From veteran publishing consultant Mike Shatzkin:
I wrote about 18 months ago: the benefits that flow to publishers that sell direct. In that piece, I highlighted the disagreement that seemed to exist at that time between my advocacy of direct selling of ebooks particularly and Random House’s lack of interest in doing so.
In the meantime, I’ve been working with Peter McCarthy, building a digital marketing business. Pete was the lead digital marketing strategist at Random House for six years ending shortly before I published the piece. Nano makes the point that only Random House among the former Big Six does not sell ebooks direct now (although Penguin, the other half of the supermerger, does).
But in the year I’ve been working with Pete, I’ve learned with more nuanced perspective where “owning the transaction” fits in the hierarchy of tools and opportunities for publishers to directly influence consumer behavior. It isn’t at the top. So I have a new-found respect for Random House’s reluctance to forge ahead with retailing (although they clearly have been pursuing a direct-to-consumer strategy for years) and a new-found understanding of many other things publishers can do to help themselves with direct-to-consumer book marketing without necessarily executing the final sale of the ebook.
. . . .
At first blush, it seems like a no-brainer that if you are talking to the consumer, introducing them to a book and persuading them to buy it, then you ought to at least try to get the full margin on the sale by executing the final transaction (as well as, perhaps, learning even more by observing their behavior as they read). But, of course, there are myriad complications.
Selling ebooks with DRM at all costs money for the license, adds complications for the end consumer, and can’t be executed by anybody except Amazon for delivery to the Kindle.
Setting prices is devilishly difficult. Either you resign yourself to being more expensive than many of the retailers or you compete with them on price. That requires technology and complicates the relationship with the sources of most publishers’ sales. It also means the “additional margin” you’re aiming to capture might not be as much as you hoped.
Being a retailer requires customer service. That’s something publishers have no experience with. And the difficulty of delivering it escalates with DRM and with any kind of dynamic pricing policy.
. . . .
One thing I learned from Pete is that — at least for a time and maybe still — Random House, apparently uniquely, was able to gain very granular affiliate-code tracking from Amazon. (This was achieved, apparently, merely by requesting it.) An affiliate code is the mechanism that enables publishers (or any other third-party) to be paid a referral fee on sales executed from traffic they send to Amazon (or any other retailer which compensates affiliates for referrals) for a purchase. Publishers normally have one and only one for each retailer to use across all their referrals, so they get sales reporting and payments from each retailer that are consolidated across all their titles and all the campaigns they run for those titles.
That leaves them flying blind on one of the most important metrics in digital marketing: how their clicks convert. Publishers persuading consumers and sending the traffic as an affiliate to Amazon or B&N (or any other retailer) can only possibly know the total number of clicks that went through them to the retailer and the total number of copies of each book they are credited with selling. Painstaking matching could get them a conversion index for a title, but not broken down by campaign or referral source.
Because Random House didn’t have that blind spot, they were, first of all, aware that their conversion rate on clicks to Amazon was very high, much higher than they would expect to get themselves if they tried to encourage consumers to buy direct. So the capture of more margin per sale would be at theexpense of losing many sales. But, in addition, the extra margin can get burned up pretty quickly with the costs of running a direct-sale operation. One that provides solid user experiences, customer service, and other now standard eCommerce practices anywhere near today’s customer expectation is expensive — more so when it isn’t your primary business. eCommerce is a huge distraction, especially when it is executed by the folks who are also your digital marketers! That, or additional head count (which further lowers margins), would constitute a publisher’s choices.
. . . .
That granular knowledge also enabled Random House to measure the success of campaigns by the meaningful metric of “books sold” rather than the proxy of “clickthroughs created”. That data made it evident very quickly that the search terms and calls to action that drove the most clicks weren’t necessarily the ones that drove the most sales. And, in addition, Amazon likes it better, and is more likely to invoke their own marketing capabilities on your behalf, if you’re driving traffic for a book that converts.
. . . .
The opportunities that a digital marketing environment creates for increasing sales of backlist have, across the industry, hardly been explored. If publishers are failing to do the necessary research to deliver optimal metadata on new titles, most aren’t even thinking about it for their backlist. This is a complicated problem. You can’t spend the hour or two we consider minimal necessary research to position a new title across thousands of titles on a backlist on a regular basis. Both monitoring the outside world, news and the social graph, and keeping metadata optimized for changing circumstances are, as yet, problems without a lot of helpful tools (or start-up initiatives) to assist them with yet. But publishers have lived for years in a world where the biggest barrier to backlist sales was the lack of availability of books in stores. As sales made online now exceed sales in stores for many titles anyway, that’s no longer a barrier and a much more proactive everyday approach to selling backlist is called for. A proprietary direct-selling effort can be of only minimal value there until a publisher creates such a heavily-trafficked store that screen real estate can be an effective tool. So other solutions are called for and it is probably unnecessary to say that McCarthy and I are working on this challenge too.
Link to the rest at The Shatzkin Files
As Passive Guy has mentioned before, he regards Mike Shatzkin’s writing as generally representing the best and most forward thinking in traditional publishing.
With that in mind, PG will observe that Big Publishing is way, way, way, way behind the curve when it comes to ecommerce, SEO, online engagement with readers, etc., etc. He speaks as someone who was running major ecommerce 14 years ago and doing serious SEO 10 years ago.
PG agrees with Mike that publishers do not need to sell direct. He would state the proposition a bit more strenuously – Big Publishing trying to sell direct would be pouring money down a rat hole.
There are good reasons that major Silicon Valley venture capitalists (who are a bunch smarter about ecommerce than anyone in publishing) will not fund any startup that plans to compete with Amazon.
Someday, Amazon will become fat and sloppy and fast-moving startup will upset the apple cart, but that day is not going to come for awhile.
Any online strategy for a publisher (and for many other categories of direct-to-consumer ecommerce) needs to be built around Amazon. Google-focused SEO for books is a waste of time. Amazon-focused SEO is another story. It will, however, be much different than the Google variety.
It will require a 180-degree turn for the Price-Fix Six, but a smart publisher would fly to Seattle, beg for forgiveness and offer to do almost anything to build a collaborative relationship with Amazon. Five years from now, Barnes & Noble may still exist, but it will be a shadow of its former self. Amazon is already the biggest bookstore in the world and, for the foreseeable future, its market share is likely to grow.
In the aftermath of the Christmas season, PG is feeling uncharacteristically charitable towards all, including Big Publishing, so here’s his one good suggestion for 2014: Every publisher should open an office near Amazon’s headquarters and staff it with a few very smart people. The job of the Seattle office is to figure out better ways to collaborate with Amazon.
This is not an original idea. If you travel to Bentonville, Arkansas, the home of Wal-Mart, you will see offices for every major consumer goods company that sells its products to Wal-Mart. Representatives of those companies are visiting Wal-Mart’s offices almost every day. Even in an internet age, face-to-face interaction is important.
Just like General Mills, Hasbro and Tootsie Roll do with Wal-Mart, smart publishers would explicitly acknowledge Amazon as their very most important customer.
And smart publishers would also instruct their employees to quit trashing Amazon. If Big Publishing is going to have a future (and it may not), that future will be inextricably tied to Amazon.