The Shatzkin Files


Nothing happens over 4th of July weekend, except this year


Monday, July 4, was supposed to be a quiet day in the publishing business. It turns out it wasn’t. Three developments reported as special holiday bulletins by Publishers Lunch have strategic implications worth pondering that will have trade publishing people all over the world conferring with their friends and colleagues as soon as they shake the sand off their shoes and settle in to read the weekend email.

First of all: Amazon.com bought The Book Depository. What? You’ve never heard of The Book Depository? Well, then you’re almost certainly one of my US-based readers (about 60-70 percent of you.) The Book Depository is really the other global bookstore. They don’t do ebooks, but they’ve bult their global book business to more than $150 million. No, that’s not as big as BN.com, but they have built a sophisticated many-to-many supply chain (they don’t do it holding stock in distributed warehouses like Amazon), have been growing by something like 30-40% per year for several years, and might even make money.

They’ve even invested heavily in untangling the metadata challenges of global book sales, with a large team in the Middle East tackling the problem.

If anybody were going to mount a global challenge to Amazon as a single consolidated book (and content) distribution business worldwide, The Book Depository was the platform to do it from.

This move by Amazon reminds me of when they acquired Mobi-pocket early in the last decade. In the dawn of the ebook-on-devices era, there were two formats competing as pawns of a hardware competition. Microsoft pushed MS Reader, Palm pushed their own format. Mobi had the clever idea of being able to play on either.

So Amazon acquired Mobi. That meant that they owned the only single-file solution; any other retailer trying to serve the market would have to offer both Microsoft and Palm as a choice to reach all the devices. Palm quickly took that option off the table by insisting it would serve all its files itself. That’s when B&N went out of the ebook business, not to return in a serious way until after Kindle launched in late 2007.

It sure looks to me like The Book Depository would have been a great launch platform for Barnes & Noble to go global.

Second: Pearson, owner of Penguin, became a book and ebook retailer by the purchase of the relevant assets from the bankrupt REDGroup. It appears they will run the business, web sites under the Borders and Angus & Robertson brands, with a minimal staff.

Pearson is a big company whose interests go far beyond Penguin, but it is the trade implications of this that catch my trade-centric eye. Big trade publishers are caught between a rock and a hard place on direct selling and customer ownership. Whatever the future may hold or require, trade publishers today are highly dependent on their intermediaries’ good will. It would likely cause untold grief with Amazon and Barnes & Noble if a major US trade house set up a direct selling operation, despite the fact that niche publishers often have them as adjuncts to community or professional publishing efforts (Wiley, O’Reilly, McGraw-Hill, F+W Media, Interweave. In fact, Pearson owns half of Safari, a direct-to-reader subscription service pioneered and co-owned by O’Reilly. They also own part of CourseSmart, but they’re now selling books and ebooks direct to consumers, not just content-by-subscription to geeks and textbooks to students.)

It might be well down the list of reasons why Pearson Australia is now running online trade selling operations, but it will be interesting to see how Penguin Australia benefits from the association.

Third: J.K. Rowling and the agent that actually handled her business, Neil Blair, have left the Christopher Little Agency which formerly employed Blair and was the agent of record for Rowling. Lawsuits may ensue, but this is another lesson in what disintermediation can mean and it recalls to me something I learned long ago from a lawyer in the music business.

My mother, Eleanor Shatzkin, had a chunk of her consulting career when she designed billing systems for law firms. (This was in the days before personal computers; “data processing” back then was done on punch cards sent to job shops for print-outs to be created.) So she made friends with a lot of lawyers. One of them, a very nice man named Don Engel, left the large New York firm where he’d been a litigator and moved out to California and set up a practice in the music business.

What Don told me (this was in the early 1980s) was that he found a phenomenon out there that didn’t exist in New York because people could start a law firm with just one client, and they often did. (As he said, you can’t take a piece of the AT&T business and set up shop, but you can take one big recording artist.) That meant these firms had no broad capabilities, and if any real legal challenges arose, the little firm with the big client would need savvier outside counsel. Don built a substantial business suing record companies over royalties on behalf of artists, getting cases referred by these tiny “firms” with one star client because he developed a reputation for being an honest guy who wouldn’t poach the client in turn!

