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The end of Borders took place within a larger context.

I was in Italy for the IfBookThen conference last February when Borders’ impending bankruptcy was a rising expectation. Somebody in the audience asked me if I attributed Borders’ difficulties to ebooks. I said:

“When the flu hits town, the old and sick die first.”

Ebooks present an enormous challenge to brick-and-mortar stores. And the growth of ebooks over the past three years or so has been nothing short of astonishing, even to somebody like me who expected a more gradual rise to have started much sooner. (The IDPF chart which shows the growth in the market, sharing data actually collected by the AAP, has apparently not been updated for the past two quarters, but this gives you the idea.)

But the disruption to brick stores started before ebook sales were even visible with a microscope, more than a decade sooner, when bookstore customers started migrating to online buying. Ebooks just accelerated what had been a trend of traffic and sales erosion that had existed for quite some time.

Ed Nawotka of Publishing Perspectives has a nice account of some serious errors Borders made around the turn of the century. Replacing a book-experienced management with merchants from outside the book trade was the gateway mistake. Eliminating the local marketing function was one that probably came from it: the local differentiation and customization required for a successful bookstore is much greater than what is needed for pets or groceries and successive managements from outside the book trade wouldn’t have known or understood that.

Turning over ecommerce to Amazon showed a shocking lack of digital vision. It is often forgotten that Barnes & Noble once made half the same mistake: they originally owned their BN.com ecommerce capability jointly with Bertelsmann until they bought their partner out. And Barnes & Noble had obvious challenges reconciling their online business with their overall business until they brought in new management that clearly saw the online business as the future. That wasn’t until much later in the century’s first decade. The problem both chains probably saw is that the skill sets required to run a successful brick store chain didn’t apply to creating a digital business so they were nervous about investing too heavily in it. When the time came that it was obvious that they had to do so, Borders was too weak to recover and Barnes & Noble, despite a web operation that had serious flaws, at least had a platform and customer base to build on.

And they had strong cash flow from a healthy, well-managed in-store print book business.

The category management idea Borders tried to implement and which Nawotka documents was a fiasco in every way: poorly conceived, poorly executed, and an idea that, if it could work for the book business at all, would have to be selectively applied, not forced on every section of the store.

The reduced selection concept that was underlying category management suggests that perhaps Borders had an early and accurate read on the fact that the Internet had diminished the power of selection in a brick store as a magnet for customers. It is true, and it was true then, that the power of aggregation had shifted from offline to online. It is just impossible for any physical location to deliver the choice that an online bookstore can. Most people now know that if you want to choose from the widest possible selection of just about anything the the last thing to do is go to a store. And that’s particularly true of books, which you don’t have to smell or taste or try on for size.

In my opinion, the defect in Borders that led to their ultimate demise was “none of the above.” It was their supply chain, which for well over a decade has been an inefficient mess.

The irony is that when Borders started, inventory management was their signature strength. The Borders brothers developed a tracking-and-purchasing system which was state of the art at the time (the 1980s) and turned it into an expansion opportunity. It all worked so well that they were able to sell the chain to K-Mart, which already owned the mall store chain, Waldenbooks, in 1992. That was probably the beginning of their downfall.

Borders and Barnes & Noble were on parallel paths building out superstore chains, featuring bookstores that pulled over 100,000 titles together under one roof. Until Amazon arrived in 1995 and started gaining traction, this was a nearly-irresistible proposition to the heaviest book consumers. Both chains, fueled by Wall Street investment, grew their number of large stores quickly. The stores were free-standing destinations, not in large shopping malls.

But this is where the chains diverged. Barnes & Noble made a substantial investment in a supply chain infrastructure. They built what was effectively an internal wholesaling operation, putting backup supplies of the books their stores carried within one day’s delivery of most of their chain and within two day’s delivery of just about all of it. They built systems to set stocking levels and maintain them. My first client work at B&N was in the late 1990s when they were crawling with logistics experts to make inventory management rules and policies, but they were also smart enough to want some book inventory expertise from outside their company (not that they didn’t have plenty of it on their own payroll) to help with the planning as well.

