by Mike Shatzkin

The general topic that I want to talk about today is how the technology, which we will define broadly as the delivery of computer bytes where once we would have delivered print, is affecting book publishing businesses. We will see that perhaps the biggest immediate effect has been to use bytes to sell print.

The lessons as I have learned them have been within the context of English-language publishing, and in largest part, English-language publishing in the United States. We recognize that not all English-language markets move at the same speed or experience precisely the same changes.

The worldwide Spanish-language print market and its English-language counterpart share a unique complexity. According to the Enthologue database, which we found on the Web, Mandarin Chinese is spoken by the most people in the world, 885 million as of 1995, when about that same number spoke English (478 million) and Spanish (392 million) combined.

But the vast majority of the Chinese-speakers are within China. Most of the English or Spanish speakers are not in any one particular place, certainly not in England or Spain where the languages began. More people speak either English or Spanish than speak both of the next two languages, Portuguese and Russian, combined. Both of these have much more centralized populations than English- or Spanish-speakers, as do the next most common languages, Japanese, French, and German, where most of the speakers of the language worldwide still reside in the country where the language began.

So book publishers in the English and Spanish languages work in environments that share certain characteristics with each other but with nobody else. That permits us to understand some of each other's circumstances particularly well. Winston Churchill once said that the British and the Americans were "two countries divided by a common language." We don't speak English precisely the same way. Of course, Spanish is not the same in Spain and in Mexico. Those differences may be trivial to a scientist or a professional using printed information primarily for its specific content, rather than for its presentation. It can spell the difference between commercial viability and total inappropriateness for a children's book or a cookbook or a novel.

So there are a whole series of skills and customs of publishing - such as relating to the choice of selling rights or books, how and whether to change a book for a local market, developing the laws and customs to facilitate the division of territories for the same copyright - about which publishers in our two languages are no doubt the most sophisticated in the world.

The speed of adaptation to new technology, by consumers and by publishers, has been fastest in the English-speaking world, and particularly in the United States. That fact is driven by pure economics. English has been the language of computer development and up until now, the movement to deliver bytes instead of printed pages has been driven by technologists, with content experts just scurrying along trying to keep up.

This is changing. The technology is evolving to make it increasingly possible for the content-driven mind to understand what the technology can do, and to have useful ideas about how to do it.

This is one of many changes that suggests that the evolutionary path for publishers into new media can and will be different in languages that follow English.

Remaining mindful that the English experience does not necessarily dictate the Spanish strategy, we will explore what has happened in the English-language market, particularly in the United States, over the past few years, and where it is today.

We will first look at what might be called hard-copy new media products, particularly the apparently total failure of book publishers to prosper producing CD-ROMs for the consumer market.

We will then discuss the use of the Internet in general, which is on the verge of becoming a common tool for book promotion and in the creative process itself.

And then we will look at the use of the Internet to sell books, with the particular lessons the English-language experience may hold about how export market relationships change in Spanish and English's similarly-configured marketplaces.

In the early 1990s, such companies as Voyager and Allegro New Media, beginning with simple diskette-based products, began to put output normally associated with book publishers into electronic formats. Voyager developed something they called the "Voyager Electronic Book", which was a simple and complete system to create both good computer utility and a nice user interface from a simple text file. The software offered by Voyager to build Electronic Books was cheap, easy-to-use, and didn't require a monster of memory or processing power.

Unfortunately, it did require a Macintosh, not a PC. And the products it created weren't PC-compatible either. So what might have sparked a spate of low-cost, low-risk, simple-utility products out of books ultimately proved commercially useless.

But if there was a window of opportunity for simple products, it closed very quickly. By late 1993 and early 1994, the drive to put CD-ROM drives into every computer had become compelling. The hardware manufacturers were behind this effort because it sold a new piece of hardware. The software manufacturers, desiring to sell ever-increasing file sizes to install the bells and whistles and graphics in evolving generations of software, saw CD-ROM as a way to sharply cut their cost of goods. They could deliver you 1 CD-ROM disk instead of 30 floppy diskettes and you'd pay the same price and get a better product; that is, one that loaded faster into your hard drive.

