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Among the leaders of the book publishing industry gathered recently for the Book Industry Study Group’s (BISG) annual Making Information Pay Conference, there was general agreement that the book industry’s supply chain is broken when applied to electronic books.

Supply chain?

As a first time attendee of this meeting, I was puzzled by the use of the term.  Of course I’m familiar with the notion of a supply chain when applied to, say, Napoleon’s Grande Armée, but what does it have to do with book publishing?

Quite a lot, it turns out.

When trade book publishers talk about their customers, they are not referring to readers — the people who actually buy their books. They mean bookstores. And in many cases they don’t sell directly to bookstores but go through wholesalers, who buy in bulk and then resell to bookstores (I won’t even get into returns, a topic that makes my brain hurt).

The problem is that this supply chain (publisher > wholesaler > bookstore > reader) doesn’t work with ebooks. Ebooks are sold through a very small number of online stores (e.g., Amazon’s Kindle store, Apple’s iBookstore, Barnes & Noble, Safari Books, etc.). The traditional partnerships, distribution channels, and revenue models that publishers have built over decades no longer make sense.

But this isn’t the real problem for trade publishers. In some ways, it’s a much better deal than what publisher have contended with in the past. Rather than having thousands of bookstores to deal with, they have dozens. They no longer have to give a cut to wholesalers. There are no returns to deal with. Profits should be larger even if list prices are somewhat less than they are for the typical hardcover (after all, the costs of printing and shipping drop away).

The new supply chain for ebooks looks something like this: publisher > ebookseller > reader.

Except that is only one-half of the real supply chain. The vexing problem for publishers is with the other half — the half that starts with the author.

See, the full supply chain looks something like this: author > agent > publisher > ebookseller > reader.

The question that dare not speak its name is whether publishers are needed at all in this chain?

What’s to prevent an ebookseller, such as Amazon, from simply going to the source and working directly with authors and their agents? These authors would view Amazon (for example) as their publisher for all intents and purposes: author > agent > ebookseller > reader.

The New Yorker recently published an excellent piece by Ken Auletta exploring precisely this topic. If you haven’t read it yet, I would categorize it as “must read” for anyone in the industry.

Auletta notes that Amazon is already actively exploring just this scenario along several fronts. They have set up a self-publishing division called CreateSpace (formerly BookSurge). They are also working directly with high-profile authors such as Stephen Covey.

And there’s nothing to prevent other ebooksellers from doing exactly the same thing as Amazon.

The question now becomes: What do trade book publishers do that that adds value for authors and is not easily replicated by ebooksellers?

Historically, publishers have performed a number of essential functions on behalf of authors, including:

  • Developmental editing
  • Copyediting
  • Book design and composition
  • Management of printing and distribution
  • International rights licensing
  • Providing advances against royalties
  • Marketing

In recent years, publishers have largely ceded developmental editing to agents. Copyediting, book design, and composition services are widely available without need of traditional publishers. Distribution to all of the major ebooksellers can be found via any number of self-publishing service providers or, as discussed above, via direct relationships. Ebooksellers are increasingly providing international distribution, and agents can negotiate any translation rights.

This leaves publishers in the role of providing advances against royalties and marketing.

Author advances would not even appear as a rounding error on the balance sheets of companies like Amazon, Google, and Apple.

This leaves publishers with marketing.

It should be noted that Amazon and Apple are probably the two savviest marketing companies in the world, and Google is the world leader in online advertising.

This leaves, um . . .

However, Amazon, Apple, and Google have their hands tied when it comes to marketing particular authors. While they can promote authors in some very effective ways (“If you liked Michael Lewis’s The Big Short you might also like Andrew Ross’ Too Big to Fail”), they can’t be seen to obviously privilege the work of certain authors over others or they will have an author revolt on their hands.

Ah. This leaves a space for publishers.

The only problem is that trade publishers (unlike STM and scholarly publishers, as Joe Esposito has noted) have little-to-no brand recognition among readers and know very little about consumer marketing.

