selection.

Phil Ollila of Ingram expanded on their approach to direct selling. They provide what they’re good at: inventory and fulfillment and the database of titles. They refer publishers to other service providers for the “cart and card” component of ecommerce. There are a variety of reasons, including potential tax issues involving “nexus” and the requirements of PCI compliance, the rules about what you have to do if you’re storing consumer data, that Ingram prefers to leave that portion of the business to specialists.

But Ollila also reports that Ingram found recently, surveying the top 100 web sites for which it does digital fulfillment, that about half of the top sellers were publishers. A few of them are selling books from other publishers, but most are just selling their own ebooks very successfully. So either my theory about Amazon undercutting these publishers on pricing is just wrong, or they haven’t turned their attention to these “competitors” yet.

Any business the size of a major publisher which has the ability to sell digital downloads (with or without the ability to sell printed books too) would find useful opportunities to employ it. Or, put another way, not having the ability to complete transactions with consumers would constrain a publisher’s ability to build the direct relationships with end users that so many believe are essential to the future of publishers. Being able to offer distribution clients what might soon be seen as an essential capability for publishers is probably what motivated the Faber deal with Firsty.

One vision of the future that appeals to me is that every web site that has any substantial traffic could offer books and/or ebooks as a combination service to its audience and enhancer of its revenues. I thought this would be the proposition we’d get from Open Sky when they first came on the scene but they changed the business model away from providing that capability. A fledgling retailing platform called Zola Books has a variation of this idea — individually curated “stores” that they host — built into their planning. I liked the idea when Open Sky had it originally and still do; it will be great if Zola can pull it off.

The creative minds at Random House have come up with a different approach to capitalize on the potential for the widely distributed retailing model. They’re prototyping it with Politico, which has a huge audience of the politically-interested.

Random House now merchandises Politico’s “Bookshelf”: its hosted bookstore. The store displays a wide range of titles from all publishers, divided by political category, on which you can click through for additional information. Then you can buy, offered a choice of retailers. I saw the choices Amazon, Barnes & Noble, Politics & Prose (a local store in Washington, DC) and Apple’s iBookstore.

In addition, on the bottom of many, if not all, of the Politico stories, there is a row of additional book offerings called “Related Books on the Politico Bookshelf.” The books in that row below the stories are all Random House books.

Aside from curating the store, which gives Politico both value-added information for its site visitors and an additional revenue stream from affiliate sales (which they presumably share, although I don’t know the commercial arrangement), Random House can help Politico publish.

Random House is developing technology to help them curate the offerings of all publishers for the Politico store. This is no small feat from a standing start. But building the technology that can curate from metadata has additional value. They learn how to combine the metadata associated with the title file with what they can learn about sales ranking and placement by observing what is happening at other retailers. And they’re learning about their competitors’ lists as well in a different way than they ever had before. It seems likely that this knowledge will someday help inform acquisition decisions for new books and the positioning — timing and pricing as well as marketing emphasis and metadata creation — of the books as they publish themselves.

This approach gives Random House what amounts to a gatekeeper position for book offerings to Politico’s substantial site traffic. If they’re acquiring a book appropriate to that audience, they have that marketing exposure and sales opportunity to factor into their revenue calculation (and into their pitch to the agent that they’re the “right” publisher). Other publishers’ books will be sold there too, of course. But they aren’t the gatekeepers, so they can’t be as confident of the boost, and they certainly can’t promise it to an author. And Random House has the exclusive opportunity to exploit the “related books” shelf on each story page.

Meanwhile, Random House is developing the curation and merchandising tools that will enable them to do similar things on sites that have robust traffic for different topic verticals. If the Politico experiment works, they have a very appealing capability to put in front of all of the most heavily-trafficked sites for which a curated book offering would be an attractive value-add.

Random House has essentially chosen to develop bookstores without cart and card. They’re not collecting customer names with their ecommerce or building an installed base of consumers whose credit cards they have on file. Rather, they’re organizing somebody else’s traffic to be distributed to the retailers they are already doing business with.

And, of course, in the same way that Amazon started out relying on the wholesalers for books before they went to buying most of their inventory direct, Random House can install the ecommerce engine any time they like and add a “buy direct from us” button to the choices.

