Home » Amazon, Big Publishing, Mike Shatzkin » Book publishing may not remain a stand-alone industry and book retailing will demonstrate that first

Book publishing may not remain a stand-alone industry and book retailing will demonstrate that first

31 January 2014

From veteran publishing consultant Mike Shatzkin:

Book retailing on the Internet, let alone an offer that is ebooks only, hardly cuts it as a stand-alone business anymore. The three companies most likely to be in the game and selling ebooks ten years from now are Amazon, Apple, and Google. The ebook business will not be material to any of them — it is only really close to material for Amazon now — which is why we can be sure they will see no need to abandon it. It is a strategic component of a larger ecosystem, not dependent on the margin or profit it itself produces. And the rest of their substantial businesses assure they’ll still be around as a company to run that ebook business.

Kobo is owned by Rakuten, a large Japanese online retailer. They started a global  expansion in 2005, buying up ecommerce companies in different key markets, including Buy.com in the US. They also have invested in Pinterest. I don’t know what it is, but I have to believe that deep in Rakuten’s strategic consciousness there is a larger reason for them to have Kobo, probably based in the opportunities inherent in having a consumer’s email address and credit card information and knowledge of what s/he reads. So they also have a base bigger than the ebook business.

Barnes & Noble demonstrates the principle that books alone and one market alone just aren’t enough. They were able to use their US store presence to jump-start the Nook, but after they grabbed the low-hanging fruit among their store customers for digital reading, they quickly ran out of steam. Without a global presence and without a strong online store (BN.com has been deficient, and an albatross, for years), they just don’t have the ballast to be competitive. And that’s a shame, because B&N is the player that could make the most powerful consumer offer in the book space. They have online and offline, print and digital, but it really hurts them that the execution of offline print isn’t up to competing with Amazon and the overall coordination that would maximize the power of all these capabilities is not in evidence.

. . . .

The book publishing industry scratched its collective head for years as Jeff Bezos and his crew grew a giant online bookseller without keeping much margin and had Wall Street shovel money at them to grow and invest. The widespread wisdom in publishing in the late 1990s was that Amazon was performing some kind of parlor trick that would shortly come to an end. Instead, they built on their customer base, their tech, and their reputation for service to expand way beyond book retailing. And today they can afford to run a profit-less book retailing and publishing operation (if they want to; I have no evidence that they don’t make profits and don’t claim to know), taking the margin out of the game in a way that would squeeze any competitor trying to make a profit from book retailing.

. . . .

This is a paradigm that leaves Barnes & Noble out in the cold. Their business, on which they must make money, is selling books. They are trying to diversify their merchandise selection a bit in their stores, but that’s a strategy that is both difficult to execute and has nowhere near the upside that Amazon, Google, and Apple have with their other businesses. This is an unfair fight where B&N is dependent on margins from their ebook (and book) sales while their competitors, if perhaps not totally content to break even on that business, aren’t materially affected if they do, or even if they lose a bit of money on that aspect of their business.

. . . .

[P]ublishing — like book retailing — is likely to become a subsidiary function pursued in strategic support of larger goals. Unlike in retailing, this will not be consolidated among a few players, but as widely scattered as the subjects about which books are produced. But the core challenge for the legacy publishing establishment, that they will increasingly face competition that doesn’t need the profits from that activity as much as they do, will be the same. Book publishing as a stand-alone industry with most of its significant players earning all their profits within it is in the process of morphing into something quite different, starting with the retailers.

Link to the rest at The Shatzkin Files

Amazon, Big Publishing, Mike Shatzkin

22 Comments to “Book publishing may not remain a stand-alone industry and book retailing will demonstrate that first”

  1. Im not fond of Shatzkin’s analyses much of the time, but he may be right about this one.

    Wouldn’t want to be a trad publisher with my fate tied to much larger non-book corporate entities. Corporate money flows to successes, not failures who offer mediocre returns. And, in terms of innovation, you’re on your own.