Historically, book publishers have excelled at marketing as a function of distribution. Marketing in the traditional context meant getting books onto shelves at bookstores. For bigger authors, a publisher might take out an ad in the New York Review of Books the TLS or a relevant magazine. A publisher’s connections might help land a review.

But such efforts are decreasingly valuable to authors. Assuming there remains a limited number of ebooksellers, digital distribution will not require publisher expertise (unless, as literary agent Nathan Bransford points out in an insightful post, a proliferation of ebooksellers requires distribution management). Anyone can take out an advertisement. And reviews in traditional publications are of diminishing importance given that ebooksellers now have reviews right at the point of purchase (to say nothing of the proliferation of blogs that review books).

For trade publishers to continue to have a place in the new supply chain, they will likely need to do some combination of the following three things (and ideally all three):

  1. Develop brands that matter to readers. Publishers might, for example, develop subject-specific brands that serve as a valuable imprimatur for enthusiasts of that subject (e.g., sports, cuisine, mysteries, sci-fi, history, etc.), in much in the same way that the a journal brand matters to readers in STM publishing.
  2. Become savvy at consumer marketing. Publishers might become specialized marketing firms that delve into readers’ interests and information seeking behavior to the extent that political market research firms delve into voting trends, micro-segmenting voters with sophisticated analytics. But to be truly valuable to authors, publishers will need to do more than conduct market research – they will need to deliver results, developing techniques for marketing to various reader segments.
  3. Move closer to the content. Once upon a time, publishers’ in-boxes were filled with manuscripts from aspiring authors waiting to be evaluated. Not so much anymore — the manuscripts go to agents as does much of the substantive editing. If publishers want to stay in the game they must move closer to authors, reclaiming some of the functions they have ceded to agents.  They might even put some of their new-found market research to work, commissioning work on topics they know readers want to know more about.

While print books will likely be with us for another generation at least, ebook sales are rising. With nearly half of consumers planning on purchasing an electronic reading device in the next three years, I think it’s safe to say that the age of the electronic book is upon us.

Bransford  argues — and I think he is right — that the shift will not happen all at once. Publishers will continue to derive revenue from print for some time. Authors will continue to work with publishers at the same time other authors move to direct relationships with ebooksellers and self-publishers. Some traditional booksellers will move into the digital space, attempting to leverage their bricks-and-mortar presence and established local relationships (the Wall Street Journal has a very good write-up on this angle). Agents may begin to move into some of the space currently occupied by publishers (they are in an excellent position to negotiate distribution deals with ebooksellers and could move into marketing more easily, in some ways, than publishers given their proximity to content development and lack of legacy production infrastructure). New, natively digital organizations such as Smashwords and IndieReader will appear that provide distribution and marketing services for authors who elect to not use traditional publishers. It will be, as Ray Davies would say, a mixed-up, muddled-up, shook-up world for some time.

That being said, it is becoming increasingly clear that to remain a valuable link in the supply chain for digital books, publishers will need to develop new, and very different, skills and expertise. Value is shifting from production and physical distribution to marketing and digital distribution (and remains with content development). Making this transition will not be easy since, at the end of the day, it’s not obvious that an organization that makes such a shift would even be considered a “publisher” in the current sense of the word.  They will be something different, something new.

Sometimes, breaking chains is part of forging a new tomorrow.

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Michael Clarke

Michael Clarke

Michael Clarke is the Managing Partner at Clarke & Esposito, a boutique consulting firm focused on strategic issues related to professional and academic publishing and information services.


29 Thoughts on "Trade Publishing and Ebooks: W(h)ither the Supply Chain?"

Hi Michael

Thank you for a concise and insightful summary of the reasons why traditional trade publishing is banking into a flat spin to destruction.