Meanwhile, Borders was working on gimmicks like category management and their supply chain became increasingly bureaucratic and convoluted. They pushed books through a warehouse, but only to put stickers on them. This compounded the irony. In the 1970s, the B. Dalton chain that B&N owned had virtually invented computer-assisted inventory management based on stickers they put on the books carrying an SKU number. Walden, in the days before they were owned jointly with Borders, had leap-frogged Dalton in that regard by scanning the ISBN instead of needing a sticker. Now, 15 or 20 years later, B&N regained that same advantage over Borders. Borders suffered the delay and the cost of stickering new books as they came in and B&N didn’t have to.

But, much worse, Borders backlist ordering was haphazard (almost totally human-controlled, whereas B&N’s was largely automated) and infrequent. B&N literally ordered from many publishers every day; Borders was ordering from major publishers as infrequently as every six weeks.

When you order infrequently, you face two choices. You can be overstocked on many things or out of stock of many things. There is no other alternative.

The complications to inventory management posed by the granularity and diversity of book selection utterly defeated the non-book veterans that serially ran, or mis-ran, the company. The lack of a digital strategy compounded the problem, but the supply chain lunacy was the problem. The cost of inventory is the greatest variable expense of running a bookstore. If you don’t get value for your inventory dollars, your leases and your staff couldn’t save you, even if they were good.

What this means for publishers’ sales is a bit difficult to predict and will even be harder to discern. Sales this year have been skewed by the Borders inventory dump. Publishers’ editions elsewhere and the stores their books are in have been competing with liquidation sales. This depressing effect on other retailers’ business and, as a result, their willingness and ability to order from the publishers, will be coming to an end.

Publishers Lunch got together with Bowker a couple of months ago to ask questions of Borders customers to try to discern where the business would go. They have hard data to the extent that it is possible to develop it, having asked people how their purchases would be affected and where they would buy when their Borders was gone. Only 8% said they’d buy fewer books, although nearly 20% said they’d use the library more.

My own totally hunchy math, checked out in a rigorous conversation at dinner with a good friend who is a publisher, is that Borders constituted about 10% of a publisher’s business until very recently. My guess is that half that business goes to Barnes & Noble, most of the rest is split between online purchasing and independents (with online getting more, much of it in ebooks), and maybe 1% or so, or 10% of the old Borders business, will be “lost.”

Of course, the movement of sales from print in brick-and-mortar to print and ebook online will continue, so how much lift from this will actually be felt by chains, independents, and mass merchants is still up for grabs.

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This is the last of a 4-part series describing what I was intending to say to a live audience at the Publishers Association in London on April 28. In Part 1, I tried to make clear that a lot can happen in 20 years, which is the prediction arc for the first three posts. In Part 2, I described what I think is the world of information that will include publishing in 20 years. In Part 3, I suggest what I think publishers will evolve to and make some suggestions about how to get from where we are to where we’re going. And now, in Part 4, I take a shorter view, looking at the changes we can expect to see in the next two or three years.

Now let’s think about the pretty immediate future.

The year-on-year growth of ebook sales as charted by the IDPF shows overall sales volume growing by more than 2 or 3 times over the same period in the previous year and accelerating. Squinting at the chart, it looks to me like wholesale volume in the fourth quarter of 2007 was about $7 million, in the fourth quarter of 2008 the sales were about $16 million (2+x over last year), and in the fourth quarter of 2009 they were about $55 million (3+x over last year, about 8x over two years ago).

Anecdotal reports say that for new narrative books, ebook sales are already in high single or low double digit percentages of the total number of units the book sells.

You have to figure that the percentage growth on a per-title basis is less than the overall number for industry growth. The overall sales growth is partly attributable to more and more titles being made available as ebooks, so the expectations for unit growth for an individual title wouldn’t be quite as fast.

