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Big publisher bashing again with fictional facts


The estimable Clay Shirky has written a lengthy piece called “Amazon, Publishers, and Readers” on medium.com saying, essentially, that an Amazon-dominated world would be an improvement over the Big Five “cartel”-dominated world of publishing we have today. This is an apples to oranges comparison. The Big Five are not nearly as broad a cartel as Amazon — which reaches way beyond the consumer books they publish — is a monopsony. Amazon touches much more of the book business than the Big Five publishers do. To make his case, Shirky recounts some very questionable history and employs some selective interpretation to get from his own impression of the current Hachette-Amazon dispute (about which he says “Amazon’s tactics are awful, the worst possible in fact”) to a completely different conclusion.

My complaint with the facts and logic start at the top: with the two paragraphs Shirky uses to set up his argument and establishes the “holier-than” context for his position. He says:

Back in 2007, when publishers began selling large numbers of books in digital format, they used digital rights management (DRM) to lock their books to a particular piece of hardware, Amazon’s new Kindle. DRM is designed to transfer pricing power from content owners to hardware vendors. The publishers clearly assumed they could hand Amazon consolidated control without ever having to conspire with one another, and that Amazon would reward them by passing cost-savings back as inflated profits. When Amazon instead decided to side with the customer, passing the savings on as reduced price, they panicked, and started looking around for an alternative conspirator.

Starting in 2009, five of the six biggest publishers colluded with Apple to re-inflate ebook prices. The model they worked out netted them less revenue per digital sale, because of Apple’s cut, but ebooks were not their immediate worry. They wanted (and want) to protect first editions; as long as ebook prices remained high, hardback sales could be protected. No one had any trouble seeing the big record companies as unscrupulous rentiers when they tried to keep prices for digital downloads as high as they had been for CDs; the book industry went further, violating anti-trust law as they attempted to protect their more profitable product.

Almost every sentence of this is subtly or blatantly wrong.

1. Publishers did not begin selling large numbers of books in digital format in 2007. Amazon started Kindle in late November 2007. Significant sales of ebooks didn’t start to occur until after Christmas and continued to grow rapidly thereafter.

2. Although an uninformed person would be led to infer from reading this that DRM was somehow created for Amazon, in fact DRM was routinely used for ebooks for their entire existence before Kindle. DRM on Kindle continued current practice; DRM was not created for Kindle or at Kindle’s behest.

3. DRM maintains pricing power for content owners as well as hardware vendors. In fact, I’d say it is more for the content owner than for the hardware owner. What it does for the hardware owner, particularly Amazon because they eschew the industry standard Adobe, is lock customers into their ecosystem. Of course, it is that lock-in that Shirky is telling publishers they can overcome by going DRM-free. (This precise antidote to Amazon was offered up by Matteo Berlucchi, then the CEO of Anobii, at a talk we put him on stage to give at Digital Book World in 2012.) In fact, it is not transparent that eliminating DRM would curb Amazon; it might fuel them. How well would the other retailers stand up to Amazon having easy access to their customers? Because that would happen at the same time.

4. Publishers did not believe — let alone “clearly assumed” — they were handing Amazon any sort of consolidated control. Perhaps that was a failure of vision, but it was a justifiable expectation since nobody had succeeded at selling ebooks before Kindle.

5. Amazon’s discounting was entirely at their own expense and was a tactic designed, at least originally, to sell devices and create captive customers. The publishers’ “inflated profits” (if that’s what they were) were not at issue in 2007 or 2008. So Amazon “sided with the customer”, but they also “sided with their own interests”. Some might say that’s not relevant; I think it is. Either way, it should be acknowledged, not elided or ignored.

6. Amazon was partly enabled to give the big discounts to consumers because publishers gave discounts too big to them, foolishly aping the print book business model even though a retailer’s costs drop much more than a publisher’s do with the change to digital. Stock turn is the key profitability metric for retailers. Stock turn on digital books is “infinity”. (I’d note that these are small points in this piece but are really really big points that go ignored in most of the discussions about ebook economics, which are almost always “fails” at understanding the core economics of publishers or retailers.)

7. The reduction in publisher revenue per book sold which resulted from Agency pricing (pejoratively characterized by Shirky as “colluded with Apple” rather than the at-least-equally accurate “using Apple’s established app store business model”) was not due to “Apple’s cut”. “Apple’s cut” was less than “Amazon’s cut” had been under the wholesale model. And, if you doubt that, you should take note that Amazon prefers not to switch to “Apple’s cut” so they don’t allow any but the biggest publishers to sell on the agency model with its lower margin. (Publishers can get 70% of net direct through KDP, but they have to stick to the $2.99-$9.99 price band and are at the mercy of KDP’s terms.)

8. It is misleading to attribute the publishers’ desire to keep “hardbacks” (really, all print) alive as a desire to protect “first editions”. It was primarily a desire to protect the brick-and-mortar bookstores. It should be said that way for accuracy but also to make the motivations of the sides clear. Publishers want to strengthen or maintain bookstores because their ability to reach them is a core competence that keeps them in business. Amazon wants to weaken or eliminate bookstores because it is clearly established that many customers of each bookstore that closes come to them. Another motivation for the publishers was to maintain a diverse ebook ecosystem, which at that time had just added Nook to its ranks and was about to add Apple. It is likely that Amazon’s discounting — thanks to the DoJ’s and court’s actions weakening agency — did as much to weaken Nook as any mistakes made by Barnes & Noble. And let’s not forget that Kobo has also abandoned active marketing in the US ebook market since then as well.

The other piece of Shirky’s screed that is misleading and inaccurate is his history of paperbacks.

Whether you date the beginning of paperbacks in the US to Pocket Books’s founding and Penguin’s establishing itself in the US in 1939 or to the period right after World War II when paperback publishing writ large discovered the magazine distribution system and really took off, there were decades between their arrival on the scene and their consolidation into the larger book business under joint ownership with hardcover houses. So it shouldn’t surprise anybody that, to the degree that the ebook disruption is analogous to the paperback disruption, the reaction would be even more extreme on the part of the incumbent establishment dealing with the lightning-quick change that has transpired since ebooks took off in 2008.

And that is quite aside from the fact that the paperback revolution was not 60-to-70 percent controlled by a single account that also controlled a substantial and growing chunk of the rest of the book sales as well. Be that as it may, Shirky is simply factually wrong to say that what happened was that the hardcover houses just bought up the paperback houses and consolidated them into the existing business. The acquisitions took place in both directions. In at least three cases, the paperback house bought the hardcover house (Avon bought Morrow, Penguin bought Viking, and Bantam bought Doubleday) in order to assure themselves a steady supply of good books.

And before the consolidation even began, real troubles had started to develop with the distribution through the magazine ecosystem. Returns were climbing (that is why prices of paperbacks went up) and paperback publishers were finding they needed to sell directly to many accounts, which made them more like the hardcover publishers. And over the couple of decades between the end of World War II and the beginnings of consolidation, almost every “hardcover” house had started doing its own “trade” paperbacks: not rack-sized and sold through the same network that sold hardcover books.

In other words, the analogy is not analogous in many important ways.

It is true that Amazon, at least in the current competitive environment, has everything to gain by pushing prices down and everybody else in the publishing world does not. And it is also true that the lower the prices of books are, the more accessible they are to more people. And accessibility is definitely a “good”.

Even so, I really resist the Manichaean view that it is “the Amazon way” or “the publishing cartel way”. It seemed like Shirky himself tried to dismiss that idea near the opening of his piece, when he attacks Steve Coll for writing “about book-making and selling as if there are only two possible modes”, which Shirky describes as maintaining the current “elites” or seeing Amazon become a “soul-crushing monopoly”. But that is precisely where he ends up. To look at things this way rejects not only what the publishers keep trying to tout as their “added values” (curation and editing, yes, but also marketing, distribution, and rights management) but it also ignores the interests of academic and professional publishing, textbook publishing, bookstores, and a diverse book retailing — and therefore book recommending — ecosystem.

There will be many Hachettes fighting their version of this battle over the next few years. But there will only be one Amazon.

Russ Grandinetti of Amazon.com is joining us for an interview by Michael Cader of Publishers Lunch and me at Digital Book World 2015, coming up next January 14-15. 

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What makes books different…


Before the digital age, retailers that tried to sell across media were pretty rare. Barnes & Noble added music CDs to their product mix when the era of records and cassettes had long passed. Record stores rarely sold books and, if they did, tended to sell books related to an interest in music. For those stores, it wasn’t so much about combining media as it was about offering a defined audience content related to their interest, like Home Depot selling home repair books. For the most part in pre-Internet times, books, music, and video each had its own retail network.

But when media became largely digital in the first decade of the 21st century, the digital companies that decided to establish consumer retail tried to erase the distinction that had grown up dividing reading (books) from listening (music) from watching (movies and TV). The three principal digital giants in the media retailing space — Amazon, Apple, and Google — all sell all these media in their “pure” form and maintain a separate market for “apps” as well that might contain any or all of the legacy media.

The retailing efforts for all of them are divided along legacy media lines, acknowledging the reality that people are usually shopping specifically for a book or music or a cinematic experience. Most are probably not, as some seem to imagine, choosing which they’ll do based on what’s available at what price across the media. (This is a popular meme at the moment: books “competing” with other media because they are consumed on the same devices. Of course, only a minority of books are consumed on devices, unlike the other media. Even though this cross-media competition might be intuitive logic to some people, it has scarcely been “proven” and, while it might be true to a limited extent, it doesn’t look like a big part of the marketing problem to me.)

It seems from here that Amazon and Barnes & Noble have a distinct advantage over all their other competitors in the ebook space because, with books — unlike movies and TV and music — the audience toggles between print and digital. And this might not change anytime soon. The stats are scattered and not definitive, but a recent survey in Australia found that ninety-five percent of Australians under 30 preferred paperbacks to ebooks! Other data seem to indicate that most ebook readers also read print. To the extent that is true, a book shopper — or searcher — would want to be searching the universe of book titles, print and digital, to make a selection.

