Peter McCarthy and I have a new business and publishing has a new digital marketing service

Today Peter McCarthy and I are formally announcing a new business which is a partnership between us: The Logical Marketing Agency. What we’re doing is applying the most modern and sophisticated digital marketing techniques and capabilities to the challenges faced by book publishers and authors — and therefore agents — and, because the same techniques apply — also by brands.

This business has been in gestation for about 18 months, since Pete and I first started working together on other projects. We are building on what he learned during nearly two decades in publishing, first working for The Reader’s Catalog and then The New York Review of Books, followed by six years at Penguin very early in the digital transition, and then six years at Random House. At Random House Pete’s job was, explicitly, to figure out how books would be sold in the future. So for several years he was tasked with experimentation, using the books from publishing’s most extensive and diverse commercial list and the resources of the world’s biggest trade publisher.

As my Idea Logical colleague Jess Johns and I came to realize how much Pete knew about the digital marketing challenge all publishers are aware is important but woefully under-equipped to tackle, we saw the great opportunity in “scaling” him. The Logical Marketing Agency is our vehicle to make Pete’s knowledge available and useful to every publisher or author who wants to make use of it.

Over the past six months or so, we have done initial, relatively small small digital marketing jobs for more than a dozen clients. They have included both major and smaller publishers in the US and the UK, authors, literary agents, and brands that aren’t publishers. By working with this initial group of beta clients, we have learned how to shape our offerings to directly apply what we know to publishers’ and authors’ and agents’ perceived needs and pain points.

First we thought about the two key elements that need optimizing: titles and authors. Titles need easy discoverability; they need to be found in the right places, at the right time, by the people who are likely to be interested in them. This often involves a nuanced understanding of search as it exists in environments like Google, Amazon, Apple, and others but can also encompass other means of enhancing a book’s reach into its likely audience(s). Authors need optimized web presences, so that their credibility and personal networks are grown and enhanced regularly and so that their reputation as authorities on the subjects that matter is confirmed on the Internet.

Of course, the key for titles is the metadata: the long and short descriptions of the book that are accessed by all the retailers and search engines and the BISAC (or, in the UK, BIC) codes that identify the book’s subject matter (and, therefore, its audiences).

Pete’s key insight about title metadata — one that is very hard for most publishers to accept, frankly — is that it can’t be done properly without research. You start by positing what the audiences for a book are or, in the absence of hypotheses, how to figure out what they are. Then you look for them online and find out more about the makeup of those audiences: who those people are, where they hang out online, what they’re interested in and what they believe, and what words and phrases they use when talking about the author or the subject(s) in the book. Then you have to research the search terms that matter, to find out which ones are used most frequently and by whom. It is probably not surprising to learn that the “right” search terms might not be identical in Google and Amazon. And from there, one can keep going, analyzing what Pete calls the “meaningful back end data” that results from good outbound social media marketing. You can learn who it is that is engaging with and what their beliefs are, where they live, and other attributes that can be used to properly position each piece of marketing collateral. And, that’s a process that can keep going for a long time if the vein is rich.

How long does this research take? If you know what you’re doing, it can be done in an hour or two. How many publishers have the know-how and the staff to spend a couple of hours researching before writing descriptions of all their new titles? According to what we’ve found over the past few months, the answer is “not many”. Or “almost none”.

Getting the descriptions and metadata right is what Pete (and the Logical Marketing Agency) calls “foundational”. You must do it or everything else you do afterwards sits on a shaky base.

But there’s another level of knowledge that can be helpful beyond the foundation. What can you do to further promote a title beyond getting its core discoverability right? Well, there are potential paid media opportunities (keywords you might buy or audiences you might target through well-placed banners or other ads). There are other books or other things that have audiences to whom the book would appeal that give keys to other potential promotions. Each of these can lead to further SEO efforts around an author or title web site, new social media tactics to employ and more. You can take what is gleaned in the original research to find new ways to target the audience and that chain, in some cases, can be extended productively many times. The research that turns up those opportunities is something Logical Marketing will also offer, through “comprehensive” title analysis, a deeper drive than “foundational”.

We are doing the same for authors, offering a “foundational” author audit and a “comprehensive” one. But for authors we have found demand for even more research and analysis. Major publishers have bought customized author audits from us for authors they wanted to poach from other houses and for authors of their own they wanted to do a better job for and, often, compare with other authors’ efforts. These are really in-depth reports, 50 to 100 pages in length and filled with data, interpretation, and actionable insights. They often require an execution team to handle implementing the suggestions, though, increasingly we will be offering those services as well. The more complex an author’s online footprint — whether from many books or from many other things in their career — the more work this takes, but the more value there is. A long career and a long list of prior books can bury the messaging to surface and focus on the current book. It is ironic that authors with the biggest online presence can be the most complex to maximize for a particular project.

Recently, we have had two of New York’s biggest literary agencies try us out. One of them was looking for a picture of how one of their biggest authors was doing. The other had specific objectives in mind for their authors and asked us to look at the online footprints of three of them — two very big, one a little less so — to recommend how to achieve those objectives.

There are two additional elements we have only dabbled with so far, but which could become a big part of our business and service suite in the future: backlist and running campaigns.

Getting the most sales out of the backlist requires two things working in tandem. First of all, the backlist metadata has to be optimized. That requires research too, although a bit different research than for a forthcoming title because people have read it and people have talked about it. That gives clues to audience and nomenclature that are much more reliable than what one can discern for a yet-to-appear book. If publishers don’t have the staff time to do by-title research for their new books, imagine how hard it would be for most of them to do it for their whole backlist. It is safe to say that no house is staffed to do this.

The other necessary piece to optimize backlist sales is a tool that will chart the news and social graph — trend analysis — that then can bounce each day’s developments off the backlist metadata to find titles that can benefit from current attention. Of course, that opens up the question of “what attention?” Sometimes a change in metadata will produce a big result, tying the title to current interest. But sometimes more effort will make sense, like a digital media campaign. This has, of course, been tried by certain houses and has sometimes been successful. But it is our belief that this kind of work has not been executed optimally. Paradoxically, often the problem is that it is done too broadly. But it is important work we have some new ideas about how to do it well and at a cost-effective scale and pricing.

And that brings us to the final component of our suite of services, for now. We will run digital marketing campaigns for publishers. We did one of these last Fall for a live event, rather than a book. Since our conversations with publishers and self-publishing authors repeatedly confirm that running campaigns is a real pain point — they know they don’t have the staff for it and they sometimes know they don’t have the skills or experience either — we see that as a big part of our business going forward.

Brands are like authors. They have online presences; they have reputations; they have audiences that have characteristics that, once understood, enable you to reach them better and to find them in other venues. In fact, authors are brands. Publishers know that and we believe that what we do for authors would work for many other brands.

So it is with high expectations and great confidence that we can be helpful that we launch this new business.

One thing we’re going to add shortly is a self-service offering for independent authors. The service organizations we know who do the tech and distribution work for self-publishing authors all say they need marketing. That looks like an opportunity to us. If you want to get ahold of us, you can email us at [email protected] A web site with more about our services has gone up at that address as well.

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Some things I will be looking to learn more about at London Book Fair

The London Book Fair is an every-second-or-third-year thing for me, going back many decades. From an English-centric perspective, it is like a mini-Frankfurt. All the UK players are there and a lot of US senior executives. But because it is so accessible to the Continent, you can get a taste of how things look to the rest of the world.

In the US, we look to me to be in a period when two dominant giants — Amazon for online bookselling and Penguin Random House for general trade publishing — are consolidating their positions. Amazon’s enormous market share is growing, both for print and ebooks. It is too early to draw the same conclusion about PRH, but my guess is that a year or two from now we’ll have seen them taking share from their biggest competitors just like Amazon is from theirs.

(Dominant giants will be part of a conversation I’ll be taking part in on a stage in London. I’ve been asked to participate in The Great Debate, where this year the proposition is ”It’s all about size. Bigger is always better.” I’m arguing the affirmative with Ken Brooks of McGraw-Hill Education as my teammate. We’re opposed by Stephen Page, the CEO of Faber, and Scott Waxman, who is both an experienced literary agent and the entrepreneur behind Diversion Books, a digital-first publisher. It should be fun. And friendly. We’re all nice guys.)

The dominant US brick-and-mortar retailer, Barnes & Noble, appears to be fairly healthy in its traditional business. It is shrinking, but the store operations are still profitable and well run. They appear to have benefited from the demise of its erstwhile competitor, Borders (as have the independents). From across the Pond, one does not get the same impression about UK’s Waterstones chain. However, in the UK, there are forces we don’t have in the US: not just the ubiquitous newsstand-type WHSmith stores, but also two supermarket chains, Sainsbury’s and Tesco, which are each ambitiously trying to build a book business and their own ebook channel. One thing I’ll be asking everybody about is the impact these retailers have in the book marketplace, particularly when we get beyond the top sellers. Perhaps if they’re doing well, it would encourage Walmart to get serious about bookselling. Certainly Walmart would like to do anything they can to poke Amazon in the eye.

Without serious competition from new players who are well-funded, like the UK supermarkets, it is hard to see what stands in the way of the global ebook giants: Amazon and Apple and, to a lesser degree, Google and Kobo. Perhaps I can get a sense in London of how Barnes & Noble’s multi-territory expansion for Nook is faring. But, however they do, there is a so-far little-noted effect beginning to become evident that could tilt the global book business to the English-language marketplace, and to the US in particular.

