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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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New data on the Long Tail impact suggests rethinking history and ideas about the future of publishing


For most of my lifetime, the principal challenge a publisher faced to get a book noticed by a consumer and sold was to get it on the shelves in bookstores. Data was always scarce (I combed for it for years) but everything I ever saw reported confirmed that customers generally chose from what was made available through their retailers. Special orders — when a store ordered a particular book for a particular customer on demand, which meant the customer had to endure a gap between the visit when they ordered the book and one to pick it up — were a feature of the best stores and the subject of mechanisms (one called STOP in the 1970s and 1980s) that made it easier. But they constituted a very small percentage of any store’s sales, even when the wholesalers Ingram and Baker & Taylor made a vast number of books available to most stores within a day or two.

It was an article of faith, and one I accepted, that if you could expose most books to a broad public, they would “find their audience”. The challenge was overcoming the gatekeepers or, put another way, the aggregate effect of the gatekeepers (the store buyers) was to curate, or act as a filter, to find the worthwhile books that the public would really see from which they would choose what to buy.

There was also ample evidence over time that a large selection of books in a store acted as a magnet to draw customers. That fact was noted by my father, Leonard Shatzkin, in the early 1960s, when they doubled the inventory at the Short Hills, NJ, Brentano’s store (the chain reported to my father, who was a Vice-President of Crowell-Collier, the company that owned Brentano’s, Collier’s Encyclopedia, and Macmillan Publishers, among other things) and it went from the worst-performing store in the chain to the best. In the 1970s, BP Reports published a survey that said that nearly half of bookstore customers chose the store they were in on the basis of the selection they’d find and more than half reported their particular purchase decision was made in the store.

By the late 1980s, both of the big national bookstore chains — Barnes & Noble and Borders — were undergoing a massive expansion of “superstores”. Whereas chain bookstores (B&N’s B. Dalton and Borders’s Walden) carried 20,000 or 30,000 titles, and large independents carried as many as twice that, now the new superstores would carry 100,000 titles or more! Customers flocked to the massive bookstores and the ever-expanding chains ordered lots of the publishers’ backlists and everybody celebrated a new era, except the independent bookstores who were increasingly squeezed by their new large competitors. The era was less than 10 years old when it got disrupted.

In the 1970s, it was my responsibility for a couple of years to write the orders for stores that accepted vendor-managed inventory from Two Continents, my family’s distribution company. I was being careful to make sure that each store earned $2 gross margin per dollar of inventory investment, which was what you’d get from 40% discount with inventory turned 3 times a year. This gave me a hands-on look at how stock turn in the aggregate was affected by the inventory decisions on specific titles.

When you do this, you figure out pretty fast that you can produce very high stock turn on books that are moving consistently. If a store were selling five copies a month of a title on a sustained basis and I put in 10 and replenished monthly, they would be getting an annual turn of 10 or perhaps much more on those moving books. (Turn calculation: sales divided by average inventory for a period multiplied by the number of such periods in a year.) That would support a lot of single copies of books that moved very slowly or, as it turned out, not at all. Since very few stores managed a turn of 3 or 4 on their own (chain store turns were usually under 2), giving the stores on our Plan a good result with the advantage of shipping monthly was shooting fish in a barrel.

But if you think about the turn you’re achieving with the titles that really move, know that the titles that move are a large percentage of the store sales, and take on board what stores’ overall turns tended to be, it leaves you with the uncomfortable feeling, or calculation, that a very high percentage of the titles each store ordered didn’t sell a single copy in that store. In fact, one big advantage of vendor-managed inventory is that it gives you the ability to use the high turn on your titles to stock the titles of yours that turn slowly or don’t sell at all, rather than having the store “waste” those margin dollars your books produce stocking somebody else’s slow-moving books.

Remember, in physical retail, selection was the magnet. The books that didn’t sell were helping to pull in the customers for the books that did sell. Stores knew that too. Later work I did demonstrated that there were whole store sections that turned at half or less of the rate of the store as a whole. But if you want, say, a philosophy section that “turns”, it would only have about ten titles in it. If you want a philosophy section people will browse and shop from, you have to carry a lot of slow-moving titles.