Your 3 suggestions are both apposite, and unachievable:

1) Too late. Niche publishers are already shovelling value at loyal customers who are loving them back even more as a consequence. There is no room for new entrants. If you don’t already own one of these brands / spaces, you’re not going to start now. There are always smaller sub-niches to serve, but these won’t fill the gaping maw of trad trade publishers with their massive overheads and lofty sense of entitlement.

2) If you’re not already doing this, then i) you deserve to fail, and ii) you’re unlikely to be able to start now

3) This also falls into the ‘we would if we could, but we can’t, so we won’t’ category. Trade publishers appear structurally incapable of achieving this for the most part. When margins are squeezed to the point where restructuring along these lines becomes a question of necessity rather than a benefit of foresight, they will either do what is necessary and survive (albeit as much smaller businesses), or they won’t

It appears you don’t like publishers very much, which is ironic as this is a publishers blog. In any case we are merely speculating about a business shift, to e-books, that may never happen and will take a long time if it does. Technological speculation typically suffers from a lack of time lines and this is no exception.

The 49% in 3 years figure quoted has lost its context, which was if hardware prices drop dramatically while functionality climbs. This alone will take 3-5 years or more, if ever. Plus we have to build the factories of course. So we are maybe talking in the 5-10 year range, or more, which is plenty of time to take a position, including my favorite — buying in.

The fist law of revolutions is that speculation is no basis for action. There are too many possibilities for that.

Bloomsbury’s Peter Ginna has a good piece about this as well, which addresses some of these questions and points out the dangers it creates for agents as well. Regarding Amazon, he notes:

Will Amazon really want to be in the editorial business? It’s one thing to find worthy or marketable backlist titles or new books by authors who have proved themselves. Seeking works undervalued in the current marketplace–like translations–is a logical next step. But to truly compete with publishers, Amazon will need editors–people who find new books and attempt to choose ones that will connect with readers. This process is inherently unpredictable and therefore risky and inefficient–very different from their algorithm-driven business of selling existing books, even obscure “long tail” titles. I suspect Amazon Crossings will find, even with the company’s unique ability to reach, say, “readers who bought French novels by women in translation,” that some titles on their list do much better than others.

I also wonder about the idea that all the editing done by a publisher can easily be outsourced and paid for by the author. I’m speaking from the point of view of an STM publisher where we do a huge amount of developmental editing, copyediting, factchecking, design, etc. on our books (this certainly accounts for the majority of our costs). Charlie Stross has written about this as well from the point of view of a mid-list fiction author, and he notes that these sorts of things are expensive, and that he doesn’t have the funds to pay for them. If he signs with a publisher, the publisher pays for all of those things, and pays him an advance, and he incurs no financial risk–if his book doesn’t sell, he doesn’t have to pay back either set of costs. That is an easier path for him than paying out huge sums in advance, hoping to recoup them and having to manage the business side as well when he could be writing:

Overall, the process of turning a manuscript into a book is estimated to cost $7000-$20,000 — an amount comparable to the author’s likely earnings from the book. In fact, the actual division of labour on a book is split roughly 50/50 between the author and the publisher.

In summary, while it’s true that the author is the one with the creative input, they only do about half the work. And the other half of the job is not optional. The reason publishers exist is to provide for division of labour; if I did the other 50% to bring my rough manuscripts up to published-book-quality, I’d only be able to write half as many novels.

This is a point worth repeating, particularly in my sector, legal publishing. We have separate development and editorial departments because writing and verification have to be performed by different people. Our good will is based largely on accuracy and clarity. Having independent verification of content is key to ensuring this.

At least for now.

The economics of quality are something often ignored in these sorts of projections. We spend easily $100,000 plus to produce an 800 page lab manual. For a textbook the costs go way up from there. I don’t know of any professors who would be able to, or be willing to, lay out $100K in advance for their lab manual, particularly with no promise that they’d ever make that money back.

Our audience demands accuracy. That level of quality is important to them, and it takes a lot of work and that work is expensive.

Excellent article–thank you.

