Business models
On fragmentation, aggregation, and communities
Mar 11th
Let these words be carved in stone:
a multi-niche publisher has a big advantage over a general publisher, just as it does over smaller niche players. But the ground for the general publishers is about to shift in ways that will be even more challenging.Because “book publishing” in an increasingly vertical world is less and less about content sales in the unit of “books” (although that will be the lion’s share of revenue for a long time) and more and more about sales bigger than the book (databases that stretch across many books and other things too) or smaller than the book (chapters or fragments that naturally stand alone or which address a particular content need.) The iPhone app as a unit of delivery is accelerating the latter trend. The value of a database across titles has long been demonstrated by O’Reilly’s “Safari” offering, which generates more revenue for them than all but one trade account.
As the percentage of a publisher’s revenue that is generated by fragments and aggregations rises, so does the value of being vertical and, especially, so does the value of a direct relationship with the end users. The fragments piece is especially important, especially challenging, and requires new ways of thinking (and perhaps new contracts.)
I’m more convinced every day that passes that the real revenue for publishers will be in everything that surrounds the book more than in book sales as-we-know-them. Not only fragmentation and aggregation promise new landscapes that may be exploited in creative ways, but for example I may think to communities built around editorial content, user-generated content and books – maybe a selection of a publisher’s books that focus on the same topic – given away for free or almost, where the revenues are not generated (necessarily) by sales, but in other ways. If a publisher (if any firm, in fact) can aggregate a tight community of people bound by similar interests, plenty of ways to capitalise on it will present – and advertising is just one of them.
But for all this experimentation, as Shatzkin says, a new thinking and new contracts will have to come up.
And contracts will be particularly difficult to change, because right now protection seems to be what everyone is searching for, and every right is given with great caution, keeping extreme attention in preventing ways of exploiting content different than those explicitly granted.
In fact, I cannot really believe this can go on for long, as in the extremely fluid space of the net there is more space for creativity than you can think of, so contracts will have to become a bit looser – or, better, wider-encompassing.
In a new model, content may just be something to gather people round, and not only the final product. It may not only be an end, but a mean.
Anyway, this is sci-fi, for now.
For now publishers are planning to sell the same book you’ll get in the bookshop (well, probably with a far worse layout) at 12 bucks. Good luck with it.
Some thoughts on Nielsen’s paper on paid content online
Feb 22nd
Nielsen just published a research on the behavior of consumers concerning paid content on the net. Although it doesn’t tackle directly the e-books market, it provides some very useful insights on the distribution of content online, and may spark some ideas on possible business models. Any result is, of course, not the final word on it, as the landscape is changing any minute. Still, let’s sum up a few topics.
Contents for which people are more likely to pay are those for which they already pay offline. More specifically, music and games are the two segments where the majority of people already paid for content. They are also two of the most established segments, that have been selling paid content for longer, but are also (I’m guessing here, but it should be a safe bet) the two segments that appeals the most to younger people.
And – see page 3 – younger people are the ones that are more willing to pay for content. Counterintuitive, as the research itself states, but also quite interesting.
As an aside, the fact that younger people are willing to pay seems to me to confirm that there is the possibility to reach a new audience, probably younger than the usual reader.
This research doesn’t tell anything about pricing, although a few info may be inferred from various sources. For the Italian speaking reader, I’d like to point to Baionette librarie, whose latest posts recently summed up with convincing details that 9.99$ is already perceived as the price over which the consumer would think twice before paying (Il duca’s argument is far more complex than this, and he openly suggests a lower price, but for this post we can keep 9.99$ as the rough limit). Similar conclusions are reached by Antonio Tombolini in the post I also published here on Inchiostro Elettrico.
Anyway, what’s important is that people pay, and would pay, for content – and especially they pay for access to content (look at this article by James McQuivey, and think about the last paragraph…). It’s essential to understand how to give to the consumer a reason valuable enough to pay for content and the access to it because, as Nielsen’s research clearly states, “over time [consumers] will decide for themselves the value of content online”.
