So Misguided

I tweeted about Matthew Ingram’s post Book Publishers Need to Wake Up and Smell the Disruption and received replies from my publishing friends that were inline with the comments Matthew received on his blog. But Matthew struck a chord for me, not with his outlier examples of self-published authors selling great numbers of books for less than a dollar, but with his comments about the accumulating evidence that Kindle and iPad are industry disrupters and, in particular, that they are going to continue to have an impact on author-publisher contracts. Again, we can argue about what we consider evidence, but this is my perspective from marketing, sales and technology.

1. Technology Continues to Transform the Publishing Industry

The Product Life Cycle for some categories of printed books is in decline, meaning that the revenue generated by that category has gone from development, introduction, and growth, peaked at maturity and is now in decline (declining revenue).

The cookbook category is a good example.

Cooks still want the content, but instead of buying 101 Fast and Easy Recipes they are searching Google for what they want to make for dinner that night.

And Google just made that easier by introducing Google Recipe.

In that Decline Stage, publishers have exercised all the options:
* Maintaining the product as is.
* Reducing the costs and finding new uses for the product (rejuvenating backlist)
* Lowering prices to liquidate inventory (hello front of store at Indigo)
* Promotion (reinforcing brand image, celebrity-driven)

But at the end of the day, this is a declining category. Due to brand or author loyalty, profitability may be maintained longer for some. Plus, product life cycle doesn’t map completely to a predictable sales forecast since, in the case of cookbooks, the product doesn’t stand alone. Each book category is part of a larger ecosystem, it’s not dying in a petri dish independent of other factors.

That said, Matthew Ingram’s post Wake Up and Smell the Disruption calls to mind that marketing managers do need to address the challenges that products in a declining stage are likely to face.

For example, in the case of cookbooks, would-be-buyers are also happy to access content for free online.

A common publisher argument is that the quality of a cookbook vs. the quality of an online recipe vastly differs.

Quiz:

Is the above image from a cookbook?
Or from a blog?

Answer

You know what, the answer doesn’t matter.

The fact that free content exists means that some would-be-buyers will chose free over quality, or just as good over quality, especially if free = as good as paid.

Cookbooks, Travel, Reference: the next publisher argument is that these are outliers. Maybe they are right now, but they won’t always be.

Kindle, Kobo, iPad and even mobile phones are changing the game.

Let’s just look at text-based fiction and non-fiction. I’m not talking about the reading experience of architecutre books, photography, or kids books, just basic text.

Here’s the competition in a would-be-buyer’s mind:
* Print copy, hardcover, of The Shallows for $33.50 from an independent bookseller
* Print copy, hardcover, of The Shallows for $21.00 from Indigo at a 34% discount
* Kobo, digital edition, of The Shallows for $9.99 at a 63% discount on the list price

The arguments about whether digital is a better reading experience or not are inconsequential to many would-be-buyers when presented with $9.99 vs. $33.50 or even $21.

If you said to someone, “would you like to pay more for that,” the answer is rarely “yes.”

Digital editions of books and app versions of books are directly competing with the print editions.

This is the disruption that needs to be smelled.

2. The eBook Buyer Is the Same As the Print Buyer

BISG’s publication “Consumer Attitudes Towards E-Book Reading” tell us that

* an ebook buyer is the same buyer as print
* same demographic/psychographic

In terms of marketing, this is good because we know these people. In terms of sales revenue, it’s bad because ebooks do not represent a new, expanded market audience.

The power buyers of ebooks are:
* 30-44 years old
* women
* employed
* they entered the ebook market 6 months to 2 years ago
* as power buyers, they buy weekly
* urban

In terms of unit growth, sales units are up but this does not compensate for lost revenue.

In our above example, $23.51 differentiates the ebook version of The Shallows vs. the print edition.

We are seeing at least a $5 differential for ebooks vs. print.

