The Shatzkin Files


How much time and effort should established publishers be spending on startups?


We are now in a period replete with startups that want to be the disruption in publishing. We see a lot of them in our office. Part of our business involves helping startups find relevance and contacts within the established publishing community.

There are three areas in particular which the startups seem to think the publishing business needs their help with, if the frequency with which we hear about propositions in these spaces is any guide. They can overlap.

1. eBookstore alternatives to the established players.

2. Enabling social connections among readers of books.

3. Subscription services that will deliver books for a fixed monthly cost.

I wrote about the subscription services a while ago when one of the fledglings came into our office. They were well advanced in their planning and tech development. I asked them if they had spoken to any literary agents. They said “no”.

Presumably they have done so since then and have found out that big shot literary agents are very skeptical about the value of subscription propositions for big shot authors. In fact, they are (in their own enlightened self-interest) downright hostile to the idea. That makes smart trade publishers, who are highly dependent on literary agents, also hostile to the idea.

When it comes to selling subscriptions to a general audience, Amazon (and probably only Amazon) can do it without the biggest books. Maybe down the road Penguin Random House can do it because they’ll be the publishers of more than half the bestsellers. O’Reilly, with Safari, has demonstrated that subscription can work in niches, and we’d expect to see more of that in the future. But there’s a damn good reason why no Safari service has cropped up for general reading; it’s a bad commercial model for the copyright holders of the biggest commercial books.

Attention: entrepreneurs with this idea. The reason it isn’t happening has nothing to do with failures of imagination or tech competence by the legacy players.

The “social reading” play also attracts entrepreneurs and, apparently, some funding. I think there are two generic failures of understanding that drive this interest. One is the sheer granularity of the book business. The vast number of titles there is to choose from means that the percentage of overlapping titles in the reading lists of unconnected people is going to be very low. Therefore the value of shared notes and annotations or “in-book” conversations is low as well.

Enabling this kind of shared reading experience can make sense to a class of students or an organized reading group. But it takes a really vast community to deliver value in shared book conversations to many people. And let’s remember that both Amazon and Kobo offer social tools already. If they become important, they’ll build out more. The fact that they haven’t to date is not a reflection of their inadequacy; it is a reflection of how much the people selling lots of ebooks and observing real customer behavior think these capabilities matter.

Several years ago, when they were starting up, I was consulting to Copia, which built social tools right into the reading software as their distinctive feature from the beginning. As a skeptic about the value of social reading (we’re all prisoners of our own experience and preferences, and I have precious little personal interest in “sharing” my reading experiences), I suggested that the key for them was to work in niches: to recruit users who would have common interests and therefore better-than-average chances of being interested in the same books. I think they’ve moved in that direction, but the suggestion was counterintuitive to them at the time. How do you get to be bigger by targeting a smaller audience?

Many of the social plays require the simplicity of DRM-free files to make their proposition work. That just makes it harder for them to get commercial titles into their ecosystem. Or impossible.

Copia is also a competitor in the ebookstore category. There are a lot of them, despite the fact that there are market leaders with advantages it is hard to see how to overcome. The global market leaders are Amazon and Apple. The global runners-up are Google and Kobo. All four of these companies have extremely deep pockets and all except Kobo have other ways — besides selling ebooks — to amortize their investment in audiences. In the US, B&N has managed to make Nook a strong competitor, but it is still very much an open question whether they can do the same internationally without the store footprint they have here and without the funding capabilities of their competitors.

Yet, others, including Copia, keep trying. Baker & Taylor has Blio, which looked early on like a player for illustrated ebooks. Two problems: the flexible tool set they originally promised failed to materialize in the manner they first projected. And the sales of illustrated ebooks are not very good anyway. Joe Regal’s Zola Books has been trying to gain traction, with a variety of propositions including decentralized curation and exclusive content.

Three big US publishers have launched Bookish, which is presumably more a discovery mechanism than a bookstore, but which will have to attract traffic to be of much use as either.