Once again, it’s the value to the consumer the most important asset, because the quality of the content is the key driver to a purchase, and the perceived quality must be high in order to convince a consumer to buy something. Not only, a free content is not necessarily perceived as worse than one for which there’s a price to pay.
Now, think about the quality of a typical e-book right now, and about the attempts by the industry to set a price based on the hardcover price and (in a… uhm… not really convincing way) production costs. Something must be wrong, you decide where.
On a similar topic: even if apparently it has nothing to do with books, it is interesting to see that “Should the majority of news sources put most, if not all, of their online content behind pay walls, 79% of the respondents say they would no longer go to their websites, taking it for granted they can find the same information elsewhere at no cost”. This behavior reminds that “if the news is that important, it will find me” (source: New York Times)
Sidenote: the NYT article, but also this single piece of information from Nielsen's research, stresses the importance reached by digital word of mouth, and the way in which it works. It is true that this is valid especially for the younger generations, more keen to use social media - but they are also the ones more likely to spend money online for content. Food for thought. Or, better still, thought for food.
The most interesting part is the general consensus among all age groups, throughout the world, that if one buys something online, he should have the right to copy it and share it with others. It’s a no-brainer, apparently, as more than 60% of the people, everywhere, answer in this manner.
This is, implicitly, a big NO WAY! to DRM. Hardly surprising, as DRM systems – especially cumbersome DRM systems that limits the possibilities of the consumer – have been rejected everywhere.
So: no DRM, quality content, low price – and a potential younger audience willing to pay.
Connecting these factors in the best possible way will be the key to success.
The e-books war: Antonio Tombolini’s point of view
Feb 16th
Antonio Tombolini is the owner of Simplicissimus Book Farm, and he is with any probability the most authoritative advocate of the digital shift in trade publishing in Italy, as his firm started distributing e-book readers years ago, when e-books seemed – and actually were – a distant vision. He published last week on his blog a post on the Amazon/MacMillan/Apple issue, and I asked his permission to translate it for Inchiostro Elettrico.
So… I apologise for the rough translation, and thank him for his kindness:
Apple, Amazon, MacMillan and the e-books war. But… isn’t someone missing?
by Antonio Tombolini
Poor Publisher, MacMillan, that plays as David, succeeds in imposing Amazon, that plays as Goliath, his victory after two years of ruthless oppression by the latter, in the name of the Good Guys, that is those who do not want to kill books, and just want – oh, yes they do - the greater good of the authors and of beaux arts. And the strength to David-MacMillan comes from Apple, the Good Samaritan.
But what exactly was the oppression that Goliath-Amazon forced on David-MacMillan? Thanks to his uncontrolled power, Goliath-Amazon imposed to the ebooks of Poor Publisher sold in the Kindle Store the prices Amazon decided, depriving Poor Publisher of any control on the prices of his own products, and putting at risk – indirectly – author’s revenues. It’s the wholesale model, where the retailer (Amazon) asks the producer (MacMillan) the net price for the goods he wants to buy, and then it’s the retailer that decides the price to which he will sell the product to the consumer.
After two years of such a ruthless oppression, enter Good Samaritan-Apple, and he suggests publishers, with his iBooks, a different model, the so-called agency model: the retailer (Apple’s iBooks) doesn’t buy any goods, but acts as a sales agent on part of the producer (MacMillan), and is repaid with a commission. It’s now the producer/publisher that decides the final price to the consumer, and the agent/iBooks only asks for a commission.
So what’s the victory of David-MacMillan? Well – thanks to Good Samaritan-Apple that tells no way, with me and my iBooks it’s you that decide the price of your ebooks! – he is able to rebel against Goliath-Amazon and manages to win in the end: from now on Poor Publisher will sell his ebooks at the price he prefers. And that is true also in the Kindle Store of Goliath, that has to concede defeat.