The whole idea of delivering information or entertainment on the CD-ROMs was almost an afterthought. That people wanted software was a certainty, they were already buying it and using it. That installing it through CD-ROMs would be more efficient than through floppy disks was also a certainty; you could compare the physical costs or time it with a stopwatch.

But now the fact that you COULD create an encyclopedia where the cows moo and the bells chime, or a biography of Mozart or The Beatles that contained snippets of life story and snippets of songs complete with sheet music to follow along, the fact that you COULD create these things and put them on a CD-ROM somehow migrated to the notion that you SHOULD create them and they would SELL, and MAKE MONEY.

I'm not sure where this huge leap of faith came in, or how it was justified, or exactly who should take responsibility for its consequences, but most of the major consumer publishing companies in the English-speaking world took it, and it was wrong.

One of the most memorable kernels of knowledge I picked up on all this was in about 1993, when an executive of a big world-wide publishing house based in New York showed me an Encyclopedia of Mammals they were putting on a CD-ROM for a scholarly and scientific audience. The electronic version of this multi-volume set had a great deal of utility: jumping back and forth between Latin and English names for things, placing animal migrations on dynamic maps, and so forth. Then I was told that more than 65% of the cost of creating this product was for the SOUND and the VIDEO; sound and video that almost any professional would turn off and, frankly, at that time, that very few had the capabilities in their computers to use.

But the publisher's position, which was probably right, was that the market, by which he meant the product review community rather than retailers (remember this was a professional product), required that CD-ROMs at a certain price had to contain all the bells and whistles, or it wasn't viable.

We in book publishing live in a cost-benefit world. Do we want 16 pages of color in this book? Or a coated stock? Will it be worth commensurately more to the consumer, or reach commensurately more consumers, if we add them? We ask these questions; we do these calculations.

So here I found a big publisher in the CD-ROM world, spending the majority of the budget on things which aren't their own existing core assets, which the text and pictures were, and which ultimately don't matter to the highly professional audience for this product anyway. This was in 1993 and it was my first encounter with the disconnection between thinking about CD-ROM and everything that a publisher already knows, but it was hardly the last.

1994 and 1995 were the years of fever-pitch development of high-production-value CD-ROMs for the consumer market. Given the leap of faith about the products' appeal, adherents thought that the growth in the installed base for the drives would unleash a huge demand. The computer retailers and the software product review apparatus largely went along, so the shelf space for content-based CD-ROMs was carved out alongside the applications software in that retail channel.

Of course, creators of CD-ROMs never thought there was enough shelf space. The high development costs, largely driven by sound and video and animation and complex software capabilities that were outside the book publisher's comfort or knowledge zone, required both high retail prices and sales of many units to make economic sense.

From the retailers' point of view, the sales never justified the shelf space devoted to them, and the retail space for content-based CD-ROMs has been shrinking since 1995. From the point of view of the publishers and other producers, there was never enough shelf space allocated for these products to have a chance at viability.

All of this wrong-headed product development walked right past a central fact of electronic publishing: starting with an author's text file, it is inherently easier and cheaper to deliver an electronic product than a print product. And it is even technically possible to deliver an electronic product as a by-product of preparing a print product. But not if sound and video, which of course never exist in a print version, are required for the electronic.

But these are ways to approach the business more analytically and to reduce the risks, compared with the pioneers. It is possible that the consumer information CD-ROM business as the products have been conceived will always be marginal.

We believe that, for the most part, consumers in the English-speaking world have rejected the CD-ROM product concepts that have been considered book equivalents, or for a book-like audience. Even reference has fared badly in the consumer area, partly because in many ways, an electronic product is NOT more useful than a book. It is still easier to look up something in a book dictionary, or a book of reviews of movies on TV, than it is for most people to install a CD-ROM and search for information.

Games can work commercially on CD-ROM, as can products for little kids, particularly those too young to read narrative books. But the idea that a CD-ROM can replace a book, or a dozen or a hundred books, which may have been what struck publishers with enough fear to motivate them to get into the CD-ROM business, no longer seems credible at all.

