The Shatzkin Files


Three fledglings that really should fly


Sometimes you hear of an idea or a new business that seems so right-on-the-money that you wish you had invested in it and figure it is just a matter of time before it grows into something very powerful and important.

Here are three of those — all of which should be of interest to publishers  and which everybody who is interested in the content on this blog should know about — that are unrelated and similar only in one way. If they execute and deliver on their promise, which in the last of these three cases is really beyond question, they should have very bright futures.

One is a new business that was dreamed up without publishing as we know it in mind at all. It’s called Open Sky, and it enables any web site to sell any thing. Open Sky aggregates wholesale pricing arrangements from suppliers of anything at all and enables any website (or blog) to sell the goods at a profit. And they provide the web site with whatever technology or functionality they need plus a social commerce platform to enable harvesting and use of customer information.

So from the manufacturer’s perspective, they are the front end to a lot of distributed eyeballs and resellers. From the website or blogger’s perspective, they provide both the commercial relationship and the web tools necessary to “stock” and sell items relevant to the site’s audience. They’re brokering business arrangements that are useful on both ends and enabling sales that would simply not exist if they did not exist.

Former book editor and agent Mary Ann Naples saw the potential for Open Sky with clients of hers who were book authors and bloggers. Imagine being a blogger who writes about cooking and wants to tout and sell her favorite pots and pans. Mary Ann represented people like that and she’s been taking Open Sky into the book business.

From the perspective of a guy who has been telling publishers to use their content as bait to attract and aggregate eyeballs because they’re bound to have remunerative value, Open Sky provides an answer to the question I face the most when I lay out my thinking. (“Great, Mike, but how am I going to make money?”)

The second is a publishing business you’ve probably heard of (or should have) called Flat World Knowledge. Flat World creates college textbooks, doing the creation more-or less the old-fashioned way, although somewhat faster and cheaper than the big players. What’s different about Flat World is their commercial model. All their content is available free on the web in HTML, but you can buy it (printed or digitally-delivered) if you need to possess it or mark it up.

Wrapped into the Flat World model is the capability for professors to add other material, theirs or somebody else’s, to the Flat World text. That material becomes part of the offering to the student and soon Flat World will add the optional capability to make the material available to professors in other schools to offer to their students (with a royalty, of course). Flat World has had books in the marketplace for about 18 months; they’ve learned enough to know about how much the free HTML exposure drives profitable sales. And “how much” is apparently “enough.”

In a world where the price-and-margin pressure on the textbook model just gets increasingly difficult for publishers and students, Flat World’s new approach looks very likely to succeed. It is worth noting that Macmillan is now delivering the professor customization part of the Flat World model, but it is extremely difficult for an established publisher with a legacy cost structure to compete with their free-on-the-web commercial model. This will becoming a growing threat to the established players in the college textbook space.

The third initiative comes from two giants in the trade world: Macmillan and Ingram. (I always tell you when this is the case: Ingram is, at the moment, our client.) They have just signed a deal by which Ingram’s print-on-demand, warehouse space, and shipping capability becomes an extension of Macmillan’s own operation. Books can be seamlessly shifted from a pressrun model to POD (and back). Macmillan is alleviating warehouse space pressure, keeping books generating revenue past when they would otherwise have been out of print, and anticipating the inevitable future reduction of infrastructure that will be mandated by the shift from print to digital.

In a recent blogosphere conversation sparked by Evan Schnittman’s observation that the impact of the ebook shift could be an expansion of the market, Eoin Purcell wrote about the commercial impact of readers shifting from ebooks to print. Purcell fears that publishers might be forced to give up the print book revenues if printings were eroded too much by ebook uptake. What he sees is that as press runs go down, printing costs go up, and if that forces book prices up, it will exacerbate the decline of print and could diminish it to the extent that it just isn’t worth doing.