But just when the bookstores put the inventory in place to stimulate book buying all over the country, along came the Internet, Amazon.com, print-on-demand, and ebooks, in that order. All four were fully integrated into the book publishing ecosystem over a decade-and-a-half starting in 1995. As quickly as the magic of selection via the 100,000-title store was implemented, it was superseded by the “total” selection provided by Amazon’s, and then BN.com’s, “unlimited shelf space”. Now every book would have its full chance to sell, or so it seemed.

Unlike the period of superstore expansion, when substantial orders for deep backlist suddenly became commonplace in a continuing windfall for publishers, the new era with Amazon was characterized by things getting harder for many publishers. That wasn’t necessarily clear at first, but the impact of Amazon, and then Lightning (print on demand offered by Ingram) was to dramatically increase the number of titles competing for sales. It gave the Long Tail a real opportunity to get to customers which, through bookstores — even very big bookstores — only the top 100,000 titles were able to do. Publishers were a bit like the metaphorical frog in heating water; the challenges imperceptibly became greater over time. In 1990, a new book competed with about 100,000 available titles. In 1997 it competed with many hundreds of thousands and that number just kept growing. Today it competes with millions.

The challenges for conventional publishers got steeper again when ebooks became mainstream, pioneered by Amazon’s Kindle in late 2007. There had been a modest ebook business building for about a decade, but until Amazon committed its resources to creating a dedicated device, a repository of content, and audience awareness, it had a trivial impact. But a full-fledged ebook business unleashed a new wave of competition from self-publishing authors. Amazon fostered growth by creating an easy on-ramp for self-publishing, a move quickly copied by B&N, Apple, and Kobo. In the several years that ebooks have been commercially important, many — certainly hundreds and perhaps thousands — of authors have achieved meaningful sales. Many of those have been of backlist books originally published conventionally but there have also been thousands of successful original ebooks. Whether revived formerly-dead backlist or new titles, these are books that are competing with the output of the conventional publishers and wouldn’t have been a decade or two ago.

So the Long Tail for books has been a topic of conversation for most of the past 20 years. Amazon’s limitless shelves and Ingram’s Lightning contributed heavily to this before the turn of the century; self-publishing has accelerated it dramatically. The early expectations, including mine, were that the Long Tail would take sales from all the books being “currently” published. But it became evident pretty early that the big books were just getting bigger: the head of the sales curve wasn’t diminishing. In fact, both the head and the Long Tail took sales from the middle of the curve. This was particularly challenging for publishers because publishing mid-list, those books they do that aren’t bestsellers, became much more challenging.

The Long Tail continues to grow. There are a limitless number of aspiring authors and their aspirations to self-publish successfully are fueled both by success stories and by a growing band of indie authors who tout their success and question the business models and practices of the majors. Because being conventionally published has its own set of hurdles and time requirements, it has seemed to many (and I haven’t been immune from this thought) that self-publishing would just continue inexorably to take share from the publishing business.

But now we have some data that calls that assumption into question. I encountered two examples of that in the past week.

In Toronto last Wednesday, Noah Genner of Booknet Canada presented information about the Canadian market showing that the number of ISBNs was expanding rapidly, but that the number of individual ISBNs selling at least one single copy was about flat.

Then this week, Marcello Vena of RCS Libri in Italy published a White Paper based on his company’s data (link through to the White Paper from the DBW piece introducing it) which showed something similar. Sales of his company’s books were becoming increasingly concentrated in a small number of titles. Vena added an analysis using the Herfindahl-Hirschman Index (HHI). HHI measures the concentration in a market and is, according to Vena, used by the US Department of Justice to measure concentration in an industry. The HHI is calculated by adding the squares of the market shares of the players. So if one company owned 100% of a market, the HHI would be 100 squared, or 10,000. But if 100 players each owned 1% of the market, the HHI would be 100 times 1/10,000 (1/100 squared) or 0.01. Using the market concentration and title concentration numbers in tandem, Vena finds that they’re linked. As market concentration increases, the sales move to the head of the sales curve and flatten further in the Long Tail.

Of course, Italy and Canada are not the United States. Our market is bigger and richer. But Italy and Canada are not trivial samples, either.

One further point about Long Tail sales. In the aggregate, they can be very significant. But for each individual title, they are trivial. So the real commercial benefits flow to the aggregators — Amazon and Lightning — and much less to the publishers or authors of the individual titles. There certainly are situations where particular publishers have a lot of Long Tail books: the Oxford and Cambridge University Presses would be prime examples of this. For them, with thousands of titles in the Long Tail, the aggregate sales are probably commercially significant. But for a publisher with 100 titles, or even 1000 titles, selling a copy or two a year (or none), and that’s what we’re talking about here, it hardly makes any difference. I personally own several Long Tail titles. I get checks from somebody every month, but it adds up to three figures a year, not four.