In a recent conversation, an executive at a Big Five company told me of a recent development. His company had licensed a few titles for Russian language rights to a publisher in Moscow. But by which retailers would most of those ebooks be sold? The answer is Amazon, Apple, Google, Kobo and Barnes & Noble! And the Russian publisher, really just breaking into the ebook business, has far more limited access to these retailing giants than the US publisher which had licensed them the rights.

So the US publisher, in a suggestion that seemed in everybody’s interests, offered to be the “distributor” of those Russian ebooks to the major accounts. The deal was made and it worked. I said to the executive who explained this to me, “You could be helpful in distributing all their books, not just the ones you licensed them.” “Exactly,” he said.

But then we took the conversation a little further. This house is wondering whether, in an ebook-dominant world, it wouldn’t make more sense for them to publish books themselves in Spanish, Mandarin, and French (the first three languages they are thinking about). After all, the translations are done by freelancers. Anybody can hire them no matter where they are. And if most of the books sold are ebooks, and if the publishers of English, especially those in the US, have multiple daily contacts with the big ebook retailers and others don’t, then what is the point to licensing away those rights?

That approach would mean that publishers in at least some non-English territories would, at best, be able to license the print rights for the local geography they really cover. And it would mean that the biggest publishers with the biggest checkbooks to sign the biggest authors and titles will be able to benefit from an even larger share of the book’s global market while paying the author more than they could earn with a local publisher sharing in the other-language rights.

If this is more than one company’s inspiration right now, I should be able to find evidence of that at the London Book Fair.

The other thing for me to learn, of course, is how digital marketing of books looks from the UK. In our fledgling new business with Peter McCarthy (take a look at his new post) we have already done some title optimization work for two UK-based publishers, one large and one medium-sized. So we’ve learned how to do the work using UK-based Google and Amazon and putting BIC codes rather than BISAC codes into the metadata. We’ll be formally announcing the new business and opening our web site the day before the London Book Fair opens. I expect to find a lot of interest in what we can offer, just as we have in the US. There is no doubt that the London Book Fair presents the best possible opportunity to find out very quickly what our own opportunity is outside the US as the need for sophisticated marketing naturally follows the growth and increasing complexity of the overall digital environment.

One person I will be sad not to see at London Book Fair is my longtime friend Bruce Robertson, a founder of the pioneering packagers The Diagram Group, who died a little over a week ago at the age of 79. Bruce was sui generis: a brilliant man with a unique gift for visualization that was the guiding spirit behind dozens of global bestselling illustrated books. Forty years ago, I had the opportunity to sell three of Diagram’s greatest books, “Rules of the Game”, “The Way to Play”, and “Man’s Body” when Bruce’s publisher at that time, Paddington Press, was distributed in the US by my family’s distribution company, Two Continents. I always enjoyed seeing him and hearing his witty, insightful, and often cutting take on the people and practices in our business. Fortunately, there were many opportunities to see Bruce and his endlessly good-natured wife, Pat, over the years, at industry events or when he was in NY or I was in London. We are all one of a kind, but some of us are more obviously so than the rest of us. Bruce was like nobody else. He’ll be missed by many friends from all over the world.

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Book publishing may not remain a stand-alone industry and book retailing will demonstrate that first

You are missing some good fun if you don’t know those AT&T commercials where the grown-up sits around a table with a bunch of really little kids and asks them questions like “what’s better: faster or slower?” There always seems to be an obvious “correct” answer. Those kids could answer some important questions about ebook retailing in the future like these:

“What’s better? Selling just ebooks or selling ebooks and print books?”

“What’s better? Selling in just one country or in all countries?”

“What’s better? Selling just books or selling books and lots of other things too?”

“What’s better? Having one way to get revenue, like selling books with or without other stuff, or having lots of ways to get revenue so that books are only a part of the opportunity?”

And the answers to those simple questions, so obvious that a 5-year old would get them right, explain a lot about the evolving ebook marketplace and, ultimately, about the entire world of book publishing.

Book retailing on the Internet, let alone an offer that is ebooks only, hardly cuts it as a stand-alone business anymore. The three companies most likely to be in the game and selling ebooks ten years from now are Amazon, Apple, and Google. The ebook business will not be material to any of them — it is only really close to material for Amazon now — which is why we can be sure they will see no need to abandon it. It is a strategic component of a larger ecosystem, not dependent on the margin or profit it itself produces. And the rest of their substantial businesses assure they’ll still be around as a company to run that ebook business.

Kobo is owned by Rakuten, a large Japanese online retailer. They started a global  expansion in 2005, buying up ecommerce companies in different key markets, including in the US. They also have invested in Pinterest. I don’t know what it is, but I have to believe that deep in Rakuten’s strategic consciousness there is a larger reason for them to have Kobo, probably based in the opportunities inherent in having a consumer’s email address and credit card information and knowledge of what s/he reads. So they also have a base bigger than the ebook business.

Barnes & Noble demonstrates the principle that books alone and one market alone just aren’t enough. They were able to use their US store presence to jump-start the Nook, but after they grabbed the low-hanging fruit among their store customers for digital reading, they quickly ran out of steam. Without a global presence and without a strong online store ( has been deficient, and an albatross, for years), they just don’t have the ballast to be competitive. And that’s a shame, because B&N is the player that could make the most powerful consumer offer in the book space. They have online and offline, print and digital, but it really hurts them that the execution of offline print isn’t up to competing with Amazon and the overall coordination that would maximize the power of all these capabilities is not in evidence.

This is a totally conceptual theory being posited here, not one with any data to support it. And it is not based on the value of the consumer proposition, although it does seem to me that the “right answers” to the questions in the lead can be formulated strictly from the consumer perspective. The thinking is that book retailing, and particularly ebook retailing, is doomed to being a low-margin business. As such, it is much easier to sustain and support if there is benefit to be gained that goes beyond the margin that can be captured from those sales.

This has really been Amazon’s secret sauce from the beginning. The book publishing industry scratched its collective head for years as Jeff Bezos and his crew grew a giant online bookseller without keeping much margin and had Wall Street shovel money at them to grow and invest. The widespread wisdom in publishing in the late 1990s was that Amazon was performing some kind of parlor trick that would shortly come to an end. Instead, they built on their customer base, their tech, and their reputation for service to expand way beyond book retailing. And today they can afford to run a profit-less book retailing and publishing operation (if they want to; I have no evidence that they don’t make profits and don’t claim to know), taking the margin out of the game in a way that would squeeze any competitor trying to make a profit from book retailing.

Google and Apple are similarly situated in that way and profits (or losses) from ebook retailing don’t even rise to the level of a rounding error for them. Their ebook retailing operations exist in service to larger initiatives: search and Nexus 7 and the whole Google Play content offering in Google’s case; making devices more useful and complementing the iTunes and apps offerings in Apple’s. Their ecosystems are much larger than their ebook businesses and they benefit just from the ebook business being there.

And they’re global. As is Kobo, and Rakuten presumably has an ecosystem play in mind, although it isn’t evident yet.

This is a paradigm that leaves Barnes & Noble out in the cold. Their business, on which they must make money, is selling books. They are trying to diversify their merchandise selection a bit in their stores, but that’s a strategy that is both difficult to execute and has nowhere near the upside that Amazon, Google, and Apple have with their other businesses. This is an unfair fight where B&N is dependent on margins from their ebook (and book) sales while their competitors, if perhaps not totally content to break even on that business, aren’t materially affected if they do, or even if they lose a bit of money on that aspect of their business.

All of this is good for publishers, who benefit from having lots of retailers.

But publishers are bound to face the same problem due to atomization. As the share of the book market — print or digital — reached by online retailers grows (and it is perhaps past 50 percent for fiction already), it makes it easier and easier to put book content into the marketplace and have it reach a substantial percentage of its potential audience. Ambitious self-publishing authors have been reaping the benefits of this reality in growing numbers for the past several years; now entities ranging from newspapers and magazines to ad agencies and colleges and manufacturers are discovering the same opportunity.

In other words, publishing — like book retailing — is likely to become a subsidiary function pursued in strategic support of larger goals. Unlike in retailing, this will not be consolidated among a few players, but as widely scattered as the subjects about which books are produced. But the core challenge for the legacy publishing establishment, that they will increasingly face competition that doesn’t need the profits from that activity as much as they do, will be the same. Book publishing as a stand-alone industry with most of its significant players earning all their profits within it is in the process of morphing into something quite different, starting with the retailers.


The future of bookstores is the key to understanding the future of publishing

One of the subjects we have been probing for a long time is the inevitable impact that increased purchasing of books online would have on the shelf space at retail and what that would mean to trade publishers. (You’ll see that this speech that is well more than a decade old also says publishers are going to have get audience-centric, or vertical, as well.)

Of course, there has already been one shock to the system — one “Black Swan” event — which was the closing of Borders stores in 2011. That suddenly took about 400 very large bookstores out of the supply chain. Since then, the anecdata about independents — which includes encouraging, but unaudited, financial information from the BEA and a lot of rah-rah from thriving indies (a fire we threw a log on with a great break-out session at DBW last week) — has been very upbeat (although Bowker data seems to suggest Amazon gained more from Borders’s passing than anybody else did). And while B&N has continued to show some sales slippage, its more drastic setbacks have been in the Nook business, not selling print in stores.

