(Note to my readers. This longer-than-usual post is really two. The first half is a recital of what I believe is very relevant history. The second half is about how things are now. Although I am personally fascinated by the historical context, if you get bored with the history, the bolded text below marks the spot you can skip down to to get to “today”.)
Book publishing has always adapted to an environment shaped by larger forces. That hasn’t changed.
Andrew Carnegie provided a big lift early in the 20th century when he financed a lot of libraries, taking books and reading into every corner of the country. In the 1930s, publishers led by Putnam and Simon & Schuster made “returns” a part of the commercial equation between publishers and bookstores because the depression was making stores especially wary of taking on inventory.
After World War II, the mass-market paperback revolution was made possible by a network of magazine wholesalers (also called “IDs”, or “independent distributors”) who could push product out to hundreds of thousands of points of purchase.
In the 1960s, shopping center development boomed. The mall developers wanted “bankable” entities to sign up for their stores before the projects were built. Banks providing mortgage cash liked national brand names for that purpose better than unknown local entrepreneurs. That fact spawned the mall chains, Waldenbooks and B. Dalton, which each grew into the hundreds of stores by the 1970s. All those new stores opening created pipelines for publishers to fill that made the book business grow even faster.
Then in the late 1980s, Wall Street believed the destination superstore was a good bet and happily financed Borders (which bought Walden) and Barnes & Noble (which bought Dalton) to build out the 100,000+-title store model. This again created huge pipelines for publishers to fill and, unlike the situation when 25,000-title mall stores were proliferating, the orders to fill them went deep into publishers’ backlists.
All of this 20th century growth fit a similar model for publishers, leaning on booksellers to present their books to the public and to manage the inventory in an ever-expanding number of bookshops. So publishers continued to focus on business-to-business marketing, honing their expertise at positioning their titles for reviewers, bookstore buyers, and library collection developers but only occasionally addressing the public, or any segment of any book’s consumer audience, directly. And they continued to focus their sales efforts on persuading stores to make commitments to their books. The ability to get “buys” from the booksellers really drove marketing and revenue.
Then in 1995, Amazon arrived and changed the game in many ways. And we can see in retrospect that the birth of Amazon heralded an even bigger change in the commercial context for publishers. Amazon’s arrival began an era which is now in full flower, where the environment for book publishers is largely influenced by major tech companies for which publishing is a hardly-noticed activity even though their impact on the world of publishing is profound. Although there are certainly others who figure in, the environment today for marketing and delivering books is shaped by what Professor Scott Galloway of NYU Stern School of Business calls “The Four Horsemen”: Amazon, Apple, Facebook, and Google.
Amazon, like booksellers before them, handled the direct relationship with consumers and evolved, after an early period of depending on Ingram for their stock, to staging the inventory to serve them. It pretty quickly became apparent that they were much more disruptive than prior innovators in many ways. Among them:
Amazon operated in an environment without geographical constraints; their sales weren’t constrained by local boundaries like the physical bookstores. They could effectively provide service to customers from anywhere. So even in the beginning, when they were taking such small share away from each of the existing market players that they hardly noticed it, Amazon was building a substantial customer base for itself.
Pretty early in the game, Amazon persuaded Wall Street that it was “different” and didn’t ultimately have to make its fortune selling books. Books were just the key to the first step: customer acquisition. The profits would come from subsequent steps: selling those customers other things (and — the more sophisticated part — selling the infrastructure it was creating at scale). Once the investment community was on board to finance that strategy, Amazon was liberated to price-compete in a way that, it is clear in retrospect, no book-centric retailer could keep up with.
The number of shipping points for Amazon, which have recently proliferated and is now in the dozens at least, grew slowly, so Amazon was inherently more “efficient” with its purchases than bookstores could possibly be. Each book shipped to them had a much bigger sales base than it would in a single store and therefore also had a much lower chance of being returned. At the same time, as they took sales away from brick-and-mortar stores, returns from that side of the business tended to go up, at first because the publishers’ sales forecasting was unconsciously working with a diminishing base, and then later because moving to fewer titles in stock became part of the solution to reduced sales and returns were part of how they got there.
The book-buying public adjusted very quickly to Amazon. For several decades leading to the 1990s, publishers and bookstores had learned that a massive in-store selection was a powerful magnet to draw customers. The choice of books has always been so granular that it is virtually impossible for any retailer to stock everything a customer might want. Jeff Bezos knew and understood that, and he had the vision to understand how an online retailer could benefit from the impossible challenge a brick-and-mortar bookstore faced.