The implications of this in the discussion of how the publishing industry might be affected by self-publishing disruption are interesting. It would suggest to me that the boosts publishers can give a book — even their catalogs provide more marketing lift than most self-published books start with — will become increasingly important as the market becomes increasingly flooded. If the data Vena has presented turns out to be the future trend, the increase in self-published titles will drive more and more sales to a smaller number of winners, and my hunch would be that the winners will most likely be from publishers. That would indeed be a paradox and a totally unintended consequence.

Of course, the publishing business isn’t one business; it is segmented. So far, the commercially successful self-published authors overwhelmingly, if not entirely, fall into two categories. There are authors who have reclaimed a backlist of previously published titles and self-published them. And there are authors of original genre fiction who write prolifically, putting many titles into the marketplace quickly. Successful self-publishing authors are often in both categories but very few are in neither. Those two categories are nearly 100% of the self-publishing success stories but a minority of the books from publishers. So, even before Vena published his White Paper, the idea that self-publishing would upset the commercial establishment was way overblown. If Vena’s data turns out to be prophetic, the road is going to get harder and harder for all books, but especially the self-published.

Two big items in the news today. On B&N’s decision to spin out Nook and college into a separate public company, I have little to say except to wish them all well. On Hachette’s and Ingram’s division of the two Perseus businesses, I’d say this. 1) The notion that this is about Hachette “bulking up” for the Amazon battle is almost certainly wildly wrong and anybody saying that has disqualified themself as an expert. 2) The titles Hachette get here really change the character of their list, adding a non-fiction and academic dimension they never had. 3) Ingram has made a major leap in scale for their Ingram Publisher Services business which now, in the aggregate, is Big Five sized.

Once again, the Feedburner service failed to distribute my most recent post, which was a graf-by-graf disagreement with a post by Hugh Howey. The comment string of that post contains ample evidence that the fact contained in the last paragraph here is not widely acknowledged.

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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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The book world keeps changing, so Digital Book World has to change too


This post invites you to help us shape the agenda for Digital Book World 2015.

It was five years ago this summer that David Nussbaum and Sara Domville of F+W Media took me out to lunch and said they thought the book business could have a more useful digital conference — one, in their words, that would give you things you could go back to the office and use — than the existing set of conclaves, led by Tools of Change, then provided. And they flattered me and provoked my imagination by saying “we think you’re the guy to program it”.

At the time, I was in a partnership with O’Reilly Media, the owners of Tools of Change, working on an initiative called “StartWithXML”. We had a conference in London coming up as part of our team effort that was only a few weeks away. I wasn’t looking for a way to compete with them.

But, when I thought about it, I realized that by changing the focus of our conference from “technology and publishing” (which was theirs) to “the business challenges created by technology for trade publishers”, we would be able to do something quite different than they had. Agents would be included, and, this being long before the agents were hiring people with digital publishing expertise to help their authors, they weren’t invited to be part of Tools of Change. I knew their voices were important when you talked about how the business of publishing would be affected by digital. And real challenges around resource deployment and marketing, which weren’t strictly-speaking about technology but which were top of mind for trade publishers, would make our agenda when we framed it this way as well.

They named the new conference Digital Book World.

This recommendation really just followed my own advice. I had been observing that book publishers needed to become more “vertical”, by which I meant “audience-specific”, in their thinking. Tools of Change was horizontal; it was about all publishing and technology. We’d focus Digital Book World on a particular segment of publishers and therefore be able to make it more meaningful for them.

Now we are planning our sixth Digital Book World conference for January, 2015. A lot has changed. Tools of Change shut down in 2013. Perhaps partially aided by the disappearance of its biggest competitor, Digital Book World has continued to grow, with more than 25 percent growth in 2014 over the year before.

But a big part of the distinction that guided us as we built DBW, the emphasis on trade publishing, is eroding in importance as the trade itself — which means the bookstores and libraries and the wholesalers that serve them — become less robust paths to the consumer. The challenges for an industry beginning to move from physical goods in stores to virtual goods online are different as the new paradigm becomes the dominant paradigm.