One distracting fact for analysts considering this question has been the apparent slowdown in the growth of ebook sales, suggesting that there are persistent print readers who just won’t make the switch. The encouraging fact is distracting because it is incomplete as far as predicting the future of shelf space at retail, which is the existential question for the publishers, wholesalers, and bookstores (and, therefore, by extension, for legacy authors too). We need to know about changes in the division of those sales between online and offline to really have a complete picture. If ebook takeup slows down but the online buying shift doesn’t, the bookstores are still going to feel pain.

This point about the key index being online sales versus offline sales rather than printed book sales versus digital book sales is a key one that we’ve been hammering for years. It was nice to see Joe Esposito emphasize it in a recent post of his addressing some of my favorite questions about Amazon.

We had a panel of four successful independent booksellers at DBW. One of them, Sarah McNally of McNally-Jackson, has recently been quoted as saying she worries about the future of her Soho bookstore when her lease is up. (Rents rise quickly in that part of the city.) Meanwhile, she’s taking steps to move beyond books to retailing design-heavy but perhaps-more-enduring retail goods like art and furniture. (And, in that way, McNally-Jackson takes a page out of Amazon’s book, not limiting themselves to being a bookstore brand.)

A friend of mine who is a longtime independent sales rep says that even the successful indies are finding it necessary to sell books and other things — cards, gifts, chotchkes — to survive. The mega-bookstore with 75,000 or 100,000 titles or more was a magnet for customers in the 1970s, 80s, and 90s. It isn’t so much anymore because the multi-million title bookstore is available through anybody’s computer. This is a fact that makes the number of successful stores a weak indicator of the distribution potential available to publishers. If replacement stores carry half the inventory of the ones that go out, we can have a lot of indie retail success stories but still a shrinking ecosystem into which publishers distribute their books.

In general, the proprietors of successful indie bookshops and their trade organization, the American Booksellers Association, paint the times as hospitable to independent bookselling. They dismiss the skepticism of people like me that believe that the current surge of apparent good fortune is due to a window of time (now) when Borders’s closing removed shelf space faster than Amazon and ebooks had removed demand for books in retail stores.

It has been an unspoken article of faith that bookstores would not go the way of stores selling recorded music or renting and selling video, both of which are segments that have just about entirely disappeared. The physical book has uses and virtues that a CD, a vinyl record, a DVD, or a videotape don’t, not the least of which is that a physical book is its own “player”. But it also provides a qualitatively different reading experience, whereas the other “physical” formats don’t change the consumption mode at all. Of course, that only helps bookstores if the sales stay offline. People ordering books online are overwhelmingly likely to order them from Amazon. In other words, it is dangerous to use the book’s ability to endure as a proxy for the bookstores’ ability to sustain themselves. The two are not inextricably connected.

But the fate of almost all trade publishers is inextricably connected to the fate of bookstores. There are only two exceptions. Penguin Random House is one, because they are large enough to create bookstores on their own with just their books. The other is publishers who are vertical with audiences that open up the possibility of retail outlets other than bookstores. Children’s books and crafts books are obvious possibilities for that; there aren’t a ton of others.

The feeling I had at Digital Book World is that most people in the trade have either dismissed or are wilfully ignoring the possibility that there could be such serious further erosion of the trade over the next few years that it would threaten the core practices of the industry. With more than half the sales of many kinds of books — fiction in the trade area, of course, but also lots of specialized and professional and academic topics — already online, many seem to feel whatever “adjustment” is necessary has already been made. They got support for optimism at Digital Book World. Stock-picking guru Jim Cramer touted Barnes & Noble’s future (because they’re the last bookstore chain standing) and, from the main stage, the idea was floated that Wal-mart might buy and operate B&N as part of an overall anti-Amazon strategy.

All that is possible, and I have no data to refute the notion that we’ve reached some sort new era of bookstore stability, just a stubborn feeling in my gut that over the next few years it will turn out not to be true. I don’t mean to ignore the positive signs we’ve seen over the past year or so. And the overall decline in physical retail versus online purchasing affects all retail, not just books, so it is possible — some might say likely — that the rent squeeze will ease. It isn’t just bookstore shelf space that seems to be in oversupply compared to demand; that’s broadly true of retail. So your gut may differ and would have some logic to support a contrary point of view.

But my hunch (and this is not a “prediction” as in “this will happen; take it to the bank”) is that shelf space for print in Barnes & Noble and dedicated bookstores could well shrink by 50 percent over the next five years. What CEO or CFO of a trade publishing house would consider it prudent not to consider that possiblity in their own planning?

Obviously, less shelf space and more online purchasing change each publisher’s practices in many ways. They will want to deploy more resources for digital marketing and less for sales coverage. They will want to own less warehouse space and less inventory, changing the overall economics of their business. As we’ve been saying for years, they’ll find it sensible to become more vertically consistent: acquiring titles that appeal consistently to the same audience. Each house’s own database of consumers will become an increasingly important component of their equity: an asset that provides operational value today and balance sheet value if they become acquired.

But, most of all, publishers are going to have to think about how they maintain their appeal to authors if putting printed books in stores becomes a less important component of the overall equation. It is still true that putting books in stores is necessary to get anywhere close to total penetration of a book’s potential audience. Ignoring the in-store market obviously costs sales in stores but it also costs awareness that reduces sales online. (After all, stores are very aware of the “showrooming” effect: customers who cruise their shelves with smartphones in hand, ordering from Amazon as they go!)

But that’s today when the online-offline division may be near 50-50 overall and is 75-25 for certain niches. If those numbers become 75-25 and 90-10 over the next five years, the bookstore market really won’t matter that much to most authors anymore. Whether through self-publishing or through some fledgling publisher that doesn’t have today’s big publisher capabilities but also doesn’t have their cost structure, authors will feel that the big organizations are less necessary than they are now to help them realize their potential.

Higher ebook royalty rates, more frequent payments, and shorter contract terms are all very unattractive ways from the publishers’ perspective to address that issue. So far the marketplace hasn’t forced publishers to offer them. If bookstores can hold their own, the need to move to them may not be compelling for a long time. But if they don’t, most legacy publishers will have very few other levers to continue to attract authors to their ranks.

We are already seeing big publishers quietly moving away from publishing books that haven’t demonstrated their ability to sell as ebooks: illustrated books, travel books, reference books. That implies an expectation that the online component — particularly the ebook segment of it — has already changed the marketplace or certainly will soon. Adjustment of the standard terms with authors is a shoe that hasn’t dropped, but if the marketplace continues to change, it might become very hard to keep things as they’ve been.


Publishers do need to sell direct, but here are five things they should at least be started on first

The “Code Meet Print” blog by Glenn Nano recently reprised a subject I wrote about 18 months ago: the benefits that flow to publishers that sell direct. In that piece, I highlighted the disagreement that seemed to exist at that time between my advocacy of direct selling of ebooks particularly and Random House’s lack of interest in doing so.

In the meantime, I’ve been working with Peter McCarthy, building a digital marketing business. Pete was the lead digital marketing strategist at Random House for six years ending shortly before I published the piece. Nano makes the point that only Random House among the former Big Six does not sell ebooks direct now (although Penguin, the other half of the supermerger, does).

But in the year I’ve been working with Pete, I’ve learned with more nuanced perspective where “owning the transaction” fits in the hierarchy of tools and opportunities for publishers to directly influence consumer behavior. It isn’t at the top. So I have a new-found respect for Random House’s reluctance to forge ahead with retailing (although they clearly have been pursuing a direct-to-consumer strategy for years) and a new-found understanding of many other things publishers can do to help themselves with direct-to-consumer book marketing without necessarily executing the final sale of the ebook.

Any publisher who has been awake for the past several years knows that they need to talk to consumers directly where consumers are and can be engaged. Search engine optimization, Facebook and Twitter (and Instagram and other digital venue) campaigns, and consumer databases were practically non-existent five years ago and are now universally-accepted components of the marketing toolkit.

At first blush, it seems like a no-brainer that if you are talking to the consumer, introducing them to a book and persuading them to buy it, then you ought to at least try to get the full margin on the sale by executing the final transaction (as well as, perhaps, learning even more by observing their behavior as they read). But, of course, there are myriad complications.

Selling ebooks with DRM at all costs money for the license, adds complications for the end consumer, and can’t be executed by anybody except Amazon for delivery to the Kindle.

Setting prices is devilishly difficult. Either you resign yourself to being more expensive than many of the retailers or you compete with them on price. That requires technology and complicates the relationship with the sources of most publishers’ sales. It also means the “additional margin” you’re aiming to capture might not be as much as you hoped.

Being a retailer requires customer service. That’s something publishers have no experience with. And the difficulty of delivering it escalates with DRM and with any kind of dynamic pricing policy.

It is not surprising that the first publishers to sell ebooks direct had both the characteristics of being “vertical”, working with the same audiences repeatedly, and of being willing — for whatever reason — to distribute ebooks without DRM, which makes them easily passed along to others without in any way reducing the access of the original purchaser. These publishers — like Osprey for military books and F+W Media for illustrated books on many discrete subjects and Baen and Tor in the sci-fi genre — were anticipating the opportunity that Nano points out HarperCollins is exploiting with Narnia: using content to attract consumers which would lead inevitably to some desire to purchase. And selling direct also enables those publishers to make special offers around pricing or bundling or loyalty that would be much more cumbersome, if not impossible, to execute in collaboration with the existing retail network.

The need to sell direct seems pretty obvious and pretty compelling and there are now a growing number of service providers who can make it possible for publishers to do this on the web and through apps. (We’ll have a number of them talking about that at Digital Book World.)