Amazon used a Baker & Taylor database that hadn’t been “cleaned”, so it had a lot of out-of-print books in it. Amazon turned that into a benefit for their customers, because it gave Amazon a platform to tell a searcher that the book they wanted was no longer available if that were the case. (If you just don’t find your book when you search, you would be inclined to look again elsewhere. But if you find it and are told it is out of print, you would perhaps look for a substitute.) Combining that with rigorous “promise dates” telling customers when their books would arrive progressively lured, and then satisfied, more and more book buyers. The less likely the buyers thought it would be that they’d find a book in a store, the more likely it would be they’d just order it from Amazon. In a story we’ve told on this blog before, we learned on a consulting assignment with Barnes & Noble in the first couple of years of this century how dramatically the buying habits of academics had shifted away from store-shopping to buying from Amazon.
By the end of the first decade of this century, the future had arrived with a vengeance. Amazon dominated the rapidly-growing ebook business, driving the publishers into an embrace with Apple (one “Horseman” come to save them from another) that brought them into conflict with the Department of Justice. And then Borders, one of the two dominant national bookstore chains and proprietors of more than four hundred 100,000-title stores nationwide, shut down, taking a big double-digit percentage of the nation’s bookstore shelf space with them.
The collapse of Borders had an impact on the publishers’ ecosystem comparable to what the effect will be on sea levels when the Greenland or West Antarctica ice sheets break off: a sudden surge of change reflecting a long-term trend. As Hemingway wrote about the way things often happen: “gradually, then suddenly”.
And this brings us to the world we live in today. Like a frog in gradually heated water, many of us have lived through the change so we may think we’re more adjusted to it than we actually are.
Publishers now live in a world where more than half the sales for most of them — the exceptions are those who are heavily into illustrated books and children’s books — occur online through varying combinations of print and ebooks. Their two biggest accounts — Amazon for online sales and Barnes & Noble for stores — each reign supreme for their channel of the business. (And although Amazon has opened a store and Barnes & Noble has an online sales capability, they are likely to remain the leading player where they are now and much less important in the other channel.) Because they’re so important, they can be increasingly aggressive in how much margin they insist on as discount from the publishers’ price and various merchandising fees.
When bookstores were the distribution path for books, they were also the primary avenue for “discovery”. That was what the big store was about. People could browse it and find things they had no idea existed that they wanted to buy. But, as we all know, “discovery” now is largely an online thing, driven by some magical combination of “search engine optimization”, social media promotion and word-of-mouth, and online retailer merchandising.
So the model that has served publishers for a century, putting out books through a network of stores that both draw in the public and contextually position the books for them (in topical “sections” and some featured placements like windows or front tables), has been seriously eroded. What has replaced big parts of it are online purchases of books “discovered” through a variety of mostly online channels. And that’s where the Four Horsemen become so prominent.
Amazon and Apple are, along with Barnes & Noble, where most of publishers’ sales will take place. Each retailer does its own merchandising, of course. All of them will undoubtedly be increasing the variety and sophistication of its offerings, but will also have different rules and algorithms influencing how they respond to descriptive copy and metadata triggers the publishers will be providing. Understanding how this all this works at Amazon and Apple as well as publishers always did with Barnes & Noble and other brick-and-mortar retailers is a clear agenda item for all publishers. And they get it.
What some are still learning is “the fallacy of last click attribution”. (This is one of the more important nuggets of knowledge I’ve picked up in the past couple of years from my partner, Peter McCarthy, as we’ve been building our Logical Marketing business.) In a nutshell, that means that where somebody buys something is not necessarily where they made the buying decision. If you’re an Amazon Prime subscriber getting free shipping on your books, you go to Amazon to buy regardless of where you learned about the book. And that’s why all four horsemen are so important.
Although Google is also a retailer, a much less potent one than Amazon or Apple, Google’s importance is that it dominates search. And despite the penetration of apps on both the iOS and Android platforms (more everybody needs to understand about Apple and Google), search is still the primary way almost everybody looks for things. Google still has in the neighborhood of 60 to 70 percent of search activity (even though Microsoft’s Bing now powers AOL and Yahoo search). Many of the sales transacted on Amazon and Apple are made because of search results delivered by Google. According to the latest SimilarWeb numbers, approximately 25% of Amazon’s traffic originates as a Google search. One quarter. And Amazon is one of Google’s very largest advertisers.