Except for self-published genre fiction (and perhaps even for publisher-issued genre fiction too), that paradigm shift hasn’t really happened yet, but the day when it will is in sight. At some future Digital Book World — not 2015, but maybe 2016 and almost certainly before 2020 — we will be looking at a “trade” book industry which does most of its business online, not through brick-and-mortar stores.

(In fact, the world has changed so much that one thing on my list to discuss is a DBW 2015 panel that would reconsider the whole StartwithXML premise. When we were thinking about this in 2009, we figured the biggest payoff from going through what could be a painful workflow change was that you’d be able to make ebooks of complex books much more efficiently. That’s probably still true, but the ebooks for complex books also haven’t sold very well and their future is a bit cloudy. Knowing that, how important was that change to make, really? We’ll ask some publishers who have gone through it and, depending on what reports we get, perhaps put it on the program for discussion in January.)

All of this not only means that what we have called trade publishers may be renamed, they will also find themselves with new channels to consumers and a new set of competitors. The prospective new landscape will get a great deal of attention from us next January and we are beginning to interact with players that wouldn’t really have belonged at DBW in 2010 or 2011 but who might be smack in the middle of our business by 2017 or 2018.

Who are they? They are educational publishers, both K-12 and college. They are newspapers, magazines, and advertising agencies. And they are digital-first publishers, coming out of web sites and other content creators and brands, who see the opportunity to reach audiences efficiently through a book business that no longer requires a big investment in printed inventory and an organization reaching thousands of small sales outlets for meaningful participation. And they are start-ups and technology companies too.

We are going to start this year by looking for the Venn diagram “overlap” between these new audiences and the trade publishing audience we’ve served for half a decade.

For newspapers, magazines, and advertising agencies, that means we’ll be looking for the players who have already found opportunity in the book publishing ecosystem. Although for all of them ebooks are really a highly complementary opportunity, it looks like newspapers have made that discovery more rapidly than the others. Newspapers and magazines, particularly, have content and consumer-facing brands that create a natural fit for ebook creation and marketing. For advertising, the stretch is a little greater and, frankly, we’ll be looking for pioneers that see the opportunity to promote their clients’ wares using ebook discovery and word-of-mouth as tools. It is inevitable that they will but finding the early visionaries will be the first challenge.

There is a new component of the advertising business called “content marketing” which also, ultimately, seems like a fit for the ebook business. What it means today is that a digital ad agency creates content which promotes a client or product; content which is meant to be found online and delivered for free.

There are two ways that book publishing could — and almost certainly will — be part of this new component, although neither seems to have happened with any regularity yet. One is that the agency-created content could be delivered as an ebook, not just as discoverable web content. This has probably not been the first instinct of the agencies for two reasons. One is that they figure that nobody would “buy” what they’re willing to give away for free. The other is that there’s a bit of a learning curve about how to process content into an ebook and put it into distribution. (Frankly, if you’re willing to live with the ebook being made available only through Kindle — which gets you much more than half the market — the learning “curve” is just about a straight line. Amazon makes it pretty damn simple.)

My niece, Kailey Moran, writes a blog about cars for women for a marketing company called Reynolds and Reynolds. It seems to me like a short step for her to put together an ebook for the same audience on the same subject. Her company isn’t doing that yet. I’m betting that within the next couple of years, they will.

There will also be new interactions occurring between college textbook and school publishers and their counterparts in trade. The educational publishers are moving from being primarily creators and distributors of “textbooks” to becoming creators and managers of “learning platforms”. These not only attempt to contain the syllabus and pedagogy that was in the textbooks, they also provide teachers with monitoring and assessment capabilities. And they will also be the environment in which the required and supplementary reading — often of trade-published books — will take place.

That will increasingly put the educational publishers in the role of aggregators for their institutional customers. This is likely to be a difficult and contentious area for the next several years because trade publishers will have to be satisfied with a new business model. They have historically sold printed books either to institutions (the normal way things happen with public schools) or to the student end-users (the normal way things happen in private schools and colleges). In the latter case, they often are able to make a sale for every user. Doing so is an artifact of the physical world and will get increasingly difficult to do, but trade publishers are understandably reluctant to move quickly to models that pay them less for each use, even if they already sell one printed book for multiple users (over time, because the books don’t wear out) in school situations now.

