Transformation of companies and the book industry itself are not just 21st century phenomena
Company transformation is a major theme at this year’s Digital Book World conference. By “transformation” we mean substantial changes in a company’s business model or core competencies or revenue streams. We found eight worthy companies to speak on this subject. Six of them — Houghton Mifflin Harcourt, Ingram, Quarto, Rodale, Sourcebooks, and Wiley — are long-established players in the book business that have changed considerably in some fundamental ways compared to what they were and did ten years ago. Two of them — NetGalley and Diversion Books — started relatively recently to bring digital innovation to the publishing business and have moved considerably beyond their original goals and business models.
What got us started on this whole line of thinking was an article in the Nashville Tennessean last summer about Ingram. It documented what has been a pretty massive transformation over the past two decades from a company that was a traditional book wholesaler to one that has a big technology component providing a variety of services to the global publishing industry.
As Chairman and CEO John Ingram will discuss in detail with me on the stage at DBW, the changes we see today at Ingram really date from the creation of Lightning Print in 1997. The idea of “print on demand” — manufacturing a single copy of a book to order — became extraordinarily powerful when it was incorporated into the supply chain through the global supplier with the biggest network of bookstores and libraries. Ingram could put the book they manufactured this afternoon on an even footing with those titles for which they stocked inventory from publishers. At first this was just for paperbacks with pretty strict limitations on trim size and bulk. As time went by, Lightning improved the technology to deliver much higher quality, color, and hardcovers.
The ebook revolution dawned at about the same time as Lightning began. It didn’t take long for the repository of digital files Ingram held to become an even more valuable asset. It is now called CoreSource, and it drives both POD and ebook distribution.
But, in fact, Ingram had transformed, and transformed the industry, once before. That happened in the 1970s, right about the time I started working full-time in the trade book business. And it is a story that everybody trying to understand today’s transformation would appreciate and learn from.
I had forgotten until I searched that I had written about this before, nearly seven years ago when this blog was brand spanking new. Here’s an edited version of the story as I told it then.
Before the early 1970s, wholesalers to the trade were local and carried a relatively small number of titles. Their main job was to provide back-up stock of bestsellers very quickly. Most bookstores went directly to the publishers for just about everything else. Baker & Taylor was national, but focused on the library market. And Ingram (which was Tennessee Book Company until the Ingram family bought them) was a small and pretty insignificant player. Harry Hoffman was their president.
Most of those local wholesalers to the trade actually leaned on other business for most of their volume: school supply, library supply, or mass-market books and magazines. They looked to the trade book business for multiple copy sales of a handful of titles that were hot.
The wholesalers’ challenge was that they couldn’t carry everything, and for anything except the top titles, there was no assurance of any demand.
And that created the retailers’ challenge. Most of what they ordered from a wholesaler wouldn’t get delivered. The “fill rate” (percentage of what’s ordered that is delivered) was terrible. On average, it was well below 50%.
The flip side of this was bad for the wholesalers. Most of the orders they got from stores couldn’t be filled, but still required some level of processing and communication to tell their customers what they wouldn’t get. So, cumulatively, they spent a lot of money on the orders they couldn’t make a nickel on.
And here was everybody’s shared challenge: all of this took a lot of time and effort that was unproductive and didn’t get books back on the shelves.
One day in about 1972, a former colleague of Hoffman’s from his tenure at Bell & Howell stopped by to visit and showed the Ingram team a new gadget called a microfiche reader. The reader enabled one to see what was on a piece of film that was about 3 inches by 5 inches and was literally packed with information. What somebody saw in that meeting (and Michael Zibart, a longtime friend of ours who did the buying at Ingram then and is now owner and publisher of BookPage, thinks it was Hoffman himself) was that Ingram could put the inventory count for every book it stocked on a single microfiche. So if somehow the stores could have a reader, they could get the inventory of Ingram’s books mailed to them each week.
(Yes: mailed! Isn’t it amazing how klunky life was before email and the web?)
If stores could see what books were actually there, they’d stop ordering books Ingram didn’t have. And they’d know, with reasonable certainty, what they were going to get when they placed an order. And the very good news for Ingram was that they would no longer have to process orders they couldn’t fill.
The challenge for Ingram was to get the microfiche readers Bell & Howell made, which were not inexpensive, into the stores’ hands. They decided to do that by renting them, asking the stores to pay a monthly fee (memory says it was $10 a month) to have them. So they went to the ABA Convention (American Booksellers Association, which sold the convention to Reed Exhibitions in the 1990s and which Reed turned into BEA) in Los Angeles in 1973 to peddle the readers. They had no idea what reaction they’d get.
It turned out to be overwhelmingly positive. The stores, many of which didn’t yet know Ingram, were enthusiastic about the concept and willing to pay to rent the reader. Ingram was able to charge the publishers for the cost of creating the microfiche (I think that started at $1 per month per title listed). So they created self-liquidating efficiencies which immediately supercharged their fill rate (into the 90s), boosted their volume and customer base, and eliminated lots of waste: the money they spent processing orders they couldn’t fill. As a bonus, Ingram was able to put their unique title number, which they needed to fill an order, on the microfiche so the stores did the “coding” for them, writing those numbers on orders that they sent in by mail. (We didn’t even have faxes yet.) More costs eliminated.
Within a year or two, Ingram was the first really powerful national trade wholesaler. Baker & Taylor, national but much more library-focused, copied the microfiche innovation later in the 1970s. Stores were able to stock backlist much more efficiently because they could single-source multiple publishers and order with much greater frequency.
This was really a transformation story before we thought about companies changing in this way. But it wasn’t just a company that changed that time, it was the whole industry. And it probably was changed more by the microfiche and the growth of effective wholesaling than by any other single thing that happened after that until…Lightning Print.
Two worthy extensions of this piece. John Ingram did a nice little interview with Daniel Berkowitz at the Digital Book World blog.
And my good friend Joe Esposito published a piece about a year ago citing the Ingram microfiche innovation for the significant milestone that it was. Esposito made the further point that what Ingram did for the industry was subsequently what Jeff Bezos did with Amazon for the consumer. That is, of course, particularly ironic, since it was Ingram’s inventory and rapid fulfillment capabilities that Bezos used to get Amazon started.