It should be more widely understood that the physical book will not go the way of the Dodo nearly as fast as the shrink-wrapped version has for music or TV/film. It hasn’t and it won’t. There are very good, understandable, and really undeniable reasons for this, even though it seems like many smart people expect all the media to go all-digital in much the same way.

Making the case that “books are different” requires me to unlearn what I was brought up to believe. My father, Leonard Shatzkin, used to ridicule the idea that “books are different”, which was too often (he thought) invoked to explain why “modern” (in the 1950s and 1960s) business practices like planning and forecasting and measuring couldn’t be applied to books like they were to so many other businesses after World War II. In fact, Dad shied away from hiring people with book business experience, “because they would have learned the wrong things”.

But in the digital age, and as compared to other media, books are definitely different and success in books, whether print or digital, is dependent on understanding that.

First of all, the book — unlike its hard good counterparts the CD (or record or cassette) and DVD (or videotape) — has functionality that the ebook version does not. Quite aside from the fact that you don’t need a powered device (or an Internet connection) to get or consume it, the book allows you to flip through pages, write margin notes, dog-ear pages you want to get back to quickly, and easily navigate around back and forth through the text much more readily than with an ebook. There are no comparable capabilities that come with a CD or DVD.

Second, the book has — or can have — aesthetic qualities that the ebook will not. Some people flip for the feel of the paper or the smell of the ink, but you don’t have to be weirdly obsessed with the craft of bookmaking to appreciate a good print presentation.

But third, and most important, is the distinction about the content itself. When you are watching a movie or TV show or listening to music through any device, the originating source makes only the most nuanced difference to your consumption experience. Yes, there are audiophiles who really prefer vinyl records to CDs and there probably are also those who will insist that the iTunes-file-version is not as good as the CDs. And everybody who has watched a streamed video has experienced times when the transmission was not optimal. There are almost certainly music and movie afficionados who will insist on a hard goods version to avoid those inferiorities.

But the differences between printed books and digital books are much more profound and they are not nuanced. In fact, there are categories of books that satisfy audiences very well in digital form and there are whole other categories of books that don’t sell at all well in digital. That is because while the difference between classical music and rock or the difference between a comedy and a thriller isn’t reflected in any difference between a streamed or hard-goods version, the difference between a novel and a travel guide or a book of knitting instruction is enormous when moving from a physical to digital format.

For one thing, the book — static words or images on a flat surface, whether printed or on a screen — is often a presentation compromise based on the limitations of “static”. The producer of a record doesn’t think “how would I present this content differently if it is going to be distributed as a file rather than a CD?” But the knitting stitch that is shown in eight captioned still pictures in a printed book could just as well be a video in an ebook. And it probably should be.

In fact, this might be the use case for which a consumer would make a media-specific decision. If you know what knitting stitch you need to learn, searching YouTube for a video might make more sense than trying to find instructions in a book!

Losing the 1-to-1 relationship between the printed version and the digital version adds expense and a whole set of creative decisions that are not faced by the music and movie/TV equivalents. And they are also not a concern for the publisher of a novel or a biography. But these are big concerns for everybody in the book business who doesn’t sell straight-text immersive reading. The point is that screen size and quality are not — and never were — the only barriers in the way of other books making the digital leap.

So even though fiction reading has largely moved to digital (maybe even more than half), most of the consumer book business, by far, is still print. Even eye-catching headlines like the one from July when the web site AuthorEarnings (organized and run by indie author Hugh Howey, who is a man with a strong point of view about all this) said “one in three ebooks” sold by Amazon is self-published, might not be as powerful at a second glance.

Although Howey weeds out the ebooks that were given away free, the share of the consumer revenue earned by those indie ebooks would be a much smaller fraction than their unit sales. The new ebooks from big houses, which is a big percentage of the ebook sales they make (and that AuthorEarnings report in July said the Big Five still had an even bigger share of units than the indies), are routinely priced anywhere from 3 to 10 times what indie ebooks normally sell for. So that “share” if expressed as a “share of revenue” might be more like five or ten percent. It really couldn’t be more than 15%.

(In fairness to Howey, he tries to make the point that indie authors earn more from lower revenue because their cut is so much bigger and he makes the argument that they are actually earning more royalties than the big guys. He also tells me that he calls some S-corp and LLC publishers “uncategorized”, even though they are almost certainly indies, in his own attempt to be even-handed. In fairness to the industry, I will point out that his accounting doesn’t take unearned advances into consideration, and since most sales of big house ebooks are of authors who don’t earn out, that lack of information really moots the whole analysis about what authors earn. Another big shortcoming of the comparison is that most published authors are getting a much more substantial print sale than most indie authors.)

But indie authors on Amazon are the industry high-water mark of indie share and ebook share. They are almost entirely books without press runs or sales forces, so they are almost entirely absent from store shelves. And they are also entirely narrative writing.

The facts, apparently, are that even heavy ebook readers still buy and consume print. There is not a lot of clear data about whether “hybrid readers” make their print-versus-digital choice categorically or some other way. There is some anecdata suggesting that some people read print when it is convenient (when they’re home) and digital when it is not. There are a number of bundling offers to sell both (offered by publishers and one called “Matchbook” from Amazon), which certainly seems to say that publishers believe there’s a market of people who would read the same book both ways at the same time!

What that all would seem to say is that the retailer selling ebooks only is seriously disadvantaged from getting searches for books from the majority of readers.

Do we have any independent evidence that selling to the digerati only — selling ebooks only — might limit one’s ability to sell ebooks? I think we do. It would appear that B&N has sold roughly the same number of Nooks as Apple has iPads. (This equivalence will probably not last since Nook sales seem to be in sharp decline.) That is somewhat startling in and of itself, since Apple is perhaps the leading seller of consumer electronics and B&N was entirely new to that game. Nook also seems to have — at least for a while — sold more ebooks than Apple. (This “fact” may also be in the rear view mirror with the apparent collapse of Nook device sales.) I will be so bold as to suggest that this is not because Nook has superior merchandising to the iBookstore. More likely it is because the B&N customer is a heavier reader than the Apple customer and prefers to do his or her book shopping — and even his or her book device shopping — with a bookseller.

[Correction to the above paragraph made on 11 Sept. I misheard and therefore misreported something that was caught by a reader in the comments below, but I should also correct here.  Apple has sold ~200M iPads but are only roughly 12% of the ebook market whereas B&N has sold only about 1/20th the number of Nooks and are about 18% of the ebook market. That fact makes little sense to anyone in Silicon Valley but speaks to how book audiences really behave. We all know a very high % of Nook owners are active store buyers.]

There is one more huge distinction between books and the other media and it is around the motivation of the consumer. While sometimes TV or movies might be consumed for some educational purpose, most of the time the motivation is simply “entertainment”, as it is with music. While analysis of prior video or music consumed and enjoyed might provide clues to what should be next, figuring out what book should be next is a much more complex challenge.

And the clues don’t just come from prior books consumed and enjoyed. Books are bought because people are learning how to cook or do woodworking, or because they are traveling to a distant place and want to learn a new language or about distant local customs, or because they are going to buy a new house or have suddenly been awakened to the need to save for retirement. You can’t really suggest the next book to buy to many consumers without knowing much more about them than knowing their recent reading habits would tell you.

But not only do (most of) the ebook-only retailers not know whether you’re moving or traveling, they don’t even know what you searched for when you were looking for print. And, even if they did know, operating in an ebook-only environment would make many of the best suggestions for appropriate books to address everyday needs off limits, because many of those books either don’t exist in digital form or aren’t as good as a YouTube video to satisfy the consumer’s requirements.

Indeed, it is the sheer “granularity” of the book business — so many books, so many types of books, so many (indeed, innumerable) audiences for books — that makes it so different from the other media.

Of course, there is one company — Google — that is not only in the content business and the search business but which also handles “granularity” better than any company on earth, down to the level of the attributes and interests of each individual. Google not only would know if you were moving or traveling, they would be in a great position to sell targeted ads to publishers with books that would help consumers with those or a million other information needs. (They also know about all your searches on YouTube!) But because Google’s retailing ambitions are bounded by digital, they are walking past the opportunity to be the state-of-the-art book recommendation engine. They’re applying pretty much the same marketing and distribution strategy across digital media at Google Play. They aren’t seeing that book customers are both print and digital. They aren’t seeing that books are, indeed, different.

When the day comes that they do, this idea will look better to them that it might have at first glance.

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This is a teamwork play that could really give Amazon a headache if they got together


I will admit that I have long been among those who believe that Amazon has what amounts to an enduring stranglehold on the book business. They have achieved a market share — which could be in the neighborhood of half the trade books sold if you combine print and digital versions — that is unprecedented in book business history. This is a smaller share than the two giant bookstore chains — Barnes & Noble and the now-defunct Borders — had combined at the peak of their marketplace power.

Lately, I have seen that point of view challenged. Jake Kerr wrote a very thoughtful piece making the point that Amazon’s desire to take margin out of the ebook business is a good defensive move that diminishes the appetite of their mega-company ebook competitors — Apple, Google, and, less so, Microsoft — to invest in beating them back. Suw Charman-Anderson picked up on the theme that Amazon is being defensive, “looking tired”, and found others who seemed to think the same way. Both of them express doubts about Amazon’s continuing hegemony without even using one powerful argument I think is important. Amazon is protected from ebook competition by the inability of competitors to put DRMed content onto dedicated Kindle ereader devices. (Another barrier is that so many early ebook adopters did so via a Kindle account, so their content and login credentials are in the Amazon platform along with a lot of other shopping data that raises the switching hurdle.) But the share controlled by dedicated devices is diminishing and anybody reading on a multi-function device can choose from a range of ebook retailers. (And that’s not to mention that somebody might invent a way to place protected content on Kindles without Amazon’s help; rumors have it that somebody already has!)

Contemplating Amazon’s weaknesses is new thinking for me. What I see is Amazon’s power over the book business, which is great. Amazon has achieved this position through smart and efficient operations and brilliant tactics like Amazon Prime that build customer loyalty, as well as being beneficiaries of the natural migration of sales from brick stores to online. But, most of all, Amazon benefits from its broad business base. They don’t have to support their business exclusively, or even substantially, from their book sales margin. And, on top of that, they don’t have to finance the building and maintenance of a global operation strictly from what they earn in the United States.