If ebook sales for new titles now are 7.5%, which seems like a low-but-reasonable estimate, and if that number doubles annually, which also seems conservative, we’d expect the ebook percentage to be 15% a year from now and 30% two years from now. In that light, a forecast of 25% ebook sales for new narrative books published by the end of 2012 (a bit over two-and-a-half years from now, and not to be confused with saying 25% of dollar sales volume will be produced by ebooks by then) is actually pretty restrained.

The volume of print book units sold online is likely to be a similar number to the number of ebooks by then. That means that by the end of 2012, the expectation would be that fully half of the unit sales in the US for a new narrative title will be rung up online. Online sales not only require almost no sales force, no warehouse, and no complex support apparatus to achieve (that is: the services normally offered as “sales and distribution”), they also really require no inventory. Print books ordered online can be printed on demand.

Making this forecast even more likely to be valid is the trend of diminishing sales in brick-and-mortar stores. Both major chains have reported substantially lower same store sales, year on year, for the past two years. Like the growth in ebook sales, this is a trend which it is hard to see changing over the next few years. Or ever, if the 20 year view we contemplated in an earlier piece in this series pans out.

There are a number of obvious implications of the situation we see unfolding if this fairly short term analysis proves correct. Authors will be more inclined to self-publish, particulary their out-of print backlist and any title a publisher doesn’t offer an advance reflecting high expectations. That means that, on average, desireable books will be harder and more expensive for publishers to sign. The pressure for publishers to give more than a 25% ebook royalty will intensify. There will be excess capacity throughout the print supply chain: printing, warehousing, and sales operations, and the price of distribution services on offer will go down because the overhead cost of maintaining it, as a percentage of the sales it supports, will have gone up for those with fixed operations.

Because the whole motivation for this lengthy multi-part post was to address the publishers in London, I want to close with a thought about a re-think that should be taking place among British publishers and agents over the next few years.

In general, it is true that the Web diminishes the value of “local”. Part of the reason that bookstores are so challenged is that the customer around the corner from them who wants to shop online finds Amazon.com or BN.com just as “close” as their local store. On the other hand, the Web opens up a potential global market to anybody connected with it.

For the past decade or more, the UK publishers have, in the stated interests of defending their territorial rights in their own home market, tried to bring English-language rights for Europe, which for years was ceded as “open” to books from the US or UK, into their exclusive grant of rights. The stated justification for this has been that the rules of the European Union allow any wholesaler in Holland or France to ship books into Britain and, if they bought from US sources, US editions could find their way onto UK bookstore shelves. Ignoring for the moment the number of ocean miles, warehouse handlings, and individual company profits a book taking that route to the UK would have to pay for (making one wonder, “you can’t compete with that?”), the wisdom of building high territorial walls might very shortly be called into question.

For if a British publisher has an inside track to a British writer or a British-told story that has global appeal; and if the marketing for that book is mainly going to take place online through niche communities on the Web that are often geo-neutral but are certainly accessible from anywhere at no particular cost whether they are or not; then a British publisher can reach half the US market for that author with no inventory risk at all. Furthermore, territorial disputes between English-language publishers about ebook rights are making total global sales coverage increasingly problematical. The blogosphere is full of stories about people who can’t download an English-language book in Peru or Greece because the rights situation is ambiguous. Having one global publisher will assure total worldwide availability in a way that rights-dealing is making increasingly difficult. Agents will understand that.

So I’d bet that a number of British publishers will, over the next few years, find the defense of territoriality a rear-guard and retrograde reaction to the new realities. In fact, aggressively selling the books you publish throughout the world, is not only possible but the most profitable and author-friendly way to navigate the next, and (from the long historical perspective) one of the last, twists of the book market.

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Daniel Menaker was not long ago the Executive Editor-in-Chief at Random House and writes knowledgeably about the state of play and state of mind inside Big Publishing today. His piece Redactor Agonistes is a psychological snapshot of a declining industry, a catalog of the frustrations that are increasingly common in an environment where, as hard as everybody tries, the numbers just keep getting harder and harder to hit.