So the school and college publishers and trade publishers are going to have to talk and I think interaction at Digital Book World could jump-start some conversations.

We are guided in our programming at DBW by our Conference Council, a group of leading industry thinkers — some independent but most of them executives within the industry — who meet with us to discuss the program and then provide suggestions on an ongoing basis for speakers and topics. To prepare for the meeting we schedule to discuss the agenda, we offer our Council the opportunity to offer their opinions about each of the sub-topics we’ve identified under the major headings. (It’s a 2-hour meeting with 30 people or so; we can’t discuss everything and I need the guidance to put things in priority order for time allocation.) This year, for the first time, we are seeking that same input from readers of The Shatzkin Files.

We will be looking to create good programming under seven major themes:

Publishing in a global economy
The changing publishing ecosystem (roles and relationships)
Data-driven publishing
Rethinking marketing
Developing business models
Technology and living on the cutting edge
Education and book publishing are developing a new relationship

If you want to help us decide what are the most important sub-topics under these headings, you can see how we break them down and register your opinion about them on our survey monkey poll. When our Conference Council meets, we will make them aware of the results of this voting, as well as the separate tally we’re keeping of the vote by the Conference Council itself.

And an extra robust thank-you for anybody who can suggest a sub-topic that should have made the list and didn’t.

We don’t really understand the ways of Feedburner, our current (but soon to be past) distributor of the email version of this blog, but it didn’t distribute my last post about when an author should self-publish. So if you’re getting this one by email and didn’t get the last one, we’re trying to make it easy for you to read it now by clicking this link. We will soon be moving over to Mail Chimp so these problems will be in the rear view mirror.

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


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

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

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

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

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

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

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

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

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

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

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

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Looking at predictions from here going back a few years


Prediction posts are common blog- and article-fodder at the end of a calendar year. I don’t think we’ll do one this time around, but I thought it would be fun to review some of the prediction posts from prior years. So pardon the highly self-referential post, but I think reviewing the predictions and reality from the past provides some perspective on the changes we’ve experienced over the past half-decade.

In December 2012, I wrote about “what to watch for” in 2013. I don’t think this was very adventurous, but it was mostly right.

I said that:

1. Overall migration of sales from print to digital will continue to slow down.

2. “Other-than-immersive” books will continue to lag in digital transition.

3. Mergers and consolidation among publishers are likely to become more common, after a long period when they haven’t been.

4. Platforms for children’s books will become increasingly powerful gatekeepers.

5. Marketing for publishers will be a constant exercise in learning and reinvention, and increasingly difficult to separate from editorial.

In December 2011, I steered away from predictions to raise what I thought were the important questions facing the industry coming up in 2012. Despite no “predictions”, this one anticipated a number of developments that mattered, including the challenges Amazon Publishing would face, the difficulty for B&N trying to create a workable international strategy, the lift indie bookstores would get from Borders going out, and the conundrum facing illustrated book publishers as consumption migrates to digital.

That same year, I chimed in with others for Jeremy Greenfield’s annual round of predictions on the DBW blog. I commented on the restructuring of big companies that would result in new positions. And that was before anybody had people with the word “audience” in their job titles. Doesn’t everybody now?

But I really got it wrong about ebook royalties, which I thought back then would go up from the “standard” 25% and, although that may still happen someday, it hasn’t happened yet.

I didn’t write a single consolidated predictions post in December 2010 but I did posts making some predictions. One thing I got right was that ebook sales would continue to rise quickly (some people back then expected a slowdown, but we were still in a more-than-doubling-each-year period though, as noted above in the predictions last year, that slowdown came eventually). I thought bookstores would be headed for very hard times. That was just before Borders’s demise.

I’ve made the point on the blog before that every book purchased online is another nail in the coffin of brick-and-mortar bookselling. … I’m expecting that what brick-and-mortar booksellers will experience in the first six months of 2011 will be the most difficult time they’ve ever seen, with challenges escalating beyond what most of them are now imagining or budgeting for.

I think the next six months will make what we’ve been experiencing for the past year look very gradual. I know smart people who have thought for the past year that there would be some flattening coming soon in the ebook switchover. It doesn’t feel that way to me.