One thing I learned from Pete is that — at least for a time and maybe still — Random House, apparently uniquely, was able to gain very granular affiliate-code tracking from Amazon. (This was achieved, apparently, merely by requesting it.) An affiliate code is the mechanism that enables publishers (or any other third-party) to be paid a referral fee on sales executed from traffic they send to Amazon (or any other retailer which compensates affiliates for referrals) for a purchase. Publishers normally have one and only one for each retailer to use across all their referrals, so they get sales reporting and payments from each retailer that are consolidated across all their titles and all the campaigns they run for those titles.

That leaves them flying blind on one of the most important metrics in digital marketing: how their clicks convert. Publishers persuading consumers and sending the traffic as an affiliate to Amazon or B&N (or any other retailer) can only possibly know the total number of clicks that went through them to the retailer and the total number of copies of each book they are credited with selling. Painstaking matching could get them a conversion index for a title, but not broken down by campaign or referral source.

Because Random House didn’t have that blind spot, they were, first of all, aware that their conversion rate on clicks to Amazon was very high, much higher than they would expect to get themselves if they tried to encourage consumers to buy direct. So the capture of more margin per sale would be at the expense of losing many sales. But, in addition, the extra margin can get burned up pretty quickly with the costs of running a direct-sale operation. One that provides solid user experiences, customer service, and other now standard eCommerce practices anywhere near today’s customer expectation is expensive — more so when it isn’t your primary business. eCommerce is a huge distraction, especially when it is executed by the folks who are also your digital marketers! That, or additional head count (which further lowers margins), would constitute a publisher’s choices.

When Nano made the suggestion in his piece that publishers move their “direct sale” up in the hierarchy of what they offer the consumer, above Amazon and other retailers, he wasn’t reckoning that this would result in a predictable rise in “cart abandonment”, which would mean sales lost. Nor did he calculate a substantial increase in operating costs.

That granular knowledge also enabled Random House to measure the success of campaigns by the meaningful metric of “books sold” rather than the proxy of “clickthroughs created”. That data made it evident very quickly that the search terms and calls to action that drove the most clicks weren’t necessarily the ones that drove the most sales. And, in addition, Amazon likes it better, and is more likely to invoke their own marketing capabilities on your behalf, if you’re driving traffic for a book that converts.

And all of this leads me to a list of five things I’ve learned in the past year that are really essential for effective marketing by publishers in the digital age. And I think all of these things are more important than, and independent of, whether the publisher controls the transaction or doesn’t.

1. It is necessary to do research to create effectively-SEOd copy for each and every book. McCarthy works with about 125 listening and analytical tools that allow him to find where targeted audiences are on the web, when they’re there (he can tell you the optimum time to tweet or post) and what words they use, enabling optimized search and attracting the consumers with the right “intent” to learn more about books. At the very least, every book needs an hour or two of structured examination of its audiences employing a dozen or more of these tools. Publishers who have their editors or marketers create the book descriptions and other metadata without doing this research are missing a critical trick. (Full disclosure: the Logical Marketing Agency Pete and I have just launched is now selling the service of doing this work at a per-title price that any publisher can afford, and which we think might be a faster, better, and cheaper solution for many than burning their own staff time figuring it out.)

2. Optimizing an author presence also requires research, and the more famous an author is, the more complicated is the challenge of pointing readers to a particular book. We’ve done three big author-centric jobs in the early days of our agency: one helping a major publisher look at the online presence of a major multi-book author they want to woo away from a major house competitor and the others examining the online presences of celebrity authors with complex backgrounds and prior books as well. Author and celebrity networks contain all sorts of clues to how to expand the author’s base, by segmenting it and by finding other celebrities and brands that have a following with similar profiles.

3. Although this is a touchy subject at the time that we’re still living with the Snowden-NSA revelations, it is also essential for publishers to be building their database of consumers and and tracking their knowable attributes, preferably with companion “permission” to email them, but even without. Several years ago, we were made aware by an agent that the enormous email lists owned by Hay House of readers interested in “mind body spirit” books enabled them to out-market big houses in their vertical. What working with Pete has taught us is that starting only with an email address or a Twitter handle, one can learn a tremendous amount about most individuals. They don’t make much noise about it, but we know at least some big houses have databases of consumers that number in the millions. They know very little about many of them, but are able to learn more all the time. Someday, if not already, publishers will be bumping the attributes of a book they want to buy against their database of people they know they can touch to make acquisition decisions.

4. When publishers are proceeding with fully-optimized book metadata, author online presence, and as many proprietary connections as they can muster to deliver free or earned discovery, they will also find opportunities for paid campaigns that can buy them additional attention. But running these media campaigns properly is yet another new skill set that requires developing experience in people and technology to help them. The “media cost” of Facebook or Google advertising is relatively trivial (compared to what media cost in the pre-digital age), but the management of that spending requires expertise and close attention to optimize the messages and the targeting.

5. The opportunities that a digital marketing environment creates for increasing sales of backlist have, across the industry, hardly been explored. If publishers are failing to do the necessary research to deliver optimal metadata on new titles, most aren’t even thinking about it for their backlist. This is a complicated problem. You can’t spend the hour or two we consider minimal necessary research to position a new title across thousands of titles on a backlist on a regular basis. Both monitoring the outside world, news and the social graph, and keeping metadata optimized for changing circumstances are, as yet, problems without a lot of helpful tools (or start-up initiatives) to assist them with yet. But publishers have lived for years in a world where the biggest barrier to backlist sales was the lack of availability of books in stores. As sales made online now exceed sales in stores for many titles anyway, that’s no longer a barrier and a much more proactive everyday approach to selling backlist is called for. A proprietary direct-selling effort can be of only minimal value there until a publisher creates such a heavily-trafficked store that screen real estate can be an effective tool. So other solutions are called for and it is probably unnecessary to say that McCarthy and I are working on this challenge too.

We’ll be covering a number of these issues at next week’s Digital Book World. In addition to the session on “Building Direct Sales Relationships” — featuring Micah Bowers of Bluefire, Sameer Shariff of Impelsys, Doug Lessing of Firebrand and Marc Boutet of DeMarque, and moderated by Ted Hill — we’ll also have several sessions focused on backlist marketing, marketing to (and building) online reading communities, gathering and using consumer data to inform acquisitions and marketing, and how to make the most of all the various social media channels. 


Nine places to look in 2014 to predict the future of publishing

The digital transition of the trade book publishing business, which I would date from the opening of in 1995, enters its 20th year in 2014. Here are some of the ponderables as we close out the first two decades of a process of very rapid change that is far from over.

1. What’s going to happen with retail shelf space for books? The market for the kind of narrative reading that comprises the bestseller lists has gone anywhere from half to three-quarters online, ebooks and print combined. The rate of movement has slowed, but it hasn’t stopped. It has now been two full years since Borders shut. Barnes & Noble continues to close stores as leases expire. Independents are, anecdotally, reported to be holding their own, but they’re definitely challenged to deliver on the online component and, so far, the successes have depended on individual entrepreneurs running good local stores, not any formula that is replicable or scalable. When will we see a stable “floor” for bookstores, a sustainable foundation from which year-to-year fluctuations won’t persistently be down? I don’t think it will be in 2014, but it’s the most important bunch of tea leaves to read for some segments of the business.

2. Illustrated book publishers are likely to be the most attentive of all to the bookstore shelf space question. Six years into mass ebooks (as dated from the Kindle) and three years into good hand-held delivery of graphics (as dated from the iPad), the digital version of illustrated books have not found the market that the digital version of novels have. The illustrated book publishers learned to be global over the past four decades, so many have avenues to market that aren’t changing as fast as the US bookstore network has. But the reduction-in-shelf-space line on the graph or the sales-of-these-books-as-digital-products line, or both, have to start moving in the opposite direction or there’s a major problem brewing in that very large segment of our business. Will 2014 be the year that somebody cracks the code for delivering how-to or art-book material in a digital form that will replace shrinking print revenues?

3. As 2014 dawns, we have a host of ebook retailing models that deviate from what the book business has always done: sell one book at a time for a price for which the starting point of reference is one set by the publisher for that book. Safari, created by O’Reilly and Pearson, showed a subscription model more than a decade ago but it was for professional books. 24symbols, based in Spain, is a sort-of granddaddy of this business in the trade segment, being about three years old. They are joined by Oyster, a new start-up dedicated to ebook subscriptions and Scribd, an old start-up originally dedicated to being YouTube for documents. And Entitle, formerly called EReatah, has a slightly different subscription proposition that is more like a “book-of-the-month-club” in its structure. An even newer start-up called Librify has an offering for reader-organized book clubs in the offing. Amazon already has a lending library for its PRIME subscribers, which amounts to the same thing, and a subscription of content for kids on Kindle Fire. With so many experiments in play, we ought to get a picture by the end of 2014 of the degree to which this model appeals to consumers and whether the economics are enticing enough to get big authors and big publishers to play with more enthusiasm than they have demonstrated so far.

4. It is accurate, but misleading, to describe the Penguin Random House combination as a merger of “two of the big six”. It is actually a merger of the two biggest of the former Big Six, and it creates a publisher that is nearly as big as the four others combined. So we now really have a Big One and a Following Four, rather than a Big Five. The big question is what PRH can do to apply what is a huge difference in size as a scale advantage. The hunch here is that proprietary distribution channels can be created by a company that controls approximately half the most commercial books in the English-language world. Whether that will manifest itself as ebook subscriptions, special retail distribution using vendor-managed inventory, or the creation or purchase of marketing channels for its exclusive use — or all of the above and more — will be one of the most important things to watch in 2014.