Ok. But what’s the reality of things?
Who really is MacMillan? Certainly not a Poor Publisher: on the contrary, it’s one of the big six.
Thanks to MacMillan’s victory, their ebooks will be sold in the Kindle Store at 14.99$ instead than 9.99$: a weird kind of healthy competition, the one desired by MacMillan’s CEO, a competition that wants prices to go 50% up for the consumer!
In this whole story it’s bizarre that the world of the Good Guys (MacMillan and Apple) totally forgets that there is a player in the market that they may want to consider: the consumer, the one that spends the money that make firms survive. It’s bizarre that MacMillan, that any publisher actually, does not understand that the one that is making the rules, in the end, is the one that measures the added value, and that in the end it will be the consumer to impose his price to ebooks: and everybody knows – unless one wants to trick himself – that the 9.99$ threshold is already too high for who’s buying ebooks, and is accepted only now, given the rudimentary phase of the market. But soon, let’s say in three years’ time, an ebook will not cost more than 5$ (or 5€): and if there’s a way to earn an income (and there is, there definitely is!) it’s a matter that authors, publishers and booksellers will have to solve on their own.
What would a similar choice to MacMillan’s one from all of the big publishers bring? What will happen if they are to raise ebooks prices to 12/15$?
An accelerated extinction. Authors will realise that in this way they will earn less, for the simple reason that less (legal) ebooks will be sold. And they will shift to the opportunities of self-publishing (first among them the one of, surprise, Amazon), selling at a lower cost their ebooks but getting 70% of the incomes. As some Paulo Coelho did, for example.
So, what should publishers do?
Lots of things: anticipate the requests and expectations of the market, that is pricing ebooks less than 5$/€, offering them now, without being forced by the market, starting now the reorganisation of their production costs.
Realising that in the ebooks’ world (as the majors of the music world are showing) the reduction in production costs is more than proportional to the reduction in the incomes, that anyway will come.
And this means that in the ebooks’ world the publisher (and the author) may earn more than what is earned now: but in order to do so he must focus on his job as a publisher in this new world starting from now, he must focus on the added value that he may give compared to self-publishing.
To sum up, I mostly agree with this:
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I asked Antonio the permission to publish his post because he underlines in a convincing way that, as I mentioned before, the reader is your master and that publishers have to focus on the added value they can give to ebooks.
It is true that people pay more – and will probably continue to pay more – than 9.99$/€ (and sometimes even more than 14.99$/€) every day, but that will hardly be the rule. In the end the market will push prices down, as already happened in other industries.
Not only: it seems that publishers keep reasoning only about production costs. This can be understood, also because mammoth firms that have to change their workflow must spend a whole lot of money right now. Nevertheless, they seem not to think enough on the value perceived by the reader. They seem to think that the reader will simply adapt to the prices.
An underlying reason is certainly the fact that they do not want for low ebooks prices to harm the paper books prices and they want to keep them competitive. It is also true, as for example Mike Shatzkin tells, quoting Michael Cader on Publisher’s Lunch (subscription only, sorry), that publishers are in fact lowering their margins with the agency model, and are ready to lower their prices in a not-too-distant future (I’ll try to tackle all these aspects in future posts).
But now the question actually is, at least for some of them, why not doing it now, why not boldly go where no publisher has gone before and try to build for themselves a different image?
Most of the business lies in the quality of the titles, but the quality itself is not only the story or style or depth of research of the book: it’s also the reader experience, and it’s also the brand. Why not build for themselves an “innovator” brand in the e-books business? There seems to be a crack open to reach a new audience that could be missed if publishers will stick too much to the standard business model, that is not efficient in the new market. Moreover, lowering the prices to the consumer and building a new image may have the nice side-effect of pushing not only ebooks sales but also the sales of traditional books, as it happened in the past and is happening right now (think Coelho, think Doctorow, or think Wu Ming in Italy).