I think that your reduced supply chain can (and will) be reduced even further, from
author > agent > ebookseller > reader to
author > ebookseller > reader
or even to
author > reader.

Especially for niche authors who already do their own publicity–maintaining a web site and blog, arranging their own bookstore readings and speaking engagements–agents and ebooksellers are not essential.

Authors can produce their own ebooks (hiring expert graphics and editing help), then sell them on their own web site. Of course the trick is driving traffic to the site on which the book is available, and convincing people to hit that Buy button.

One reason traditional publishers may still have a chance is that all of the above is pretty challenging and time-consuming.

Anything is possible, which is why speculation is not guidance. But I see no evidence that the industry is going this way. Booksellers provide the service of aggregation (as do journals).

The need for aggregation grows exponentially with the Web. In fact findability is now one of society’s big problems, because so much is out there. What is often called information overload is actually the problem of findability.

As for authors producing their own books, I don’t see a trend here either. As David C. points out, publishing is as big a job as writing and I doubt writers want the job, or can do it properly in many cases. Moreover, the money system would have to change, with much larger advances to cover the cost of publishing. (Another big job publishers do is deciding who gets the advances, and paying them.)

Technological revolutions are social revolutions. That is, they involve very large changes in systems of human behavior. So the technical advantages have to be large enough to justify these social changes, which typically involve a short term loss of productivity. Technologists often ignore this essential threshold, which can be quite high.

The social dimension is also why technological revolutions take so long. It is not just a matter of buying the gizmo. People have to change the way they work or live, and interact. These are big, ponderous systems of behavior.

If only evidence bore out this skeptical view. Bestsellers in many venues are being created by authors working without traditional publishers. Amazon is becoming a publisher and working directly with authors identified through their world-class recommendation and commerce engine (this development led Mike Shatzkin to say that change “over time” just became a lot more compressed because of this benchmark event).

I think publishers can inflate their importance, as can their apologists. They need to prove it. When independents and new entrants can match or exceed their capabilities, we’re left with just empty rhetoric.

Anecdotes are not trends. What trend are you claiming and where is your data?

These data are everywhere, so if you want specific data, run a few searches and you’ll find them. We’ve covered a lot of them here, too.

The trend that I’m claiming is that authors don’t always need publishers anymore. In fact, they’re actively asking if they need them at all.

Let’s look at some data from Amazon’s point of view. Retail booksellers have already ceded 25% of the market to Amazon, so Amazon has 25% of the retail bookselling space within its vast and sophisticated marketing databases. As a publisher, they could be immensely influential because of this. E-books are now 3-5% of the market, but projections are that in a few years, e-books will be another 25% of the market. Traditional publishers pay lousy e-book royalties, so the chance that they will be major players in the 25% of the market that is e-books is slim. So, in a few years, 50% of the selling could be dominated by Amazon, a seller with a robust e-book store and by e-books outside traditional publishers, if these projections prove true and Amazon continues to win the skirmishes that arise (like they’re probably winning the iPad book skirmish since the iPad becomes a virtual Kindle with the installation of a simple free app). Authors can publish independently, and if Amazon users buy enough of their books and give good reviews, Amazon may pick them up with a clear message that they will help with marketing — not developmental editing and that other “vital” stuff Crotty and others claim. Why do it? The audience has already voted. Best of all for any books Amazon itself publishes through it’s new imprint, when Amazon retails these books in Barnes & Noble, they will also make money off the remaining bricks-and-mortar businesses.

Meanwhile, traditional publishers are receding at a time when they should be investing — they’re pulling back from marketing, lowering advances, and cutting corners. Authors are sharing information and taking note, mainly noting that the finances of e-book publishing and self-publishing are superior. And they’re striking out on their own. Because books take a while to write, this is a lagging indicator, but it jibes with the leading consumer indicators in that traditional trade publishers are in trouble.

Businesses that are growing are print-on-demand, book marketing, e-book aggregation, and self-publishing solutions. Businesses that are losing ground are traditional publishers.