In addition to that lost revenue, as an ebook buyer buys more ebooks—becomes more at ease with reading digital vs. print, enjoys the simplicity of buying on-demand, and is rewarded with reading on the go or at night in bed with the backlit screen—they buy fewer hardcover and paperbacks.

Ebooks do canabalize print (especially when measuring revenue dollars).

3. Cash Usage and Cash Generation

The Boston Matrix developed by the Boston Consulting Group in the early 1970s isn’t without its faults, but it is a simple method for looking at market share (cash generation) and market growth rate (cash usage).

(This is the point I have mulled over the least so contemplate and critique vs. simply criticizing please.)

The four categories here are:

Dogs: Low market share and low growth rate. They neither generate nor consume a large amount of cash. Backlist titles.

Question marks: Rapidly growing but also consuming large amounts of cash. Because they have low market share, do not generate much cash. The problem child. eBooks and apps.

Stars: Strong market share but also consume large amounts of cash. Frontlist. Especially frontlist print+ebook. Stars, if well positioned, can become the next cash cows and ensure future cash generation.

Cash cows: Leaders in a mature market. Generate more cash than they consume. Generates a relatively stable cash flow. Value can be determined with reasonable accuracy. The ideal print book.

You can see, of course, the immediate limitations. I’m not sure how many publishers can quickly identify their Cash Cows, as the margins in publishing are so small.

The other issue is that the many factors of profitability are overlooked in this simplified view since the products in each quadrant are not independent of the others. A dog of a cookbook could still help another cookbook gain competitive advantage. The amplification of awareness for series, or the celebrity book that is really about giving the author competitive advantage over others on speaking circuits are other examples of how this ecosystem isn’t as simple as the above framework.

The reason I bring up the matrix is that it’s a starting point for discussing resource allocation and strategic planning for those products in a Declining Stage (print books) and those in a Growth Stage (ebooks and apps).

The growth stage is the period where sales increase as more customers become aware of the product and create demand, which fuels retailers to become interested in carrying the product.

Certainly what we are seeing with the growth of ebooks and consumer demand for Kindle and iPad.

Regardless of Matthew Ingram’s examples of outliers like Seth Godin, there are fundamentals publishers need to face:

1. Book publishing is a technology-enabled business.
2. A conversation about a technology-enabled business is a conversation about market changes.
3. We can argue about the speed of change and the type of changing coming, but we should mentally prepared for the fact that change is coming (like waves on a shore).
4. There is a lifecycle for everything. People argued to keep scrolls, but they printed those arguments in bound books. (See Johannes Trithemius)
5. Few people are successfully managing the product lifecycle in all 4 quadrants. (DRM and borrowing restrictions are not endearing consumers yet publishers are implementing these measures as a necessary way to support the required staff to keep both print and ebook development during this transitionary period. Matthew Ingram points out some of the mathematical challenges of the author-publisher contracts in his post, which aren’t endearing authors either, who I think are the glue that holds the whole thing together.)
6. “Change happens through a process, not a product” (Kate Fialkowski). The internet and ereaders have changed the way we read. Search engines, websites, wikis and blogs have changed the way we publish and share information.
7. The game changers tend to be outsiders to the industry. Music changed because of the development of MP3, which meant we could more easily share music, which led to peer-to-peer sites like Napster. Then iTunes changed the cost structure. Blockbuster > Netflix. Banking > Online Banking.

What I took from Matthew Ingram’s article was just another reminder that as Kate Fialkowski says, the game changers redefine the ecosystem, change the business models, price points, distribution systems, and support processes.

I’ll let Matthew respond to his commentators but for mine:

A coffee at Starbucks costs more than a $1.50 because they changed the game. They can demand $6+ for what tastes to me like shitty, burnt coffee with excessive sweeteners that will likely develop gut rot for an entire generation because they created demand for that product.

Publishers fearing the lost of authors and staff is not equal to fearing that one of them wins the lottery.

If you value an employee, you should consider that they could win the lottery and leave.