But as great as the failure has been, the lesson for the Spanish-language market may not be as simple as "just don't do it." Now these CD-ROMs have been assembled, the assets digitized, the music recorded, the animations drawn, and any complex software that was required is written. Moving to another language does not necessarily imply the huge development costs that were necessary to create the product in its original language.

We know that making money in our business requires relating potential revenues to origination costs. It is conceivable that Spanish-language versions of CD-ROM products that failed commercially in English can succeed in Spanish, if the Spanish-language publisher does not overpay for the original creation, but only bears as risk the incremental costs of conversion to Spanish. So while we still believe that the basic concept of the CD-ROM product is flawed and doomed never to be widespread or enduring, it is still possible to make money if many of the inflated costs are avoided, which may be possible for the languages that follow English.

About 18 months ago, in the Fall of 1995, when we gave publishers in London and in New York the advice that they should avoid CD-ROM and focus on the Internet, the advice was just a few weeks, or perhaps a few months, ahead of its time. In the same speech, we suggested strongly that New Media Divisions were counter-productive, that they tended to divide the technology development from the core content-and-markets knowledge of the publishing house. At that time, Putnam, Penguin, Simon & Schuster, HarperCollins and Random House all had New Media divisions, largely focused on CD-ROM. Random House is the only one left, and there are recent signs of a significant pull-back from CD-ROM. Just in the past couple of weeks, a partnership between Random House and Broderbund, one of the most successful of the content-oriented software companies, was rewritten so that Random House is now a content provider to Broderbund, not a partner.

And almost all American publishers are now highly focused on the Internet. Virtually every large one, with the exception of St. Martin's Press, has a Web page reflecting a substantial investment.

The growth of Internet use has become the central fact driving change in the English-language world, and book publishing is only a small part of it. From Federal Express tracking packages to American Airlines booking airplane seats to any student or office worker doing research for their next term paper or for their boss, access to the Internet is becoming the dividing line between those with more capabilities and those with less. Politicians use it and Hollywood uses it and big corporations use it; so do local churches, splinter rebels with any cause, and neighborhood businesses.

And now virtually all the news from the mainstream media in English, newspapers or magazines, is also available on the Internet, almost always for free. And Internet editions of the papers and magazines sometimes "scoop" their own print versions, going up sooner or updating later.

The information-seeker in the English language today is really required to use the Internet. We've reached the point that it is likely to be the fastest and cheapest way to locate a lot of what any person or business might want to know.

This has happened in the United States with almost blinding speed. Eighteen months ago, only a handful of our publishing colleagues were online. Now it seems virtually all of them are. There are two driving reasons for this, working in tandem.

The first is that nobody has to invent a use for the Internet. We use it to do what we did before with the fax machine, the mail, or express delivery services. We communicate. You don't have to believe that you'll become a Web surfer or do most of your professional research on the Net to make it worthwhile. Everybody who sends and receives written messages finds that the Internet makes life easier, faster, and less expensive.

The second is that the Internet is remarkably inexpensive, if you already have a computer. An additional $20 a month in the United States connects you, an incremental cost that almost immediately yields equivalent savings to many users.

Because it is almost free and immediately useful to many people, Internet use has spread. And as it spreads, it becomes more useful. Indeed, it becomes a virtual necessity. Conducting business in the United States today without an email address is seen as only very slightly less unprofessional than conducting business without a fax machine.

We have reached the point in the United States when almost no publishing professional is without an Internet address. It has rapidly become a minimum requirement for doing business.

One of my clients is a book packager, a division of a larger company headquartered in New York. They put together card-and-binder series costing millions each year with people in Florida, the midwest, and California cooperating on a project as if they were in the same building. Artist in one place, writer in another, designer in a third, reporting back to a project manager in New York. People's talents cost less if they come from outside New York. And big costs of faxing and copying are shed at the same time.

I think the first thing anybody who wants to package a book in the States these days would do is search the database at Amazon dot com, the big Internet bookstore, to see what else is out there on the subject. Start the editorial research and the market study at the same time. Order some of the books if you're serious. By essentially uniting books-in-print to an inventory, Amazon has provided a tool the likes of which we never had before.

