Palm

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.

Share this post

One of the recurring characteristics of “change” is that the first iteration of something new looks a lot like what it is replacing. So it has been with ebooks and ebook retailing. The ebooks themselves have, for the most part, been the same as the print books except rendered on a screen instead of on paper. And when we say “the same”, we mean right down to duplicating meaningless blank pages and the legend often found in print books that tells you how many printings the book has had. (This still happens frequently; I’ve just experienced it on The Big Short which I’m now reading in B&N’s reader.)

And ebook retailing has also imitated print book retailing in that the emphasis has been on the assembling the largest possible aggregation of book title choices in one place. This is a paradigm that makes intuitive sense in the physical world; once I’ve driven to my local superstore, I don’t want to find the mysteries are here but the cookbooks are in a store down the block.

It has been a long-established “fact” (although I question if it is still true, as we’ll explain later) that the larger is the selection of books available in a single location, the more powerful is the magnet to attract customers. My father found this out when he was in charge of the Brentano’s chain in the 1960s. Their Short Hills, New Jersey store was the worse-performing store in the chain until they doubled its title selection. And then, like magic, it became the best-performing store in the chain.

Amazon dot com reproved the point when they went into business in the mid-1990s. Although they were not the first online bookstore, they were the first to really attempt to carry everything. In fact, they went beyond carrying everything by providing a database (obtained from Baker & Taylor, in which there is another story) that not only showed just about all the books in print but also books that were no longer in print! Conventional publishing and retailing theory at the time would have said it was a bad move to return suggestions in search results that were books not available for sale. But, of course, it built their competitive advantage. They rapidly became the best place to search because of the completeness of their database and, actually, confirming to a customer that “what you want is a book that was indeed published but is not now readily available” made it easier to sell the customer a substitute. Whereas the the store (online or off) that didn’t have the unavailable book but didn’t also provide that information found it harder to close the alternate sale.

The point about the importance of selection was proven again by Amazon when they launched the Kindle in November, 2007 and lit the fire for what is still a spreading conflagration of ebook reading. Before Kindle, there were perhaps 100,000 ebook titles available as PDFs that could be read on a full-function computer, but not nearly as many in formats that could work on smaller devices (Palm, Mobi, Dotlit). Amazon launched Kindle with about 150,000 titles and used their market power to get big publishers to put more and more of the newest, hottest books into their format closer and closer to publication date.

There were other features of the Kindle (the ability to load books wirelessly and instantly without going through an intermediary device; its easy-to-read e-ink; its built in dictionary; Amazon’s deep relationship with very large numbers of online book buyers; and, of course, eye-catching prices relative to the print edition prices of the hottest new books) that fueled its near instantaneous success, but the robust title selection was a critical element.

So to that point — one could say to this point — the largest possible selection in one place has been as important to the success of an ebook retailer (obviously: online) as it was historically to a print book retailer with a physical store.

Early in the decade, it occurred to me that the magnetic power of the large selection in one physical store had sharply diminished. When Dad doubled the inventory of the Short Hills Brentano’s, he delivered a selection that the consumer couldn’t match for many miles around. When Barnes & Noble and Borders got Wall Street money to replicate the Bookstop model of 100,000+ title superstores in the early 1990s, they were enabling consumers to find conveniently books which had previously been obtainable only with great effort. But the limitless shelf space of online bookselling undercut that advantage and by the early part of this decade, it seemed to me that the consumer was finding the unlimited availability of titles online which could be delivered in a day or two so powerful that the large selection in a store that might be available immediately had really diminished appeal.

But there’s another thread of bookselling history on- and offline that I believe will soon become the dominant paradigm for ebook retailing. And, of course (just so you are reminded what blog you’re reading), it fits into the concept of “verticality”.

Publishers have known for a long time that good deals can be made and large sales can be registered through what we call “specialty retailers”. (The label for these sales in a publishing house, and others such as sales to catalogers or premium sales, is “Special Sales.”) The store that sells the tools and materials to refinish your floors can sell you a book to explain how to do it. The store that sells computers and paper and ink can also effectively sell resume or how-to computer books. The garden supply store can sell books on how to make your roses bloom.

Amazon and other online merchants (and not just of books) have long operated “affiliate” programs by which a web site can earn a commission on sales made at the primary merchant by referring a customer. This generally works by having the affiliate site promote a particular book title; when the site visitor clicks on the link, s/he is delivered to Amazon or BN.com’s page for that title. If the customer buys, the referring site gets a commission. These revenues don’t often amount to big money for the referring sites (although they sometimes do), but it is believed (but as with All Things Amazon, we don’t have the critical data to confirm) that, cumulatively, referrals from perhaps millions of affiliates deliver significant volume and customers to Amazon (and others.)