Those things are indeed “vital” if you want consistent quality. Yes, there are some authors capable of doing their own editing, but they are few and far between. I do get your point, that publishers who have cut back on this sort of value-add are in danger of being replaced as they’re not offering enough. But a high quality publishing house can offer much that an author can’t do on his own, and more importantly, that he can’t afford on his own (and they’ll cover all the financial risk as well). Marketing is nice, but you need a decent product to market.

Also, one aside–given the dominance of iTunes store over Amazon for music downloads, which is likely due to the direct purchasing from within the actual app on the iPod/iPhone/iTunes axis, how much of a disadvantage will this cause for Amazon or B&N. Both of these apps kick you out of the app to the browser to buy books, mostly to avoid paying Apple’s 30% commission. Will the extra steps make a difference to users as they clearly have for music?

I presume you are calling me an apologist, whatever that means. I make my living walking organizations (and industries)through technological revolutions. I have done electric power, banking, chemicals, defense, science and a few others. Speculation (a plague of gurus) tends to be the biggest problem, because it is paralyzing.

Last time I looked publishers were in fact quite important in the book industry. I don’t see that changing.

An apologist is essentially a defender. You are defending them. Hence, you’re an apologist. It’s a $5 word for a $0.50 concept.

Publishers may be important now, but part of making projections is to anticipate change. Speculation isn’t paralyzing to me, but is a tool to develop scenarios, which then can be used to discern leverage points and shifts in capabilities. Many “traditional” publishers (the smart ones, I’d say) are already using print-on-demand services in a way that’s invisible to readers. Is that because they’re paralyzed? I don’t think so. They’ve anticipated because the speculation of 15-20 years ago that little computer-driven printers could produce books as well as massive printing and bindery installations has proven correct, and it delivers economic benefits.

Ultimately, watching for economic benefits makes a huge difference. When authors and retailers start to sense a different way of making money, traditional approaches are vulnerable.

Keep in mind that Kent is a self-publishing author, so he has his own biases as well. Feel free to call him a “self-publishing apologist” any time you’d like.

Fair enough.

That said, I work my day job as a traditional publisher, and by virtue of my moonlighting as a self-published author, I’ve been able to compare and contrast, and I’ve gotten to know the self-pub community quite well, while also actually reading a few self-published novels. Frankly, I’ve read bad novels from traditional publishers and great novels from traditional publishers, bad novels from self-pub authors and great novels by self-pub authors. What I think we’re learning is that the scarcity model, which conflated expertise with access to resources, can be separated, and expertise alone in a world of abundance can emerge.

Nathan Bransford, as usual, offers a very good summary of why this matters — basically, because now authors have a choice, and smart publishers should take note.

David, I think you’re cottoning on to the fact that publishers spend a great deal of their time predicting their own demise. There’s a very old joke about how the second thing to come off the Gutenberg printing press was a book about the death of the publishing industry.

It is indeed interesting to find an industry that indulges in self-loathing. But given that the product is writers it makes a certain amount of sense. Mood swings R us.

Kent, you use of terms like “apologist” and “defending them” suggests that you are pursuing a social agenda, not a business strategy for the industry. In any case I have no problem with speculation per se, indeed it is useful and necessary, what we call brainstorming.

The problem is, as I have said repeatedly, speculation does not define a course of action. after brainstorming comes quantitative analysis, definition of alternatives and selection of one. You don’t seem to allow for any of this. You take unsubstantiated “projections” as a factual basis for action, when they are not.

What is paralyzing is that there are a myriad of contradictory projections. A survey of past SK blogs will quickly reveal a host of new directions that the industry is supposed to be taking, all on an emergency basis. Digital content, social media, data, new business models, etc., to name a few. Not to mention there being no publishers, no retailers, etc., both projected above.