But really, the probability of an employee winning the lottery is pretty low in comparison to the probability that good people will leave the industry altogether or that the smartest will be picked off by start-ups providing incentives to acquire the best talent. See Open Road Media, Kobo and any number of interesting new ventures.

I don’t want to haggle over the definition of “lottery” but I can tell you that the folks holding the big cheques are the ones doing ebook conversion and app development.

And a happy dance can be a lottery in itself.

 

(People in the system are going to make money in unexpected ways. The ones who will keep making money are the ones who understand the motivating factors of their consumers and are able to repeatedly win them over. Excuse me now, I have a new iPad 2 to purchase. Let me know what books to buy.)

Blargh, think I’m going to have to write a full post for this response. In short:
1) Please stop lumping together all publishers. It’s unfair to us who are doing stuff right, or at least trying to and are willing to learn. 
2) Single authors becoming hits on Amazon are like winning the lottery. And this in and of itself is not a sign of disruption, as best-selling self-published books have been happening FOREVER. I agree, things are getting crazy, tech is important, etc.
3) I haven’t seen any concrete suggestions from the writing community except for “Give Authors More Royalties” and “Make Ebooks Cheaper”. And “Use Twitter”. None of these solve anything.
(Sorry to be so crabby, Monique! This is a good post, and you’re absolutely right. My comment is more directed at Ingram’s post and ones like it.)

Hi Nic!
Ha, ha, writing a full post is exactly what happened to me.

1) Yes, publishers get a bad rap. I think book publishers have always been innovative and everyone is doing interesting things in their own way. The challenge is that there is a lot to learn and publishing hasn’t normally attracted the great mathematical and statistical minds, which is one of the holes that need to be filled quickly. The margins are low, the price points are dropping, and the risks are high and the effort is great. Being able to parse the data and understand the story it’s telling is key in this hybrid world we have to slog through at the moment.

2) Agreed, the “surprise” bestseller. I don’t really care about those lottery wins either. What I care about is how do you understand your audience’s motivations and generate sustainable demand for a product.

3) I’ve met very few authors who see themselves as business people so expecting concrete suggestions from the writing community is not where I’d be looking. I’d start with entrepreneurs in outside of the creative economy. I’d look to direct-to-consumer companies. I’d seek out collaborative partnerships with outside firms to implement a significant innovation campaign or to launch numerous small-scale innovation pilots. And I’d track the hell out of it, use fast-feedback loops and change my stride depending on the data.

I know you’re not crabby. Everyone is just looking for an answer and none are presenting themselves without a lot of “yes, but” responses. As an industry we need to re-frame the approach to “yes, and”, maybe then we’d get somewhere.

Since I’m the one who made the Starbucks comment, I’ll elaborate on that thought.

I have no issues with much of what Matthew Ingram is saying about the publishing revolution - I agree that it is happening and that there are publishers who are going to go quickly out of business. Like Nick, I also agree that there are publishers who are doing things right and changing their methods as business as quickly as they can. It is a scary time for both the writing and the publishing community. There are some smart authors who are paying attention to this but I’d like to see more engaged in dialogue about this change rather than saying how much they love the printed book. I love the printed book too but I think there is a ton of untapped possibility in the online/digital world.

I commented on twitter that I have concerns about Amanda Hocking’s low price point which make a book cost less than a visit to Starbucks.

While it is working for her and giving her recognition that she likely wouldn’t have received in the traditional publishing world - she is publishing is in a transitional period. She is a pioneer who is likely selling more than most will due to the scarcity of e-books for her market.

I am concerned that there is the push got everyone to jump on the bandwagon and drop the price of a book so low that it will be difficult to raise prices to a sustainable level to the industry once this revolution becomes status quo.