The first point to make about Menaker’s article is that is published by review, barnesandnoble.com’s online magazine. I knew that B&N was working hard on online content, but (not being much of a book review reader) I hadn’t actually looked at it until this article. Of course, it shows the magic of the web; I was directed to the Menaker piece by a number of online referrals and now I’ve discovered a whole new source of interesting content. This kind of intellectual article is not what I previously would have expected to see in a free publication created by a retailer! And it shows that BN.com is thinking about the value of a community of readers who think about the book business.

Menaker makes the overall point — familiar to anyone in the business — that publishing is about saying “no” far more often than it is about saying “yes.” Most submissions don’t get an offer. Most of the books that are published don’t get much attention. Most of the books that are published don’t earn out their advance (although that is not saying the same thing as “most books don’t make money”, which Menaker comes dangerously close to conflating. And if you use the benchmark of “make money”, you get drawn into a conversation about how charges for overheads are handled, which is a conversation we love having but we’ll save it for another day.)

I have said for years that “publishing a book presents the temptation to make an infinite number of decisions, which must be resisted.” Menaker notes this aspect too when he points that out that editors have to deal with nitpicking about the jacket, the design, the flap copy, all of which can be labored over forever if every thoughtful comment is responded to.

Menaker also notes the disconnect between the editors, who acquire the product, and the sales team that has to turn the investment back into revenue. Despite some years in the business at a reasonably senior level, Menaker admits “you don’t know what sales reps say about [the] book when they make sales calls.” He admits to a suspicion “that salespeople’s and buyer’s biases and preferences play a greater part in a book’s fortunes than most editorial people want to allow themselves to understand”. While I can quantify his benchmark about the editorial people, I can tell him from years of experience with sales that rep and buyer prejudices — which they would call either “tastes” or “instincts” — are, indeed, a significant component of the success of all books below the very top echelon.

Menaker notes that success in frontlist publishing is “very often random.” This is a level of humility and honesty that probably would be very hard for top management to accept from anything but a former executive editor-in-chief.

Of course, all these things — and many other things Menaker says in this piece — not only are true of trade publishing, they have always been true! In fact, with the consolidation of accounts, it is probably easier today for an editor to talk to buyers constituting a significant portion of a book’s potential than it was 20 or 40 years ago. (The sales department would hate the idea, but three or four conversations could cover more than 50% of the potential for most books.) The randomness he notes in frontlist success was probably greater when the account base was more decentralized. Publishers have always turned a lot of books down. Publishers have always done very little for most of the books on their list (besides putting them in a catalog, printing them rightside up, and sending them on their way.)

But I think Menaker is right when he suggests that publishing houses aren’t as happy places to be as they used to be. I just don’t think he has put his finger on the reason why.

He comes closest at the end when he talks about the creative acquirers’ need to feel that they have the “knack” of recognizing raw intellectual property that ends up making a lot of money. That’s really the problem; it is getting so hard to make money.

But that’s not because of the time-honored problems; it is because of the changes in the environment around publishing.

Each new book today is competing with millions of other book choices quite accessible to the consumer; 20 years ago it competed with about 100,000 other books. Forty years ago it competed with fewer than 50,000. Used books are offered right alongside the new ones online — a development of the past 10 years — and will increasingly be in the stores over the next 10 years. The amount of shelf space available for books at retail is shrinking for the first time in our lifetimes, while the number of titles competing for space is mushrooming. Menaker says 150,000 titles are being published annually; counting by the new ISBNs each year, the number is actually two or three times that large. Industry output was about 10,000 titles annually in the 1960s.

And all of that is before we take into account the information you would have gone to a book for 20 years ago that you go to the Internet for today: to choose a hotel in Paris, to figure out how to tend to a sick geranium, to find a great recipe to turn leftover ham hocks into soup.

It’s not just in people’s imagination that the business is getting harder and it is also becoming more depressed. People in books are not as happy as they used to be, because success, as measured by dollars in over dollars out, is not as ubiquitous as it used to be. The change Menaker takes note of is not attributable to the changes in the way we do business; the changes in the way we do business are a response to a changing environment all around us. It is characteristic of an industry that is getting smaller after several hundred years of only getting bigger.

