Passive Guy is always interested in what Mike Shatzkin has to say:
Something caught my eye this week that has been very little commented upon elsewhere: the news that Hachette Book Group developed an app-making capability that they are now licensing out. Their first customer was Round Table Companies, a book packager.
I found this striking because big book publishers are not generally known for developing technology; they’re more likely to be buyers of it. This is not an ironclad rule: Scholastic has an ereading platform in development to satisfy the special needs of the children’s book market and it is trying to work with other publishers who might want to avail themselves of the platform.
But from the standpoint of one who has observed publishers wrestling with technology for many years, this deal is very unusual. When Random House bought Smashing Ideas, a technology company, that seemed like the likely course for big publishers to take: acquiring technology that could be useful to them after it had been developed by somebody else.
. . . .
Even acknowledging that selling the tech to a packager is not quite the same as selling it to a direct Big Six competitor, I don’t know if this is a harbinger or an outlier.
But I do know that it challenges one of my long-held assumptions about publishers and technology.
When you invest in intellectual property, whether publishing a book or developing software, you normally want to monetize that investment across the widest possible range of customers which you can only do by distributing through the widest possible array of channels. That’s the handicap Amazon has right now being a publisher: they don’t have effective distribution to brick stores and, as long as they want to keep what they invest in restricted to the Kindle for ebooks, it is pretty certain that they won’t. Over time, the number of brick stores will diminish so that will matter less and less and, if Kindle retains its position of primacy among ebook retailers, what is a real handicap today may become trivial. But traditional or legacy or real (pick your adjective) publishers really do have a wider distribution base than Amazon for books published today. (That doesn’t mean they will necessarily sell more, but it does mean they should!)
By the same token, I never thought it made much sense for a publisher, on its own, to develop software for product development or distribution that should have industry-wide application. I figured it would be hard for one publisher to sell software to another; the buyer would be afraid they were just permanently strengthening the margins and the hand of a competitor.
. . . .
But that long-held assumption of mine is being challenged, by Random House buying Smashing Ideas and planning to keep it going as a provider of services to competitors, by Scholastic developing its own platform for displaying digital content and recruiting other publishers to join them, by three US publishers combining to create the new retailer Bookish (and three UK publishers replicating that idea with a UK version called Anobii), and, most dramatically, by Hachette creating an app-maker that a leading book packager finds a cost-effective way to build apps.
We still don’t know what will work. Will Smashing Ideas thrive under Random House ownership? Will Scholastic succeed in establishing a new reading platform for children’s books that can find a prominent place in the market? Will Bookish or Anobii succeed at becoming an important force in ebook sales alongside Amazon, Apple, Kobo, Google, and B&N?
Link to the rest at The Shatzkin Files
Passive Guy will readily acknowledge Mike’s expertise in the publishing business. Although PG doubts Mike would claim to be a tech expert, he also gets that piece right in this essay, perhaps because he understands the nature of publishers and the people who run them so well.
PG thinks the tech part deserves some additional discussion.
One of the common responses for an established business that is being disrupted by new technology is to try to buy or hire their own tech geniuses.
Somebody in the corner office says something like, “We have lots of money. Let’s go ahead and buy our way into this new technology stuff.”
This has happened over and over again. Mike mentioned Bookish, an online bookstore backed by three of the Big Six publishers that was announced last May. PG blogged about Bookish here.
The problem with this idea is 99.999% of all high-quality tech people hate the idea of working in a big bureaucracy unless they own it.
But big publisher paid good money to buy this company with all kinds of tech people in it, didn’t it? Yes it did, and it made all the principals sign employment agreements in addition to paying them way more than their technology was worth to buy their company.
So what are these tech geniuses doing? Showing up as little as possible, making occasional attempts to break through the bureaucracy (these always fail) and spending every hour away from the office working on their next big thing. Approximately 20 minutes after their employment agreements expire, all the smart guys are gone. 21 minutes after the expiration of employment agreements, the first tweets go out carrying #bigcompanyfail hash marks.
At one time, Microsoft was a tech company, but now it is a big bureaucracy. It seems as if Microsoft has bought thousands of promising technology companies. Invariably, the company disappears into the bowels of Microsoft and is never heard from again. All the smart people in the acquired company only rent houses in Seattle because they are going to do exactly what I described in the previous paragraph.
There is an alternative scenario for tech people and big companies. Bookish is an excellent example of this alternative.
What happens under the alternative scenario is that big companies hire people who have hung around cool technology companies. They may even have held some big titles. However, everybody who worked with these people in the cool technology company knew these people were really not very talented.
When a small, cool technology company starts growing, it has to hire a lot of new people in a big hurry. Sometimes, they are in senior positions. The venture capitalists tell the founders that too many strange alliances are happening and they need to hire a Vice President of Strategic Partnerships.
The founders use a headhunter to locate someone who has held that title somewhere else and hire the person the headhunter recommends. The founders are really smart 26-year-old kids who understand gaming or social media or tablets, but don’t have the slightest idea how to judge whether a 40-year-old candidate with some big company names on his/her resume is any good or not.
The new Vice President is a giant bust but everything is moving so fast that nobody gets around the firing him/her.
The headhunter receives a call from a big bureaucratic company that wants to develop some technology of some kind. The only thing better than one big headhunting commission is two big headhunting commissions, so the headhunter calls the Vice President. The big company CEO recognizes the name of the tech company because she heard her teenage daughter talking about it and decides that anyone who is a vice president there must be full of technology from head to toe.
PG has no detailed information on Bookish, but a little Internet research on the principals who were named in the original press release caused PG to conclude they quite likely fall into the category of hanging around tech companies without necessarily contributing much.
To round out the picture that Mike painted so well, it is extremely hard for a big publisher, particularly one that is owned by a big conglomerate (Hello Big Six!) to hire and retain really talented tech people. Without really talented tech people, you are not going to get very good technology. The mediocre tech people will certainly produce some technology and it may even impress a few people who know all about being a big publisher and who know as much as their teen-age daughters do about cutting-edge technology.
Unfortunately, big publishers don’t live in a glass case. Once that technology rolls out, customers will be comparing it to whatever the latest is from Apple, Google and Amazon. The hired tech people hope the headhunter calls again before that happens.