Perseus Books Announces “Constellation” to Level the Digital Playing Field

Yesterday, Perseus Books, one of the largest independent publishers of general interest books, announced a new service this week which will open the digital universe to smaller book publishers. As reported in yesterday’s New York Times:

The new service, called Constellation, will allow independent publishers to make use of electronic readers, digital book search, print-on-demand and other digital formats at rates negotiated by Perseus on their behalf. Unlike large publishers, small ones typically lack the resources to use digital technology and as a result often bypass it altogether.

The company’s website describes their new offering as follows:

  • Constellation is a set of digital services intended to enable Client publishers to participate widely in the emerging digital landscape at a cost balanced with the revenue potential of those digital opportunities.
  • It currently includes digital print services—both short print run (SPR) and print on demand (POD)—online content sampling services, e-Book sales and distribution, and a number of online marketing tools.

This development is good news for independent publishers, who often find it hard to get decent distribution deals with the large, national booksellers. This is becoming less of a problem as fewer book buyers even shop in stores, but it forces the smaller players to fight for space on virtual bookshelves.  At first glance it seems to fly in the face of the tenet, “Any party that comes between the author and the reader is simply an intermediary that adds unnecessary cost and will eventually be driven out of the value chain.” This argument becomes more compelling in the digital age, when there are seemingly fewer links in that chain. After all, if the author creates the work on a computer then it already exists in a digital format, right? Can’t one just click the send button and then reach millions of eager readers effortlessly? It’s not that simple, if you are to believe the information in the company’s FAQs about the new Constellation service offering:

Logistically, you will need to be able to supply digital files of your titles, order ISBNs for the digital edition(s), establish a Digital List Price for the digital edition, and have a means of disseminating the PDF to the digital marketplace (in this case, Constellation). Each digital partner with which we work has differing metadata requirements (i.e., requisite fields that must be supplied). These include everything from Title, Author, Publisher, etc., to territorial rights.

In addition to providing support for e-book conversion (including to Amazon’s Kindle and Sony’s E-Reader), the new service also helps its customers take advantage of POD and SRP (Short-Run Print) technology, as well as conversions to Online Content Sampling programs (such as Amazon’s “Search Inside the Book” option).

The emergence of a service like Constellation is an indication of the relative immaturity of the e-book business. Just as the availability of consumer-friendly desktop publishing software eventually drove many specialized graphics shops out of business, as digital publishing formats and standards become more widely adopted and accessible to non-professionals, the need for an intermediary offering such as Constellation will decline over time. This will most likely occur when the term “e-pub” is no longer only familiar to members of the IDPF. But in the meantime, it will most likely contribute to an increase in the selection of digital books.

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The new social: reading a book

It has been noted by some observers that Amazon has not really taken advantage of the Social Web in building a community of Kindle lovers and ebook readers. This failing was described in a particularly succinct post, in which the blogger describes a scenario in which she has just finished reading a great book, and feels compelled to share it with her friend on the west coast. She could call or email her friend about it, but since it’s 2 a.m, she just wants to go to sleep. She may or may not remember to tell her friend about the book.

Now imagine it’s 2am and I’ve read this book on my second-generation networked digital reader, maybe the Kindle 2.0.  As soon as I’ve finished the book, the device prompts me to rate it (4 stars!).  It also knows about my social connections.  It asks me if I’d recommend it to my friend, who has enjoyed similar books, and I say yes.
The next morning my friend wakes up and picks up his e-reader.  There’s a recommendation from me — and a 20% discount to purchase this book immediately. This $5 digital book is now just four bucks, and it’s instantly on his device.

This eloquent writer has just described the evolution of the book from a solitary, isolated pastime to the foundation of a social framework. Many voracious readers enjoy the solitude and isolation while lost in a great novel. Many others take an equal amount of pleasure in sharing their thoughts and reactions to a book they’ve just read with other readers. This need to share is what gave rise to book clubs in the 1950s. Fast forward a half century and you have virtual social networks for everything from  Andean beekeepers to computer aided Origami creators. Why not for book lovers too? In fact, you don’t have to look beyond Facebook to find them. Two of the most popular are Visual Bookshelf and Shelfari. They allow members of the network to post recommendations, write reviews, and check out what others in their network are reading. What a perfect marriage of old and new technology!