Certainly that’s a challenge publishers face, and they know it. The Sales Director of a Big Six house with a lot of bestsellers, anticipating that his ebook sales could pass 20% of the total for most of his books as soon as next year, said “I hope we’ll be smart enought to manage down our printings and distributions.” Hitching Ingram’s capabilities to the publisher in the way Macmillan just did helps ameliorate that problem and a myriad of others. It’s a way for publishers to reduce overheads and increase operational capabilities at the same time. I’d be surprised if we don’t see many, if not most, other publishers going for this solution in the months to come.

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  • Laurie McLean

    Dorchester is also using Ingram's POD capabilities and sales force as an adjunct to their new “eBook First” business model (to climb out of the financial hole they found themselves in earlier this year.)

    • /blog Mike Shatzkin

      Makes sense, but much more of a signal to everybody else when it is done by

      a big player as a strategic move, not an act of apparent desperation by a

      smaller player.

      Mike

  • Alan_gilliland

    “What he sees is that as press runs go down, printing costs go up, and if that forces book prices up, it will exacerbate the decline of print and could diminish it to the extent that it just isn’t worth doing.”
    I am probably being incredibly naive but are printers exempt from the laws of supply and demand? Surely in a world of diminishing print runs they to will have to change their manufacturing and pricing structures or go under? Or is the subtext that they are already working at maximum efficiency and exacting minimum profit? And so on, back to the forestry companies.

    • /blog Mike Shatzkin

      Without investigating it in detail, I'm sure that printers' margins have

      already gone down. But the laws of supply and demand can't overrule the

      realities of cost. There is a cost to “make-ready”, setting up a printing.

      It is amortized over the number of books manufactured in the printing.

      That's real, and reducible only to a certain extent.

      So, you're right, but Purcell is not wrong.

      Mike

  • Edward Smith

    I would love it if you indicated when something is U.S. only! Open Sky looked very good until I went to their FAQs and found it is U.S. only — not so open sky – there really is a world outside the lower 48 you know…

    • /blog Mike Shatzkin

      Point well taken, Edward. I will admit to a US-centric point of view but

      you're not the only reader I have outside US borders and I will try to be

      more aware of that going forward.

      Mike

      • Edward Smith

        Excellent! I have no problem with a US-centric point of view – I expect anyone writing from anywhere to speak from their own point of view – but the new world of eBooks should have no borders, so a mention when an fascinating idea like this comes along whether it is restricted within borders or not would be helpful to eBook authors such as myself…..

        I love your blog!

      • /blog Mike Shatzkin

        An international perspective is definitely called for these days, but at no

        time more so than now, on the eve of the Frankfurt Book Fair! Thanks for

        pointing it out and I will try to keep this in mind in the future.

        Mike

  • http://www.graybookspublishers.com Ed Gray

    Macmillan's initiative with Ingram is a good move for a major house, but it's an even better one for us smaller publishers who are already doing it, but the other way around: Start with POD and migrate seamlessly upward through Ingram's volume pricing discounts for their POD runs as orders come in. Price 'em right and the titles are cash-flow positive from day one. Then, when and if a title gets traction, just as seamlessly transition to offset. And then, of course, as sales taper off, transition back down to POD.
    The competitive point is this: At every stage of its life cycle (POD, offset, ebook) the title displays the same as all the other available books wherever it's shown: Retailer's shelves, online seller's sites, Google books — everywhere. And therein lies trouble for any major publisher too slow to adopt the model as has Macmillan. Because as we all know, it's a rare retail book customer who even knows who has published the book (or ebook) in their hands. Once that customer gets to the storefront (electronic or brick-an-mortar) it's a leveled field.

    • /blog Mike Shatzkin

      I agree with you, Ed, but small publishers got to this doing what comes

      naturally. For big publishers to make the changes necessary to pick up small

      change, *and* to be preparing to downsize their infrastructure at the same

      time, is something new. Macmillan has done something here that I believe

      everybody will eventually have to copy.

      Mike

      • http://www.graybookspublishers.com Ed Gray

        Absolutely. It's remarkable what an income statement looks like when it doesn't include rent for a few floors of the Flatiron Building. Small change is a relative concept, no?

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