@MikeShatzkinFor big publishers: what scales and what doesn’t?
The last post I did got more attention than anything on the blog in quite some time, but for somewhat different reasons than I intended. My central point about what increasingly common ebook growth predictions would mean for brick-and-mortar sales (that they’d decline sharply over the next five years) was that it diluted the core value proposition of the major publishers. Most of my comment traffic wanted to talk about the fate of bookstores, not the fate of general trade publishers.
Then yesterday, my friend Michael Cairns had on Persona Non Data a post which really delves into the point I was concerned about: what are the competitive advantages of big publishers? As Cairns points out, it is those things that can scale; the aspects of the operation where size presents a big advantage.
I learned long ago in a talk by industry legend Martin Levin that an acquiring publishing company looks primarily at an acquisition target’s revenue, not its cost structure. The cost structure that counts is the acquirer’s own cost structure; the revenues from the target would be ported over, but the costs would mostly be left behind. True marginal costs, like the cost of picking a title off a warehouse shelf, might remain. But the costs of collecting the order, processing the order, and shipping the box out the door with another book in it (not including actual postage) would not rise at all. Nor would the costs of accounting or negotiating the printing contract or (unless there was a step increment that required a warehouse addition) the cost of storage.
So, as Cairns demonstrates in his piece, most of the scaleable overheads and operational costs publishers have are related to print book operations. It is very difficult to scale the parts of the operation publishers can focus on in a digital delivery world, which would be title acquisition, development, and marketing. Those functions require person-power, and if you want to do more of it you have to hire more people. That’s the definition of something that doesn’t scale. And what doesn’t scale is what doesn’t offer advantage to a large player.
The only way we can think of to apply scale to marketing is to market repeatedly to the same audience. That implies “vertical.” Have you read that anywhere before?
A friend from Amazon was in the office this morning making a different point, which, on reflection, is also about scale. Amazon uses algorithms that have been 15 years in the making to set prices for their books. Publishers under the agency model are setting their own prices but without those years of experience, without algorithms, and without adding expertise — or even personpower — to their staffs. Pricing knowledge is also scalable (what you learn pricing the first ten books makes you more effective on the 11th). If publishers believe in the future of the agency model, perhaps pricing expertise would be a tool they could use to persuade authors to stick with them five years from now if brick-and-mortar sales go the way I fear they will (dragging the publishers’ main value proposition down along with them.) But pricing expertise won’t happen by accident; it will have to be developed rigorously and iteratively over time.
In one more post-script, I dug up an old post from back in the early days of the blog when it had far fewer readers than it does now. It tells the story of Ingram’s creation of the microfiche reader and their subsequent growth, which I called the first big supply chain tech disruption. If you like these posts and never read this one, it may be worth the click.