Each direction quickly diverges into multiple possibilities. The possibilities are simply too endless to support action. I am reminded of the projections by proponents of wind, solar, hydrogen, nuclear, fuel cells, electric cars, hybrids, biofuel, etc., in energy.

More specifically, what is the basis for your 25% of all books projection for e-books? And when is this projected to occur?

My concern is that incumbents will wait too long to change. That’s my “social agenda” — to raise awareness and a sense of urgency in an industry that can seem to comfortable with the status quo and also sometimes loses sight of its own higher purposes. As for the myriad of possibilities, we raise them here because you never know what’s going to stick, and because there is the possibility for relevance among our thousands of readers. Also, writing with some urgency is more engaging than flat academic prose bogged down in qualifiers and uncertainty. We’re meant to be a brisk, engaging summary of trends and research in publishing. You’re an excellent writer yourself, partially because you can easily create a sense of emotion and engagement.

Is this really all contradictory, as you assert? Only at a macro level, but we have a diverse audience, and various members respond differently to the issues. We’ve followed trends in many areas of publishing because they’re worth following, but many are emerging because there is so much to explore — multimedia, social media, data, new business models, new publishing technologies.

In an industry with plenty of players, action is possible, in fact enabled, by multiple options. Physics will respond differently than medicine which will respond differently that geologic sciences which will respond differently than . . . and each of these disciplines has a few publishers duking it out with offerings that can now adopt new capabilities and push new boundaries thanks to all the experimentation that’s possible. Also, as opposed to energy, in which success is defined by efficient power generation, publishing is dependent on meeting expectations. With expectations changing in step with the times, publishers have to respond to a changing endpoint, not a well-defined and relatively immutable endpoint as in the energy industry.

The 25% e-books projection comes from Mike Shatzkin, who also now thinks his prediction, quoted in the Wall Street Journal, was too conservative.

I would make two general points:
1. Quoting someone else is not providing a basis for a projection. Shatzkin’s 25% of sales by 2012 is probably preposterous. Moreover he says “I am staying away from real numbers here because I haven’t done the analysis needed to discern them.”

Analysis should begin with the sales of readers, which are expensive, then books. We are talking about a huge short term consumer capital investment, in hard times. How many billions of dollars are we talking about? In fact it is the rush to buy e-readers, not e-books, that is likely to hit book sales in the short term.

2. There is already a sense of urgency, which is bordering on panic. There is no e-book market at this point, just a bubble of speculation. The danger for most firms is that they are going to over react and spend (and lose) their risk capital, if not more.

It is true that contradictory projections lead to different firms running off in different directions. Most will lose, because there is only one future.

Dude, we need to work on this reply of yours.

First of all, you’re quoting Shatzkin out of context. He stayed away from “real numbers” only around stating how many books published each year are new books, because it’s hard to discern how many are reissues. He states clearly that he’s making an approximation for good reasons. For the 25% figure, he turns to sales figures from publishers, from the iPad, from the Kindle, and other sources. So, I think you’re being disingenuous here, plain and simple.

These devices you call “readers” can be things like iPhones (widely adopted, with book apps being very popular). People read and buy books on iPhones, on Kindles, on iPads, and on other devices. And next month, the Kindle goes on sale at Target stores nationwide. E-readers have been around even longer in Europe. There is a large installed base of readers already, and it’s growing.

You then state, in an indefensible manner, that there is “no e-book market at this point, just a bubble of speculation.” In 2009, before the iPad, ebook sales revenues topped $160,000,000 in the US alone. In the first two months of 2010, ebook sales revenues amounted to $60,000,000+ in the US alone. Please, I’d like 10% of this non-market of which you speak, and if I’m going to invest “risk capital,” I’d be happy to do it in a market that’s cheap to enter, growing at a furious pace, and logically positioned to supplant large portions of an old market rife with inefficiencies and consumer pricing disadvantages.