So they trump everybody. Barnes & Noble, their only competitor selling both print and digital books, seems to have stalled in its bid to build a rival global empire with the Nook device as the leading edge. Their lack of stores outside the US robs them of the main tool they used to build Nook from a standing start to what seemed for a while to be a serious threat to Kindle and the consequent lack of global scale is hobbling their Nook business. The US stores are still profitable as print-sellers, but very few are those who maintain that print-in-stores is anything but a declining market. (As for BN.com, the less said the better. Of the four principal components of B&N’s business: bookstores, college stores, Nook ebooks, and their online retailing operation, the most dramatic and persistent failure has been BN.com.)

Kobo, Apple, and Google are all ebook purveyors only with no print book complement. Kobo has nominally tried to deliver a combined offering, and claimed some store support to sell their devices, by making alliances with leading local booksellers in many markets. Apple, a company primarily interested in selling its hardware and the ecosystems it builds around them, has no apparent interest in print. Google appears to have hit on a broader variation of the Kobo strategy, making alliances with physical retailers by offering a combination of its power in search and a same-day delivery capability called Google Shopping Express — competing with Amazon Prime — that retailers in a single vertical couldn’t deliver for themselves.

Under that rubric, Google is now allied with Barnes & Noble. But I see this as an initiative with the accent on the wrong syllable. The combined companies’ offering is only of real value applied to the small number of book purchases for which same day delivery adds substantial utility (and for which the digital version — always delivered instantly — doesn’t constitute an adequate solution for the need for speed). They are further limited by the books available in the particular B&N store plugged into the program in each locality and each store carries far fewer titles than the chain does as a whole. So the number of books customers will need delivered with that alacrity will be further reduced by the imperfect match between the demand and what’s available. Even if this program steals a high percentage of the same-day demand sales from Amazon, I’m not sure how much it would shift market shares. And with Amazon also offering rapid delivery and probably around a greater number of titles, it is not a given that the new offering from Google and B&N will steal much market share at all.

That doesn’t make it a bad move. The sales and visibility are incremental pluses for Barnes & Noble. Google’s new Google Shopping Express has a business model into which B&N fits very nicely. Books are a nice-to-have additional product line to offer within that service, designed to compete with Amazon’s growing same-day goods delivery. This is a fight between two behemoths that is much larger than the book business (as it has to be to interest them). B&N has a role to play, but it is a supporting position, not a lead.

From where I sit, this offering from Google and B&N doesn’t look like a game-charger for the book business. Nothing about it would seem to threaten Amazon’s overall (and still growing) hegemony in book retail. The migration of sales from print to digital and from stores to online has clearly slowed down, perhaps even plateaued, in the past year or two but few are those who believe those trends are permanently over.

Google is on a right track with Google Shopping Express; people who buy physical goods use Google search to find them and see Google ads when they do. But going after the smallest corner of the print book business — those books on which 6-hour delivery presents a very big advantage over 24-hour delivery — is not going to bend the curve much on Amazon’s future, even if it provides some marginal benefit to B&N and Google.

But there is a different combination that could give Amazon a real headache. There are two companies that together could deliver print and digital, just about anywhere in the world with competitive delivery speed, with discovery capability that would rival Amazon’s as well. Between them, they really have almost all the capabilities and infrastructure required already in place.

One of those companies is, of course, Google.

The other is Ingram, the book business’s biggest US wholesaler and, through its present activities already providing global digital and print distribution as well as print-on-demand. Ingram is positioned to deliver any book in any form anywhere extremely efficiently. They also have a robust and accurate database of book metadata which, if combined with Google’s data and search mastery (and capabilities that match Amazon’s “Search Inside” offering as well), could challenge Amazon effectively as a “best first place to look” for any information about books.

What Google needs to take on board to make the strategic leap to explore a partnership like this is that most book consumers read both print and digital and probably will for some time to come. It will get harder and harder to compete with Amazon without a print-and-digital offering; you can’t be fully effective with either one unless you do both.

And it would help if Google saw the book business as distinctly different from the other media businesses that with books constitute Google Play. The differences play to and can enhance Google’s core strength. Book marketing is almost infinitely granular, because the number of possible motivations to buy a book are so great in number. Rarely do you buy music or video because of where your next vacation will be or because you want to put a new roof on your house or change careers. Associating specific book suggestions to discerned interests and motivations is the key to effective book marketing in the digital environment. And the insights about any individual by analyzing their book search also can tell you what else they may be looking for. Nobody does those things better than Google. They have limited impact on the ability to suggest music or movies, but enormous value in selecting what books to feature to any particular customer at any particular time and what else they can be sold after they’ve bought a book.

A Google-Ingram partnership would not only start with every capability necessary to compete with Amazon as a global bookseller, they would have some additional Secret Sauce as well. Google and Ingram wouldn’t actually have to make money on the combined retailing component because they make money other ways that are associated with it. Google would be adding incremental search and ad placement opportunities. Ingram would be benefiting as a wholesaler providing all the print books and many of the ebooks the new “store” sells. They could make nearly nothing from the new retailing operation, just like Amazon does with its book retailing operation, and still have the enterprise return a profit for their engagement.

A joint digital retailing enterprise to sell books and ebooks from Google and Ingram is the only possibility I can see on the horizon that would save the legacy publishing business from being entirely subject to Amazon’s inexorably growing marketplace power. It is almost certain that Ingram — part of the book business Amazon is so successfully disrupting — sees this very clearly. (Full disclosure seldom necessary in this space: Ingram has been a client of The Idea Logical Company for many years.) Being a hero to the book business may be a less immediate objective for Google, but making life a bit more difficult for Amazon almost certainly is. Nothing they could do would create more challenges for Amazon than a partnership with Ingram to create an all-media store that sells both physical and digital versions of everything, including and especially books.

Since I posted my last piece, triggered by Amazon’s invoking of Orwell and Streitfeld’s accusation that they got him wrong, two conflicting posts have arisen. I’m indebted to Hugh Howey for pointing out that apparently Orwell really did want to destroy cheap paperbacks but Orwell’s estate takes a different view. In fact, I don’t think which side got it right is particularly germane to the arguments I was making. The Orwell connection made a cute hook, but it is not really an essential part of either side’s story.

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It is hard for publishers to apply even Harvard B School advice in their struggle with Amazon


Harvard Business Review published an article recently by Benjamin Edelman called “Mastering the Intermediaries” which gives advice to businesses trying to avoid some of the consequences of audience aggregation and control by an intermediary. The article was aimed at restaurants who don’t want their fate controlled by Open Table or travel companies who don’t want to be beholden to Expedia. The advice offered is, of course, scholarly and thoughtful. It seemed worth examining whether it might have any value to publishers suffering the growing consequences of so much of their customer base coming to them through a single online retailer.

The author presents four strategies to help businesses reduce their dependence on powerful platforms.

The first suggestion: exploit the platform’s need to be comprehensive.

The author cites the fact that American Airlines’ strong coverage of key routes made its presence on the travel website Kayak indispensable to Kayak’s value proposition. As a result, AA negotiated a better deal than Kayak offered others or than others could get.

Despite some suggestions in the late 1990s that publishers set up their own Amazon (which they subsequently half-heartedly tried to do with no success) and a couple of moves to cut Amazon off by minor publishers that were minimally dependent on trade sales, this tactic has never really been possible for publishers on the print side. Amazon began life by acquiring all its product from wholesalers — primarily Ingram and Baker & Taylor — before they switched some and ultimately most of its sourcing to publishers to get better margin. But the publishers can’t cut off the wholesalers without seriously damaging their business and their relationships with other accounts, and the wholesalers won’t cut off Amazon. So for printed books, still extremely important and until just a couple of years ago the dominant format, this strategy is not worth much to publishers.

However, the strategy was and is employable for ebooks, which are sold via contractual sufferance from agency publishers, even if the sourcing is (sometimes, not typically by Amazon) through an aggregator. That was the implied threat when Macmillan CEO John Sargent went to Seattle in the now-famous episode in 2010 to tell them that ebooks would only be available on agency terms. Amazon briefly expressed its displeasure by pulling the buy buttons off of Macmillan’s print books. (Publishers can’t cut them off from print availability, but they can cut publishers off from print sales!) In the meantime, Amazon’s share of the big publishers’ ebook sales has settled somewhat north of 60 percent, and those Kindle customers are very hard to access except through Amazon. This is considerably more share than Kayak had when American Airlines threatened their boycott.

In fact, it is likely that Amazon could live without any of the Big Five’s books for a period of time, except for Penguin Random House, which is about the size of the other four big publishers combined. The chances are that PRH’s size will prevent Amazon from treating them the way they are now treating Hachette. And the massive share that Amazon has of both print and ebook sales makes it extremely difficult for Hachette, or any other big house except PRH and possibly HarperCollins, to sustain an ebook boycott (with consequent print book sales reductions) for any significant length of time. In other words, for publishers dealing with Amazon, this horse has left the barn.

Where it has not yet left the barn is with the ebook subscription services, and for them many publishers actually appear to be following the strategy being suggested here. Only two of the big houses have put titles into Scribd and Oyster, and it appears that they got extremely favorable sales and payment terms in order to do so. Indeed, these fledgling subscription offerings must have the big houses’ branded books to have a compelling consumer proposition.

The second suggestion is to identify and discredit discrimination.

The HBS piece cites the complaints that eBay was giving search prominence to suppliers who advertised on the site forcing a reversal of the policy.

Although the search algorithms on powerful platforms are ostensibly geared only to give the customer what they’re most likely to want, it is probably generally understood that these results are jiggered to favor the platform’s interest. It is not surprising that Google has underwritten White Papers from UCLA professor Eugene Volokh and from Supreme Court nominee Robert Bork defending that conduct. Volokh argues that the first amendment prevents the government from interfering with search results and Bork says nobody is harmed if Google favors its own interests.

Could we apply that same logic to Amazon? How about this scenario?

Amazon is well on its way if not already past the point where they sell more than half of the books Americans buy (combining print and digital). Book consumers are highly influenced by the suggestions made and choices surfaced by their bookseller, whether physical or virtual. That is: the process of buying books is inextricably linked to the process of discovering books. So Amazon is getting a stranglehold on recommendations which for many consumers also means a stranglehold on marketing and promotion.