5. The financial reports from big publishers in 2013 have been mostly encouraging. It looks like the shift to ebooks has had the impact of improving publisher margins and profitability. But can those good times last? Publishers now face a world where there is a single dominant bricks-and-mortar retailer, a single dominant internet retailer, and, as noted above, a single dominant publisher. Agents want to keep competition alive, so they’re going to be sensitive about pushing the Following Four too hard or allowing too quick a migration of authors to the industry leader, but the retailers won’t be so accommodating. Another pressure point on margins will be ebook pricing. It has been driven down by successful self-publishing and the the court’s elimination of agency as a protection. Now big publishers have discovered “dynamic pricing” — lowering prices on a book temporarily to spike sales and awareness — adding their own activity to the list of forces reducing margins. Both the top line and the bottom line will be harder to maintain in 2014, but how it will turn out is an open question. After all, most of these things were true in 2013 and margins still improved.

6. Literary agents have been dabbling with publishing for the past several years since ebooks and POD have made it possible to do it without inventory or an organization. Agencies have started publishing operations (E-Reads, Diversion, Rosetta) and many more have brought on the expertise to give authors help with digital services (Curtis Brown, Writer’s House). Publishers have expanded into author services with speaker’s bureaux, but, so far, none has thought to add literary agenting services except for the time-honored practices of selling rights (foreign, paperback, book club), which was part of their publishing process. Might a publisher either create or ally with a literary agency to create a way to “own” an author’s entire career? If one tried this in 2014, it wouldn’t come as a total surprise.

7. Simon & Schuster has made a number of pioneering deals for a publisher of its size. They offered print distribution service to bestselling indie author John Locke. Then they made a print-only deal — which the big houses pretty much said “we will never do” — with another indie with a hit, Hugh Howey. Now they’ve extended an idea they started a few years ago and signed a deal to give Yankee shortstop and icon Derek Jeter an imprint to be a publisher. Jeter has the ability to focus public attention on any book he wants (although certainly more with some topics than others) and he’s an articulate spokesperson with a strong personal following. S&S had done this in 2007 with 50-Cent; Hachette more recently gave an imprint to Chelsea Handler and HarperCollins gave one to Johnny Depp. Will celebrity imprints become a common idea? There will be plenty of attention paid to how Jeter’s initial efforts work. Or it may be that some other athlete or actor, musician or politician, will be the next experiment with this model. In any case, this is something else to watch in 2014.

8. It has been happening quietly but it has been happening: we increasingly have two separately-operating book businesses: Amazon’s and everybody else’s. This starts with the numbering system: Amazon uses its own ASINs, rather than depending on everybody else’s ISBNs. It extends to the titles available: Amazon has an untold number, but certainly hundreds of thousands, that it either publishes exclusively or which authors or small presses publish exclusively through them. And it has service offerings from Kindle Owners Lending Library to its recent Matchbook offer to pair ebook and print sales, which range from “extremely difficult” to “impossible” for any other publisher-retailer combination to match. How far can this go? Can Amazon create a closed world which is more profitable for an author or publisher than the whole world that includes everybody else? Or have they already?

9. And, in that same vein, we have what would seem to be an unsustainable dichotomy in the ebook marketplace as a result (I would say, editorializing here) of the Justice Department’s lack of understanding about where power really lies in the book business. Apple insists on “agency pricing”: publishers set prices, Apple keeps 30%. Amazon — for everybody except the former Big Six — insists on the wholesale model which gives them 50% of the publisher’s set price to divide as customer discount and margin as they choose. This has resulted in all publishers except the biggest being forced to put two prices on their ebooks: a ”digital consumer retail” price (intended to be a selling price, for Apple, and lower) as well as a “list” price (intended for the retailer to discount, for Amazon, and higher). When the distinction began, the agency price couldn’t be discounted. Now it can so the only real differences are the margins and the hard-to-explain-or-justify publisher-set prices. Only the biggest publishers have the clout to overcome the marketplace power of Apple and Amazon to dictate how the sales structure will work. Everybody else lives in an Alice in Wonderland world. I’d expect something to give on this in 2014.

Many of these questions will be explicitly discussed at the biggest and best Digital Book World ever, coming up in less than two weeks. It has become the premier global gathering of book publishers talking about the impact of digital change. We’ve counted them up and there are 156 speakers and moderators on the 2-day DBW program, plus dozens more in DBW’s workshop program and the Publishers Launch Kids conference hosted by Michael Cader and me and programmed by Lorraine Shanley of Market Partners International. You can’t spend that week with us without bumping into smart people who are getting great things done.


No, Mike Shatzkin did NOT say that publishing is spiraling down the drain

As part of the promotion of the Digital Book World conference, I do some interviewing with the very capable Jeremy Greenfield, the editor of their blog. And Jeremy takes our conversations and chops them up into short pieces around the themes of our show. Since the focus of Digital Book World is “how digital is changing publishing”, Amazon is a topic of great interest and one we try to address in an original and enlightening way.

In my interview with Jeremy, for which he published very brief but entirely accurate excerpts, I did say that publishers would face a real selling job with authors when Amazon’s share grows by another 25% from its current base or if Barnes & Noble closed. Neither of those things is likely to happen in the next few years. If and when the day comes that one of those things does happen, not all publishers would be entirely defenseless even with today’s arsenal of capabilities. And Jeremy’s piece closes with my suggestion that publishers can help themselves by doing “digital marketing at scale, which is audience-centric in its thinking.”

Despite how this is interpreted in some circles, it does not add up to publishing “spiraling down the drain”.

Amazon is already truly disruptive and it isn’t clear to anybody but those on the inside of Amazon exactly how disruptive. I’ve written earlier that we know nothing about the used book marketplace they host and foster, which we must assume cuts into sales, particularly of bestselling books which have many copies in circulation. A recent discussion on a mailing list I’m on revolved around what we don’t know about how many ebooks are being published. Why? Because Bowker, which issues ISBN numbers and therefore helps us count the titles going into the marketplace, doesn’t necessarily get to touch (and count) titles that stay entirely inside of Amazon and therefore only use the Amazon “ASIN” substitute for the ISBN. Other ebook retailers will handle titles without ISBN numbers, but only Amazon has a large enough market by itself to make a substantial number of self-publishers work with them alone.

And now we have the anomaly of sales reporting from the AAP, once again working without totally internal Amazon IP, that suggests ebook sales are going down. Are they going down? Or are self-published titles exclusively inside Amazon taking share away from the part of the business we can see and count for ourselves and masking the ebook sales growth that is actually taking place? I have no evidence, but that strikes me as a more likely reality than that ebook sales have actually fallen year-to-year recently.

What that means is that we are developing two publishing businesses. One of them includes all of us: all the publishers, all the retailers, all the industry bodies counting books and sales. And one of them is “private” or “proprietary”; it is Amazon. They are publishing an unknown number of titles selling an unknown number of copies netting an unknown number of dollars under a numbering system nobody else can crack or track.

Actually, Amazon is not entirely alone in wanting proprietary titles. Perhaps there are some within Nook or Kobo, but hosting proprietary titles to establish themselves in the market is the declared strategy of upstart retailer Zola Books. Last week they announced exclusive titles from Joan Didion and her late husband, John Gregory Dunne. They think having showcase titles of this kind will enable them to crack the ranks of established ebook retailers. I think it would take a lot more of them than they’ll ever get to make a dent, but time will tell. And if they don’t sell a lot of the ones they have, it will become impossible to persuade anybody else to give them such an exclusive on any basis.

But Amazon, being more than half the market already for a lot of genre fiction, can use painless (to them) financial incentives to induce authors to give them exclusives through the KDP Select program. So they get them in numbers none of the rest of us can count but which could conceivably be large enough to actually make industry figures inaccurate.

My assumption is that Amazon can do more for a book inside Amazon than a publisher or author can working Amazon from the outside, all other things being equal (although the U-turn from the ambitious Larry Kirshbaum publishing program might cast doubt on that). And the publisher takes a big share of the Amazon-generated revenue. That means that the publishers have to make up the difference in revenue for the author in one or both of two ways:

They have to do a superior job publishing the book — editing, positioning it in the marketplace, selling rights, and sustaining a marketing effort that will be largely digital — so that it sells more even inside Amazon than it would without those efforts. In other words, they have to assure that “all other things” do not remain equal.

They have to sell lots of books outside of Amazon so that the revenue from the larger publishing ecosystem makes up for the Amazon-generated revenue that the author shares with the publisher.

The shift that has taken place so far is apparently not crippling publishers at all. There are no clear tallies about this, but it certainly feels like there are more authors moving from self-publishing to a publishing house (to borrow a term that usually has a different meaning in our business: “discovered” by publishers because of their self-publishing success) than the other way. So either they’re able to make more money, or they really appreciate the full bundle of editing and marketing services a publisher provides, or they value the broader exposure through a publisher’s entire distribution network more than the perhaps-higher revenue they could make from fewer sales through Amazon alone, or some combination of the three.

My point, and what should be a broad industry concern, is that the publisher’s challenge continues to get steeper. Amazon’s share is growing in relation to the rest of the market and more and more service offerings for editing and marketing are making it ever-easier for authors to entertain a non-publisher option. There is a very small but growing population of authors with lengthy backlists who have gotten their rights back, or secured their ebook rights alone, and are able to consider alternative paths to market.