As to your lovely bit of logic — “there is only one future” — I’m stunned at the idea fascism in that phrase. Who determines this “one future”? You? And what if the one future is filled with different firms running off in different directions — you know, like 3M, Ford, and GE ran off in different directions from a manufacturing base. Diversification is a good thing for most businesses. Was Rolls Royce foolish for diversifying into aircraft engines? Was 3M foolish for inventing the Post-it while also creating software divisions? Was IBM foolish for creating software services? Was Apple foolish for diversifying into music? Publishing now has more options than just putting ink on paper. I think that’s a good thing, and we will see some diversification. There will be failures, but a larger failure would be to force idea lock-in because you think there is only one future that applies to all, and to which all must apply.

I see that I have now gone from being an apologist to being a fascist. What fun! One wonders just what nerve I am touching. On to the issues.

The quote was indeed out of context but diagnostic none the less. I asked for the analytical basis for your projection and you gave me the Shatzkin links which reveal none. I suspect there is none.

It is a common fallacy to take rapid growth in a very small segment and project it into a massive takeover of some sort. In energy we see this with wind, which has maybe 3% market share (in generating capacity, not power sales, which are much less), and especially in solar power, which has round off market share.

US book sales are roughly $24 billion so $160 million is no market, a novelty at this point, but well worth watching, which everyone is doing already. Your claim appears to be that the publishers doing the $24 billion should drop what they are doing and rush into this minuscule market. That is a prescription for disaster.

You still don’t understand my point about multiple possibilities. I am not suggesting that everybody do the same thing, far from it. My point is that most of what they do in this nascent market, at this point, is going to fail. Anybody jumping in big time should plan on that. There will be big winners for sure, but the first question anyone thinking of jumping in should ask is how much can I afford to lose? That is your risk capital.

For most firms my recommendation is to figure out how much it will cost to make your big sellers shovel ready, in the main formats, by Christmas 2011 (if that is even possible). Then watch the numbers, the real ones, not the “projections.” How fascist is that?

Your expression “there is only one future” struck me as intellectual fascism. I didn’t call you a fascist.

My claim is that publishers had better start watching e-books and anticipating. There are logical and financial forces driving its growth that are hard to resist, and consumer expectations are shifting to support even faster growth. Things can change fast, adoption rates are fast, and the unprepared can be caught out.

I’ll continue to watch the projections. In a market that is subjective, in which projections can shape behavior and expectations, they carry a self-fulfilling force that wind power doesn’t.

I don’t think the energy market is a good comparison with what is going on in publishing. As Kent pointed out, it has different imperatives. Moreover, there are technological limits with current technology (especially with solar). It is also influenced to a not insignificant degree by government policy.

The better comparison is the music industry, which failed to adapt to online distribution fast enough. The sense of urgency you pick up in my writing is that I think the trade publishing industry is in a similar place to where the music industry was when the iPod hit. If trade publishers wait for all the data to come in as you suggest, it will be too late. While publishers may very well have until 2011 to digitize their front-list, digitization is not the problem that publishers should be worrying about. That is a production problem.

The problem that publishers should be worrying about is that they have turned themselves into production and distribution companies and these services are not highly valued when it comes to ebooks, much as they are not valued when it comes to music. Who cares if a recording company can get your CD in bins at music stores? When is the last time you were in a music store?

I think the writing is on the wall and don’t understand what further data is needed for publishers to begin formulating a digital strategy. And how would waiting change their strategic response in any way? Their brands still won’t resonate with consumers. Production and distribution still will not add value to online ebook distribution. Whether it takes 3 years or 5 for ebooks to become a “real” market is not important – these problems will still exist and as it will take years for publishers to implement strategies to respond to these problems, they do not have a lot of time even with the most conservative estimates.

And just to clarify, I am talking exclusively about trade book publishing. Other segments of the publishing industry – such as STM, legal, and high education – have very different challenges and operate in very different market environments.

