Microsoft Encarta
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During the Internet Boom era, some digital wag linked Bill Gates’ holdings in Microsoft to a real-time stock ticker and posted the service on a Web page.  Thus, you could see Gates’s fortune rise and fall in real time:  up $10 million, down $5 million, up $5 million, down $1 million, up $15 million — and up and up and up.  Besides the bizarre and even masochistic pleasure in watching the numbers, there was a lesson in this:  there is great economic value in owning a software platform, a suite of tools and services upon which third parties write applications.  Get enough popular applications and everybody, and that means literally everybody, has to purchase your platform.  As the Microsoft vision states, a computer in every home, a computer in every office — all of them running Microsoft software.

This lesson has not been lost on the bright fellows in Silicon Valley and its outposts around the world.  It’s a new idea for the book business, however.  Books have proprietary content (a book under copyright is a monopoly), but not proprietary platforms.  Anyone can get a book printed somewhere or build a Web site; anyone can  offer books for sale.  When the word platform is used by book people, they usually mean it metaphorically, as in “marketing platform” — the sum of all the potentially publicizeable connections surrounding a book or author that may enable a particular title to find a large, remunerative audience.

Not so today, however, where three technology giants — Amazon, Apple, and Google — are now implicating the book business in their attempt to establish a technical platform.  These are big players — and, more importantly, smart players — for whom books are the equivalent of software applications.

The idea is simple — get enough books running on your platform, and everyone will want to have access to that platform.

The risk for publishers, if not the likelihood, is that they will become collateral damage.

Amazon is primarily an e-commerce business (and not just for books), Apple primarily a hardware company, and Google primarily a media company, and the fate of books for the coming years is likely to be subordinated to the strategic impulses of e-commerce, hardware, and media.

I have been drawn in against my will to platform wars in the past, and I can tell any publisher that it ain’t no picnic.  In the 1990s, I went to work for Encyclopaedia Britannica, one of whose divisions (run by my colleague Dr. Stanley Frank), Compton’s Multimedia Publishing, had developed one of the world’s first multimedia CD-ROM encyclopedias.  In the print era, Compton’s had been Britannica’s junior brand, used to help sell the senior product (“Buy Britannica for yourselves and we will throw in Compton’s for your kids for free”).  With the advent of CD-ROM, Compton’s came into its own.  Priced at $800, half the price of the print Britannica, Compton’s multimedia product got rave reviews.  But it didn’t sell well.  So it was reduced to $600.  It still didn’t sell well.  And that’s when the platform wars broke out.

Microsoft had perceived at that time that it was strategically necessary for people to view the operation of CD-ROM-based content as an aspect of Microsoft DOS, the predecessor to Windows. Thus, it was essential to get some applications for DOS-based CD-ROMs. Hence the beginnings of Microsoft Encarta (for which I served as an advisor prior to joining EB).  Encarta, a multimedia encyclopedia, was sold directly to computer companies, a method known as OEM sales or bundling.  Now you would buy a personal computer for the kids and find that it came with an electronic encyclopedia.  Note the pricing:  a print set of Britannica averaged about $1,600, but a personal computer with a “free” digital encyclopedia thrown in went for about the same price.  Parents made the obvious choice:  buy the kids a personal computer.

Compton’s responded by getting into the OEM game itself.  I recall the first deals were for $25 per unit, sold directly to computer companies.  Then when Grolier entered the OEM market with a competing product, the price began to drop.  There were sales in the $15 range, then $10. My colleague told the company’s executive committee that he thought he could hold the line at $5 per copy, but soon the price of a CD-ROM encyclopedia had dropped to $0.50.  Not long after that, I was approached by a computer marketer who wanted to know how much I would pay him to bundle Britannica with his computers.  The benefit to Britannica?  The exposure of the brand.

I encourage all those publishers who believe that aggressive e-book pricing by Amazon is a good thing to think again. And don’t stop thinking when presented with an opportunity (I almost put quote marks around the word) to price books for Apple’s forthcoming iBookstore at $15.  If Apple could have gotten publishers to price the books lower, they would.  Indeed, how about free?  Free is a good price.  It will expose the brand, and don’t you want to participate in the future of the digital world?

Amazon’s strategy is to  lock consumers into its e-commerce platform, for which the Kindle (both the hardware and the software versions) is the net. Indeed, there is now speculation that Amazon may give the Kindle away for free to its best customers as a way to monopolize their online book purchases.  Apple, on the other hand, is in the business of selling iPod Touches and, soon, iPads.  The more books in the Apple bookstore, the better.  And if aggressive pricing means that the entire bricks-and-mortar supply chain goes up in smoke, who cares about all that old paradigm stuff?  As Mort Sahl once wisecracked,  the future lies ahead!

Book publishers have lost control over their own industry, not because consumers have won, but because they haven’t — they will be no better off with de facto platform dominance than anyone else except the company that controls that platform.

But for the next year or so, it could be a good opportunity to stock up on e-books. It will not be as good a time to publish them, however. For the immediate future, there will be such a thing as an e-book, but there is no such thing as an e-book marketplace. The marketplace is for technical platforms in which books are premiums whose role is to support the marketplace for platforms.

It’s good to look at how Google is playing this game. Google does not control a proprietary platform; rather, for Google the platform is the Web itself, a point made brilliantly by Tim O’Reilly in his “What is Web 2.0?” How can this be?  No one owns the Web.  But Google, as the index to the Web, occupies a privileged position.  As more content comes online, the need to look things up in that index grows.  This means more advertising to be sold on the many Google services. The Web is a rising tide lifting the fleet of Google’s many boats.