And then there’s Inkling, which has developed tools to make complex ebooks (they seem, quite sensibly, to be more focused on school and college textbooks than on illustrated trade books) and is pairing that with a “store” which would appear by the deals they offer to be an important monetization element in their planning.

With whatever are the limitations of my understanding or imagination, I can’t see success in the cards for any of these adventures in retailing, social, or subscription (Inkling’s product-building tools are different and could have longterm value.)

All of this wraps into a larger question: how much time, money, and bandwidth should commercial publishers be spending on startups?

That subject is of great interest to the investment community, which has been frustrated by what they see as publishers’ lack of engagement with startups or interest in disruptive technologies. One angel investor we know tells us that a need to work with publishers is a real deterrent to raising money from technology investors.

But does that mean the publishers are wrong not to be embracing startups more than they do?

Javier Celaya, a Spain-based consultant to publishers on digital change, recently conducted a survey about this subject. What the detail of Celaya’s investigation seems to show is that investment in startups takes place in the educational sphere, but not in trade. That would make sense. After all, trade publishers deliver books to be consumed by a wide variety of people for an equally dispersed set of motivations. But in education, the “book” needs to fit into an ecosystem, a platform. Educational publishers recognize the possibility of controlling the platform, if they have the right tools to offer. That makes it sensible for Pearson and Cengage and McGraw-Hill and Macmillan to make investments in technologies that might give them that platform advantage.

(We’ve observed that “platforms” aside from those of the big retailers are becoming important in the juvie publishing world.)

I had an exchange with Javier Celaya about his survey after he posted it. To my skepticism that investing in startups made sense for trade publishers, Celaya pointed out that an investment in Goodreads would have been much more fruitful than the massive effort and investment three big publishers made to start Bookish.

That’s true. It is also true that no publisher that missed finding Goodreads in the first year or two or three of its existence would have been much handicapped in making good use of it whenever they did discover it. And it is not clear that owning a chunk of it would give a publisher any great advantages in using it over what they can achieve anyway. It is also not yet clear how successful Goodreads will be monetarily (although it has clearly managed to recruit an audience large enough to be valuable as a marketing engine).

If I were making policy for a publishing house, I would discourage spending any time with a social or subscription proposition that didn’t clearly have a “niche” strategy. And I’d allow the investment of only the minimum of effort in a fledgling ebookstore. Publishers do need to be able to provide their metadata and put titles up for sale easily (Ingram or others can help with that if they don’t want to serve each little ebook retailer themselves) and they should do that. But the odds of any new ebook retailer making much of a dent in the market are so long that conversations about it are most likely to just be a waste of time.

Of course, I’d also have a list of “tech we’re looking for”: ways to streamline metadata enhancement and improve creation workflows would probably make the list. The startups who came with a promise to solve a previously-identified need would certainly be welcome and experimentation might well be called for. But not investment.

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  • Joe Regal

    Mike –

    I thought I should clarify that Zola Books is not “trying to gain traction.” We won’t be finished with our basic functionality until late May, and the full range of cool stuff we’re building will take until September. So, very little of what Zola is going to offer is visible now, and we’re not yet focused on building our audience.

    That said, it’s still nice that we had over 20,000 unique visitors in February. Not bad for a retail site that only started selling its first publisher books a few days ago, and then only into iPad/iPhone apps. Seems like there might be some hunger for what we are setting out to create – though we won’t really know until the end of this year.

    Thanks,
    Joe Regal
    CEO
    Zola Books

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

      Sorry to have assigned you a premature slot as a competitor, Joe. Didn’t mean to put you into the game when you’re still warming up in the bullpen.
      Mike

  • Steve

    Mike – You’ve made the case before for verticals, that there may be some spaces for retailers who command a certain vertical. Of the start-ups in your “eBookstore alternative” group are you seeing many or any that are focused on a vertical? I can imagine that such strategy are less attractive to investors.

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

      I think that Zola, for example, *enables* verticals by enabling decentralized curation. But unless there’s some real marketing effort, I think the verticals will take a long time to generate. Same with Copia, which I think has been trying to foster vertical creation.