I think we disagree on two fundamental points, although I am not sure I understand the second one. First, you seem to assume that e-books are going to become a huge market, 25 to 50% of sales, say. I question that assumption. Moreover, even if it does happen it makes a huge difference how fast it happens, as far as individual business strategies are concerned. Five years and ten are world’s apart.

By the way, you and Kent seem to be calling for radical action, not just the formulation of strategies. Are you under the impression that publishers are not formulating strategies at this time? I am quite sure they are.

Second I don’t know what you mean by production when you say “…publishers… have turned themselves into production and distribution companies and these services are not highly valued when it comes to ebooks…”

Publishers create the books that people buy, ebooks included. Are you claiming that this is somehow going to change? That books will no longer be produced by publishers? If so then the best strategy publishers can pursue is to get the hell out of the business and invest nothing in ebooks. Invest in diversifying away from publishing.

You folks don’t seem to understand that from one paragraph to the next you seem to be talking about entirely different futures. The one strategy a business cannot pursue is to prepare for all of them.

I think what Michael and I agree on is that publishers can’t rely on the advantages of a scarcity economy for books any longer, and that the distribution and production advantages they carved out in that kind of economy are going to fade. However, expert editorial work will probably still have value, and as far as publishers can lock that up, they’ll do better. Also, in a crowded space, focused and expert marketing abilities will also differentiate. But already authors are moving into a self-publishing world and realizing financial benefits in doing so.

What I think we’re not connecting on is that you think there’s one future and I think Michael and I believe there will be many different ones from the perspective of publishers. Some will thrive, some will not, some will maintain editorial dominance, some will find marketing dominance, and some will find a mix. Some may also find some new sort of production dominance, like Apple found with iPods.

I tend to agree. My point about one future does not preclude different publishers doing different things. For example I have argued for a buy-in strategy versus an innovation strategy. Each has advantages.

My point is that if people make corporate bets based on different possible futures (for the industry, not just for the firm) then some will lose because their chosen future is not the one (and only one) that actually happens. For example, in this case ebooks taking over versus ebooks staying a niche product.

Technological revolutions are uncertain by nature so claims to know where the industry is going cannot be justified. In fact I try not to use the term strategic planning because one cannot plan in a revolution. It is a betting game.

I think another industry worth mentioning here is the newspaper industry. From Michael and Kent’s description of trade publishing, it sounds like there are some real parallels in that both groups have cut out a lot of the value they add as cost-saving measures. The newspapers fired more and more of their talented reporters, relying instead on cheaper wire service reports, and the publishers have offered less and less support for authors. It’s short-term thinking, good for the bottom line this month, but bad for the company long term. Take away the unique value your company adds and there’s no reason for it to continue to exist.

The other obvious parallel is the newspapers jumping into the online world, making everything free based on expert predictions that advertising revenue would be profitable enough to support everything. These predictions, expert though they were, were made before Craigslist ate up all the classified ad revenue, and banner ads proved ineffective, leaving Google to scoop up most of the rest of the available ad revenue. Their speed to market has hurt them in some ways as they’ve now accustomed readers to expecting their product for free without having the sustainable business model they might have developed had they known what was going to happen.

Kent is right in that it’s important to remain aware of new technologies and developments, and to remain agile enough to move on them when warranted. David is right in that moving in a panic is rarely a good choice and that you can’t afford to try every new thing that catches your eye. I guess if you’re Google or Microsoft, you can afford to jump in everywhere and see what sticks to the wall. What’s a hundred million dollars wasted here or there, really when you’re making the profits they make (though it should be noted that neither has found much traction in all these experiments and both still rely heavily on the few products where they’ve always relied)? Speaking of this industry, perhaps a model to emulate is that of the company whose market cap passed Microsoft’s last week. Apple was not the first into the market for mp3 players, smartphones or tablet computers. In fact, they came very late to established fields for all three (though not terribly successful fields). Perhaps there is indeed value in moving slowly, understanding a market and technology before making that big gamble. Being a late mover certainly doesn’t seem to have hurt Apple.

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