At the same time, I focused on marketing with a suggestion — for topic-specific (vertical) ebook recommendation apps or ebooks — that I still think is out there waiting to be exploited. Maybe Mike Fine’s Mediander will take hold and carry us in that direction. (What has happened instead is ebook notification of ebook price sales, which is, to my mind, not as useful.)

I also saw backlist emphasis as a logical consequence of ebook ascent. I think publishers are still lagging in taking advantage of this the way they could. And that blows the end of this prediction, because I said everybody would see that by the end of 2011. They didn’t. (And we now understand the constraints — of time, timing, and budgeting – that make backlist marketing difficult. Publishers are now looking to tackle the backlist in scalable, data-driven, and efficient ways.)

In December 2009, I made 13 predictions for 2010. One stands out: I said that ebooks would become significant revenue contributors for many titles. That happened. And also accurate was my hunch that “windowing” for ebooks, for a little while the strategy employed by publishers to protect print, would be overwhelmed by circumstances. Windowing really didn’t last long.

In January 2009, I wrote a piece for PW analyzing how my 2008 predictions had held up. I gave myself a pat on the back. I think I deserved it. As I said in PW:

I said the popularity of e-books would increase—that the rising Kindle tide would lift all the e-book boats. That appears to be unambiguously correct.

I said Apple would make an e-book reader out of the iPod and iPhone. They haven’t, but they’ve made it easy for others to do so.

I said B&N would continue to leverage its great supply chain to lengthen its lead over Borders. And, in an incredibly difficult year for all book retailers, B&N has substantially outperformed its closest competitor.

I said the lack of a competitive supply-chain infrastructure would handicap Borders, which would get a new owner. Turns out I was half-right. The lack of a competitive supply chain has been such a handicap that Borders has not yet found a new owner!

I said publishers would push harder to publicize books through the Internet because traditional review channels would continue to diminish. Well, the traditional review channels have certainly diminished, and publishers have increasingly turned to bloggers, Web sites and e-mail blasts to promote their titles. Most publishers now have dedicated staff for Web marketing.

I also said 2008 would be the year of experimentation. In many ways it was: Random with free e-book giveaways; Penguin beefing up its e-book editions of classics; Harper creating an imprint with Bob Miller that has a new business model for authors and a no-returns option for intermediary customers, as well as its Authonomy and BookArmy sites. Experimentation will be curtailed in 2009 because of the difficult economy, so I got that one into the right year.

At the end of 2013, we look forward to a new year with a revised commercial trade publishing landscape, mainly because what was formerly the Big Six is now (to my way of thinking) the Big One and the Following Four. The challenge for publishers will be to hang on to their margins, which will be under assault from a single dominant store network, a single dominant online retailer, and literary agents who know their author clients are reading the same articles they are about how the publishers’ profit has remained healthy through the early phases of the digital transition. The challenge for bookstores will be to stay relevant now that the most avaricious readers no longer must visit them to get their next book. And the challenge for everybody is to make a profit and generate some leverage on the even-diminishing share of the business that isn’t controlled by Amazon.

At this year, the fifth Digital Book World, I’ll start the show with a quick summary of what has changed since we started having the Digital Book World conference in 2010. And the wrap-up panel I co-host with Michael Cader will focus again on “Looking Back, Looking Forward”; what has happened that is significant in the past year and what we expect in the year ahead. We are delighted to have John Ingram, Mary Ann Naples, and Simon Lipskar joining us for that conversation.

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Examining the relationship between start-ups and publishers


We are in another high-funding era for digital start-ups. The book business has always looked ripe for disruption, but never any more so than now. With bookstore shelf space shrinking, ebooks growing in very uneven ways across the types of books that are published, and everything about technology getting cheaper, everything is up for grabs.

It is not a new thing that the world looks different to the companies funded by the revenues from the legacy business than it does to outsiders, some of whom want to bring tech disruption into collision with the legacy business.

Publishers see an ebook business that has been very commercially unkind to the digital versions of books that aren’t immersive narratives. Start-ups and their funders see publishers too stuck in old forms, and unable to break away from a book-style presentation when the content and use cases would call for something quite different.

Publishers see a printed book marketplace that is dominated by Amazon with less and less room for books in stores. Start-ups and their funders see an opportunity to gain further digital discovery by making the content easier for people, and web crawlers, to “see” online. And they also see making digital versions of books easier to “share” as an aid to discovery; publishers often see it as an enabler of unauthorized distribution that could cut into sales.