So why hasn’t Amazon, the king of books on the Internet, embraced this aspect of Web 2.0? What better way to promote the viral nature of a great book than to let avid readers send it to their friends? Well, it probably has something to do with these three letters: AZW, which is Amazon’s proprietary DRM format for e-books. This format can only be read by the Kindle, and that’s what keeps us all shopping at the Kindle store. But it’s not a huge leap to envision the capability of sending a file from one Kindle owner to another, in AZW format, to leverage the instant gratification and impulse purchase trends common among digital consumers.

The blogger quoted above suggests that DRM’d books hinder this adoption process:

And let’s suppose that people did send around free digital books.  If I didn’t have an e-ink reader, what would I do with them?  After I got a few freebies from friends I’d probably go buy a Kindle, and then that seductive “share this book” button would take hold.  The existence of some free books is an incentive to move up to a specialized device.  They create the necessary ecosystem and will ultimately motivate, not destroy, publishing sales.

I think she has a point: Making it easier to share ultimately results in higher sales. This vision may be taking a step closer to reality with the announcement yesterday that Amazon is acquiring Shelfari:
Shelfari joins the Amazon.com family

It’s an exciting day here at Shelfari. The rain has stopped, the birds are chirping and the biggest news of all – we are being acquired by Amazon.com.

So maybe we’ll see Kindle 2.0 with recommendations and sharing capabilities…

Amazon E-Book Sales to Hit $2.5B in 2012?(Hear that Steve?)

Last month at Book Expo America, I heard Jeff Bezos say that Amazon had been selling e-books for nearly ten years and that they needed an electron microscope to find the sales figures. Well they may not need one much longer, if Pacific Crest analyst Steve Weinstein’s projections are valid. He estimates that global sales of e-book sales at Amazon could reach $2.5 billion by 2012, based on the following analysis:

To figure this, Weinstein starts with the handiest analogue: iPod and MP3 player sales. He notes that between 2003 and 2008, digital music sales grew from 2 percent of the US market to 33 percent, largely on the back of Apple’s (NSDQ: AAPL) twin offerings. He doesn’t expect the Kindle/e-books to track as fast, but he does think the market is off to a strong start already, and that the cycle will pick up steam as the Kindle comes down in price (that’s already started) and the ecosystem matures. He also suspects the consumers will be drawn to the instant gratification aspect of Kindle titles, as well as the lower price per book. Based on an operating margin of 4% to 5% for physical books (comparable to operating margins for brick-and-mortar stores) and 15% to 20% for e-books (comparable to other forms of digital media), we estimate that e-books could add as much as $330 million to operating income.

The key figure in this analysis is not the total sales projection, but the margin ratios. If the e-book business generates an operating margin that’s 4X that of the dead tree type, you need no further evidence that Amazon will over time make this the foundation of their business model. Any innovation that offers you the opportunity to carve out two of your largest cost components – warehousing and shipping – (not to mention improving on the customer’s instant gratification experience), is clearly going to be a key component of the company’s strategy. In fact, one wonders why they aren’t giving Kindles away, in order to “iPod-ize” the market, and begin to reap the benefits of the overall growth of the ecosystem. The most logical explanation is that the capital markets still regard Amazon’s investments in digital media with a high degree of skepticism, which tends to temper the rate of spending on this type of technology. This somewhat cautious approach could end up backfiring however. If Steve Jobs chooses to enter the e-book market (despite his dismissal of the book business last year), Apple could quickly come to dominate the market for e-books, since consumers are becoming more accustomed to using their iPhones for reading along with browsing the web. The infrastructure is already in place (iTunes store), and the platform has the dominant market share, and the lure of 20% margins on $10 price points (compared with the few pennies they currently earn per song download) may just be enough to entice Apple to change course and start selling e-books.