I don’t want to suggest that what Rowling and Blair are doing is likely to become a trend. In fact, the prevailing industry conditions at the moment would, I think, mitigate against it. Agencies are more likely to consolidate than to splinter because the capabilities they need to serve their clients effectively are growing with digital change. Whatever threat there is to publishers from disintermediation would require that agents do more and have greater organizational capabilities, not less.

On the other hand, new services being offered by agents that other agents could employ might allow unbundling of the direct client contact from the rest of the agency functions.

I hope you had a really restful 4th of July weekend. The second half of the year begins with plenty to think about.

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  • Chris

    “What…?!!”

    That was my reaction to your Amazon buys BD bit.

    I truly must be turning into a publishing geek. Who knows, Cader just might get my 20 bucks one of these days!

    • /blog Mike Shatzkin

      He’s my partner on the Publishers Launch Conferences venture but I pay the
      twenty bucks each month to Marketplace, just to be able to read the full
      Lunch. You’d be at a real handicap trying to function professionally in the
      business without it.

      Mike

  • Chris

    Interesting that the Amazon/BD news is trending on Twitter here in Oz.

    Lot of book buyers on Twitter obviously. And they’re all wondering if their free postage is about to cease!

    Me too.

    • /blog Mike Shatzkin

      It will be interesting to see how Amazon plays it. Is there value to them in
      having two bookselling “brands” facing the public? Frankly, I think so, but
      I don’t know what they think. If I were they, I wouldn’t tamper with the BD
      value proposition for a while at least until I fully understood it. Amazon
      certainly *has* bought things to stop them from executing on what had been
      their prior missions (see Mobi, which I referred to, and Stanza, which I
      didn’t. Mobi and Stanza were effectively buried. I don’t know if they’ll do
      the same with BD or see it differently.

      Mike

      • Chris

        Yeah, I’d say two retail points are better than one – both AMZN & BD seem unique in their own right here. BD has a very loyal customer base. I always felt it was more personal, which is why I use it for all print purchases.

        I do think this deal may be a little different than the mobi purchase, and I only say that because this is not a ‘format/UI’ close out. BD’s brand is strong outside of the US and therefore was possibly a low-level risk to Amazon’s dominance if a competitor (B&N like you suggest) looked for an acquisition to build their position. It’s a shame B&N didn’t jump on this ages ago, maybe the Fictionwise deal has tainted all external buys. DB/B&N against AMZN would have been very interesting. BD’s brand even has a B&N feel about it. Oh, well.

        Full marks for Amazon on this deal. I wonder if this was cash solely a cash buy.

        BTW: why hasn’t anyone built a site selling books direct from distributor to consumer in the US? Or anywhere for that matter? God knows the distributors make it possible without  a retail site having to warehouse. They even do same-day/overnight post direct. Plus I think Ingram actually provides white label.

      • /blog Mike Shatzkin

        Chris, that last little stream of consciousness, which largely reflected my
        own feelings, ended up on what was precisely Amazon’s strategy at the
        beginning. They built their business on Ingram’s back. Then Ingram saw it
        and created the first white label packaging so that anybody could do it. It
        was called I2S2, for Ingram Internet Support Services.

        The minute they announced it and started signing up stores, Amazon went to
        deep discounting and all the stores at that time lost interest.

        There’s no particular point to just trying to compete with Amazon. They have
        too many advantages. It is different if your Barnes & Noble and you have
        something to build on. But from a standing start? No thank you.

        Mike

      • Chris

        Mike. is the I2S2 platform still functional?

        And if so, does anyone still implement it?

      • Chris

        Actually these are the services I was thinking of: 

        - Direct to Home via iPage
        - Consumer Direct Fulfillment

        I think they wanted $20K to set up an account last time I looked … which pretty much ensured that I was not going to look any further. Especially when it was for a niche market.

      • /blog Mike Shatzkin

        No. I2S2 was stillborn.