I don't think I'm presenting particularly avant-garde thinking here, although it certainly would have been a year ago.

The Internet will spread throughout the world as quickly as the computers and the phone lines are there to process it. The US leads the world in people getting online, with perhaps as many as a third of US adults now capable of using the Internet. But the rest of the world will not be very far behind.

All of all the businesses that experience change because of the internet, publishing generically will feel the most. I mean by this ALL publishing: newspapers, magazines, books, databases, pamphlets, advertisements, posters, open letters.

What the Internet has delivered so far is the ability to put almost any piece of information on a computer screen. What will develop in the next few years will be the capability to organize, design, and print that information in forms competitive with today's centrally-printed media.

But the delivery of information to the computer screen is the tip of the iceberg. It is when our computer can deliver us a printed book in the morning, or a tabloid newspaper with headlines, pictures, and comics, that we will really experience the full force of the coming change.

But those newspapers will be crafted to the individual: your hometown news, your favorite political writers, several reviews of the books you are interested in and none of the books you are not, and so forth. In the United States, where every city of any consequence has at least one daily newspaper, I would expect no more than a dozen national papers to be centrally printed for sale10 or 15 years from now.

Many, perhaps even more than now, of the writers and editors will be working for components of the various "Daily Me"'s that we will all create for online delivery.

I am among those who are convinced that books will someday be replaced by the Book Simulator, two flat screens precisely replicating the functionality of a printed book. There are at least three developers I know of hard at work perfecting this concept. One is the world-famous MIT Media Lab; the other two are independent entrepreneurs who seem to be somewhat further along in development than MIT.

When these Book Simulators, which seem to have acquired the name "readers", have been perfected, they will provide a book experience equivalent to what we have today with ink and paper, plus additional functionality we can't get today, at a lower price. The lower price will be enabled by avoiding the need to print, bind, ship, and process returns. And it is the lower price for increased functionality which will render the ink-and-paper book an item for the elite only; those who can afford to pay more for less just because it looks and feels nicer to them.

The electronic reader will probably not be sufficiently perfected to provide the quality and price levels necessary to complete this revolutionary change for some time, perhaps more than a decade, even though early prototypes may be less than a year away. The content that goes into these readers will most likely come to them through phone lines when that time comes, although the readers themselves may be sold in retail stores.

By the time the readers come to market a year or three from now, there will probably already be a detectable traffic in books as downloads. This has already begun. The most ambitious effort to distribute bytes instead of print this way is at a Web site at www.bookaisle.com, where titles of many publishers are offered. You pay with a credit card and take immediate possession of your "book" in a PC.

The most immediate impact of the Internet on books in English, however, has been to sell the books themselves. Countless forums and discussion groups unite readers by their passion and interest, and provide avenues for publishers to publicize and promote. But for the past 18 months, since the emergence of the world-famous Amazon.com, the best-publicized Internet bookstore, it has become increasingly clear that computer search capabilities are a natural match for book purchasing and, ironically, this is more easily offered to a person at home on their PC than through any in-store tool yet devised.

Amazon's annual volume in their second year of existence is pegged at $17 million by various observers. There are several competitors to Amazon, notably The Internet Bookshop in Britain, and Bookstacks and Bookserve in the US. In addition, most of the big independent bookstores have Web sites, and various specialists have begun to re-define what a bookseller can sell.

Amazon's selling proposition is that they are the world's largest bookstore, offering over a million titles. The trick to it is that they really hold almost no stock, relying on quick access through the distribution system, particularly the wholesalers in the United States, to provide them with books on demand. Ingram stocks more than 300,000 titles, which Amazon or any other US bookstore can have within 48 hours, often within 24 hours, of placing an order. Through access to other wholesalers including Baker & Taylor, there may be as many as 100,000 more titles available quickly. Special orders to publishers, which are how they fill the rest of the requests, tend to take considerably longer, of course.

By being clear to its customers about how long delivery will take for each book they order, Amazon and other Internet bookstores are able to operate effectively with this "virtual" stock. And their use of inventory dollars would be the envy of any retailer. Amazon and their counterparts receive payment from customers by credit card before they actually place the order with the wholesaler, let alone before they pay for the book in question.