All these developments are good news, of course, for the reading public. The outcome of this creative destruction process will be lower costs for content, as well as for the devices to read it on. I might however, have some concern for my career path if I was an assistant editor in a large publishing company.

Unbound, undone, and unplugged: Publishing in America

You can always count on The Economist for a cogent and succinct analysis of an important trend or development that promises to change the way either producers or consumers act. In last week’s issue, they turned their attention to the U.S. book publishing industry, with a piece covering Jeff Bezo’s announcement at BEA that Kindle sales now account for 6% of sales of the 125,000 titles available in both print and electronic versions.

None of the handful of e-book manufacturers will divulge sales figures. First-quarter sales of mass-market e-books in America have tripled since the same period in 2005, but they were worth just $10m. But Kindle and its kind are merely the first generation of a product that is sure to evolve quickly in the coming years. Eventually, e-books point the way towards a cleavage of content from platform, threatening publishing with the wholesale change that has hit the music industry. It is a familiar story: fearing piracy, publishers are already adopting various mutually incompatible security technologies that are sure to annoy readers—although ePub, a new standard backed by many big publishers, may clarify things.

This paragraph zeroes in directly on the essence of the threats and opportunities facing the publishing business. First, until recently, miniscule sales, a fact which is largely explainable by the myriad of confusing and conflicting formats to present the content, and by the fact that:

Unlike digital music or video, digital books require consumers to change their consumption habits.

http://www.economist.com/business/displaystory.cfm?story_id=11504752

This is a pivotal distinction: except for consumption of live music or performance, consumers have used some sort of electronic device (albeit not necessarily a digital one) to enjoy their music and video for decades. But the book, as we all know, has survived in a very analog format for more than 500 years. As Bezos himself remarked: “It’s hard to out-book the book”. So there is naturally a fair amount of resistance to changing one’s ingrained habits to adapt to a piece of new technology. The benefits must far outweigh the costs of switching and breaking old habits. Convenience is one compelling feature: downloading almost any book you can think of in under a minute is one that comes to mind – but only if you’re a voracious reader. (just as having 500 channels to watch is not a strong attraction to someone who never watches TV.)

Just as with all new technology, the early adopters pay the premium for what’s essentially a beta release. Prices must drop significantly for the device to reach mass acceptance.  And mass acceptance is what it will take in order for Amazon to be successful with the Kindle. That’s what will drive demand for e-books, which is really what they’re after. Let’s face it: Amazon is not a hardware company; they sell content, and high volumes of consumption of content drive their margins higher. How sane would it be for a company like CBS to start manufacturing TV sets to facilitate distribution of their programming content? Shareholders would shout “Stick to your knitting-let someone else provide the hardware.” But Bezos recognized that no one had come up with the ideal device to consume digital books on, so he created one.

By offering the Kindle, Amazon has jumpstarted the whole e-book market, and shaken up the moribund publishing industry yet again. But in order for this effort to be successful, they will need to get the price point down to a level where it’s a no-risk proposition for the late-adopter. That means around $99 or so. Bezos might think about the approach another tech visionary is taking with his game-changing gadget. Just this week Steve Jobs announced the new and improved version of the iPhone will drop in price from $399 to $199.  This strategy is no doubt a recognition of the benefits of subsidizing the development of the overall ecosystem, which drives greater overall demand for content offered on the device, (see iTunes) or for other, much higher margin products, like Macbooks.

If some Taiwanese manufacturer came up with a sub-$100 e-book reader with color touch screens and a Gig of storage, I predict Amazon would cede the device business to them. Then they could concentrate on selling more e-books, and continuing their gradual domination of the book selling business.

The Kindle at BEA: “She moved through the fair…”

I just returned from Book Expo America, a confab of 25,000 book publishers, sellers and authors, which wrapped up Sunday in LA. One of the highlights was an address by Amazon’s chief, Jeff Bezos. If Bezos was to choose a song to describe the Kindle’s debut at BEA, he might adapt the lyrics of the traditional Irish folk song “She Moved Through the Fair”:

She stepp’d away from me and she moved through the fair,
And fondly I watched her go here and go there,
Then she went her way homeward with one star awake,
As the swan in the evening moves over the lake
.