Google’s forthcoming Google Editions are still somewhat shrouded in secrecy, but what is known about them is that they will be displayed through a Web browser, not the proprietary formats used by Amazon and Apple. You can run a browser on virtually any computing device — though not (yet) the Kindle. Interestingly, whatever else that can be said of Apple’s forthcoming iPad, the iPad will be a great device to display Google Editions. Google is also creating incentives for others to sell Google Editions, something that we have not seen from either Amazon or Apple. It seems highly probable that Google will make a fair amount of money from the sale of Google Editions. I personally plan to switch to a Google Android phone the moment Google Editions launches, and I imagine the bulk of my e-book purchases will be for that venue.

But Google wins twice — from the sale of Google Editions and also from the sale of marketing services that publishers will invest in to drive Web traffic to the various sites, including the publishers’ own, that sell Google Editions. This is the incentive Google has in promoting the Web as a platform. Thus, the more e-books that are displayed through a Web browser, the better it is for Google. This does not mean that Google Editions are not in publishers’ interest. Indeed, I think quite the opposite.  What is not in publishers’ interest is being in a situation where there is no escape from the platform wars fought by others.

The good news about these platform wars is that no one has yet won. For publishers, the best strategy is to be present on all the competing platforms while exercising judgment as to timing and pricing.  This is also the time to explore other venues.

And perhaps it is also the time to wonder why it is that people outside the book industry developed the first major online bookstore, the first sexy e-reading device, and the premier search index to books.

With all the knowledge to be found in books, one might have hoped that publishers and not technologists would have carved out the path to the industry’s future.

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Joseph Esposito

Joseph Esposito

Joe Esposito is a management consultant for the publishing and digital services industries. Joe focuses on organizational strategy and new business development. He is active in both the for-profit and not-for-profit areas.


12 Thoughts on "Platform Wars Come to the Book Business"

While we tend to over-rely on examples from the music industry (the market for those products and the way they are sold is very, very different from the scholarly publishing market), there is a near-exact parallel between music and your experience in the encyclopedia business. Susan Piver writes here that in her opinion, the music industry was not killed by filesharing, but instead was destroyed by allowing big box retailers to use their products as loss leaders in order to sell other products. The collateral damage went way beyond just devaluing the product.

I wish I had the same faith you have in Google, but I can’t see them as being any better than Amazon or Apple, and unlike either of those companies, their history is filled with a near-constant string of other industries who they’ve destroyed. Google’s business is selling ads. They constantly try to drive the price of nearly everything else on earth down to zero in order to use those things as incentives to sell ads. They’re no different than Apple using other products to sell devices.

I’m more optimistic about the iPhone/iPad platform and secondarily the Android Marketplace/Windows Mobile App Store. Instead of just having to sell Google editions under Google’s terms, the App stores create a varied marketplace where you can sell your goods under a wide variety of terms, many of them cutting out Apple altogether (Michael detailed some here). Instead of being tied to Amazon or Google or Apple, you can set up a consistent strategy that puts you on the various hardware platforms but leaves you in control of how you’re doing business. Don’t like how Apple sells books in the iBookstore? Create your own App and sell your books there instead.

MacMillan’s new Dynamic Books platform is also an intriguing new direction. It’s an example of a publisher creating their own platform which can be accessed via a computer or an iPhone. It cuts out the middleman altogether, letting the publisher sell directly to their buyers. It gives the buyers a benefit in drastically lowered prices for textbooks, and professors the benefit of customizing material for their courses. MacMillan gets the added benefits of eliminating the used book market (hard to re-sell an e-book, plus each professor will likely create a new custom edition every single year making last year’s obsolete), and eliminating all other channels for sale, so no importing cheap versions of the textbook from different markets.

My good friend Charles Levine chastised me with accustomed pleasure by pointing out that the Kindle does in fact have a browser, but that it is limited. Mea culpa.

Publishers, up to this point, have very much stuck to a reactionary stance in relation to ebooks. Most force ebook editions to come out a good deal of time after the physical editions and charge the same price for a digital download as for a hardcover edition which is pretty much the same insulting the readers’ intelligence.

In this stance, their position isn’t very different from that of the music industry when digital downloads came knocking on their door.

Publishers still have an option, which I’m sure they will never choose, which is to work together so that they define the software basis for the future of digital books in such a way as to make sure that it is interoperable with any bookstore and any device. This is the only path to avoid dominance by one or more companies such as Apple or Google.

If all ebooks could be sold from all online retailers and read on any device, then these other companies would become as relevant as print shops that print paper books today.

In the end, when one or two companies dominate the book distribution, publishers will become more and more irrelevant as authors and distributors work directly together.

You say …
“And perhaps it is also the time to wonder why it is that people outside the book industry developed the first major online bookstore, the first sexy e-reading device, and the premier search index to books.”

For the first two, I assume you mean …
“first major online bookstore” – Amazon
“first sexy e-reading device” – Kindle
For the third …
“the premier search index to books” – Do you mean Google Book Search?

The first major online bookstore is Amazon. The first sexy ebook device is the forthcoming iPad. (Whatever the virtues of the Kindle, sexy it is not.) The premier search index to books is not Google Book Search but Google Web Search. One could argue about these choices, and if someone will buy me a pitcher of beer, I will swill and protest with anybody.

Interesting idea – “Google Web Search as The premier search index to books” (You might write an article on that). I guess I think of Google Web Search as The premier search index for “Everything,” with books being a subset of that.

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