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The transition from print to digital is going to be a continual lesson in branding for publishers and in merchandising for retailers. I got a dose of that trying to make use of modern technology to deal with an old common problem last week.

I knew two or three weeks before that I was going to Boscobel to see Much Ado About Nothing on Friday night. If you’ve never been there to see Shakespeare, I recommend you put it on your calendar for next summer (this season being about over.) Boscobel is a beautiful site above the Hudson on the eastern shore opposite West Point, with beautifully manicured gardens leading to a stunning river overlook.

They put on Shakespeare under a big tent. The direction is uniformly excellent and imaginative; the performances often very good. (I am not an expert in theater, but I did have the good fortune to act in several Shakespeare plays in my youth, including a turn as Tybalt in a Romeo and Juliet that had subsequently famous actor Peter Strauss playing Benvolio. Our duel in the first scene is a story I’ll save for another time.)

I didn’t think I had ever read Much Ado, and it turned out I hadn’t. But I was both busy and dilatory. So it was only last Thursday, the day before the show, when I got back from London, that I finally went on BN.com to buy a copy of the play to put in my iPhone so I could get it read over the next 24 hours.

And that’s where I encountered some branding lessons.

What you get on the first screen from BN.com when you search ebooks for “Much Ado About Nothing”, in order, is the SparkNotes Guide for $4.95 (that’s a dormant Barnes & Noble-owned brand, and I’m sure the notes are good, but at that point I wanted the play); a “Digital” (that’s presumably a brand) eBook for $2.99 on which I could get a free sample; then 8 free versions each labeled “from Google Books.”

I should have loaded the “Digital” sample (but didn’t at the time; I am not familiar with the brand) and I would have seen it was well worth the $2.99 to buy it. I tried 3 from Google; they all turned out to be from Princeton’s “William Seymour Theater Collection” and they were, to put it gently, unsuitable. The typography, design, and editing were old and impractical.

So I changed my search criteria to “Shakespeare’s Comedies” and bought a Modern Library volume by that name that came up on the first page of the search. It came equipped with a Table of Contents and it is quite readable. Only twenty bucks. I paid it. I needed it and in my disappointment over what I got from Google I had forgotten the much-cheaper “Digital” edition of the single play above all the Google-branded ones.

But then on Friday afternoon, I had hardly cracked the play and I was running out of time. I remembered that last year at Boscobel time I had bought a copy of Lamb’s Tales from Shakespeare for my Kindle. I found it stashed at Amazon online and downloaded it to my iPhone. When I looked at it, I remembered what was wrong with it: no Table of Contents. Last time I had to scroll through the entire book page by page to find the play I wanted to read. I remembered that what I had done was make the font on the Kindle the smallest possible size to make that laborious process go faster.

Then I remembered that I had figured out after the fact that I could search on the Kindle for the play title and find it! Great. But the Kindle for iPhone doesn’t have the search function! So I retrieved the Kindle from my wife (who got it as a hand-me-down when decided I could do all my reading on the iPhone), searched for “Much Ado About Nothing” and was taken to the opening page of that story. I noted the Kindle text chunk number, found that chunk on the iPhone and, bingo, I was in business.

That wasn’t easy. It uncovers a number of points worth noting as we enter the digital book age.

1. Google’s books will be acceptable if they are the only choice available for the title. They will almost certainly not be the version of choice if something really prepared as a digital version in a modern way is available. Their “brand” will rapidly be seen as “last choice” if you have a choice. This is not good.  And if they intend, as they suggest, to sell new books as well as giving away PD books, they better do something about it. Imprint branding may not be the most highly developed skill set at Google (but don’t get advice from a publisher!)

2. And the retailers shouldn’t interpret downloads as popularity when they present choices. It wasn’t good merchandising for BN.com to show me all those identical Google editions for Much Ado so near the top, which one might assumes might have happened because they are free.  B&N should note, if they’re keeping score, that I downloaded them because they were free. If they’re looking into my ereader for useful information (in ways that will give many people the creeps, of course), they will see that they’re already deleted.