  2. And yet, though Amazon has revenue about 20 times that of Barnes and Noble, it produced just about half of the profit that B&N did (http://online.wsj.com/news/article_email/SB10001424052702303519404579353083944065964-lMyQjAxMTA0MDMwMDEzNDAyWj) link may expire.

    Amazon has been nearly profitless over more than a decade (though with huge revenues), leading some Wall Street Journal editorials to call it a non-profit serving the American public.

    • Wall Street is obsessed with profit. R&D and/or re-investments in a lot of companies got left behind in many years ago. It all comes down to whether the top people are willing to take a chance on something. 3M launched a whole new product based on a mistake, but Kodak threw away the one thing that would have saved their company.

      • Wall Street being Wall Street, it isn’t surprising that they have a strong interest favoring profit in a business.

        The surprising thing about Amazon is how long that investors have been not merely tolerant of its very low profits, but have actually rewarded Amazon with continuing investment and a rising share price.

        Another editorial described Amazon as being like Wile E. Coyote running off its “profitless” cliff. As long as it doesn’t look down, it can keep doing that. But inevitably, that look down will come and it will plummet when it does.

        Now, I personally really like Amazon’s store and the services it has built that first supported the store and now are an additional engine supporting its revenue and allowing many other companies to use their very efficient services as their starting foundation. Those additional services may wind up being what allow it to start generating more profit without changing the store side of things.

    • Well, let’s see who’s still around in a couple of years, Amazon or B&N. Short-term profits aren’t everything. Innovation and long-term strategic goals count.

  3. “But the core challenge for the legacy publishing establishment, that they will increasingly face competition that doesn’t need the profits from that activity as much as they do, will be the same.”

    One could add:

    But the core challenge for the legacy publishing establishment, that they will increasingly face competition that doesn’t have the high overhead from that activity as much as they do, will be the same. (i.e. indie publishing)

  4. Interesting. So Shatzkin is now not only suspecting the death/massive decline of brick and mortar bookstores, but of online bookstores? Since there seems to be a big barrier to entry (paradoxically because there is little differentiation possible except on price) it may be that only a large established company can do it nowadays, as the attention-getting newcomers are not really mainly stores. (Scribd, Oyster) In the US, have online bookstores really changed that much over the past year?

    When it comes to selling physical books online, there’s also the matter of warehouses and the increasing automation there. A company specialized in such fulfillment may have a big advantage over a smaller operator.

    • Since there seems to be a big barrier to entry (paradoxically because there is little differentiation possible except on price)

      Not true.

      I don’t just buy from Amazon because the prices are generally cheaper than other sites, but because their customer service is so good.

      That’s why everyone else finds them so hard to compete with; they have low prices and great service, whereas most companies cut service when they cut prices.

      • This. Their customer service is stellar. I had problems installing a software d/l and decided to ask for a refund rather than wrestle with the darned thing anymore.

        Contacted Amazon by email, they asked for my phone # (I was at work), and they called me & took care of it quickly. No fuss, no muss.

        If only life was always like that! 🙂

      • There is an extraordinary potential for differentiation in an online bookstore. Arguably, given the physical nature of printed books, there is far more opportunity for differentiation online than in meatspace. How do you get away from having a lot of racks of books in a bookstore?

        Amazon is much more different from barnesandnoble.com than a Barnes & Noble bookstore differs from a Books-A-Million store.

        • Yeah, true. Price and customer service aside, you only need to spend half an hour on the two sites to realize why more people buy online from Amazon than B&N.

          Just as one obvious example, I haven’t checked my books on B&N lately, but, last time I looked, people were using the reviews as a chat room. And I couldn’t even report them without creating a B&N account.

        • You get away with it by innovating the next generation of Espresso POD machines and installing them in bookstores. The bookstore uses it to replenish stock and readers can order a book if it isn’t in stock and pick it up 10 minutes later. I’d call that a win for bookstores, readers and authors.

          • Powell’s City of Books in Portland, OR, has an Espresso Book Machine installed in their Purple Room.

            It’s linked to over 20M books and can print out one in just a few minutes. I saw a demo of it, and it was absolutely fascinating. People can also bring in a flash drive with a book file and have it printed on the EBM.