The “damage” to society that results from results being gamed in fiction is probably minimal, and restricted to Amazon promoting either its own published titles, its favorite self-published authors, and books from other publishers that have paid to play. But, with non-fiction, the consequences could be much more severe and of real public interest.

Imagine a persuasive book arguing that the government should sharply increase the minimum wage and let’s also imagine that Amazon corporately doesn’t like that idea. Is it really okay if they suppress the awareness of that book from half or more of the book-buying public?

This is the kind of an argument that can arouse the government which, so far, has shown scarcely more interest in Amazon’s dominance of book commerce than they would if they dominated the commerce in soft drinks or lawn fertilizer. Can they be awakened by publishers to this concern before dramatic cases affecting public awareness and policy are documented? We don’t know, but we do know that Hachette sent lawyers to Washington early in the Obama Administration to call attention to Amazon’s growing marketplace power and their willingness to use it. That apparently had no affect (unless, in some perverse way, it contributed to the government’s interest in pursuing the “collusion” case).

There could certainly be some consumer blowback to the gaming of search results by a platform, perhaps including Amazon. The Harvard article says Google changed algorithms that seemed to be burying Yelp because consumer sentiment, partly measurable in search queries, showed dissatisfaction among the public. But in the absence of an aroused government, it would seem unlikely that this suggestion will do publishers large or small much good.

It is definitely worth noting here that Hachette authors are involved in just such an effort right now over the current Hachette-Amazon dispute. (And Amazon authors, also often called “indie authors”, are pushing back in the other direction.) There is a difference of opinion about how much this is “hurting” Amazon or whether it will push them to a quicker resolution of the dispute; I’m not sure anybody will ever know the answer to that.

The third suggestion is to create an alternative platform.

As the piece explains, when MovieTickets was on the verge of dominating phone and online ticketing, Regal Entertainment and two other large theater chains formed Fandango.

Unfortunately, this is a strategy that simply won’t work as an antidote to Amazon. In fact, trying it, which publishers have, demonstrates a failure to understand the source of Amazon’s power in the marketplace.

Amazon’s strategy is in plain sight and is the title of the best and most recent book about them: Brad Stone’s “The Everything Store”. Books had a central role in getting Amazon started, but have now declined to very likely less than 10 percent of their revenue and far less of their operating margin. Books are strategic for Amazon, but not commercially fundamental. This is one of the reasons, perhaps even the principal one, why they operate their book retailing on margins so thin that the incumbent book retailers can’t match them. After all, B&N can’t make up the margin shortfalls created by offering books cheaply by selling that same customer a lawnmower. Nor do they benefit from additional scale provided by selling lawnmowers or cat food or server space.

The fact that Amazon did book retailing in a thorough and sophisticated way as they established their business to become an online Walmart made them different from omni-retailers in the past (going back to departments stores a hundred years ago) who sold some books.

The story has been told on this blog before about Amazon cutting prices more than fifteen years ago to discourage competition coming into the market. Although publishing is a profitable business for them, it is also a strategic component of larger objectives: getting an increasing share of its customers’ purchases across a range of physical products as well as to compete as a streaming content provider across the entire range of digital media.

No enterprise focused primarily on books can compete with that. Amazon takes too many customers off the table before whoever else is competing gets to begin and keeps them for a wide range of reasons. They’ve got the most admirable competitive position conceivable: a first-class operation supported by scale provided by myriad other enterprises, totally wide-ranging and broad knowledge of the details of book retailing, and the financial heft to accept diminished (or even negative) margins from time to time to support strategic objectives.

So, Bookish, the attempt to compete (although that objective was not explicitly stated) forged by three major publishers more than a decade after Ingram’s I2S2 attempt to create a broader base of online retailers, was never a serious threat. (It is now owned by another Regal, Joe Regal, whose Zola Books — an ambitious upstart ebook retailer — bought Bookish, apparently for its recommendation engine, from the publishers.)

This is probably the 20th year in a row, dating from their start in 1995, that Amazon has gained market share for sales of books to consumers. And that’s because consumers are making what for them is the obvious choice for convenience, total selection, and competitive pricing, as well as getting tied into Amazon through their PRIME program. Unless one of the other two tech giants in the bookselling world — Apple or Google — decides to make a dedicated effort to take some of that market share away from Amazon in both print and digital (and neither of them is much interested in print), it is hard to see where a serious competitor can come from.

As of this moment, there is no way for any ebook retailer except Amazon to put DRMed content on a Kindle, which eliminates a big part of the audience from play for any competitive platform.

The fourth suggestion: deal more directly. The article points out that people ordering takeout through online platforms like Foodler and GrubHub have often already chosen their restaurant so that restaurants that deal directly can afford to exit the platform.

As I was working on this post, HarperCollins announced that they have redesigned their website to be consumer-facing which enables them to sell books directly to consumers. They’ve collaborated with their printer-warehouse partner, Donnelley, to handle print book fulfillment and have a white-label version of indie ebook platform Bluefire to deliver ebooks. They promise that authors will be able to use the capability very easily to connect their own web presences and they’re thinking about additional compensation to authors that generate those sales.

This bold move has a hole in it, though, and it is one that publishers so far have no easy way to fill. All the non-Amazon platforms use Adobe DRM, which HarperCollins/Bluefire supports, so they can put your ebook on a Nook or Kobo device with copy-protection. Of course, they have their own “reader”, which can be loaded with ease on most web-capable devices and can apparently also be squeezed onto a Kindle Fire. But, because HarperCollins wants to continue to use DRM protection for the content, they won’t be able to sell directly to users of Kindle devices that are dedicated e-readers.

Although publishers have certainly encouraged that competition to Amazon which exists, their direct efforts have for the most part been limited to cultivating direct interaction with the end user audience to influence awareness and selection. Many smaller publishers are willing to sell direct without DRM and other large publishers sell direct in a more restrained way, but this seems to be the first concerted effort by a major player to drive direct sales.

It will be interesting to watch the pricing interaction between Harper and Amazon and whether Harper can come up with “specials” (bonus content, some connection to the author, bundling) that Amazon or another retailer can’t match. Competing on price is the retailer’s first instinct, but for publishers competing with Amazon on price is a fool’s errand, fraught with the potential for retaliation in many ways (including that “discounts” from publishers, the retailers’ margin, is presumably based on the publisher’s price. What does “publisher’s price” mean if they sell for less?)

But HarperCollins doesn’t need to get a big volume of direct sales for this to be a worthwhile initiative for them. I’d expect it to be copied. Any sales they can get directly increase their power in the marketplace.

There is one other initiative we’re aware of that can perhaps help publishers disintermediate Amazon for direct sales. That’s Aerbook, which widgetizes a book or promotional material for a book so that it can be “displayed” in any environment. Aerbook’s widgets can contain the capabilities for transacting or for referring the transaction to a retailer, Amazon or anybody else. Putting the awareness of the book directly into the social and commercial streams can be a big tool for authors and publishers. But even Aerbook can’t put a DRMed file on a Kindle. They offer a version of “social DRM” — essentially “marking” the ebook in a way that identifies its owner — which can be loaded onto the Kindle. But big publishers and big authors have apparently not yet come to a comfort level with that solution; perhaps the need to get to the Kindle customer directly and the experience Aerbook develops with their method will encourage a more open mind on that question over time.

So, it would seem, the best thinking presented by Harvard Business Review for how producers and service providers can dodge platforms trying to lock in their audiences has precious little that can be usefully applied by publishers to escape the grip of Amazon. Having taken about half the retail book market over the two decades of their existence, they have given themselves a reputation, tools, and momentum that will make it very hard to stop them from eating into the other half substantially in the years to come.

The fact that competing with Amazon is difficult doesn’t stop smart people from trying to figure out how it might be done. A group of publishing thinkers are holding a 2-day brainstorming session at the end of this month to come up with ideas. Two of them, Chris Kubica and Ashley Gordon, will be presenting at a session at Digital Book World in January called “Blue Sky in the ebook future”, which will include thoughts on how to improve the narrative ebook itself from Peter Meyers and somebody not yet chosen to speak about complex ebooks.

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Much as I like Hugh Howey, I disagree with just about all of this recent post of his


I need to say couple of things at the outset here. The first is that I really like and admire Hugh Howey and the fact that I disagree with almost every paragraph of this post of his shouldn’t suggest that I don’t. That’s not snark or irony; it is sincere. I think it is both noble and natural for people to defend the entities and circumstances that make possible their commercial success and it is just human nature that those who have benefited from a paradigm reflexively want to defend it. I only wish that Hugh would exhibit the same respect for that tendency when it is exhibited by authors who have done well with publishers.

The other is that I don’t see the “Amazon versus the publishing establishment” battle as a moral choice, just a tug of war between competing business interests. (There are societal questions at stake, which some might see as moral choices, but the companies involved are doing what is best for them and then arguing afterwards that it is also better for society.) When I wrote what I intended to be a balanced piece about the Amazon-Hachette battle, it brought out the troops from the indie author militia in the comment string to call me to task and accuse me of many things, including being a defender of the people who pay me (although my overall revenues from Big Five publishers is actually pretty paltry with not one active consulting client among them for well over two years). I expect this post will do the same, which I find an unpleasant prospect. On the other hand, I’m sorta stubborn about saying the things I believe nobody else is saying…

I am not trying to “make a case” here for anybody: not for the publishers and obviously not for Amazon. All I am trying to accomplish is to call out what I see as the almost certainly unintended bias in the arguments as Hugh frames them. I continue to believe that self-publishing is a useful tool that most authors should employ at one time or another but that, still almost all of the time, an author who is offered a publishing deal from a major house willing to pay an aggressive advance is better off to take it than go it alone. (If you’re not offered a substantial advance, the calculus shifts, but there is a lot of work involved in self-publishing that is not described in much detail in this post, even though Hugh Howey knows much better than I do how much work it is!) And I think that generalized advice to authors to eschew publishers in a world where print still matters and stores still matter remains, as of today, unwise. That may well change in the future, but it hasn’t changed yet.