Publishers see books as products driven primarily by interest in the author or genre (for fiction) or the subject (for non-fiction). Start-ups and their funders see reading as an activity at least partly driven by convenience and availability and the ability to share the reading experience.

Publishers see Netflix and Spotify and think, “How many people read more than a book a month? The subscription model doesn’t really apply to our business.” Start-ups and their funders see that the consumers of all other content really like the subscription model and they can’t see why it wouldn’t work in the book business, too.

So we have, for example, several serious initiatives around subscriptions: dedicated (and often well-funded) start-ups like Oyster, eReatah, Skoobe and 24 Symbols, as well as initiatives from the totally-established Amazon.com and the differently-established Scribd. At the same time, some agents are outspoken in their objection to the whole concept, seeing it as a way that commercial power will pass from the author brand to the subscription brand. Publishers generally pay close attention to what agents say. Whatever the reasons, as of this writing only HarperCollins has broken ranks among the Big Five to place any substantial number of books in subscription services.

If you get many of the start-ups to speak candidly about publishers, they’ll often accuse them of being hidebound, unimaginative, wedded to old ways and models, and still “experimenting” with things that should be well-established.

If you get many of the publishers to speak candidly about start-ups, they’ll bemoan the fact that they too often don’t understand how the business really works or the true commercial imperatives at the publishing houses, which must continue to sign up and please authors and harvest revenues that still come overwhelmingly from sales of one item at a time to one consumer at a time through intermediaries.

At Digital Book World in January, we have five elements in the program to address the relationship between start-ups and established publishers.

First: we are running a survey of start-ups and publishers to get them each to talk about what they expect from the other. If you work for a start-up or your job at a publisher includes meeting with and evaluating start-ups, please respond to the survey! We will announce the results at DBW.

Second: Ron Martinez, who has a start-up (Aerbook), partly financed and supported by an industry leader (Ingram) and a long background in tech, patents, and design, will speak about the relationship between start-ups and incumbents.

Third, Fourth, and Fifth will be three panels exploring the question from three sides.

A panel of start-ups, which will include Martinez and Andrew Rhomberg of Jellybooks and two others we’ll pick after we see the survey results, will talk about what it takes to get traction with publishers, what publishing, marketing, or ecosystem problem they’re addressing, and explain their own vision of a path to success for their enterprise.

A panel of publishing business development people, including Rick Joyce of Perseus Books Group and Leslie Hulse of HarperCollins, will talk about how they view start-ups. What makes them give start-ups a meeting? What makes them engage? How much buy-in do they need from the rest of their company to be able to work together?

Finally, a panel of investors in start-ups, three of which are owned or controlled by existing publishing entities (Ingram, Macmillan, and Harvard Common Press) will talk about what persuades them to fund a start-up and what disruption they see on the horizon for publishing from the start-up community.

Very good publishing minds from three continents around the world, including Arthur Attwell,  Javier Celaya, and Brian O’Leary, have expressed themselves recently on this very problem. Although I disagree with chunks of what each of them has to say (as Jeremy Greenfield’s interview with me on the DBW blog makes clear), they individually and collectively express the real challenge of finding both workable paths to the future and workable ways for innovators to work with incumbents to get there.

The post from Jeremy triggered an exchange on Twitter among Rhomberg (from whom it inspired a thoughtful post), Peter Turner, and me which surfaced another important point. An incumbent’s job is to continue to maintain economic viability. A start-up’s objective, often, is to “change the paradigm”. If the paradigm does change, the incumbent needs to roll with that, but they don’t need to be an instrument of change. A start-up often does. That is an inherent difference in perspective that a start-up can’t afford to ignore.

As a guy who questioned why anybody would want another device just to read books when Amazon introduced the Kindle, I’m the first to admit that predicting in advance how an innovation will do — including the observations I made with such conviction in the DBW piece — is rarely a slam dunk.

It isn’t likely that our sessions at DBW will help anybody predict which innovations will succeed in the future, but it might help both start-ups and incumbents develop more mutually productive approaches to engaging with each other. That’s certainly the intention.

Don’t forget to respond to the survey if you are either a start-up or in a role at a publisher that involves meeting with or evaluating them. We’ll be collecting responses through next Monday, November 18.

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


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

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

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

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

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

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

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

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

* When does Amazon’s share growth stop?

* Who is left standing when it does?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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