Few tech gadgets have had such a low signal to noise ratio as the Kindle at Book Expo. The debate surrounding global warming is like a playground tiff compared to the FUD (fear, uncertainty and doubt) swirling around the Kindle and the effect that e-books are predicted to have on the publishing business. “They’ve only sold 10,000 – no, they’ve sold 100,000 – No, it’s going to be a $2 billion business by 2010.” “They’re losing money on every e-book they sell, but in five years, there’ll be no more books – no, actually nobody really wants to read anything on a screen”. (Of course, to Steve Jobs, it’s all much ado about nothing, since “nobody reads anymore anyway.”)

The NY Times summarized it nicely yesterday:

But excitement about the Kindle, which was introduced in November, also worries some publishing executives, who fear Amazon’s still-growing power as a bookseller. Those executives note that Amazon currently sells most of its Kindle books to customers for a price well below what it pays publishers, and they anticipate that it will not be long before Amazon begins using the Kindle’s popularity as a lever to demand that publishers cut prices. Amazon sells most Kindle books for $9.99 or less. Publishers say that they generally sell electronic books to Amazon for the same price as physical books, or about 45 percent to 50 percent of the cover price. For a hardcover best seller like Scott McClellan’s “What Happened,” the former press secretary’s account of his years in the Bush White House, that would mean that Amazon appears to be selling the selling the book for about 25 percent below its cost.
Yet, in a textbook case of clinical denial, the publishers are circling the wagons to protect their margins at all costs. The Times article continues:

 Electronic readers have nevertheless gained many fans in the publishing industry. Random House and Penguin, among others, have equipped their entire sales force with electronic-book readers, allowing them to avoid having to lug around as many preview editions of books. Editors at many of the larger publishing houses also use the devices to read manuscripts submitted by agents and authors.

http://www.nytimes.com/2008/06/02/books/02bea.html?pagewanted=1&ei=5087&em&en=16d43579fc53efb0&ex=1212638400

Now I doubt that i’m the only one that sees the cruel irony here. But this development strikes me as strangely similar to the case in the early 1960s of the Gestetner company using Xerox machines for its own internal correspondence, all the while heralding the virtues of the stencil duplicator to its customers, because that’s what they sold. When was the last time a stencil duplicator has been seen, outside a museum of office automation? 

Let me see if I can get this straight. The publishers feel they are entitled to the same margin on a product that consists entirely of digital bits, with no costs incurred for printing, shipping, warehousing or retail display. And their own employees see the benefits of the electronic versions over their dead tree counterparts. Have they tried to find a door-to-door Encyclopedia Britannica sales person in the last five years? That’s because there aren’t any. The only customers remaining for the hard-bound version of EB are libraries. That’s why EB is about one tenth the size it was before Wikipedia came along. Maybe Simon & Shuster’s CEO should send out a memo to her employees accompanying her triumphant announcement of 5000 more titles available on the Kindle this year. It would suggest they take their blinders off and read the writing on the wall. Maybe it should be mimeographed for more effect.

For another example of resistance to new technology, one need look no further back than the inventor of the modern printing press Johannes Gutenberg, and what he had to deal with. According to his Wikipedia entry:

In the decades after Gutenberg, many conservative patrons looked down on cheap printed books; books produced by hand were considered more desirable. At one point the papal court debated a policy of requiring printing presses to obtain a license, but this could not be decreed.

http://en.wikipedia.org/wiki/Johannes_Gutenberg

So to close on a somewhat sombre note, I quote from the very text that Gutenberg first produced for “mass consumption”. While I doubt the author was referring to the book publishing industry, it somehow seems befitting, if just a tad dysphoric:

The mountains will be overturned, the cliffs will crumble and every wall will fall to the ground.