In this post, everything preceded by [HH] was written and posted by Hugh Howey. Everything preceded by [MS] is my response. I have left nothing out from Hugh’s original post.

[HH] A few weeks ago, I speculated that Hachette might be fighting Amazon for the power to price e-books where they saw fit, or what is known as Agency pricing. That speculation was confirmed this week in a slide from Hachette’s presentation to investors:

HachetteLivre-Investor-Slide

So, no more need to speculate over what this kerfuffle is about. Hachette is strong-arming Amazon and harming its authors because they want to dictate price to a retailer, something not done practically anywhere else in the goods market. It’s something US publishers don’t even do to brick and mortar booksellers. It’s just something they want to be able to do to Amazon.

[MS] Uh, yes. It is something they want to do in the market for ebooks that they don’t need to do for print. And it is something they want to do to the entity that controls 60% of their ebook sales, which no print bookseller does. And you’d be forgiven if you got the impression from this that Hachette only wanted to control the price Amazon sells at, not the price everybody sells at, keeping it the same across retailers. It does matter how you frame things…

[HH] The biggest problem with Hachette’s strategy is that Hachette knows absolutely nothing about retail pricing. That’s not their job. It’s not their area of expertise. They don’t sell enough product direct to consumers to understand what price will maximize their earnings. Amazon, B&N, Kobo, and Apple have that data, not Hachette.

[MS] But what Amazon, B&N, Kobo, and Apple know is not how to maximize Hachette’s or Hachette’s authors’ “earnings”, however they get divided between author and publisher. What they know is how to maximize their earnings and, mainly, their market share. And only Amazon and B&N have any picture of how the interaction between ebook prices and print sales works, which deeply affects an author’s and publisher’s earnings. None of the other ebook retailers have a clue about that, and Amazon doesn’t know how bookstore sales are affected (and it would be their objective to have them affected negatively, wouldn’t it?)

[HH] Beyond their ignorance of pricing strategy, Hachette also has a strong bias toward print books. Their existing relationships with major brick and mortar retailers gets in the way of their e-book pricing. This has been confirmed by my own publishers, who have admitted privately that they would like to experiment with digital pricing but don’t want to upset print book retailers. This puts their pricing strategy at odds with their investors’ needs, their authors’ needs, even their own profitability. In sum, they are making irrational decisions with their pricing philosophy. Hachette is making the same mistake that many publishers make, which is to think that harming Amazon somehow helps themselves.

[MS] Publishers are trying to keep a print book physical distribution infrastructure alive. That’s not irrational. It is rational. And it is the crux of the difference in objectives between a publisher’s strategy and Amazon’s strategy. The more bookstores fade, the better it is for Amazon and the worse it is for publishers. This is a problem you could have read about on this blog a long time ago.

[HH] The same presentation by Hachette to investors stressed the importance of DRM and the need to fight piracy. The presentation had very little to say about authors, which would be like an oil company giving a report to prospective investors and not discussing how its current wells are performing, the proven reserves it has on-hand, and what they are doing to discover new sources of oil. You know . . . the product they make their money from. Little is also said in the presentation about readers, possibly because Hachette doesn’t know who their readers are. Again, this is a presentation to investors by a company that doesn’t know its customers. Because they have too long relied on and been beholden to middleman distributors.

[MS] I’d substitute “leveraged” for “relied on and been beholden to” in the sentence that concludes that paragraph. Up until very recently, there was no efficient means or mechanism for publishers to sell directly to readers. Their “customers” were bookstores, and they understood them very well. And all the big publishers I know are investing in learning more about who are their readers. This graf begins with the complaint that authors aren’t acknowledged by publishers and ends with the complaint that publishers don’t know their readers. And the cherry on top is a biased characterization of the value and role of brick and mortar retailers. I guess the oil company reference is just to associate bad people with each other, but it otherwise seems gratuitous. The important and relevant point is that we’re still waiting for the first major author to say “no” to a publisher. It will happen, but it hasn’t happened yet.

[HH] DRM, piracy, and high e-book prices are not what a publisher should be fighting for and bragging to its investors about. Many consumers aren’t even aware that Amazon isn’t the source of their e-book DRM. Publishers (and self-published authors) opt in or opt out of DRM as they see fit. Those of us who think about the paying customer first and foremost opt out, and we are rewarded with their repeat business and their advocacy. Those of us who don’t fret over piracy invest our time where it can actually achieve something. Publishers need to adopt these same policies with all haste. More importantly, they need to stop ripping off their authors and their customers when it comes to digital pricing.

[MS] Recent data suggests pretty strongly that taking down pirate copies increases sales. But the efficacy of DRM is a good debatable point and it shouldn’t be in a paragraph that concludes with a gratuitous slam at big publisher pricing and royalties, which have nothing to do with DRM.

[HH] We know publishers are ripping off artists and readers when it comes to e-books. Harpercollins released this slide one year ago this month:

Harper-NewsCorp-Profitability

As author Michael Sullivan broke down in this damning blog post, it shows publishers making $7.87 on a $14.99 e-book while the author only gets $2.62. For a hardback that costs twice as much at $27.99, the publisher makes $5.67 to the author’s $4.20. What used to be a fair split is now aggressive and indefensible as publishers make more money on a cheaper product while the author makes far less. Publishers are ripping off readers and writers as they shift to digital, and they are getting away with it. They are even winning the PR campaign against Amazon, a company that has fought for lower prices for its customers and higher pay for its authors.

[MS] I agree that ebook royalties should be higher. But, in fact, only authors who sell their books to publishers without competitive bids (which indicates either “no agent” or “limited appeal generated by the proposal”) are living on that 25% royalty. The others negotiated an advance that effectively paid them far more than that. And guaranteed it before the book hit the marketplace. Publishers are making a massive PR error not raising the “standard” royalty since they effectively pay much more than that now, but the authors signing contracts with them know the truth.

[HH] Let me repeat: Publishers are waging a war here for higher prices and lower royalties. $14.99 is their ideal price for an e-book that costs nothing to print, warehouse, or ship. That’s twice what mass market paperbacks used to cost, which is what they are replacing. Reminds you of how cheaper-to-produce CDs suddenly cost twice as much as cassettes simply because they were new, doesn’t it?

[MS] Now, who’s not paying attention to authors? Right, it cost nothing to print, warehouse, or ship an ebook. But it cost something to create. And for many, if not most, publisher-published books, the publisher gave the author a substantial payment before publication. Focusing on the price without considering the value is the grossest form of “ignoring the author”. And the $14.99 price is more like the equivalent of the hardback; most publishers I know charge much less for the ebook when it is being published against a printed version that’s a paperback. And, in fact, they often charge less than $14.99 when the print edition available is a hardcover!

[HH] Publishers are also colluding with one another to offer lockstep digital e-book royalties of 25%, which is indefensible. Their every actions, when it comes to DRM, to pricing, to selling direct, to offering abusive services like Author Solutions, screams to anyone with ears that they don’t care about the writers and they don’t care about the readers. It doesn’t matter what they say, it matters what they do. And what they do is charge as much as they can get away with and take as much of the split as they possibly can. And they work with their competitors and against their retail partners to pull it off.

[MS] Publishers live in a competitive marketplace in general but nowhere more than when it comes to signing authors. The 25% hasn’t moved, but every book that is signed based on a competitive situation (one agent told me that’s at least 2/3 of them; one big publisher believes they compete for 95% of what they sign) is getting an advance that is calculated on a much higher percentage than the “standard”. So they “care” about the writers. If “caring about readers” is only demonstrated by low prices, then I’d say “Hugh has a point.” The problem is that the point is in direct conflict with “caring about the writers”, whose revenue is directly related to what readers pay (with only one exception: unearned advances paid by publishers).

[HH] Their own authors defend them, partly because they don’t spend any time investigating or understanding the business in which they are engaged. One Hachette author — a good friend of mine — said something to me the other day that made me realize they don’t understand how their books are ordered by retailers or delivered by the publisher. I suppose it’s okay to write books and not worry about the rest of the business, but this same author and friend had much to say about the Amazon/Hachette dispute, but without the basic understanding of how the relationship between those two companies works. Part of the blame for not knowing falls to publishers, who keep authors at bay and away from the business aspects of publishing. It was one of my primary complaints in that old blog post. Publishers need to embrace authors as business partners, and any author who hopes to make a career at this needs to be at least a little curious about how the industry works.

[MS] This slam at Howey’s fellow authors is both uncharacteristic of him and beneath him. The Hachette authors are doing precisely the same thing Howey is doing: defending their biggest source of revenue. What’s so surprising about that? And let’s not get too worked up about what people do and don’t understand. This piece demonstrates very little understanding of the economics of brick-and-mortar and the overall effort to sustain it as long as possible.

[HH] So we can see in their own slides that publishers do not have the best interests of their artists and consumers at heart. What about Amazon? Here we have a company that forsakes profits in order to pass along the savings to: A) Readers in the form of lower prices and to: B) Authors in the form of higher pay. That’s what we know today based on their actions. Of course, some interpret Amazon’s behavior as: “Once they are big enough, Amazon will gouge customers and take advantage of authors.” If you press on numbers, you might hear that Amazon will raise e-book prices to $12.99 one day and pay authors a miserly 25% of gross. Both of which are better than what publishers offer right now.

[MS] The pricing and split speculation is a pure straw horse. We know that what Amazon does today that pleases Howey also serves their larger strategic interests: growing market share and building the installed base of Kindle users. It’s nice when interests align. But what happens when they align tells you nothing about what will happen when they don’t. The recent changes that reduced author splits from Amazon-owned Audible shouldn’t be ignored in a paragraph like this one. (Emphasis here: I don’t think Amazon was wrong or immoral to have done this, but I think those making the argument that worrying about terms changing in the future is silly should at least acknowledge what has already happened!)

[HH] This bears repeating: The very worst that Amazon might do, in some hypothetical future, according to their fiercest critics, is still better than what publishers brag to their investors about doing today.

[MS] And this bears repeating. It’s a straw horse. The argument is attributed to these unidentified “fiercest critics” because it a straw horse. Pure speculation. Who knows what is the “the very worst that Amazon might do”?