If all book prices suddenly drop to $3 a piece, what happens to the perceived value of the book - digital or otherwise?  We pay more for a cup of coffee anywhere, not just Starbucks, than we do for her books. While I may look at her Twilight-esque trailer and decide that her novels aren’t for me and I’d never pay $3 for it, I can see myself paying more for a short story collection from a press that I love or for a one off e-book from a blogger whose writing I adore.

People who are avid Starbucks fan go there not just for the sweetened coffee but for the entire brand experience. The decor, the efficiency, the ever changing overly decors, customer loyalty programs, etc… I believe that this the value that publishers, traditional or entrepreneurial, have now - is what their brand guarantees to a customer.

I’ll be the first in line to buy e-books from Princeton Architectural Press because I love their print books and this provides me with the underlining faith that when they produce e-books they will well-designed, well-edited, and rewarding to read. If I have to pay $15 rather than weeding through hundreds of $3 books, I’ll do it- just like other people buy Apple products or fair trade coffee, or well made locally-made designer clothes. It’s not about the size of the company or the individual, it the brand equity of the product/book/company/creator.

What we perceive as backlist and front list now will eventually become living product and I think the prices of both will equalize. Why price it so low now that it will take publishers and writers decades to recover? My beloved Wicked Cafe doesn’t have the same turn over as a Starbucks, but they aren’t selling their lattes for $3 either. They have a different ‘brand’ experience but they have a captive audience who is willing to pay a living wage for their product. I could go to Tim Hortons, but I don’t. I expect to buy digital books with the same attitude and hope that others do too.

Well said Leanne.

I too fear about the race to the bottom with the pricing models. It seems like the control of price is in the hands of the retailers vs. the creators and that’s an interesting dynamic to this industry. The retailers say they are representing the interests of the book buyer, but surely it’s their own interests first, then those of their audience.

Survival and continuity of any business is a balancing act of business needs and audience needs.

I’m just back from Tools of Change in NYC, so my consciousness is raised on this issue. TOC now serves two totally distinct communities: the innovators (as often as not from outside the publishing industry); and the traditional industry who want to know how to weather this “transitional time.” This divide does not make me confident in the industry’s survival, (see Shirky’s Collapse of Complex Business Models.)

As I see it, this is about agility vs capital - this speaks to Nic’s first point. If you are an organization of any size, you have a significant investment in things like physical plant, stable skillsets, and organizational/process hierarchies. But in a moment like this, these things are all poison. You can make changes, but only at substantial capital cost. On the other hand, Nic’s house can make changes WAY easier, because there’s only 2.5 people (or whatever. apologies, Nic.)

The bigger picture is that the publishing industry is NOT facing a transition from print to ebooks—that suggests that the form of the product is changing, but nothing else. What we ARE looking at it is a long-term, massive transition from a largely consolidated, coordinated world to one of incredible fragmentation. “Ebooks” per se are going to be just one of many ways people produce, distribute, and access information. It’s not a stable market, not a stable product, not a stable process.

The real danger is that in 5 years time, there may not be a coherent publishing industry anymore at all… in its place might be a dozen possible industries, doing very different things on very different terms. Some might look like traditional literary fiction, maybe in book form. But the rest of it—e.g. your cookbook example—isn’t going to. Reference publishing is already gone.

What keeps a company like Random House afloat is its massive profitable backlist; not a dog at all, but cash cow (think Dr. Seuss). They can survive for quite a while on the stability of that revenue, but it isn’t the future. The future is some model they haven’t thought of yet, and are perhaps incapable of thinking of, because they have this huge infrastructure around the existing cash cow.

Also, I’m not sure authors are “the glue that holds it all together.” There are a million new self-published books every year now; a number which totally dwarfs the traditional model. The evidence of disruption isn’t in the few self-publishing success stories, but the sheer number of self-publishers. And that’s not even counting people writing on the web.

Thanks for the comments John! About those authors. Read here author, content creator, contributor, whatever you want to call it, but whether it’s traditional publishing, self publishing, straight to digital, without the person developing the content, you have nothing to publish. That’s what I meant by the glue.