Ezekiel 38:20

Breaking up is hard to do… Borders and Amazon part company

Like Brad and Jennifer, Tom and Nicole, the rumors surrounding the breakup of Borders and Amazon’s seven year partnership are true. Today, Borders launched its own website, after it terminated an alliance with it had Amazon since 2001. The execs at Borders probably watched the film “Sleeping with the Enemy” and got nervous. Good coverage can be found on this mashable post:

http://mashable.com/2008/05/27/borders/

An interesting part of Borders new strategy is their e-book offering. The website shows a tab for e-books, which takes the customer to the following page:

 

 

 

which is simply a link to Sony’s Ebook Reader, and its online store.  By distancing itself even further from Amazon, and hitching its wagon to the Sony platform, it merely hastens its slide into oblivion. E-books can actually drive customers into the store, instead of out of it, if the correct strategy is in place. For example, many readers will still be willing to purchase a physical copy of a book even if they’ve already downloaded it in an electronic format, perhaps to give to a friend as a gift. Borders could offer to apply some or all of the purchase price of the e-book toward the cost of the dead tree variety. Their challenge is to get customers in the store, and then offer them reasons to shop there. A coupon for a healthy discount off a book in the store (at least 25%) might do that, and this could easily be delivered as part of an ebook download. It could be for a backlist title from the same author. They may choose to adopt this pricing model in their alliance with Sony, but it doesn’t look too promising at this point. I can personally count the number of visits I’ve made to a bookstore on both hands since I got my Kindle, and that’s a drop of probably 90% over a six month period. So by embracing all e-book formats, bricks and mortar retailers like Borders can look at this new technology as much of an opportunity as it is a threat.

In related news, Amazon announced a price drop for the Kindle to $349. Curiously, though, it’s without fanfare. You’re not told the price until you click on the item. Maybe they don’t want to create another stampede?

Happy Earth Day. Save a tree – read an e-book

In keeping with the theme of Earth Day, it seems appropriate to examine the carbon footprint of the book publishing industry. Every year about 20-million trees are cut down to produce the virgin paper for books sold in the United States alone. Here’s an interesting commentary on this topic:

College students purchase about a tree per year in textbooks

Purchasing your textbooks will not only burn a hole in your pocket, but it will also destroy the environment. According to the Green Press Initiative, over the past three years the U.S. book publishing industry has consumed an average of 20 million trees per year to print books sold in just the U.S alone. Publishing companies have become a top contributor to the destruction of forests world wide.
“The global impact of this is rather mind-boggling,” says treehugger.com. For instance, if a publisher sells a million copies of a 250-page book it will take 12,000 trees just to produce the necessary amount of books for this one title. By producing new editions of Textbooks every year publishers are destroying the environment to fatten their pockets. Just think about the amount of trees killed to produce enough textbooks for every student at every college & University. It gets worse…
The Green Press Initiative estimates that nearly 40% of the materials found in landfills are paper products. As this paper degrades, it produces methane—a greenhouse gas with 21 times the heat trapping power of carbon dioxide that eats away at our atmosphere. Each time a student buys a new book they are contributing to these numbers. It’s time to make a difference.
Chegg commits to planting a Tree for every textbook rented from us. http://www.chegg.com/EcoFriendly

A company called ecolibris (http://www.ecolibris.net/) aims do something similar to offset book purchases. Their tagline reads: “Every book you read was once a tree. Now you can plant a tree for every book you read.” Basically, the concept appears to be that you send them money, and they arrange for some trees to be planted in several developing nations (10 trees for $10 U.S.) They then send you some Eco-Libris stickers to put in the books you own (presumably one for each book read and tree planted). Other than that, there doesn’t appear to be any particular connection to books; it could easily be, “plant one tree for each gallon of gas you buy”, “each KWh of electricity you consume,” etc. But the thought process at least gets people thinking about the environmental impact of paper consumption.

If one really wanted to have an immediate an measurable impact on the carbon footprint of the publishing industry, one could simply migrate all book purchases to e-books. Just like that, we could save 20 million trees a year. Not to mention the cost of fuel to ship thousands of tons of paper across the globe. Think of the effect on the Amazon rain forest (not to mention on the other one, founded by Jeff Bezos).

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