1A and 2A. Both Google and any retailer selling their books would be very well-served if they tagged (“branded”) the books which are uniquely available in Google editions.

1B and 2B. Both Google and any retailer selling their books would be very well-served if they refrained from displaying multiple copies of what is effectively exactly the same thing, particularly since they do so without making that clear.

3. Random House’s Modern Library brand sold me a $20 book of Shakespeare’s comedies because I wanted to read this play and didn’t have time to fiddle around once I’d found that a presumably competent commercial publisher had an edition available. This undercuts my supposition that publisher brands are meaningless. I still think that’s true for most purposes, but in this case it wasn’t and the brand was worth a high-priced, high-margin sale to them.

4. Kindle for iPhone isn’t as functional as Kindle on the device. There’s no text search capability. There is such a capability in BN.com’s ereader, however. That’s a reason I’ll be buying and reading from BN, not from Amazon.

5. Non-functional (unlinked) Tables of Contents are a real no-no in an ebook.

Having found the right spot in Lamb’s, my wife and I were both reading the story of the play in our seats during the ten minutes before it began, she on the Kindle and I on my iPhone. This attracted a great deal of interest around us and no small amount of envy. I think it is highly likely that we inspired some of our neighbors to be doing this themselves next summer. By then there’s hope they will have a smoother shopping experience than I just did.

Two codas to this piece.

Right after I finished it, I got a note from Ami Greko of Macmillan to tell me that Tor is making its Wheel of Time series available on Kindle for the first time and, to do it, the full text of the books has been retypeset to better accommodate the ebook format and all original illustrations and maps will be retained in these new releases. Tor appears to be the industry leader in establishing a 21st century sci-fi brand and taking this kind of care with a flagship series is good for their readers and good for the brand.

On another front, a great discussion broke out on Brantley’s list about publishers trying to squeeze textbooks onto iPhones. A number of us made the point that books originally intended for 150 square inch presentation need to be rethought to be effective within 6 square inches. Andrew Savikas of O’Reilly was the most articulate and compelling on the point when he said:

The bigger issue I see is that thinking of the problem as “how do we get a textbook onto an iPhone” is framing it wrong. The challenge is “how do we use a medium that already shares 3 of our 5 senses — sight, speech, and hearing — along with geolocation, color video, and a nearly always on Web connection to accomplish the “job” of educating a student.” That’s a much more interesting problem to me than “how do we port 2-page book layouts to a small screen.”

Even when all a publisher is doing is presenting the same text in an ebook, the way Andrew suggests we be thinking is the right approach. And almost every publisher has a long way to go to cover even the basics on a consistent and competent basis. Defining what “competent” ebook-making consists of in 2010 will be a topic at Digital Book World.

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Three weeks ago, the community had a big discussion about the timing of ebook releases which was triggered by Dominique Raccah’s announcement that Sourcebooks would hold back the ebook of Bran Hambric for some period after the hardcover release. The expressed concern was to insulate the $28.95 hardcover from the price competition currently taking place in the ebook space, where Amazon has started working to establish a $9.99 retail price for new commercial titles, forcing BN.com to match them.

This post doesn’t quarrel with the suggestion that there’s a problem; it is a quest for a better solution.

Although Amazon has pushed some smaller publishers to a different discount structure, the established commercial houses usually sell ebooks to retailers at about 50% off the publisher’s retail price, about the same terms they have established for print books. But ebooks, title for title, add more margin (i.e. profit) to the publisher at the same net revenue because the books don’t have to be manufactured and shipped and there is also no cost of returns. (They would also generate more margin for the stores than print books if they the stores sold them at the same price as the print book, but, as I pointed out in an earlier post, under current practices, they never will.)

Both my “current commercial” and “futurist” instincts say that cutting off the ebook market from purchase at the time the book comes out, is being assertively marketed, and when interest is probably highest, is the wrong strategy.

