The three forces that are shaping 21st century book publishing: scale, verticalization, and atomization
From publishing consultatant Mike Shatzkin:
There are three overarching realities that are determining the future course of book publishing. They are clear and they are inexorable:
Scale, and its close cousin “critical mass”, is the ability to use size as a competitive advantage in any endeavor;
Verticalization, or being in sync with the inherent capability of the Internet to deliver anything of interest in an audience-specific way; and
Atomization, or the ability for any person or entity to perform the most critical component of publishing — making content available and accessible to anybody anywhere — without capital and without an organization dedicated to distribution.
. . . .
In the 20th century, scale in publishing was really an internal concept. Big publishers had more resources to sign books, get to bookstores, and roll out marketing than smaller ones. Barnes & Noble and Borders had supply chain and cost advantages over independent bookstores, except that Ingram and other wholesalers lent their scale to provide partial compensation. Bigger literary agencies had negotiated more boilerplate agreements than smaller ones and often had helpful relationships that went beyond publishing, but a single operator could still cultivate enough editors to make a legitimate case that he or she could place a book as effectively as the giants.
But that’s changed entirely in the past 10 years. Now publishing operates in a world increasingly controlled by Amazon, Apple, and Google, all companies that make far more money outside of books than through books. One Big Six CEO observed to me about five years ago that the time had passed when s/he could call all the biggest trading partners of their company and reach the CEO instantly. Penguin Random House has merged into a publishing company that will control about half the most commercial titles in the marketplace, but any suggestion that their size will enable them to dictate much to Amazon, Apple, or Google is deluded.
What Random House can do is apply scale against other publisher competitors. And they will.
Critical mass is a scale-related concept but it is also a component of verticalization. When a publisher, or any aggregator, has enough material to allow it to ignore competition in a consumer offer, it has achieved the effective barrier to entry that scale also provides. For example: subscription models for general books are a very difficult commercial proposition because the biggest agents for the biggest authors wouldn’t want their titles included. But Amazon might just have so many titles they can make available through a subscription offering that they can do it successfully even without the top of the bestseller list.
. . . .
The barrier to entry for book publishing was always relatively low compared to other media: magazines, newspapers, radio, TV, and movies would all require much more of a financial and organizational commitment than was required to publish a book. But there definitely was a fence around the book publishing world, and the position of “gatekeeper” was both well-earned and well-rewarded.
But those days are gone too.
As of this writing in April 2013, sales of any book of narrative reading will, depending on topic or genre, be 20% to 60% in ebooks, which requires no inventory investment and minimal distribution infrastructure. Sales of the printed books — the other 40% to 80% — will be anywhere from 25% to 50% through online channels. Those sales can also be achieved (largely through Amazon) without an investment in inventory, printed at the moment they’re ordered.
Link to the rest at The Shatzkin Files
PG will observe that large organizations dealing with disruptive changes to their businesses have a number of very challenging problems:
+ They don’t have the right employees. The employees necessary for the old business are probably not the right employees for the new business. This is a particularly acute problem in the executive suite.
Hiring a bunch of new employees doesn’t work for a variety of reasons. For one thing, there is typically an age difference. The old business has older employees, including a lot of lifers. The old business doesn’t realize how weird its corporate culture feels to employees necessary to operate the new business. Ultimately, regardless of what the CEO says, the culture doesn’t want to change. The old employees are masters of the politics of dealing with current management and know how to shoot down or slow down new initiatives.
New employees and what seem to the old organization to be radical new ideas are treated like bacteria invading a human body. The immune response of the old organization is powerful and manifests itself in many ways. Instead of focusing solely on building the new, valuable time of the new employees is involved in dealing with the immune response. If the organization has hired really talented new employees, those employees will leave for greener pastures where there aren’t any immune responses, leaving the big new thing left half-done. If the organization tries to tie talented new employees down with employment contracts, they’ll responde with low morale, start leaving early and spend their evenings and weekends working on independent projects.
+ The size and resources that give organizations access to scale in the old business slow them way down as they try to adjust to the rapidly-changing new business. Yes, they can eliminate departments and fire people who are no longer needed, but that requires time and places a tremendous drag on the morale of the survivors. Having a billion dollars invested in people and infrastructure necessary for the old business and irrelevant for the new one is a big management problem and a boat anchor for a company that needs to move quickly.
+ Finances preclude dumping the old business model as quickly as is strategically desirable. What CEO is going to give up a billion dollar revenue stream that exists today but will be a $50 million dollar revenue stream in five years?
Current revenue is the shiniest of shiny objects for a typical financially-oriented executive. Instead of putting all resources into the potential five billion dollar revenue stream of five years into the future, the executive deludes him/herself that the organization can do two things well, one entrenched in the past while the other pioneers the future.
When the real (as opposed to perceived) competition is 100% focused on the future, this strategy almost never works.
The tech world is littered with the corpses of highly-impressive companies with really smart CEO’s who failed when they tried to ride two horses at the same time. Yes, some companies are able to be successful in lots of different businesses, but none of those businesses are typically facing a serious technology disruption.