Although Internet bookselling is truly in its infancy, one of its most profound impacts is already very evident: it permits consumers to cut through the labyrinth of the distribution chain. Because the United States tends to have lower retail prices, in addition to ready availability of more titles because of the wholesaling network, this is a sharp competitive benefit to US publishers when they are selling titles available from publishers in several countries.

Amazon has reported that more than 50% of their sales go outside the US; Britain's Internet Bookshop has reported that nearly 90% of their sales go outside Britain. The impact this can have on commerce was dramatized for us when we learned that UK-based Internet Bookshop would order a book from Ingram in the US that was available through a British publisher in order to fill an order to a British consumer. This may be disloyal, but it is competitively necessary.

The same British consumer could as easily buy from Amazon, who of course would buy from Ingram. If The Internet Bookshop wants to stay competitive in price and service to its customers, wherever they may be, it must use the same resources, wherever they may be, as its competitors, wherever they may be.

This pattern is likely to be repeated in the Spanish language, although it may not be visible yet. Internet retailing for the Spanish language will tend to be based in whichever country one can most quickly and easily find and obtain the most titles. If the exchange-rate equivalent pricing is lower in that country as well, it will enjoy the dual advantage the US does in English. But of the two factors, we believe the quick and sure availability of the particular book each customer wants will drive more business than price differentials.

We mentioned earlier that subject specialists on the Internet were also redefining the context of bookselling. Amazon has tried to create a concept of "complete". Theirs is "we will get you any book in print". Subject specialists, such as computer booksellers Open Communications, are redefining that concept. Open is attempting to expand its offerings to include out-of-print computer books for previous-to-the-latest versions of software. They are even attempting to include product manuals, which may prove more efficiently offered as downloads instead of hard copy.

Out-of-print books require a change from the "virtual" supply model of no stock-holding. It reintroduces the complexity of inventory investment. But because the "product" has been perceived to be obsolete, it might provide even higher-margin sales for the retailer.

In this same way, specialists selling business books might start selling annual reports, specialists selling travel books might start selling packs of brochures, and so forth. There is an analogy in how retailing developed in the US. In the first half of the 20th century, department stores grew to dominance by being one-stop shops where the consumer could find products ranging from clothes to appliances to books. In the second half of the 20th century, the shopping mall effectively replaced the department store: what had been a "department" became a free-standing retailer offering even wider choice. We may be seeing a similar situation play out on the Internet, with the big "every book available" retailer like Amazon playing the part of declining or vanished department store giants like Macy's and Gimbel's.

Eighteen months ago, I offered three specific suggestions to American and British publishers about their approach to the new technology. Even though it may betray the fact that I haven't learned as much as I should since then, I would offer the same three suggestions to Spanish-language publishers today.

First and foremost: do not envision new technology as something apart from your current business. See it is as an extension of what you already do. That means a New Media Division is a bad idea. It encourages a separation between new technology development and your book business that is bad for both. New technology must be everybody's business, not the province of a few visionaries.

Second: do not engage in expensive, big-investment initiatives. CD-ROMs were the target at the time I first offered this advice; elaborate Web sites can be an equally powerful black hole. Simple products and simple Web sites are not expensive and can pay off with relatively modest, and attainable, results. Third: make sure everybody in your organization is online, connected to the Internet, NOW. A universal comfort level with this capability will be necessary to fully enjoy its benefits. If your editors aren't online, you will look unattractive to the most forward-thinking authors and you'll lose opportunities to save on communication costs. If your marketers are not online, you'll find your competitors promoting and selling to customers you don't even know are there. If your sales organization is not online, you'll miss valuable opportunities to communicate with your customers and you won't see the equivalent of your customers' shop windows on the Web.

I want to thank you for your interest and attention. There is no doubt that this English-centric presentation has ignored relevant developments in new technology in the Spanish-language markets. Some may illustrate ways that the worldwide Spanish-language and English-language markets are NOT so similar,so that our experience is counter-instructive in some way to you. But it is my hope that despite some matters that may call for some additional consideration, we have been able to present a view of this time of rapid change that permits you to march more confidently into the future.