[HH] Instead of operating under the hope that publishers will improve their business practices in the future and that Amazon will reverse course and start harming writers and readers once they gain more market share, why aren’t we condemning publishers for being the problem right now while celebrating Amazon for all they are doing to expand reading habits and to provide for artists? Why?

[MS] Simple answer. Because many authors are still being very well paid and well served by publishers. That’s why.

[HH] I think two reasons: The first is that we equate publishers to bookstores and Amazon to the loss of bookstores, and we all love bookstores. This is fallacious reasoning, though. Online shopping has impacted all of retail. These changes were inevitable, and they are the result of consumer choice. How those changes played out could have been publishers colluding with a distributor to price digital works higher than their paper counterparts. That would have been bad. Amazon leading those changes with their pricing philosophy has been good.

[MS] Much of this is true. Online shopping is inevitable; the pressure on brick-and-mortar is inevitable. And we all love bookstores, even though they don’t “map” into the future very well. But it is really disingenuous to just forget that Amazon benefits by brick stores going down faster and has discounted print books as aggressively as possible as well, which has contributed to the brick-and-mortar stores decline. I’m not demonizing Amazon over this; everybody has to run their own business and they run theirs very well. But let’s not pretend that altruism is all that is working here, or that changing circumstances couldn’t change Amazon’s pricing philosophy.

[HH] The second reason for the anti-Amazon bias is that some see Amazon as the giant and little old publishers as the underdog. That’s also wrong. The publishing and bookselling arm of Amazon is likely smaller than the combined earnings of the Big 5 publishers. Amazon makes a pittance on every e-book sold, while the Big 5 make out like bandits. Also, to say that these wings of Amazon’s operations are owned by a larger entity is to ignore that the same is true for the major publishing houses. If anything, Amazon is the clear upstart and underdog here. They are new to the market, rapidly innovating, blacklisted by brick and mortar retailers, setting up shop away from the established players, and ganged up on in an illegal manner.

[MS] No question Amazon gets “ganged up on”. We have two book businesses now: Amazon and everybody else. Everybody else includes publishers and retailers and wholesalers and agents and established authors. Amazon’s decision to “make a pittance” on certain products, including some ebooks, is tactical, not altruistic. I have to admit that characterizing Amazon as an “underdog” does activate the “gag reflex”. If this doesn’t qualify as hyperbole, I’m not sure what would. Let’s be clear and real: Amazon and Hachette are both leveraging their respective negotiating positions as best they can. It’s called business. (And,, from where I sit, it looks Amazon is in the stronger position, not Hachette. I’m not sure by what measurement Amazon could be considered the underdog here; I haven’t read any other analysis that makes that claim.)

[HH] I’ll go one step further and state something both outrageous and obvious: If the Big 5 had gotten together twenty years ago and DREAMED UP an ideal business partnership, one that would increase their distribution, provide excellent customer service to their readers, improve the livelihood of their authors, keep their backlists viable and books from going out of print, reduce their 50% return rate from bookstores to 4%, provide next-day and even same-day delivery, all while only costing them 30% instead of the 45% they lose to bookstores, they couldn’t have done better than what Amazon did for them.

[MS] Lots of truth in this paragraph, up to a point. Publishers (and authors) have benefited for years from Amazon’s willingness to sell books for almost no margin and by the shift from the less-efficient sales in stores to the more-efficient sales online. I spelled out clearly in my Amazon-Hachette post that Amazon has been the most profitable print account for most trade publishers for a long time. And I am happy to give them the full credit they deserve for making the commitment necessary to make the ebook business happen. That doesn’t change the reality that as their market share grows, we can see a concentration that changes what has been a good thing into a threat. For everybody else in the book business: those who are aware of it and those who are not.

[HH] Soak that in. Publishers should have engineered Amazon from the ground-up. A company that invests in distribution networks for their products rather than pocketing profits. And instead of celebrating all the hundreds of benefits, like pre-orders and customer reviews and the savings on print runs and returns that Amazon’s algorithms provide, they are trying to figure out how to put their best resource out of business. It boggles the mind. Like those authors who fear Amazon might take royalties away tomorrow, so are happy to give up those royalties today, publishers are siding with companies that are hurting them today out of fear of their greatest ally getting even more market share tomorrow. And readers and writers are the victims of this illogical behavior.

[MS] The unreality in the suggestion that publishers are trying to put Amazon out of business is mindboggling. I have cognitive dissonance. On the one hand, I believe Hugh Howey believes what he says. On the other hand, I can’t believe he believes that! Any publisher that thought this was possible would be deluded. The idea that it is some sort of deliberate strategy to put Amazon out of business is as far from the world we actually live in as the world of Hugh’s novels is.

[HH] What is the solution? As a writer, the solution is to retain ownership of your rights. This has never been more important than it is today. E-book royalty rates are going to move to 50% of net. I know from some insiders that this is already happening for top-name authors and hot new acquisitions. Selling your manuscript now for half of what it will be worth in the very near future is a bad move. It takes years for books to come to market with a traditional publisher. If that is your publishing goal, exercise a bit more patience. Hold on to that manuscript (or self-publish it) while you write the next. Let the market come to you.

[MS] This advice ignores the fact that a large number of authors got an advance that already pre-paid them for the royalties they could conceivably have earned by doing their own self-publishing when the publishers’ sales died. (Those “insiders” referred to are almost certainly talking about how the ebook component is calculated for advances paid to big authors, not a change in the contractual percentage.) Howey is conflating agreeing to a “half of what it should be” digital royalty with “selling your manuscript for half of what it will be worth” in the future. They’re not the same thing. I guess it’s just part of the campaign to find that first big author who turns down a publishing deal to do it themselves instead. To read this post, you’d never know we haven’t had one yet! (I thought we had one three years ago, but the one author who really threatened to do it changed his mind and signed a publishing deal with Amazon instead.)

[HH] The other option is to embrace a smaller press that has more flexibility. Online print book sales and e-book adoption have helped level the playing field for small publishers. They are becoming more viable every single day. These are the true Davids. They now have the tools and ability to see their works sell to a wide audience and win awards. I put them as the second best option behind self-publishing, and I include Amazon’s imprints in this category. They offer higher royalty rates and terms similar to small presses, though some have grumbled lately that Amazon’s imprints are becoming more and more like the Big 5, so watch what you sign.

[MS] I’m always happy to see smaller presses succeed, but they have a hard time competing against the Big Five, mainly because of Amazon. They are forced (by Amazon) to sell their ebooks on “wholesale” terms, which means giving much more of the retail price they set to the supply chain. This leaves them two choices. They can set a reasonable retail price (like an Agency price) and get nearly 30% less revenue than an Agency publisher. Or they can set an artificially high price and hope the retailer will discount from it. So even if they give the author a higher percentage of ebook sales, the net might not be higher. It is hard to succeed in today’s environment as a small press, not easy.

[HH] For readers, keep doing what you’re doing. Self-publishing and small presses are booming because you care about great stories, not where they come from. You are the disruptive force in this industry, and I say that with every ounce of love I can muster. Keep disrupting by doing what you do best: Read. Write reviews. Share your enthusiasm. Infect others. Spread the joy of this greatest of pastimes. And we will trust that those who cater to your needs and to the needs of the artists you admire will be the ones who come out on top. All others will need to change their ways or perish. If they do the former, let’s cheer for them. If they persist in the latter, let’s not be sad to see them go.

[MS] I am not happy to see anybody go. The desire to make villains out of the industry establishment is the most unattractive trait of what should be a hero class: intrepid authors who forge ahead without institutional support to make success happen. There is no doubt that Amazon has made that opportunity possible for most of them and it is easy to understand why anybody who has profited from the infrastructure Amazon created would celebrate it and want to see it grow. But author success has been achieved in a wide variety of ways and the way Hugh Howey has done it is still very much the exception, not the rule. We shouldn’t leap to conclusions from unusual cases. And I think it is an iron rule of nature that it is dangerous to generalize from one’s own personal experience.

I see from a subsequent post of Hugh’s that he will be in Toronto this week at Book Summit, as will I. I hope we’ll have a chance to have a Diet Coke and talk about this while we’re up there. My Logical Marketing Agency partner Pete McCarthy and I are kicking off the show on Tuesday morning. I always love visiting Toronto.

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All the Amazon-Hachette coverage doesn’t seem to cover some important causes and implications


A great deal has been written in many venues about the current tussle between dominant Internet retailer Amazon and one of the three smallest of book publishing’s Big Five general trade houses, Hachette Book Group. Although neither side has been particularly explicit about the precise points of contention, both what I read and what I hear tell me that the argument is about adjusting the ebook sales terms that were first hammered out in the doomed initial Agency implementation and then modified by a settlement reached under the Court’s direction. That settlement restored Amazon’s ability to discount from the publisher-set agency price (which pretty much defeated the purpose of agency from the point of view of the publishers who implemented it) but did not change the 30%-of-agency-price margin that had been established. Expanding that margin seems to be Amazon’s current objective.

My “position” on all this is that it reveals an imbalance that only the government can fix. I don’t know enough about the law to have an opinion about whether Amazon is abusing its marketplace power in an illegal way (although some seem to think they are), but I am quite sure (and so is an op-ed from the Wall Street Journal) that there is not a lot Hachette (or most publishers) can do to resist Amazon’s demands except suffer and hope the suffering is mutual. Hachette has gotten some recent strong support in the marketplace from some of Amazon’s competitors. Little fledgling retailer Zola started it, but Books-a-Million, Walmart, and now Barnes & Noble have joined to push and discount the books that Amazon is trying to bury. It would surprise me if their efforts covered Hachette for half of what they’ll lose.

Even when I’m credited by somebody else with coming up with a suggestion — raising the author split of ebook revenues so that the publishers don’t wave fat ebook margins in front of observant and powerful retailers — that would have made Hachette’s position stronger had they accepted it, I am dubious that the publishers can do much about this. Nothing publishers can do — or could have done in the past — would change the fact that Amazon controls anywhere from 35 to 75 percent of the sales for most trade books. Anybody with that much market inside its corral can charge a considerable toll for getting inside its gates.

For all that has been written, there are some critical points that I think have not been made as often or as emphatically as their importance warrants.

