The recent announcement that Random House will merge with Penguin Books to form a new joint venture fulfills the expectations of many observers of the trade publishing scene. Consolidation is inevitable, the argument goes.  The big will acquire the small and join forces with the other bigs. Big is better. It allows you to tell Jeff Bezos where to get off and unleashes all kinds of innovation. This argument, short on details though it is, may even be true. But even if it is true, it does not seem inappropriate to investigate what the rationale for bigness is. After all, such transformative companies as Mendeley and Pinterest started with a tiny staff. Big is big, but small can become big, too, if it understands the dynamics of the Internet and can scale rapidly.

For many people the rationale for bigness is all-too-evident: greed. But while greed can be a strong motivator, it is not a strategy. To put this another way, why does greed always reach for bigness? What is it about bigness that makes it economically irresistible?

The rationale for bigness among book publishers has changed over the years. Go back a few decades and the nation was dotted with independent bookstores, one in every town center of any size. The distributed nature of independent bookstores presented challenges for publishers that wanted to sell books through those outlets. How can you have a salesperson call on each store? Note that this was long before the cost of telemarketing plummeted and the Internet was only a dream of Vannevar Bush.  Publishers thus had to reach a size sufficient to field a national sales force. This meant hiring between 25 and 30 people, whose cost included a car. Now, what sales volume does a publisher have to achieve to keep the cost of that sales force to a manageable level? Hence the rationale for bigness — big enough to blanket the country with a sales organization.

With the advent of the superauthors, another reason for bigness arose: the need to be able to guarantee large sums of money to authors. This was about the time that I got into the business, and I remember it well. The proximate cause of the rise of these highly paid authors was the ubiquity and low cost of photocopying machines, which made it possible for literary agents to submit manuscripts to multiple publishers at the same time. Thus the literary auction was born. A million-dollar advance by a $10 million company is not feasible, but a million-dollar advance by a $100 million company is just the cost of doing business. Smaller publishers that could not afford these sums got swept up by the bigger players.  Just think of all the companies that are now part of Random House: Knopf, Crown, Ballantine, Fawcett, House of Collectibles, Bantam, Doubleday, Dell, Fodor’s, and on and on. And now there is Penguin. This rationale has not exhausted itself.

Bigness also became important with the advent of the national book chains. This seems like ancient history, but it’s not that many years ago that companies like Waldenbooks and B. Dalton exploded across the country, putting independent booksellers out of business and challenging publishers on discounts and pricing. A big publisher had more clout with these chains, and thus publishers got bigger. This is similar to the rationale to get bigger to offset the predations of Amazon, and identical to the rationale once used to counter Barnes & Noble and Borders. Remember Borders? Sometimes, the rationale for bigness can survive the collapse of some of the instigators of bigness.

The push for bigness thus has many causes. There are economies of scale (a consolidated accounting department is cheaper to operate than two independent accounting departments), the need to offset other powerful players in the value chain, the aim of having sufficient resources to market products as widely and successfully as possible, and on and on. Bigness, in other words, is a natural response to the publishing ecosystem.

With Random House merging with Penguin, the rationale has been extended to include the opportunity to address a globalizing book market, the possibility of building direct-to-consumer capabilities, and new (but unspecified) areas of activity for e-books. Maybe so, but I find these arguments to be weaker than some.  Yes, the book industry like everything else is globalizing, but this is a smaller opportunity for consumer publishers than it is in the English-only world of STM. If direct-to-consumer is such a great idea, why do you need to be the world’s largest trade publisher to do it? And e-books? Well, is the notion that the new Penguin Random House will be able to get out from under the digital thumb of Amazon in China and India, even as Amazon’s control of the book business in the U.S. tightens with every day?

There will of course be huge cost savings in the back office from this merger, but perhaps the primary rationale is upstream, with the relationships with agents and authors. In the print world, publishers typically pay a royalty of 28% of their net receipts for hardcovers, half that for trade paperbacks. (Let’s not get into how those figures are derived, as there is nothing more complicated than a publisher’s discount schedule.) With e-books, publishers routinely pay royalties of 25%. There is a big push by authors to move that number up to 50%, which would dramatically increase the costs of publishing houses everywhere, and not even the most assiduous cost-cutter could find enough people to fire in the warehouse, in accounting, the production department, and elsewhere to offset that increase in author royalties. A combined Penguin Random House, however, would be in a position to get agents to toe the line, and also in a leadership position in the industry, inviting other publishers to say, If Penguin Random House does not pay 50%, why should we? You don’t have to collude over a lunch table to get uniform practices in an industry where certain players have common interests.

Bigness outside of trade publishing has a different rationale. In K-12 publishing size is critical because of the immense cost of marketing in the political environment of state- and district-funded purchasing. In college publishing, the original rationale was not unlike the trade, the need to field a national sales force, but now the rationale is more about having the size to support the building of platforms. Pearson’s many acquisitions are a case study in how higher education publishing, and higher education itself, is evolving.  Professional books have meekly followed the trade example, but the emergence of large aggregators of books (eBrary, Project Muse, EBL, etc.) is a new element in this game. There always are arguments for bigness.

In the journals world the rationale was clear early on, but, amazingly, not evident to most customers. Most journal revenue comes from academic libraries; libraries have limited budgets; libraries spend every penny of those budgets. Thus the game is to crowd out other publishers. Over the years in conversation after conversation I have tried to make the point to librarians that journal publishers behave as they do not because they see libraries as their enemies but because publishers see other publishers vying for the same limited library budget.  I have made no headway. The market-share struggle is the rationale behind the Big Deal — and you have to be big to market a Big Deal — and it is the reason STM publishers moved so aggressively to all-digital solutions, as the benefits of these platforms become greater the larger they grow.  Librarians do not cancel core journals; they cancel the journals on the margin. The aim of bigness in STM journal publishing has been to marginalize the competition.

Bigness also plays a role in the so-called “gold megajournals.” PLoS ONE is essentially a commodity business — a Web hosting service with a flag depicting Harold Varmus flying at the top. Like Derek Jeter endorsing Ford (I just saw a tacky commercial) or an aging starlet promoting a restorative skin cream, Varmus provides marketing glamour to a service that boasts that it makes no determinations as to what is important or original. Lose the marketing sheen and the pricing of the commodity becomes unsustainable. Thus, PLoS ONE is now pursuing the tried-and-true strategy of scale: the cost to process each article drops as the number of articles increases, inasmuch as the service has a high level of fixed costs. I am impressed with PLoS ONE’s business acumen. (I find PLoS’s cultural pronouncements to be silly, but that’s marketing for you.) The management of PLoS also knows the value of network effects and the principle known as the law of increasing returns. Size matters in such a situation. As PLoS gets bigger, it may become unstoppable.

Meanwhile, the world of STM, college texts, and trade — especially trade — is increasingly populated by start-ups. These small entities, at least initially, will pursue niches where size does not matter. As they progress they will move into areas where size does matter. This is why publishers get big. They are driven forward by an impersonal tide, and greed has nothing to do with it.