I see this as building future distribution with a trade publisher’s mentality, which is “I don’t need to own the customer; I need to reach the customer and I’m perfectly happy doing that through an intermediary that does lots of work to attract the customer.” If the combination of curation and publishing tools that it can offer site owners like Politico is sufficiently attractive, one could imagine Random House building a network of high-traffic sites with very extensive consumer reach which would, in effect, comprise a new distribution model.

The Random House approach has opened my eyes. It has long been clear to me that the web would organize people by vertical, as it has, and that ultimately specialized content would be found and transacted within the verticals. I leaped to the conclusion that the publishers needed to be the vertical, or own the vertical, in order to thrive in that environment. That is essentially the strategy being executed by F+W Media and Osprey, to name two outstanding examples (both of which have recently made an acquisition that substantially increased their size, F+W of Interweave and Osprey of Duncan Baird).

But Random House is showing another way: becoming the book specialists for the verticals. It is too early to know whether the experiment being executed at Politico will turn into a replicable business model. But it sure is a smart idea to try.

While I was Googling doing some research for this post, I was stunned to see this on the site for the Firsty Group [see update below] that I refer to at the top. It was disturbing to see that they’ve been lifting my posts verbatim and posting them without attribution to their own site. (In fairness, there is a link, but you have to intuit that it is there to find and use it!)

On reflection, it appears that what they’re doing is just publishing our RSS feed, which a) does include the whole post and b) leaves out any “author” name. In that case, this copyright violation is actually being done “unconsciously.” I’m checking out whether that’s true with this post, because they certainly wouldn’t be posting something where I call them out for copyright violation except in an automated way!

Once we see what happens with this post and confirm my hunch that the behavior is automated, we’ll send a polite takedown notice and suggest that Firsty change its policy to post only the first X words of an RSS with a link through. (We are also exploring changing our RSS feed, but we actually don’t want to inconvenience people who are using it legitimately.)

I cast no aspersions on Faber here. They’re a great company and I’m sure they and Firsty deliver a solid service together.

***Very quickly as this post went live, we got an extremely apologetic note from Firsty explaining that, indeed, they were working from the RSS feed, and they indeed did have a protocol of cutting off the article and then linking through. For whatever reason, it wasn’t working on my stuff and, apparently, only on my stuff. They did a takedown while they investigate and fix and asked that we agree to allow them to continue to host our RSS samples after they had. Of course, we agreed. Great to know that it was a mistake and that they were alert enough to jump on it quickly. All’s well that ends well.

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  • http://twitter.com/PeterTurner Peter Turner

    Great post, Mike. You know what I think so I won’t bore you. But, I would offer one comment to frame the question a little differently. The underlying issue about the viability of the business model Random House is pursuing has to do fundamentally with whether the cost to supply the transaction to a third party is worth the benefits both direct and tangential. Alternatively, if one actually performs the transaction, the value is not just the sale plus the tangential value but also in the lifetime value of having acquired a customer.

    • http://idealog.com/blog Mike Shatzkin

      You’re right about that, of course. But, as I pointed out, Random House can do this incrementally. Nothing they’re doing now *prevents* them from adding the ecommerce layer at some future time.

      I suspect the “lifetime value” of customers is going to go down as technology changes enable more and more people to pay vendors the first time without a *lot* more effort than going someplace where you’ve been before. Still, it will never be zero.

      Mike

  • Jack W Perry

    Good article. I have always felt that the way to compete against Amazon’s selection, low-prices and connivence is to focus on these subject areas. What is to prevent the History Channel or ESPN to create real on-line bookstores? Amazon does a great job but they are a general site. The others can create more detail, more discussion and expertise.

    Ingram and B&T do great backend fulfillment for physical. So, the site doesn’t have to carry inventory. Carrying physical inventory is a losing game.

    Although it feels like Amazon owns the market, there is room for specialty stores to shave off some market share.

    • http://idealog.com/blog Mike Shatzkin

      Right, Jack. History Channel and ESPN. And The New York Times in each department of the paper. Anywhere there’s traffic.

      Right now, if *I *were Amazon, I’d focus on making life miserable for B&N and Apple primarily. But they can work their targets successively. They can undercut any particular retailing activity they want to. They just can’t do them all at the same time very effectively.

      Mike

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