A wild thought: waiting too much in lowering the prices will also open a wide space for smaller publishers but especially for independent editors / publishing communities (Cursor, anyone?) that could take advantage of the agency model and its sibling proposed by Amazon for lower priced e-books.
As Antonio says:
in the ebooks’ world the publisher (and the author) may earn more than what is earned now: but in order to do so he must focus on his job as a publisher in this new world starting from now, he must focus on the added value that he may give compared to self-publishing.
If he won’t do so, somebody else will step in.
Tidbits – Writers and readers
Feb 16th
I’m really excited to start seeing people take a glass-half-full approach to what’s going on. I’m looking forward to people saying the risk of not changing is now greater than the risk of changing. I recognize the very large companies are not going to be able to blow themselves up and start over again, but I would like to see the smaller companies really grab the bull by the horns and start to reinvent themselves. It’s obviously hard for a 1,000-person organization to reinvent itself, but a five-person organization should be able to reinvent itself, because ultimately you don’t have to change that much.
It’s still about the writers and readers. And if you remember it’s about the writers and readers, then the changes you have to do, as the people in between, aren’t nearly as great as it sometimes looks.
Richard Nash, What does publishing 2.0 looks like? Richard Nash knows
Tidbits – Changing paradigms
Feb 11th
There are better ways than advertising for demand and supply to find each other (including search, which is free), and more will be found. Google will be in the middle of that discovery process, no doubt. But it’s an open question whether Google will make the same kind of money in a post-advertising marketplace. I’m betting they won’t.
EOF – The Google Exposure, Doc Searls
Innovative pricing: Garamond’s “It’s up to you”
Feb 5th
Garamond is a small publishing house that works in digital learning, and despite the tiny dimensions has been leading the way for years in digital publishing and experimentation in the school segment in Italy.
Today they announced the publication of an e-book on “Teaching and learning with e-books” (Insegnare e apprendere con gli e-book) with a unique pricing model: as Radiohead did for In Rainbows, “it’s up to you”.
Garamond provides a 16-page preview of the title, and any registered user can download the book and pay it the price he wants – with a base price of 1 euro.
It is true that Garamond’s experiment arises in particular conditions: their network reaches a very large number of teachers and scholars in Italy that have been made aware of the project through Garamond’s newsletter, the school book market is way different from the trade one, and the numbers of digital school publishing in Italy are far different from those of e.g. a mid-list book from Penguin or Random House (or from Radiohead’s ones, of course).
Nevertheless, it would be very interesting to know something about the results of this experiment in a few weeks’ time.
Its success would be, among many other things, a prime example of the importance of the creation of a community that is both large and strictly linked by common interests, and of the increasing relevance of verticalization.
On piracy, some links (post in progress)
Feb 4th
I thought about linking below a bit of the discussion on piracy, with links to interesting posts found online. I will try to keep this post updated in the future with new links.
Will piracy rip the spine out of e-book? – TechRadar
Some thoughts about piracy – Mike Shatzkin
MacMillan’s 10-point piracy plan – PW
A gen Y reaction to MacMillan’s piracy plan – Marian Schembari
What you steal – Mark Barrett (and the very interesting discussion in the comments)
A follow-up to my DBW post – Marian Schembari
Piracy. Is. Stealing. – Sonny Bunch
Cloud culture
Feb 3rd
The latest issue of Edge features a thoughtful essay by Charles Leadbeater that is based on the position paper the author is publishing next week for the British Council.
Leadbeater’s position is balanced, mixing optimism with warnings about the threats posed by (and to) the cloud, and suggestions on the moves to take.
The essay is worth a thorough read, and among the various points Leadbeater makes the following will be one of the keys in the next few years:
Most media industries will need new business models, which are tailored to allow more interaction with content and more peer-to-peer distribution. Countries that experiment successfully with these models will lead the next wave of cultural and creative industries.
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