Although she wasn’t the first, Jane Friedman saw this very early — and it is the opportunity that got things started for her Open Road Integrated Media, probably the largest new publisher built during our current shifting paradigm. Richard Curtis of E-Reads and Arthur Klebanoff of Rosetta were pursuing a similar strategy before Friedman got started, but she found the funding and added the promotional sizzle to build a bigger business faster. (It is still an open question whether the companies that are building themselves by offering more generous royalty splits for already-established backlist have a sustainable business model.)

We’ve said repeatedly in this space that the publisher’s time-honored core proposition has been “we put books on shelves”. That is changing and the new proposition has to be “we will help authors reach their whole audience”. A very smart executive from a major house suggested another formulation that makes sense: “publishers are experts at building author brands.”

Either of those, as a competitive statement against Amazon, will almost certainly reflect a potential advantage for authors. But as the difference between what is Amazon’s audience and what is the whole audience gets smaller, the publishers’ challenge gets harder. And only by doing a smashing job at both publishing in a way that sells more on Amazon and by maximizing the market outside Amazon will publishers retain their power to attract authors in the years to come.

The answers for publishers as seen from here are “verticality”, or “audience-centricity”, combined with scaled skills (and tools) to do digital marketing in ways the authors can’t on their own and which Amazon isn’t likely to develop. The two go together: focusing on an audience enables a publisher to build scaled capabilities to reach that audience that others without that focus will not have.

There have always been publishers that have gone “down the drain” or, more likely, seen themselves become part of some other publisher rather than a stand-alone entity. We will certainly see consolidation in various segments of the industry at the same time that we will see lots of new smaller entrants attracted by book publishing’s diminishing cost of entry. (We call this atomization.) But seeing that things will get harder is not the same as seeing a pending apocalypse, and recognizing there are benchmarks that would signal a real escalation of the challenge is not the same as saying we’re about to hit them.

The topics covered in this post will get a thorough airing at the Digital Book World conference on January 14-15, 2014. (Here’s the full program.) Our Amazon coverage will include presentations from Brad Stone, Benedict Evans, and Joe Esposito, followed by a panel discussion among them. Professor Dana Beth Weinberg combines her data analysis skills as a sociologist with her publishing interest and knowledge as a romance writer to present a unique perspective on the changing dynamic between publishers and authors. And Phil Sexton, the publisher of Writer’s Digest, will present the results of his organization’s survey of more than 5,000 freelance writers, capturing an up-to-date picture of how writers view the choice between working with a publisher and putting their material out on their own.


Amazon might lose interest in total hegemony over the book business before they achieve it

The industry got the news that Amazon was probably reassessing its own publishing program a couple of weeks ago when it was announced that Laurence Kirshbaum was stepping down as the head of Amazon Publishing and being replaced by a 14-year veteran of the Seattle company, Daphne Durham. Whatever are Durham’s strengths and connections, they don’t include the familiarity with the New York publishing scene and agents that Kirshbaum brought.

While this certainly does not suggest an overall reduction in Amazon’s publishing activity, it does signal a change in tactics. It would appear that the unorganized but united stand by Barnes & Noble and independent bookstores to boycott Amazon-published titles and refuse to give them shelf space made it virtually impossible for Amazon’s publishing enterprise to compete with the big houses for brand name authors. The few that they tried — Penny Marshall and Timothy Ferriss wrote the high-profile titles that were watched — had disappointing results. Whether that was largely because the stores wouldn’t play along or for other reasons (not all books by famous authors or celebrities are equally edited or equally appealing), the overall environment did not leave agents or the authors everybody wants panting for an Amazon publishing deal.

Retreats — apparent or real — by Amazon are rare. (The last one we can recall is when they pulled the buy buttons from Macmillan titles in 2010 to protest agency pricing and very quickly rescinded the action.) But it would be a mistake to think either that Amazon is less interested in publishing than they were before or that the threat they pose to publishers’ relationships with authors is no longer something publishers need to concern themselves with.

In fact, all the recent evidence suggests that Amazon’s market share is still rising. The Bowker numbers reported at the end of July of 2012, trying to measure who got the Borders sales (which were 10% of the total when the retailer went out of business) put Amazon’s total share of the book market at 29%, up from 23% a year earlier. In that same report, it was reported that B&N had gained a point of share, up from 19% to 20%. So Amazon out-benefited B&N from Borders’ collapse by six to one.

Earlier this year, it was reported in Britain that Amazon had a whopping 79% of the burgeoning ebook market. That’s more than they have in the US. It is also apparently the case that Amazon has the lion’s share of the online book sales market in the UK (and, along with their subsidiary company The Book Depository, most of Europe and the English-speaking world).

The share of total sales that goes through their registers is only one measure of Amazon’s disruptive growth. They’re also signing up more and more books directly to their imprints (the genre publishing growth continues unabated and was never heavily dependent on Kirshbaum) and getting more and more books through authors self-publishing. And as they disintermediate publishers by bringing in books directly by either means, they also threaten their competitive retailers in all venues. Although you can be self-published through Amazon and continue to distribute to other channels, they offer financial incentives to discourage that.

In fact, Hugh Howey, the enormously successful self-publisher of “Wool”, told us a year ago that the decision to broaden his distribution base to include Nook and other platforms cost him money. He did it because he thought it was the fan-friendly thing to do but he’d have made more money on his ebook sales if he’d sold fewer units and given up the other formats.

(KDP Select is the program that demands exclusivity. By enrolling, authors get their works in the Kindle Owners’ Lending Library, increased royalties on sales outside the US, and access to additional promotional tools. You can still have your book on sale in physical, “or in any format other than digital”.)

We see Amazon growing into a large and slightly separate book industry of its own. They don’t use the book business’s standard ebook format, epub; they use their own format, mobi. (The Amazon “flavor” is AZW, and they also have the newer KF8.) They don’t care much whether a book has an industry standard ID, the ISBN number. Amazon assigns its own number, unless the publisher has a 10-digit ISBN they can use, which they call an ASIN. They own a must-optimize author page (Amazon’s author page affects an author’s discoverability on Google; the converse is not true) and a must-use book readers’ social network (GoodReads). They have their own print-on-demand operation making it simple for an author to set up both ebooks and print at the same time.

The “advantage” a publisher has pursuing authors is that they can offer a much broader distribution base as well as their honed skill at marketing and publicity. But there’s a price for that; self-publishing with Amazon brings an author four times the revenue for ebooks and somewhat more for every print copy sold as well. Whether Amazon is a quarter, a third, a half, or more of a book’s sale depends on the book, but authors will be increasingly facing the choice Hugh Howey faced: publish exclusively with Amazon and sell a bit less but make a bit more, or publish to a broader audience through a publisher (or on your own) and make less money. Apparently, many authors are doing 90-day runs of KDP Select to get a boost at Amazon, then switching back to broader distribution

Fortunately for the rest of the publishing business, the shift to ebooks and to online purchasing may have stalled. In the US, Amazon appears to have about 60-70% of the ebook business, and ebooks constitute about 30% of the total business. But the ebook share is much higher for immersive reading, higher still for fiction. For fiction, more than half the sales of many titles can be digital. And the print sales are anywhere from 25% to 35% online. So for fiction, Amazon may already be nearing half the total sales for many titles.

We wouldn’t expect the slowdown of the shift in sales to last. New offerings of ever-cheaper and more-flexible devices, more and more cheap ebooks in the market (discounting the backlist ebooks seems to be publishing’s latest most common marketing trick), and the natural growth in digital interaction as older people exit and younger people with new credit cards replace them, pretty much assure that the online sale will continue to grow in relation to the store sale. As that happens, as the 2012 measurements after the demise of Borders showed, Amazon experiences organic growth.

So, when does Amazon’s share growth stop? And who is left standing when it does? Here we have to enter a realm of pure speculation; there are no data points that can help us figure this out.

To answer these questions, we need to look at the book business in segments.

For narrative text, books that one reads from the first page to the last, we’d expect continuing growth of digital. For genre fiction (including YA), which has the additional characteristic of having audiences that consume many titles a year, we’d expect a lion’s share digital market — 80 percent or more — to be common within a couple of years. For those books, Amazon will continue to just eat away at the publishers’ position. More and more of the genre readers will migrate to them because they’ll have an increasing number of titles on an exclusive basis, more — and more aggressive – price promotion, and probably a variety of subscription opportunities. That should lead inexorably to more and more of the genre authors being willing to publish with them exclusively because they’ll be able to reach an increasingly large percentage of the reader base through digital and Amazon alone.

If I were looking for the first candidates not to be “left standing”, we’d expect to find them in genre publishing. In time, the big publishers will increasingly focus on “big” genre titles, rather than lengthy genre lists.

I also expect more DRM-free trials, particularly in genre fiction, so that publishers and third-parties can sell mobi files to existing Kindle customers. For while genres are where Amazon has their greatest potential strength, it is also true that genres are where publishers have the best chance at building brands and direct customer relationships that matter.

More general fiction and non-fiction will be read mostly in digital form in a short time too, although the hardcovers for those books will continue to exist. But for the big players in general trade, there’s another problem besides Amazon to deal with. That’s the new publishing behemoth: Penguin Random House. I would guess (all we can do) that by three or four years from now, the first choice for most authors will be either PRH or Amazon. PRH will provide the biggest reach; Amazon will often provide the biggest potential revenue. The other general trade houses will fight each other for the authors that don’t want to be part of either behemoth.