This is as far as “special sales” have gone in the ebook world. But the guess from here is that this is about to change and that the change we’ll see in the next few years will obliterate the notion that “all subjects in one place” is a significant marketing advantage, online or in a store. Many book sales, and particularly ebook sales, will move to “contextual” resellers. Your accountant’s web site will sell you the book(s) that help you understand a new tax law or how to ready your business for sale. Your favorite sports web site will sell you the new biography of Alex Rodriguez. And your favorite “Literary Review” newsletter and website will take care of your needs to acquire fiction directly and without your having to shop the vaster stacks of an online superstore.

That is: curated ebook offerings (a click away from the ability to buy lots more content beyond the curated selection) will be featured on every web site with any significant traffic. Delivering purchaseable content — books right now, but ulimately magazines, shorter articles, and relevant audio- and video-content as well — will become a standard expectation of any site (or web community) that aspires to a true mutual embrace with its site visitors. “What I’ve read lately and liked, and why” is a legitimate offering to anticipate from every blogger or commentator with a following.

Last week, Barnes & Noble held its regular call to announce financial results and future expectations. In that call, B&N expressed the expectation that the ebook world would ultimately settle down to about five players and that they’d be one of them. With that perspective, they saw for themselves a reasonable proportion — say 20% — of the ebook market.

My first reaction to that was “what are they thinking? There won’t be five online booksellers; there will be five million.” A day or two later I had a conversation with one of my personal tech gurus who saw it the way B&N’s statement suggested they did  (“it will consolidate, just like the music business did…”) He also asked a lot of practical questions. On what devices will these ebooks be read? How will all these individual sites deal with the format issues, the DRM issues, the customer service? In other words, “great vision, Mike, but how can it possibly work?”

I think it will work like affiliate sites worked, but in a more sophisticated way. A strong central operator providing scale facilitates the commercial offering of the niche player. The harbinger of the future is the deal announced last week between F+W Media and Ingram Digital. Ingram is setting up all F+W specialist web sites (and they have them for many different vertical interest groups) with the ability to sell both ebooks and print of all publishers to their site traffic. (Although we have working relationships with both companies, we weren’t involved in that deal and don’t know any of the details.)

I believe that the Ingram-F+W deal is the start of something new and big. Both companies are going to find ways to improve on whatever is the starting point. F+W is going to have to learn how to merchandise what Ingram can give them into a unique shopping and content consumption experience for the consumer. And Ingram is going to have to learn how to deliver what they can offer to F+W in a way that enables F+W  to curate and enhance the selection to deliver something uniquely customized to its own community.

If that view of the future is right, the competition among the players who can provide the ebook selection and transaction services Ingram does — those in the game already like Amazon, B&N, iBooks, and Kobo and those saying they’re about to come in like Google, B&T’s Blio, and Copia — is going to take place in a whole new arena. B&N has announced deals like this, where they “power” somebody else’s bookstore. Kobo hasn’t yet, but I’d expect them to; it just seems to me like an opportunity they’d see. This is a bit odd; it puts “wholesaler” Ingram in competition with retailers to create the next round of niche retailers. Ingram obviously has the built-in capability to offer print and electronic book delivery but, of course, B&N has the internal resources to do that too, and  B&T can do it too. There are anomalies to rationalize about margin, but, in the end, customer acquisition through this strategy will be far cheaper than it is most other ways, even if a fixed margin from the publisher is shared with the niche player.

This business hasn’t really begun to happen yet; we’re just seeing the outlines of it. Initially, the competition appears to be about how each retailer delivers its vast set of content choices to the online consumer in a consolidated way. (And usually it has been the same for Ingram. Most of their business has come from large “sell everything” ebook stores.) But over time it will evolve into a competition for niche resellers. Winning is always about delivering the best consumer experience but the challenge will be to deliver the best consumer experience to somebody else’s consumers. White label is the key to the ebook (and book) retailing future.

Share this post

I got a call today from Laura Sydell of NPR in San Francisco to have a conversation about DRM. I found myself telling the story this way.

From the beginning, there were multiple ebook formats, the leading ones being Adobe, Palm, and Microsoft Dot Lit for a time, with Mobi originally intended to be the format that bridged the gap (at that time) between devices. Then Amazon smartly took Mobi out of play, blocking anybody else from peddling a device-agnostic solution. And now we have e-readers…

From the beginning, there has been a reluctance of people to read BOOKS (goodness knows they read many other things) on screens, or at least on the screens that were presented to them for the purpose. This distinctly separates the book business from the music business, which I know I wrote about last week, but which also applies here. Your ears don’t care whether the speakers or headphones got the sound from a download or a record. It all works the same to you. But, as we all know, reading a screen for most people is a sufficiently different experience than reading on paper that they’re likely to have an opinion about it (often whether they’ve actually tried it or not).