1. Amazon used the book business to build an enterprise no longer dependent on books. Although the executives at Amazon I know maintain that they have always had a “profitable” book business (and I don’t doubt them), the company has famously been willing to live with less margin than its retailing competitors. That takes the oxygen out of the room for any retailer competing with them within the four walls of the book business. Amazon has skillfully used books as a customer acquisition tool and focused on the lifetime customer value across product types, not the margin that could be earned from the book business alone. There’s nothing morally, ethically, or legally wrong with that, but it has been steadily demonstrated for the past two decades (and acknowledged on this blog years ago) that it makes it very hard, perhaps impossible, for somebody retailing books alone to compete with them.

2. Partly as a result of that, Amazon has changed the book business ecosystem. It was almost certainly inevitable that more and more book business would move online. But the consolidation of all the online business in one place — helped along by Amazon’s skillful integration of the used book business (the dimensions of which nobody knows much about) and their market-making Kindle initiative (more about which below) has created a distribution and revenue-source imbalance that publishing has never had before.

3. Amazon, at great expense and with great vision, made the ebook business happen. Before the Kindle, the ebook marketplace was small and unambitious. The biggest player in terms of sales was Palm, which wasn’t really interested. The most interested party was Sony, which repeatedly tried over more than a decade to establish some sort of ebook device and ecosystem. But Amazon made a significant corporate commitment — creating the Kindle device, pressuring the publishers to make much more of their catalog available as ebooks, and investing heavily in discounted sales and screen real estate to build the consumer market. When B&N with Nook in late 2009 and Apple with iPad and iBookstore in early 2010 entered the market, they were attempting to capitalize on a product class that Amazon had pretty much single-handledly created.

4. Amazon is just about every trade publisher’s largest and most profitable account. (Academic and professional publishers, which operated on “short” or “professional” discounts in their interactions with retailers, have been pushed way up on discounts so this generalization usually doesn’t apply to them.) Amazon is a unique account for publishers. They sell both print and ebooks and they sell them globally. Because they don’t have to stock tens or hundreds of far-flung stores, their efficiency of sales, as measured by their very low returns, is almost certainly the highest among retailers and probably the highest of all accounts (including the wholesalers Ingram and Baker & Taylor, which can also be pretty efficient). Amazon has no interest in being anybody’s most profitable account; what the publisher profitability suggests to them is that their efficiencies are responsible for a lot of margin generation and they are inclined to want more of it. From Amazon’s perspective, being equivalently profitable to other large accounts is “generous” enough. From many publishers’ perspective, the enormous marketplace control Amazon has was built on the back of the publishers’ and authors’ intellectual property. With Amazon now having effectively replaced large components of the marketplace: Borders being gone and Hastings in the process of going, the independent channel a shadow of what it was a decade ago (despite recent signs of “growth” that might just be partial replacement of Borders demand), and B&N — at the very least — slowly shrinking its store footprint, publishers rely on the margin Amazon provides.

The contradiction here, of course, is that the high relative profitability is all created by efficiencies in the (shrinking) print marketplace. Amazon wants to take the margin back on the (growing) ebook side.

5. Amazon wants lower prices for consumers — at least right now. (They’d say it is a core value and they’ll want it forever; there is room for an honest difference of opinion about how they’ll feel about it when their market share rises further.) Everybody else in the book business (authors, agents, publishers, other retailers) want prices at the very least maintained and probably would prefer they rise. This is the crux of the publishers’ problem with the government and with some quarters of public perception. Lower prices for consumers is catnip for politicians. They simply can’t resist it.

6. Amazon pays amateur authors, often unedited, who upload files not yet ebook-ready to them and don’t know anything about marketing or metadata, as much as 70 percent of retail if they meet certain exclusivity and price stipulations. (Obviously, there are great gems among those, but they are still mostly unproven, unknown, and unsuccessful.) They are apparently fighting hard to avoid giving Hachette — which invests substantially to be consistently superior to a fledgling author on all these counts — the same cut.

7. In the course of building the powerful position they now occupy, Amazon both made substantial infrastructure investments and subsidized sales for publishers through heavy discounting, sometimes below the price publishers charged them for the goods (particularly for ebooks in the days before agency pricing). Very few publishers complained about Amazon’s deep discounting of print books in the late 1990s when it began. Amazon’s pricing strategy discouraged many brick-and-mortar retailers from even entering online selling at that time (which, of course, must have been part of the calculus that motivated them to do the discounting the in the first place) but publishers just benefited through greater sales.

8. Hachette is, essentially, tied with Macmillan and Simon & Schuster for third place among the Big Five publishers. HarperCollins is twice as big. Penguin Random House is more like five times as big. This fight is already being costly to Amazon’s reputation among authors (many of whom, including Malcolm Gladwell, John GreenJames PattersonCharlie Stross and Michael J. Sullivan, have been heard from directly) and can’t be well-received among consumers. They’re not likely to try the same tactics with PRH. That means PRH is the most significant beneficiary of what is now going on. If nature takes its course, they should have much better terms than the other big publishers after this round of negotiations over new terms is concluded. That, along with their deepest pockets and excellent execution, puts them in a position to take down their competitors author-by-author, or editor-by-editor.

In some ways, the die for a reshaped publishing business was cast when Jeff Bezos had the vision to get Wall Street to finance an “everything store” (hat tip to author Brad Stone) built on a foundation of book-buying customers. Amazon has plenty of internal justification for believing that their investment and risk-taking has been a huge benefit to publishers for most of the 20 years of their existence. But that doesn’t change the fact that an imbalance exists that will feed on itself. Amazon will grow at the expense of all other book and ebook retailers and Penguin Random House will grow at the expense of all other trade publishers. Smaller publishers have already felt the pain and self-published authors will in the future. That’s what will happen naturally and organically from now on, unless a stronger force intervenes, and on the right side instead of the wrong side the next time.

The last two posts, the most recent one on subscriptions and the prior one about Amazon-Hachette, were not sent out by the Feedburner service that delivers email versions of the posts to subscribers. I suspect this one won’t be either. Until we move to a new distribution capability, I’ll continue to link to the undistributed posts with each new one, as I’ve done here.

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Wondering whether printed books will outlast printed money, or football


When you’re trying to figure out what will happen in the book publishing business in the years to come, any prediction depends on how things work out that are beyond the control of the business, and sometimes well outside it. This will be increasingly the case if the book business, in what has remained a fairly lonely expectation of mine, is increasingly the domain of people who aren’t publishing or selling books as a primary commercial activity, but as an adjunct or complement to some other principal objective.

This past Sunday’s New York Times tackled the question of disruptive change in the world in general with a graphic report created by Claire Cain Miller and Chi Birmingham, based on the predictions of a panel of expert technologists and futurists. They asked four questions:

What far-off technology will be commonplace in a decade? Among the suggestions were that we’d see thousands of drones, chips implantable in humans that would deliver access to all one’s devices, and personalized medicines crafted to your specific DNA.

What industry will tech put out of business next? Among those predicted to meet their demise were higher education, the auto industry from drivers to mechanics, airline pilots, and consumer banking.

What technology will seem antiquated in a decade? The nominees here included email, computer keyboards, chargers, keys, and cash!

What is the next issue to undergo a sea change in social acceptance? Future targets from currently acceptable endeavors include football, factory animal farming, and ubiquitous recording and surveillance.

That’s quite an agenda for the next ten years.

There is logic behind all these predictions and the list of those contributing thoughts is stellar, but I daresay few of them are based on data as much as on insight. There’s no data to predict the end of wired charging or banks, or even to predict that football will become massively scorned. But there are straws in the wind for all of them.

So it is when we think about the future of publishing. There are things we simply can’t know for sure, subjects about which a range of outcomes over the next ten years is certainly possible, that will have a profound effect on what book publishing will look like — as an industry and more broadly as an activity — in ten years.

Here are some of the key questions, to which I’m quite convinced nobody can be sure of the answers, that will affect what publishing will look like ten years from now.

How persistent an activity is immersive long-form reading? There are all sorts of threats to it. Perhaps it is needed more than ever as an escape from the ever-more-intrusive demands of connected daily life, but it is also undermined by the accelerating pace of everything else. It is hard to discern this because each person’s personal reading patterns change over a lifetime. We’ve always sold more books to older people than younger ones, with exceptions for cultural phenomena that sweep through the young (Harry Potter, Hunger Games, Twilight). Long-form reading has always been required in schools, but as humanities increasingly take a back seat to more “practical” education, can we count on that continuing? It seems hard to build a case that long-form reading won’t be reduced per capita because of the ready availability of so much else and an increasing societal tendency toward short attention spans. (And that last is my impression, not one I can defend with data.)

As my generation is replaced with digital natives, a decline in the market for novels would seem to be a very likely consequence. Or, at least, novels as we know them now.

How persistent is the demand for printed books for long-form reading? The ebook revolution is in its seventh year, if dated from the launch of the Kindle, which was when explosive growth began. Over the past year or two, the explosive growth has stopped and there is the belief in some quarters that many consumers are still expressing a preference for printed books for long-form reading over digital ones. That’s probably true. A recent Harris Survey of Internet-connected adults said that 46% exclusively read print books and only 6% only read ebooks. The remaining 48% are pretty evenly divided among those who read more print, those who read more ebooks, and those who read about the same number of each.

My hunch, again offered without the support of meaningful data (because there would be none), is that ebooks will continue to take share from print for long-form reading, in fits and starts, but inexorably. The logic behind that conjecture is simple and two-fold. One side of it is that the print book experience won’t improve and the ebook experience will. With the first blush of fascination with “enhancing” ebooks by the insertion of distractions passing and real enhancements (the static dictionaries improved into author-built glossaries, improved bookmarking and page-flipping navigation, excerpt-sharing enabled) bound to become more common, there will become more and more reasons to prefer the digital version. (Even the killer app of print — the ability to write notes or underline — will ultimately be digitally-enabled in a ubiquitous way.) The other reason is that the proliferation of (mostly ebook) titles in the marketplace, hand in hand with diminishing shelf space for (mostly printed) books in stores, will increasingly drive online purchasing, which favors ebooks over print.