There are non-pecuniary reasons for publishers to protect the print book sale. Except for the USA Today list, which records Kindle sales but no other ebooks, only print book sales are reported to determine “bestsellers.” And enlightened publishers, including Dominique Raccah, want to protect print book sales to protect brick-and-mortar stores, who are still the most important merchandising and marketing tools publishers have (even if many of them don’t know it.)

To the most avant garde digerati, who advocate eliminating DRM and pushing prices to the consumer down as the antidote to piracy (which the most conservative defenders of the old model would liken to putting a bullet in your brain as an antidote to having taken poison), keeping the book off the market to maintain higher content prices is multi-faceted anathema. Among the inevitable consequences of this, they would tell you, is that there will be more pirated editions available and otherwise-inclined-to-be-honest consumers will be “forced” to the pirate editions because a legitimate ebook edition is not available.

I am not a 100%-no-DRM guy. (Actually, I’m a nearly-100%-social-DRM guy.) And while I believe that the price of content is in an inexorably downward spiral, to the point that the day will come some years from now that it won’t be much of a business to control and sell it, I also believe publishers (and authors) need to preserve content margins as effectively as they can for as long as they can to finance the transition to the new publishing economy where eyeballs and human bandwidth, not IP, are the currency of the realm.

I was surprised recently when a Very Smart Friend defended the Sourcebooks strategy by saying, in effect, “what’s so special about the ebook consumer? The paperback reader waits for the book to get it cheaper; why not have the ebook reader wait for the book to get it cheaper?” My argument that the ebook readers and print book readers are two separate markets carried no weight. First of all, there’s also a split between paperback readers and hardcover readers. But also, my debate opponent simply didn’t buy my paradigm, and frankly, it is currently unprovable.

But I still find the Sourcebooks solution very unsatisfying. I think it hurts the overall sale of the book and the profits of both publisher and author in the long run. Although I think the impact is marginal, I have to agree that ebook readers will more frequently obtain a pirated edition if no legitimate edition is available. And it is “unnatural”. The publisher’s job is to get the author’s work in front of as many paying eyeballs as possible and to generate as much revenue as possible in the process. This strategy works against those objectives.

So here’s another solution, one that:

1. Allows the publisher to sell the ebook at the same time as the print book;

2. Makes it much harder for retailers to discount the ebook way below the print book price; and,

3. Increases the profit to the publisher and author on every ebook sold.

For the first six months of a hot new book’s life, publishers should establish “debut pricing”: reducing the discount at which they are sold to the trade to 20%. And, at the same time, the publishers should sell these ebooks as digital downloads from their own site at full retail price. After the early “debut pricing” period, the discounts are restored to normal, but the publisher’s own site should still continue to sell at full retail (except as part of bundle or subscription offers, of course.)

In the Bran Hambric example, where the book is $28.95, let’s say the ebook were priced at $26.95. Then a retailer (Amazon) buying at 50% off would pay Sourcebooks $13.475 per copy and have to take a hit of $3.485 per copy to sell the book at $9.99. But under my suggestion above, the retailer would be paying $21.56 per copy for the book and the cost of subsidy would jump to $11.57 a copy. That’s more than 3.3 times the amount per copy in the cost to the retailer to support the $9.99 price.

The math for impact on the publisher and author is a bit more complicated. How much additional profit over print books this would represent depends on what the print books cost to manufacture and what the split of revenue is between publisher and author. But it is likely that a change to this policy would mean that each ebook sold would generate  more than twice as much profit to the publisher as a printed book for the period of “debut pricing” discounting.

“Debut pricing ” is not a tactic that will work forever. We’re going to see accelerating change in the way ebook publishing works, including enhanced editions subsequent to the first one that will differentiate the ebook from the print book as we proceed into the digital age. But for the next couple of years, as we start to see ebooks take more and more share from print, this is a way for publishers to keep the pricing of ebooks closer to print books and earn more profits, for themselves and for their authors, at the same time.

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I was talking to one of the smart C-level people from a major house at a party last June at BEA in Los Angeles. He was very excited about what his company had accomplished.

“We’ve set up a database and CMS so we can deliver a web page for every book a web page for every author, and a web page for every subject showing all the books we have on that subject.”