Google also has an enormous impact on an author’s ability to be part of the merchandising process. Google Plus hasn’t turned out to be much of a social interaction platform, but an author’s profile there can have a big impact on how the author and his/her books rank for search. This has long been true but is not, even now, universally appreciated.
In short, Google Plus author pages are nearly as important as Amazon author pages, a fact totally independent of the traffic either of them gets.
Facebook is the only one of the Four Horsemen that doesn’t (for now, anyway) actually function as a retailer at all, but Facebook is increasingly important to book marketing. Something north of two billion people use Facebook, a billion of them every day. Nineteen percent of the world is on Facebook; forty percent of Internet users. More and more time is spent there by more and more people.
As anybody who uses it knows, Facebook makes it incredibly simple to share content or links. More and more authors and publishers are learning how to use Facebook as a marketing and advertising tool. Everybody’s there. Rule #1 of marketing: fish where the fish are.
So the transactions take place primarily at Amazon, often at Barnes & Noble (still) and Apple, and occasionally at Google. But the drivers to the transactions are Google and Facebook. (And others, of course, but none approaching the importance of those two.) How successfully publishers will sell books in the future will largely depend on how well they master the opportunities presented by Amazon, Apple, Facebook, and Google.
One of the big new opportunities, beyond the scope of this piece to cover in detail but very much part of the new operating environment, is “nearly effortless global” sales. All of the Four Horsemen reach every corner of the planet. The structural barrier there is that the responsible sales operators haven’t historically had to think about many different global sales opportunities.
Another is to make better synergistic use of author relationships. What authors do on Facebook and Google Plus (and a host of other social networks) needs to become part of the publisher’s overall picture of the book and its marketing. And the structural barrier there is that the editor is too often forced to be the conduit for this coordination, a task for which they are neither prepared nor supported.
Operating through and with these behemoth companies is a big challenge for our industry. David Young, who just retired from Hachette UK, shared an observation with me when he was CEO of Hachette US a few years ago. The CEO of a big publisher in the past could always get the CEO of his or her biggest accounts on the phone if necessary. That was no longer true eight years or so ago when he made the observation, talking about Amazon. (And talking about Amazon a few years before Hachette and Amazon had a very public dispute that hurt Hachette sales very badly.)
There are two legacy accounts for publishers that remain critical to their future: Barnes & Noble, the industry’s one omni-channel wholesaler, and Ingram, which began as a book wholesaler but which has morphed into a service provider helping publishers with all sorts of modern challenges, including global distribution, print-on-demand, and now, with the acquisition of Aer.io, the ability to promote and sell through new technology Ingram and Aer.io offer. Ingram, unlike any of the other players, is helping smaller publishers with tools to enable them to punch above their weight. That is likely to be a growth proposition in the years to come.
But B&N and Ingram, just like all the publishers, will have to understand the strategies and activities of the four big companies driving change and creating a new ecosystem for the book business. They’ll also have to do it without a direct line to their CEOs. But, then, not very many publishers were able to get Andrew Carnegie on the phone 100 years ago either.
Digital Book World 2016 has a lot of programming addressing the issues raised in this piece. Professor Scott Galloway will talk about the Four Horsemen. Professor Jon Taplin of USC will analyze how revenue has moved from content creators to tech companies and suggest some ways some if it might be clawed back. Rand Fishkin, founder, former CEO (and now Wizard) of Moz and perhaps the most knowledgeable person in the world about search, will offer the latest insights into how search is being affected by “local” and “mobile” and then have a session to take questions.
Virginia Heffernan, author of Magic & Loss will discuss the cultural and economic impacts of the digital age for content creators. Antitrust attorney Jonathan Kanter will look at the relationships among book publishers, major technology players, and consumers from a competitive and regulatory perspective
Roy Kaufman of Copyright Clearance Center will moderate a panel talking about changes in copyright law, something also driven by big players affecting the publishers’ commercial environment. And we have a slew of presentations about companies “transforming” — changing how they do business in fundamental ways while maintaining the revenues that sustain them. That will include a presentation from Ingram Chairman and CEO John Ingram. And Barnes & Noble’s new Chief Digital Officer, Fred Argir, will talk about how they are building out an “omni-channel” strategy and what they can offer publishers in the way of improved digital discovery.
And there will be panel discussions of both the issues we identified as publishing opportunities: global sales and marketing collaboration with authors.
DBW 2016 takes place in New York March 7-9, 2016.