      The problem is that most people — by far, not a slim majority — don’t care about this stuff. They just want to buy their ebooks the easiest (and cheapest) way that *just works*. And then they just want to read them and move on to the next book. That usually means Amazon works the best for them; it almost always means one of the totally established ebook vendors does what they need.

      Mike

  • Arun Benty

    Mike – I attended Javier’s session at the ToC last month and got a chance to speak with him. I’m skeptical about trade publishers investing in startups because of the conflict of interest. We were approached by a few publishers, but the investment was more to internalize our technology rather than invest in the business as such. Which is understandable if you look at it from the publishers perspective. I feel startups in publishing have a better chance if they look for strategic investments from companies like Ingram. Though there are a few publishers like O’Reilly that could prove me wrong.

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

      Publishers are not the only ones that might invest in technology to control it although it is true that publisher control could be self-defeating for some commercial propositions. But in the trade space, I don’t see much desire for that. In fact, we’ve seen Hachette invest in developing technological capability and then making it broadly available. I think most trade publishers understand that they need a strong trade.

      Mike

  • Javier Celaya

    Hi Mike

    Just read your piece. I have been quite busy at SXSW

    There is no doubt that this topic will generate a lot debate with many different opinions

    I disagree with the assumption that trade publishers should not consider investing in key platforms as part of their competitive advantage in the digital economy. If publishers exclusively “use” technology provided by third parties versus working closely with them, then they will always remain dependant, uncompetitive and “blind” in the digital age.

    In the digital age, trade and educational publishers must assume that they are no longer in the content business. To compete in the web, they need to provide valued added services around their content and those services will be provided by tech companies and startups.

    In the new age of collaboration, it is too costly and
    absurd to develop those services in-house. Instead, trade and educational publishers should work hand in hand with digital entrepreneurs for the purpose of developing joint business models in strategic areas such as best of breed services for their key authors or discoverability services for readers, among other areas.

    In my view, trade publishers that decide to treat startups as a vendor will be handicapped since they will not be getting the most important return-of-investment in technology: access
    to real time data about their products and services, as well as vast amounts of metadata about their customer’s profiles and behaviors

    Regards from Bilbao

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

      Well, we disagree on a number of points, but fundamentally on whether educational and trade publishers share similar challenges.

      And another core flaw in your perspective, in my eyes, is that *most* (by * far*) of the startups not only fail to score, they don’t even get out of the batter’s box.

      The very biggest publishers might have both the knowledge and the bandwidth to evaluate fledgling proposals with enough sophistication to make educated bets. The rest of the publishers would be going to the casino and flipping their chips over their shoulder without any idea what number they’ll land on (as if it mattered…) No way to run a business.

      I hope you had fun at SWSX.

      Mike

  • Matteo Berlucchi

    Mike,

    great post.

    A few thoughts.

    I think PRH should invest in building its own B2C offering. They have the breadth of catalogue, the brand (Penguin) and the $$$ to be able to establish themselves as a credible ebook/book vendor. Clearly they will need a ‘twist’ but who else could do it if not them? The ‘twist’ has to be identified but I can’t believe that there is no further way to innovate in this space. Actually, in history is when everyone is giving up that the most radical innovations pop up (I have an idea or two of my own!)

    The second thought is around Goodreads. Based on my work with Anobii, I think it’s possible to predict sales with the right algorithm and the right dataset. We tested the idea at Anobii and the results were scaringly accurate (our data set was very strong in Italy). Goodreads as the richest dataset in the US on what people have read and whether they liked it or not. You could build a ‘success’ factor and use it to predict sales of your next book. This could save a lot of money on advances and marketing budgets. Think ‘Moneyball’ for books. But you need to own a stake in Goodreads to access the data…. ;-)

    Matteo

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

      Good thoughts.

      If the data had that much predictive value. Goodreads could figure out how to sell it to publishers without them needing to own a piece of the company.
      And I think the Random Penguin ought to go for a subscription business. They’ll probably at some point have a bookstore too.

      Mike