It wouldn’t take a big change year-to-year for the numbers of exclusive print readers and exclusive ebook readers to be reversed over the next decade with half continuing to do some of each. Since each reader shifting her preference from print to digital further undercuts the support for shelf space, you have (depending on your point of view) a virtuous circle driving ebook growth or a vicious cycle working against print. And against stores.

How well do informational illustrated books compete with alternatives? The informational illustrated book business, largely instructional, has not fared well in digital form. While the share of ebooks for immersive reading has generally ranged from 20% to more than 60% depending on the subject or genre, the numbers are a sliver of that for illustrated books. This has put pressure on illustrated book publishers to make the most of stores, to find direct paths to their customers, and to make the most of the global opportunities for print sales. My candidate for a Black Swan here is some industrial-strength attempt to curate the vast amount of video and other Internet-based content into “packaged” competition for books that teach skills. Just as MOOCs are disruptive to colleges and educational publishing (note the prediction in the Times story that higher education would be “put out of business” in the next ten years), the dagger that will prove mortal to much illustrated publishing may already exist.

Visuals and illustrated books and doing the things people use illustrated books to do (knit, garden, decorate a room) are not my personal milieux, as everybody who knows me personally will attest. But I’d suggest there’s a business out there with which I personally promise never to compete — assembling the library and creating the directory of the publicly-available material that would substitute for these books. Somebody’s going to do that in the next ten years. Here’s an example of something that points in the right direction, but I don’t think can solve the problem in the way I’m describing. Other nods to this idea exist in many verticals, albeit most likely in less-cohesive forms — wikiHow, Google searches, YouTube playlists, internet discussion boards and forums — but they really only hint at the solution I’m imagining.

How much of the creation and selling of books spreads beyond the book business? One of the leading Anglo-American CEOs pointed out to me many years ago that the day had passed when he could just call the CEO of his biggest accounts to discuss a problem. Retailing of print books requires Amazon, for whom it might be 10% of their total business and Walmart (is it 1% of theirs?) in the US, supermarkets in the UK. Global retailing of ebooks, with everybody in the publishing business rooting for Barnes & Noble to crack this, is in the hands of four companies — Amazon, Apple, Kobo, and Google — all of which employ book retailing as a strategic component of a larger endeavor.

So far, the publisher side of the value chain has not been affected by the same phenomenon, but I think it will be, in a very different and more disparate way. The concept of “content marketing” hasn’t really discovered the book business yet, but it will. Athough there are a handful of exceptions, today they are just the straws in the wind that indicate the possibilities.

I’m sure that in less than five years every multi-million dollar marketing plan will have an ebook component: sometimes free, sometimes freemium, sometimes paid. Over time the businesses that do this work will learn, probably faster than many book publishers, how to use the online discovery mechanisms to drive the attention of relevant consumers. And part of what could be a tsunami of new competition is driven by another reality: anybody who creates content for any other (usually advertising-supported) audience can carve up or recombine or represent their content as a competitive book product. It takes an organization and much more sophisticated expertise around subscription management and advertising for a book publisher to do online magazines (although it is a reasonable thing to try).

Because of self-publishing authors and public domain title miners, the new titles currently flowing into the marketplace are already coming more from non-traditional publishers than from the establishment, creating an ever-growing challenge around discovery and branded authority. If an ebook publishing program becomes a standard component of branding and corporate and consumer marketing over the next ten years, the new competitors to publishing as we’ve known it will be coming from a flood of well-marketed content whose purveyors may not have to make a profit from it. Imagine what happens to fiction publishing if Hollywood figures out that ebooks and marketing them is a far better development tool for a motion picture or TV show than the fourth rewrite of a script!

Ten years is a long time and a long time allows for some pretty radical predictions. Last week I was on a subway platform with hundreds of people, noticing that virtually all of them were looking down at a device in their hands. I was thinking, “my Dad died in 2002, he never saw this. My Mom died in 2007, she never saw this.” Ten years ago, I think few would have predicted that the number of people on a subway platform looking at devices would outnumber those reading newspapers by 50-to-1 or more. Maybe ten years from now we won’t have keys or cash. And maybe there will be very few people reading paper books.

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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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Sony exits and the ebook business loses an original player


Sony has thrown in the towel on the ebook business and turned its customers over to Kobo. This has unleashed speculation that Nook will soon do the same. If B&N were really forced to choose between the investments they need to make in their stores and the investments required to compete in digital delivery, it would be hard to see them making any other choice but to save the stores. The notion of another retailer, perhaps Walmart, buying the whole thing seems eminently logical, but one can’t account for the role that a sentimental attachment to the stores by B&N’s principal owner, Len Riggio, might play in these decisions.

Despite the hopes and expectations of upstarts like Zola Books (which itself made an acquisition lately, taking Bookish off the hands of the three publishers that started it) and Baker & Taylor’s Blio or longtime competitor Copia or the originally phone-based txtr, it feels to me like we’re seeing the beginning of consolidation of the ebook business. Verticalization may work, as it has seemed to for Allromanceebooks but just being “indie-curated” wasn’t enough for Books on Board, a pretty longtime player that expired last year. (So far, Diesel, a comparable indie, is hanging in there.)

Sony is a big company with a very tiny ebook business. They were also really the “first mover” in the modern era ebook device space. The e-ink Sony Reader is more like the Kindle and Nook than any other thing that came before. But if the ebook play ever fit into a larger objective for Sony, it is not clear what that was.

Apple opened their ebook store because they thought they had a suitable device for book consumption (the iPad), but they also had experience with selling content before (iTunes). They also see potential for iPads in the school and university markets, so they have developed technology to enable more complex books — the kind that haven’t been successful commercially yet — to be developed for their platform. Establishing their devices and the iOS ecosystem in the education market would be a big win for them.

Google recognized over a decade ago that books, being repositories of information that contained the best response to many searches, were a world they wanted to be in. With their growing position in devices — the Nexus 7 phone and Chromebook computers — and as the developers of the Android ecosystem that competes with iOS in the app market, there are many ways that being in the ebook business complements other endeavors, including, perhaps, competing with Apple and iOS in the schools.

In the last post here, I posited (among other things) that ebook retailing just wouldn’t work as a stand-alone business; it has to be a complement to other objectives and activities to make commercial sense. Sony has found that it doesn’t fit for them, almost certainly because it doesn’t add value to any of their other businesses.

Of course, ebooks definitely complement Barnes & Noble’s core business. You have a pretty obvious deficiency if you run a bookstore and don’t sell ebooks, so everybody manages to do it somehow or other. Among the mistakes Borders is accused of having made before they disappeared was turning their ebook business over to Kobo. Doubts about the future of Waterstones in the UK include whether it was wise to turn their ebook business over to Amazon. If Barnes & Noble didn’t have Nook, they’d have to make a deal with whoever did have Nook, or with somebody else.

I’m sure Apple or Kobo or Google would be just delighted to have their ebooks integrated into Barnes & Noble’s suite of offerings, and probably Amazon would too, although they would almost certainly never be asked. All of them have shown interest in affiliating with indie stores, with Google having gone in and out, Kobo now trying hard with them, and, even Amazon, which can’t penetrate indies effectively with their own published books now offering them an affiliate program to sell Kindle ebooks called Amazon Source. But surely all of them would jump at the chance to expand their distribution to Barnes & Noble customers.

It is likely that B&N believes that the Nook business can only be truly successful if they keep investing in improved devices and create a global presence. That may be true, but it also might be that Nook can be a useful adjunct to their store business without continually adding devices or creating a presence outside the US where there are no B&N stores. More and more people are comfortable reading on multi-function devices through apps. Maybe B&N could profitably hold on to a core Nook audience by emphasizing synergies with the stores more (bundling print and ebooks, like Amazon does with its Matchbook initiative and as has been tried on a smaller scale by some publishers, would be one such way) and not worrying so much about making Nook competitive with the other ebook retailers as a stand-alone business.

The wild card here is if some big outside player — Walmart being the most frequently mentioned — saw benefits to having the ebook business (or even the whole book business) in its portfolio. That’s happened in the UK, where supermarket chain Sainsbury’s bought a majority stake in Anobii (a UK-publishers-backed startup, analogous to Bookish in the US) and Tesco bought Mobcast because the ebook business was one that they thought fit in well with their offerings and customer base. (Both Sainsbury’s and Tesco made statements about strengthening their “digital entertainment” and online retailing propositions. Tesco is investing in devices as well.) Kobo has made it a pillar of their strategy to find brick-and-mortar partners all over the world.

On a global basis outside the English-language world, the ebook business is still in its infancy. But it is hard to see how any player without a strong English-language presence could develop the scale to compete with those who have it. Every nation and language will have local bookstore players who have “first claim” on the book-readers in their locality. Some might harbor ambitions to also own their local ebook business, particularly as it becomes increasingly clear that ebooks cannibalize bookstore shelf space. But the cost in cash and time of doing it, combined with the competitive advantage of having English-language books in the offering no matter what language your target market reads, will make a build-it-yourself strategy increasingly unattractive. So it would seem that Amazon, Apple, Google, and Kobo are positioned to grow organically and partner ubiquitously. And it will require some seriously disruptive event, like Walmart buying Barnes & Noble, to break the hold that quartet will have on the global ebook market over the next decade.

A potential disruptive development which this piece ignores is the possibility that ebooks become largely a subscription business over the next decade. I have two overarching thoughts on that.

One is that the book-by-book purchasing habit is sufficiently ingrained that it will not be changed drastically around ebooks in the next ten years. I have no idea what percentage of the ebook market is now subscription, but I think it is safe to say “far less than 1%”. So my instinct is that it would take wild success for it to get to as much as 10% in the next ten years.

The other thing to remember is that any ebook retailer can always develop a subscription offering. Amazon effectively started already that with Kindle Owners Lending Library. You can be sure that if Oyster or 24Symbols starts gathering a substantial share of the market, all of the Big Four as we see them here will find a way to compete for that segment. (It is considerably harder to go the other way around; it is much less likely that Oyster or 24Symbols will open regular stores.)

So whether subscription grows faster or not, the giants of ebook retailing will remain the same.

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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 Buy.com 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 (BN.com 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.

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