What if we declared a Revolution in Publishing and nobody came?

As someone who sells ideas wrapped in paper for a living, how can I object to intense speculation about new business models, revolutions in publishing, and “The Future”. Lucky for me that I work in a business where the future of how we sell and promote the written word matters so much to people. But as Marx said, the only thing we know for certain about the future is it will surprise us.

None of the debate so far has cited actual complete third party verified sales figures for e-books vs. print books. Why? Because they don’t exist, or should I say they are not released Why? Well that is very good question. The sales are being tracked.

Chris Anderson in the Long Tail writes that the economics of the 21st century will be written from data the on the servers of the major corporations. Problem is this data does not get released unless for proprietary and self-serving marketing purpose. BISG does great work, but you do not get access to granular level e-book sales.

If I want to track shifting format sales for paper books I can. I can build very big spreadsheets with hundreds of thousands of print book ISBNs tracked against actual sales history. If I want to track blockbuster vs. long tail sales I can (blockbusters and long tails are doing well, mid-list is getting squeezed). If I want to know how many cupcake books were sold in Canada last year I can find out and track against the year prior. Your Google chart is brilliant and your image of the cupcake looks delicious. But our bestselling print book last year was a collection of cupcake recipes. Go Figure.

My point is simple one: consumers have a habit of confounding marketers and futurists. Give me access to a complete data set for e-book sales and let’s start making best guesses. And then be prepared to revise our guesses on a regular basis.

Hooray! Yes, Jamie, I agree. Great points about the data sources. This was a big conversation at Digital Book World about retail sales data and access to it, or rather the fact that publishers do not have access to raw data to run against their own systems.

The worst presentation at DBW was by Google Book Search who showed unlabeled graphs and pie charts and spoke in vague terms of the bestselling categories. Big company with data. No details.

The best presentation was Consumer Sales Data #dbwconsumer, which was a panel including Carolyn Pittis, HarperCollins, senior VP global marketing strategy who spoke about data standards.

From my notes, Carolyn said she can get from retailers’ data the zip and unique customer ID, which are valuable, but more valuable is number impressions that are being served.

She lobbied that publishers should know where they get the most awareness and where those customers are converting.

Since that data isn’t shared by the retailer sites, at least publishers should know what parts of their own websites have higher conversion.

She said that publishers should really push for an understanding of the analytics and how that relates to the sales data they want to see from retailers.

I find this time in publishing really dynamic and exciting so I do hope that I’m not seen as a finger-wagging futurist or an eye-rolling marketer.

I wonder what we could do with the sales data for that cupcake book of yours and search volume data for cupcake recipes? Or if we can track the factors that had financial impact on that book along with the non-financial factors. Hm. I have a bunch of grids that I use to track marketing activities. I wonder if we should do a little pilot project on one of your upcoming titles? See what data insights we could glean.

Pilot project sounds great. You’re on.
Jamie

Amanda Hocking, the self-published author mentioned in the Ingram’s post is under no illusions about her success. (Thanks for the tip Dan.)

http://amandahocking.blogspot.com/2011/03/some-things-that-need-to-be-said.html

“Everybody seems really excited about what I’m doing and how I’ve been so successful, and from what I’ve been able to understand, it’s because a lot of people think that they can replicate my success and what I’ve done. And while I do think I will not be the only one to do this - others will be as successful as I’ve been, some even more so - I don’t think it will happen that often.

“Traditional publishing and indie publishing aren’t all that different, and I don’t think people realize that. Some books and authors are best sellers, but most aren’t. It may be easier to self-publish than it is to traditionally publish, but in all honesty, it’s harder to be a best seller self-publishing than it is with a house.

“I don’t think people really grasp how much work I do. I think there is this very big misconception that I was like, “Hey, paranormal is pretty hot right now,” and then I spent a weekend smashing out some words, threw it up online, and woke up the next day with a million dollars in my bank account ...”

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