From the beginning, some people in the book business (mostly, I suspect, agents for very big authors and their publishers, who have the most at stake) have been concerned that there would be a spread of unauthorized digital copies if they didn’t “protect” them. They were apparentely learning a lesson from the music business. But the music business was “stuck.” The format they sold music in was a “gold master.” They distributed digital copies.

From the beginning, there has been a romantic notion called “interoperability”, which says it is a wonderful thing if the same file can work on lots of different devices. So you should be able to  read the book on your PC, or on your Sony- or Kindle-like device, and on your iPhone and/or Blackberry and your Sony Play Station, for that matter. Believe it or not, there are not only quite a few of the publishing digerati who think this is very important, there are many who actually blame the slow growth of the ebook market on the fact that the industry hasn’t accomplished the ability to deliver it. (Seems preposterous to me.)

The multitude of formats presented costs and hassles to the publishers. They had to do more work to put each book in shape for each format, and they had to do pretty meticulous quality control because a lot could go wrong. With ebooks not selling much at all, the difference between spending $250 to convert to one format, say (starting with a PDF print file), and then adding $50 or $100 more for additional formats created a whole decision-making cascade. This all choked off books from the ebook stream, on one format or another or at all, as publishers needed to “decide” to publish each book in one or more formats.

The multiple systems also prevented interoperability and restrained piracy. The DRM was actually a bit of window dressing; even unprotected files wouldn’t have traveled very far.

But then the industry, through the IDPF (International Digital Publishing Forum) developed the epub standard, which was code that could be read by many different systems and/or converted inexpensively to other systems. So the publishers could provide just one file, the epub file, and the distribution channels could do the conversion to different formats. A giant step toward interoperability (and efficiency.)

So now DRM is the one barrier to interoperability and so the drumbeat to get rid of it gets louder and louder.

Also from the beginning, people have noticed that, in most cases, the more of a book you give away digitally, the more you sell. This would almost certainly not be the right strategy with high-value scientific reference, or a directory, but it is the experience of many people over a long period of time. Tim O’Reilly has famously pointed out that obscurity is a much more prevelant problem for books and authors than theft through piracy. Cory Doctorow is certainly the most vociferous and among the most eloquent expressing contempt for the whole idea of DRM, the insult it constitutes to the audience of book readers, and its self-defeating nature. He has given away huge amounts of digital content and he credits doing so with growing his sales as a novelist.

My officemate and colleague Brian O’Leary of Magellan Media has been doing an ongoing study of the effects of free distribution with O’Reilly Media and Random House. They are documenting both the fact that there is no significant piracy of ebooks and that free distribution, even the limited piracy, seems to have a stimulative effect on sales.

We are at a moment where publishers are noticing this and taking it on board. O’Reilly and Thomas Nelson are the first I’ve noticed to start offering ebooks in multiple formats, with Nelson doing so to any buyer of a print book who registers on their site for it. (A nice way to capture names, too.) Others, noteably Hachette’s unit Orbit, and Random House, have started giving away ebooks (for free or, in Orbit’s case, a buck or near-free)  to promote books and authors. The ROI on these is close to infinity if it sells one more book!

I hope that this is an accurate summary of events so far, except that I left out the Kindle (on purpose). Now I’d like to offer some forward-thinking and observe an enormous irony.

1. Forward-thinking. This notion of giving away ebooks has a tragedy of the commons built into it. It’s free and it works. So everybody’s going to do it. The choice of ebooks you can legitimately download for free or under a buck will grow by leaps and bounds (it already has.) At just the moment that the ebook market is growing, and lots of new people are coming into it, many people will be able to form the habit of choosing from what is free or near-free. Ultimately, this will have two negative effects. One is that it will depress the pricing across all titles. And the other is that the giveaways will lose their stimulative effect.

I would not suggest that anybody voluntarily try to save the commons. It would not be in their own best interests to do that and they would not succeed. 

2. Because there is going to be a culture of free or almost-free, piracy might well become an issue for the most popular ebooks as takeup of ebooks grows. It clearly has never been a problem, but that doesn’t mean it never will. Things change. (See number 1.)

3. The Kindle. Amazon not only steered clear of the epub collaboration, they are aggressively blocking people from selling content that would be compatible with the Kindle. Everything about what they do is closed. The problem is that they’re defying history so far: growing faster with a closed system than all their competitors for ebook eyeballs combined.

That’s ironic.

But it’s not what’s most ironic.

I personally never got the thing about interoperability until now, when I am reading the great new biography of Abraham Lincoln by by Ronald White on both my Kindle and my iPhone. Whenever I switch over from one to the other, it knows my place and asks me if I want to advance to it. This is great! I love interoperability. I have no use for it between any other two devices, but between my Kindle and my iPhone? Terrific!

Of course, Amazon is probably able to deliver this functionality so seamlessly partially thanks to the fact that they have a closed system and more control.

That’s really ironic.

Share this post