For illustrated books and children’s books, the environment will be different. Stores will remain important, but there will be fewer of them (and therefore fewer books of this kind published). The bookstore I’d imagine in several years will have far more illustrated and gift books in it as a percentage of the total title mix than it does now.

What I think will save publishers from disappearing, oddly enough, will be a loss of interest at Amazon in taking more market share. This conclusion comes from a combination of something I learned from people at Google about Google and what is clear from Stone’s book.

Last spring, I visited a Google installation that was not about the book business, but about an online game. The game is a big online experiment in engagement. Googlers showing us around were thinking about the revenue potential of the game, which was not supposed to be their primary concern. They had come to the conclusion that $100 million in annual revenue would be achievable, but they didn’t think they’d be able to go after it. Why? Because nobody in a responsible position at Google would take ownership of something as small as $100 million in revenue.

Brad Stone paints a picture in “The Everything Store” of Amazon as, above all, a highly rational company. Jeff Bezos can be impetuous, but he’s not nuts. He is zealous about the things he cares about because he believes they matter: customer happiness being number one on the list. As the book business becomes a smaller and smaller part of the total Amazon picture and the challenges that matter to the business revolve around delivering your fresh produce in 30 minutes, not 90, it is likely that Amazon will have less and less interest in squeezing just a little bit more margin out of the book business. There will be easier places and easier ways to make money.

Amazon achieved the position it has in the book ecosystem through a combination of brilliance, execution, natural forces, and some good luck but, above all, focus. It had to take some big chances with pricing and margin to get where it has gotten, but that’s not really necessary anymore. Doing some very logical and natural things, like the new Matchbook program and rolling out more subscription and pricing offerings (like their new “Countdown Clock” discounts for new Kindle titles) will keep their share growing and their competitors scrambling. They will also almost certainly be coming after publishers for more margin (as will their equally dominant counterparts on the store side, Barnes & Noble), but it would seem unlikely that they’ll see the need to extend themselves to sign up authors or build out their ability to distribute print to other people’s stores.

Amazon will certainly continue to make it difficult for publishers to use price offers as a way of teasing away some of the direct ebook business. Publishers are finding that increasingly tempting as more and more vendors emerge who can solve the tech challenges for them. But even with publishers taking some ebook share directly, and more of them will, chances are that the ebook business will grow faster than the publishers’ shares and that Amazon’s growth, partly at the expense of other ecosystems, will not stop.

So the good news for publishers is that the business they now have will look less and less appealing compared to other worlds Amazon might conquer. That should save them from having a bulls-eye on their backs, but it will remain a very challenging environment where their biggest customer is the most powerful force in the marketplace and growth outside that customer is harder and harder to achieve. The publishing activities of Amazon will continue to get bigger; the industry of other publishers will continue to get smaller. But we are probably in for a period of slow and steady shifts rather than cataclysms.

As long as Barnes & Noble can stay healthy and the other ebook platforms aren’t crushed by losing titles to Kindle exclusives, that will remain the case. And that means “for quite a while” but not “forever”.

Remember that Brad Stone will be joined onstage by analyst Benedict Evans and publishing sage Joseph J. Esposito for a wide-ranging discussion about Amazon at Digital Book World in January.

Note that I also posted on Amazon yesterday. That piece describes three important pieces of their story that didn’t make it into Stone’s book.

And, if you’re from a start-up or your job at a publisher includes meeting with and evaluating start-ups, we really want your response to our survey, which will inform our dialogue about start-ups at Digital Book World.


Three points worth adding to the excellent account of the Amazon story in The Everything Store

The publication of Brad Stone’s book about Amazon, “The Everything Store”, is the catalyst for a lot of new discussion about the topic most difficult for the book business to discuss. It is pretty much impossible to be in the book business without benefiting from Amazon’s market reach. But it is also pretty standard fare to be worried about what the impact will be on your business as that market reach grows.

Amazon is, at the same time, both the biggest customer for most publishers and many wholesalers and their most potent competitor. They compete with every bookseller for sales, which weakens the brick-and-mortar trade, and thus dilutes the core value proposition that publishers have always offered: putting their authors’ books on bookstore shelves. Weakening the diverse bookstore ecosystem weakens the wholesalers. At the same time, Amazon competes with publishers for authors, both through their publishing programs and through their self-publishing services.

They also compete with the free ebook lending from public libraries and the various ebook subscription services with their Kindle Owners Lending Library, a service offered to their Amazon Prime customers that makes a large number of titles — many published by Amazon or self-published exclusively through Amazon — available for no-additional-payment downloads.

And they are capable of creating propositions that every other retailer would love to match but would find quite difficult to do, such as their recently announced “Matchbook” program which offers a free or very cheap ebook edition to any customer who has bought the print version of that book from Amazon. In fact, many publishers believe in the print-and-digital “bundle” and have made efforts to engineer it for bookstores, but it is hard to do that cost-effectively. It isn’t hard for Amazon.

Candid public conversation about Amazon from other players in the industry is pretty much a non-starter. Every publisher is walking the fine line of trying to make their sales grow through their largest account and, at the same time, somehow growing their sales faster everywhere else.

And that’s just about impossible. For the few years (just concluded) when all ebook sales were growing, publishers were seeing upswings in their business with other digital accounts besides Amazon. But recent evidence suggests that ebooks have hit either a point of serious resistance or a temporary plateau so even that may not be true anymore. It is likely that for many publishers Amazon represents the only significant account that continues to grow.

Last week, Jeremy Greenfield of Digital Book World interviewed me about “why it is so hard to compete with Amazon”. Since this is a topic of such widespread interest but also so hard for so many of the industry leaders to discuss, extending that discussion seemed warranted.

In this post, I want to cite three important aspects of Amazon’s history — important as far as the book business is concerned, although not necessarily to the overall picture Stone successfully conveys of the Bezos vision and the strategy and culture that achieve it — that didn’t make it into Brad Stone’s excellent book. In a subsequent one, I will explore what I think are the two key questions about Amazon that everybody in the book business is quietly asking:

* When does Amazon’s share growth stop?

* Who is left standing when it does?

About those two questions, all we’ll say here is that Stone’s book gave me fresh insight into the possible answers.

Now for those three missing points and why they’re important.

I first raised these questions and wrote about Amazon’s squashing of Ingram Internet Support Services (known as I2S2) about two years ago, but what I think is a very important story didn’t make “The Everything Store”.

As Stone describes clearly, Amazon began its business basically standing on Ingram’s shoulders. They stationed themselves in Seattle, near a big Ingram warehouse in Roseburg, OR. When Amazon started, they were able to take a customer’s order and money; order and receive the book from Ingram and deliver it to the customer, and then sit on the cash for a while before they had to pay Ingram for the book.

Pretty early in the piece, Ingram saw that all retailers could take advantage of this capability of theirs. So they created the I2S2 offering and went out to book retailers to persuade them to use it the same way Amazon did. Of course, at that time Internet retailing of books was a tiny part of the market, but Ingram hoped that the opportunity to offer a cash-flow-positive service to their customers would entice some stores, who were already Ingram customers, to diversify the choices for online customers.

Before I2S2 could get off the ground, Amazon killed it with high-profile discounting to as much as 40% off the cover price, effectively taking the profit out of Internet sales. This move was seen as a tactic to grow the customer base quickly and satisfy the investment community’s desire to see growth in top line and in customer base. That’s accurate. But it also stopped what could have been serious competition in its tracks. Booksellers profiting from their stores had little patience to build online business that was small and would now not even be profitable.

A publishing executive who was at Random House in the late 1990s recalled in a conversation we had last week that Peter Olson, who ran Random House at that time, told him not to worry about Amazon because their share grew by about 1% per year. In fact, that’s probably just reflecting that the consumer tendency to purchase online grew by 1% per year. The executive who told me this story made the accurate point that Olson was proven right about the share growth over many years, with additional surges when events like Borders’ closing took place. (And, of course, he told the story because we both knew that Olson was proven wrong that this 1 percent growth a year was nothing to worry about. “When does it stop…?”)

But imagine if Amazon had not reacted to the existential threat of a multitude of potential competitors by trading their margin for survival!

The I2S2 experience of the late 1990s adds some poignancy to a piece of excellent reporting by Stone about a meeting Amazon had with Ingram early in the century when Amazon’s stock was falling and some industry players were worried about whether they could pay their bills. Stone reports John Ingram making it clear to Amazon that Ingram could not afford an Amazon bankruptcy. Clearly, Ingram’s credit policies had continued to fuel Amazon’s growth in the years that had elapsed when they killed I2S2 with discounting.

The second point that is somewhat more significant than I think Stone portrays it was Amazon’s purchase of the ebook technology Mobipocket in 2005. In those days before there was a real ebook business and an “epub” standard (which Amazon eschews, which is another story not thoroughly enough explored), the two leading reflowable ebook standards were controlled by Palm Digital and Microsoft. Palm’s strategy was to sell the ebooks themselves through sites they owned or controlled. Microsoft was going for the broader play and enabling retailers to sell their format.