        Mike

    • http://freesf.strandedinoz.com/wordpress Blue Tyson

      It isn’t actually ‘free’ but built into the price in a lot of cases.  They do pricing based on IP address.

      Still very cheap shipping of course compared to Amazon’s few bucks for shipment and few bucks per item.  Or getting something used on abebooks and paying $12.

      • Chris

        Yeah, you’re right … it is IP based. That said, I’ve still found them to be cheaper on all the titles I have bought.

        Mind you, I did buy ‘Unbroken’ recently from Amazon.com … I think it was at a fairly hefty discount though. Hard to beat Amazon on bestsellers.

        I did participate in BD’s recent survey and I tink the results suggested that their core audience would purchase ebooks. So this will be interesting to see if Amazon implements that ASAP. They certainly have the know how on that!

      • http://freesf.strandedinoz.com/wordpress Blue Tyson

        Usually, yeah – back when Amazon did the UK thing to do free shipping on 25 pounds because BD was eating their lunch they had a couple of times I used Amazon as it came out a bit cheaper.

        BD’s ability to get one book at a good price as opposed to having to buy several (Fishpond) or get the same price or more added on again for shipping (Amazon) is a killer feature.

        Nice of them to do it on IP rather than address, too. :)

      • Chris

        Ha ha. I hear ya on the IP…

        TOR for the win!!

        Just goes to show how tight arse we are. Seriously though, I always thought the Ingram thing Mike and I mentioned earlier in the comments would have been a killer model for Oz a few years back. I was personally dissuaded from implementing the model myself due to being very lazy, frightened of amazon… and well, the US dollar killed my US dollar forex investment!

        I’m still amazed Fishpond, nile etc can survive. Must be better business owners than me!

      • /blog Mike Shatzkin

        Interesting point about how a retailer can “afford free shipping”. Thanks.

        Mike

  • http://freesf.strandedinoz.com/wordpress Blue Tyson

    Something I was pondering was Amazon interest in BD supply chain stuff to get more Kindles to people in more countries cheaper.

    • /blog Mike Shatzkin

      I’m sure that’s going to be one of the payoffs.

      Mike

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  • Andrew Malkin

    Mike,
    BD UK’s site says they sell 340K eBooks here–http://www.bookdepository.co.uk/category/3390/eBooks
    I know that Andrew Crawford will stay on through 2012 at Amazon and that their marketplace sales were only a small part of what they did (though they began that way and Andrew came from Amazon UK supply chain), unlike Superbookdeals US or Paperback Bookshop UK. Amazing that they could offer free shipping on everything worldwide. On another note, I look forward to watching the Penguin move with REDGroup assets. Thanks for your post.
    Best,
    Andrew

    • /blog Mike Shatzkin

      Yes, I knew that BD’s origins were with Amazon. Thanks for setting me
      straight on their ebook offerings, although I still believe it is a very
      small part of their business.

      Mike

  • Peter Blake

    Love your work Mike but I think you mean “militate” not mitigate.

    Peter

    • /blog Mike Shatzkin

      You’re right.

      Mike

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  • http://ebookfriendly.com Ebook Friendly

    Besides The Book Depository I’d add one more thing and it’s a 40th anniversary of e-books. I know, it’s maybe not as exciting as current news, but on the other side it gives so much background to what is actually happening.

    Read this post by Michael Hart: http://www.gutenbergnews.org/20110701/2011-is-the-year-of-the-ebook/

    Earlier this year I made an infographic about history of e-books and in my opinion it’s the single topic we should all keep talking about.

    http://ebookfriendly.com/2011/02/27/40-years-of-e-books-infographic/

    • /blog Mike Shatzkin

      Your history and timeline is interesting but didn’t you leave out Franklin
      Electronic Books and a Sony device from the early 1990s that delivered about
      two or four lines of text at a time?

      Mike

      • http://ebookfriendly.com Ebook Friendly

        That’s a great piece of story, thanks! I’ll have to dig about it.

  • http://www.booksfreedelivery.com/ Himani Chokshi

    Yes it deed and the thing is, it created the breaking news..