Wow. Good.

“The very first morning we had the site up, we got our first direct order from a consumer at 11 am. We were able to see that this woman had googled for “crochet” and gotten delivered to our selection of crochet books. She bought two — full price plus postage and handling. She apparently never thought about the fact that she could have bought them cheaper by clicking over to Amazon.” Or to BN.com.

Readers of this blog know where I went with that right away. I figured: this will teach them about niche, about verticals. They’ll see over time that their crochet page and their cooking page (or whatever…) are getting a lot of traffic and, after a while, somebody will say “hey, let’s put some content up there for that traffic.” And, over time (I wish I could say “before you know it”, but that would be too much to expect), they’d develop verticals. Just the mere fact of setting up this capability for their web site would lead them into the future.

Nice thought. But there was more.

“So, we thought, why stop with just our books! Ingram is our partner for other activities. We can just use them and sell everybody’s books. As long as we have that buyer on our site with their order book open, why not sell them anything we can?”

Better, I thought. Using everybody’s books will teach you about niche even faster! In fact, depending on how you merchandise it, you could learn about niches for which you don’t (yet) have any books! Cash-flow positive market research! What could be better than that?

Over the next couple of months, I thought about this some more. After a while I realized, hey, this will happen to all the publishers. They’re all setting up databases of their own catalogs so that they’ll be able to deliver web pages on the fly to suit any search. They’ll all start selling direct to consumer; digital downloads sort of force them to start and then it’s just silly not to offer your own books. They’ll all learn about niche in an orderly and organic way.

And once you start doing that, as this executive surmised, why not sell everybody’s books. You have a customer, they’re buying. You want margin and you want information. You get more of both if you can take orders for everybody’s books!

Then the epiphanic part: this would be the “Amazon antidote.” Publishers worried about Amazon hegemony online (and all the big ones, and many of the small ones, are) would all be participating in a “solution”. If a dozen or a score or a hundred publishers were all selling the books of all the publishers, and each one was merchandising according to what worked best for them — free content with this one, a free audio download with that one, a copy of the author’s last book for a dollar with another one — then price comparison gets difficult. All of these publishers, each grabbing its own sliver of the market (for everybody) would chip away at the giant aggregator whose ability to call so many of the online sales shots right now is making its suppliers nervous. (What do I mean? Think ebook pricing…)

Obviously Amazon would remain the biggest part of the online sales market, but at least publishers would have some leverage (where now they have none.) 

What an insight! What a game-changer! I had visions of publishing a piece on this in both Publishers Weekly and  The Bookseller to emphasize what a brilliant insight this was: one that needed to be shared on both sides of the Atlantic simultaneously for maximum impact. I was drafting; I was thinking; I was talking to editors.

Then I told this to a friend who has run big distribution operations and worked at a couple of major publishers. He laughed. Forget it, he said. The publishers’ web sites have no traffic. They don’t have anybody on their staffs that can handle the merchandising. This is an idea that will never happen, never work. 

He’s right, of course. The publisher that had the idea in the first place hasn’t gotten hooked up yet to sell everybody’s books nearly a year later. Every big publisher I talk to is disappointed with their own direct sales. And I’m the one who keeps saying that these big “catalog on steroids” web sites can’t garner much in the way of consumer traffic.

Publishers do need to establish direct relationships with customers because they have to market directly, regardless of how the sales is consummated. But they need to leave the horizontal work to the aggregators: Amazon, Barnes & Noble, BN.com, Borders, Borders.com, and all the chains, independents, and online booksellers they can possibly find. They need to help rewrite the rules of engagement, particularly on how names and customers can be shared constructively between publishers and intermediaries in the digital world. But they need to focus their customer contact on people with whom they can establish a relationship. And that surely isn’t every person that stumbles into a horizontal web offering.

It is getting harder and harder for a general trade publisher to do the right thing.

And, note to self: it’s great to be an out-of-the-box thinker and creative enough to see what isn’t there and maybe ought to be. But you can’t beat having smart friends who won’t hesitate to put the pin in an overinflated idea.

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