But the problem was that the lion’s share of the tiny ebook market read Palm, not Microsoft’s Dot Lit format. So the retailers, one of which was Barnes & Noble, were really hobbled. They could only sell the ebook format nobody wanted. Mobipocket’s format would work with both the Palm reader and the Dot Lit reader, so selling that format would reach most of the hand-held devices then used for ebook reading. If B&N or Borders or anybody else had made a strong push for the ebook customers using Mobi, and capitalizing on the format’s ability to serve the entire ebook market of the time, the effort might have gained a foothold. After Amazon bought Mobipocket, they did nothing with it for three years until they used it as the ebook format for the Kindle. (By that time, Dot Lit was about dead and Palm’s core business in hand-held PDAs was about to be demolished by the iPhone.) Did Amazon buy Mobi to postpone the ebook revolution until they were ready to lead it? It would certainly seem that way.

The other significant item that I think “The Everything Store” underplays is Amazon’s enabling of the used book business online. Although this is a “marketplace” function — Amazon is not the seller of the used editions, independent players are (presumably, although questions have been raised about whether all the marketplace sellers are actually entirely independent) — it was Amazon’s decision to place the used book availability and pricing right on the same page which sells all the editions from the publisher. That means that everybody who searches Amazon for a title is shown the used copies that are available competing with what the publisher offers.

What is the impact of this ubiquitous used book availability competing with new copy sales at the world’s biggest book retailer? Well, actually, nobody really knows. In 2006, Amazon (for some unexplained reason) participated in a study and industry conversation about used book sales. They haven’t done it again between then and now, and since Amazon’s marketplace almost certainly sells the lion’s share of used books, there’s not much point to examining this question without their participation.

We launched a DBW survey today on “start-ups” about which we’ll write more in a future post. But if you are either part of a start-up or in the business development function of a publisher that includes meeting with them, you will find our survey of interest (and we will value your response). You can read more about the survey here or just jump in and start answering questions.

And, of course, Brad Stone, the author of “The Everything Store”, will be one of three great speakers we’ll have talking about Amazon at Digital Book World in January. He’ll be joined by Benedict Evans of Enders Analysis, who has a paradigm for analyzing Amazon as a business that is uniquely insightful, and by Joseph J. Esposito, an industry veteran with a strong background in scholarly publishing who has noticed for years that Amazon is a significant competitor in the institutional market (schools and libraries).


Finding your next book, or, the discovery problem

A big flap has arisen this week — which I believe I would have been equally aware of had I been home in New York rather than in London — because the giant UK books-and-stationery retailer WH Smith has apparently found inappropriate ebooks being recommended through the kids books portions of the Kobo-managed ebook offering they host. This has sparked a lot of conversation about how recommendations — indeed how curation — is managed in the online environment. In this case, the discussion is about the specifics of this problem and how metadata might have been wrong, gamed, misunderstood. This has resulted in Smith’s turning off their whole web site, which contains the Kobo-offered ebooks, while the problem is “fixed”. It’s a mess that points to how far we are from solving core challenges of selling books in a virtual environment.

Online bookselling has a long way to go before it can deliver even what it intends to deliver in response to a search or to prompt a next sale. Of course, there are two additional and larger problems that come first: knowing what the right suggestion(s) would be and being able to make enough of them to match the book shopping experiences online sales must replace.

Analysis offered by Russ Grandinetti of Amazon at our Publishers Launch Frankfurt conference last week suggested that the US and UK are on the verge of transacting more than 50% of the book business online, with other markets in Europe and Asia not more than two or three years behind. (This may understate the real state of affairs; in a meeting I just had in London I was told that one of the biggest UK publishers says that 60 percent of their sales of print, ebooks, and audio are through Amazon!) Online sales of books were probably in the neighborhood of 10%, or less, for most publishers a decade ago. That shift is why retail shelf space has diminished so much, with major chains having sunk in both of the big English-speaking markets (and in smaller ones as well).

When most books were bought in physical locations, it was axiomatic that a book displayed in a store had an exponentially greater chance of selling than one that wasn’t, despite wholesale supply in the US from Ingram and Baker & Taylor that could get almost any book to almost any store in 24-48 hours. It had to be seen in the store to be bought. Competent commercial trade publishers knew there was very little point to pushing a book through marketing efforts if inventory wasn’t in place at retail, because seeing the book at the time you might buy it was a more powerful trigger for purchase than any other. Indeed, all the other stimuli (reviews, suggestions from friends, conversation at the office) tended to be acted upon only when the presence in the store was in proximity to the suggestion or recommendation. (And that’s why recommendations from clerks in the store were the most powerful recommendations of all: hence the concept of “hand-selling”.)

One problem with the change to online buying from the discovery perspective is that the funnel for each shopper keeps getting narrower. It isn’t hard for somebody in a bookstore to look at hundreds of books in a few minutes. It’s nearly impossible online. This either requires the consumer to spend more time shopping to see the same number of titles they used to see in a store, or to make a decision having seen fewer. And the concern is that the decision that gets made having seen fewer can be not to buy anything at all. (Or, particularly in the case of tablet users, to buy something other than books.)

Of course, in theory, being able to present a personally-curated batch of suggestions for each customer could be far more precisely targeted than what a store can do, and, in that case, fewer titles shown might do the same job. But we are a long way from that. And, for reasons I hope this piece will make clear, personally-curated choices would actually be far more likely to be delivered by Google than by Amazon (although they would raise a host of what would be considered big privacy concerns to a lot of customers by doing it). And that’s not a reflection on the quality of anybody’s programmers, and certainly not of their commitment to their customers.

The technology that hopes to help you “pick your next book” is referred to as a “recommendation engine”. I’ve never been on the inside of such an effort but the thinking behind them seems to center around analyzing what books you’ve bought and what you’ve searched for and, from that, figuring out what you might read next. This might be based on analysis of the content itself (e.g. Pandora recommending music of similar style and quality) and/or collaborative filtering models — leveraging user inputs (purchase history, ratings, and reviews) to make recommendations for other similar users (“people who bought x also bought y”). It all recalls for me the experience of being told when I met a great bookseller, the late Joel Turner, at the 1978 American Booksellers convention in Atlanta, that “if a customer walks up to my cash register with five books, I can always sell him a sixth”.

Of course, over time, a bookseller can fill out that knowledge with even more data as they see more and more purchases and get to know their customers, and perhaps their families. But, in fact, using books bought as a guide to recommendations is an incomplete data set. It can also be a misleading one since people buy books for people other than themselves.

Another way to look at it came from my friend, Andrew Rhomberg.  Based on his experience with start-up Jellybooks, he formulated five major book discovery paths: serendipitous, social, distributed, data-driven and incentivized.

The point is that most people get their ideas about what to read next from many sources: people they talk to, reviews, news reports, business interactions. Some people say they get book recommendations from their friends; others (like me) say they don’t often read the same things their friends or relatives read. I suspect that online communities of readers tend to work best for people who do a lot of reading in genres and not nearly as well for people who mix fiction and non-fiction, entertainment and learning. And some people gravitate to what’s popular, so bestseller lists work best for them. It is clear that getting on a bestseller list fuels a book’s sales.

And books are bought for motivations other than “to read”, so it might also be important to know that a customer’s son is having a birthday, that a customer’s cousin is getting married, that a customer is shopping for a new home or looking for a new job or starting on a new hobby or spending money on an old one.

Few, if any, of these things would be apparent to even the most diligent hand-selling bookstore personnel. Bits and pieces of it might be detectable by the super-merchant Amazon (but not likely to any other).

This is one devilishly complex problem. There are countless potential inputs to the “next book purchase” decision and they are processed by each different individual in a highly personalized way. If you think it through, it seems obvious that most recommendations to most people wouldn’t work. Which takes us back to the need to make a lot of them, which a bookstore display does much better than online pages that show 10 or 20 books at one time.

In the long run, it would seem to me that Google is the entity best-positioned to address this challenge if they can somehow combine the knowledge of what you searched for (which they know), with what you read online (which they could know if you use Chrome for your browser), and the topics and book titles that have appeared in your emails (which they could know if you use Gmail) and the things you ‘like’ and talk about online (if you use Google+). Knowing your travel plans and patterns would be helpful too.

Of course, unless you use Google Play for ebook purchase and consumption, they’d be missing the two most important bits of data — what you bought and how voraciously you read it and they still wouldn’t know your print book purchases (unless they crawl your email receipts for that as well) – which Amazon is building on without all the other information. What you’d really want to do is to correlate the book buying and consumption information from the past with the behavioral data contemporary to it. With it all combined, perhaps you could filter recommendations so that the 20 or 50 you could show on line would have the commercial power of the hundreds or thousands you could see in the same amount of time in a store.

At the moment, both Amazon and Google are trying to see a pattern through one nearsighted eye.

But is this all really part of a larger problem for publishers? Is online discovery really affecting the sales patterns for books? It would appear so. One of the global ebook sellers told me during Frankfurt that their online sales are far more concentrated than publishers’ sales tended to be, with a tiny fraction of titles (under 5%) making up a huge percentage of total sales (nearly 70%). (I am assuming here that this retailer’s data is typical; of course, it may not be.) If memory serves, at the turn of the century Barnes & Noble stores saw only about 5% of their sales coming from “bestsellers” and, I believe (relying on memory of detail, which I admit is not my most powerful mental muscle) backlist outsold new titles. Publishers really live on the midlist. We know the long tail is taking an increasing share of sales and it would appear the head is too. Those sales come out of the midlist. It is pretty hard to run a profitable publisher without a profitable midlist.

And that would suggest that the increasing concentration of sales, which is likely the result of our hobbled ability to present choices in the digital sales environment, is a problem that publishers will want to address.