    • Seems to me he is fretting about the decline and fall of the dedicated bookstore as a business, with books becoming just one of many product lines carried by the surviving retailers. The implied fear being that, unlike dedicated bookstores (which are dependent on the publishers for survival and thus can be pushed around) the new players don’t need the publishers to prosper, much less survive.

      The issue at stake is control.
      Control of pricing, primarily, but increasingly control of marketing (as trad-pub understands marketing). With dedicated bookstores they have strings to pull to control pricing and promotion and if a given retailer crosses them, they have ways to punish them. Starting with Amazon, the newer retailers have been increasingly less beholden to the publishers and more willing to talk back to the one-time overlords.

      Now, having gotten into bed with Apple, they are discovering their knight in shining armor is no more a lapdog than Amazon and that, worse, the rise of Apple has weakened B&N (perhaps mortally) leaving them without much real influence over the downstream, retail side.

      That, by the way, is the proclaimed logic behind the Randy Penguin merger; to become big enough and control enough of the big bucks books to retain *some* influence with the big retailers.

      Of course, all this totally deprecates the thousands of dedicated bookstores that remain. And, worse, ignores the real long term threat that lies upstream.

      The more the traditionalists fret about Amazon and Apple and Rakuten, the more vulnerable they become to the guerillas massing their forces to undercut their supply lines.
      Instead of worrying about their declining influence with retailers, they really should be fretting about their declining relevance to their suppliers.

  5. [P]ublishing — like book retailing — is likely to become a subsidiary function pursued in strategic support of larger goals.

    Er. Isn’t it already? Hasn’t it been for years?

    Penguin Random House – Subsidiary of Bertelsmann (BMG, which does music and television as well) and Pearson, which does newspaper and magazine

    HarperCollins – Subsidiary of NewsCorp, which owns Fox movies, News, etc.

    Simon & Schuster – Subsidiary of CBS Corporation, which owns CBS

    Et cetera.

    Honestly, I think that’s one of the reasons the term “corporate publishing” is so precise, and actually highlights exactly what Shatzkin is talking about and why the industry has been so slow to change.

    Take HarperCollins. Sure, it’s in the book publishing business and has some terrific authors and terrific titles, but it doesn’t rely on them for revenue. HarperCollins’ bottom line becomes part of NewsCorp’s, which means that its revenue is part of the same bottom line as Twentieth Century Fox’s, Fox Searchlight’s, Fox News’, and other properties.

    That’s why it’s easier for them to artificially inflate ebook prices while keeping author royalties low as their business model while letting other entities like Amazon actually innovate and alter the entire distribution model.

    These companies won’t go out of business/fail. Like Penguin & Random House, what’s really going to change the publishing industry most is the coming mergers, acquisitions, and spin offs.

    Heck, Amazon could buy one.

    • I agree, totally, with “it’s easier for them to artificially inflate ebook prices while keeping author royalties low as their business model while letting other entities like Amazon actually innovate and alter the entire distribution model.” but the things is, big conglomerates are about the bottom line, they are not charitable institutions; will the ‘bosses’ really tolerate the reduction of the revenue or will they cut the less profitable parts off?

  6. And today they can afford to run a profit-less book retailing and publishing operation (if they want to; I have no evidence that they don’t make profits and don’t claim to know), taking the margin out of the game in a way that would squeeze any competitor trying to make a profit from book retailing.

    I’m not saying they do, I’m just going to plant the idea in your head.

    FUD.

    • That quote is one example of why I don’t take Shatzkin seriously and really don’t understand why other people do.

  7. Is it only me who thinks this guy Shatzkin is a clueless twit?

  8. Mitch has it right. If B&N put the Espresso Book Machine in every store, they’d solve their problem. If Amazon ever decided to open brick and mortar stores, that’s the first thing they’d do. The second is carry their own titles.

  9. The thinking is that book retailing, and particularly ebook retailing, is doomed to being a low-margin business.

    Which is why ebooks have improved the profits for big pub so substantially, eh? /sarcasm

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