Placing Bets on Disruption: A Losing Game?

In 1998, Microsoft was under investigation by the U.S. Department of Justice for antitrust violations, including charges that it held a monopoly position in computer operating systems and used its market power to reach anticompetitive agreements with its partners.

In his defense, Bill Gates wrote a response piece in the June 13, 1998, edition of the Economist. It’s worth quoting:

The current popularity of Windows does not mean that its market position is unassailable. The potential financial reward for building the “next Windows” is so great that there will never be a shortage of new technologies seeking to challenge it.

In a similar vein, Gates told Forbes author Daniel Gross in 1997:

We’ve done some good work, but all of these products become obsolete so fast… It will be some finite number of years, and I don’t know the number — before our doom comes.

This notion that technological change comes swiftly, is unrelenting and has no sympathy for incumbents is a recurring meme. Certainly no one dared predict that Apple would overtake Microsoft back in 1997. But in the late ’90s, the Justice Department thought it should help shape the future of technology. There’s a cautionary tale here.

Recently, the U.S. Department of Justice has set its sights on Apple and a handful of publishers, whom they are accusing of eBook price collusion. Fair enough. Hell, let the EU jump on, too.

The danger here is that these well-intentioned bureaucrats may create another problem by solving the one allegedly at hand. As the esteemed Frederic Filloux points out in, “Ebooks: Defending the Agency Model,” Amazon’s Kindle format presently accounts for 60% of eBook sales. Sure, that’s not monopoly territory.

Yet.

But a ruling that undermines Amazon’s competitors, while giving it a leg up in the eBook market, may very well take things in that direction.

As Bill Gates pointed out many years ago, bureaucrats often tread on soggy ground when they jump into technology wars, especially those of the disruptive kind. Yes, the current battle is also about prices. And market share. But the underlying causality is something quite different. Oh ye regulators, be careful what you wish for…

Somebody Gets It (Sort Of)

Frédéric Filloux in Monday Note focuses on ebooks as the “giant disruption.” Notes Filloux:

In less than a year, the ground has shifted in ways the players didn’t foresee. This caused the unraveling of the book publishing industry, disrupting key components of the food chain such as deal structures and distribution arrangements.

Filloux further identifies the “culprit” in this drama. Amazon.

Money quote:

For authors, the growth of e-publishing makes the business model increasingly attractive. Despite a dizzying price deflation (with ebooks selling for $2.99), higher volumes and higher royalty percentages change the game.

I think Filloux is being a little optimistic (proponents of giant disruptions invariably get carried away with themselves) — forgetting that while there is room for more “success stories” like Amanda Hocking, opening the stadium doesn’t mean everyone will turn into a Tom Brady. [Let's not forget that Amanda Hocking opted for a traditional publisher once her success was established; it was too much work for her to do everything a publisher normally does. She wanted to focus on writing books.]

Filloux also forgets the promotional role traditional publishers play. Can Amazon get me on the talk shows? Will they? Do they even care?

Back in the day, Penguin got me on the Sally Jessy Raphael show to promote “Butcher, Baker.” It was a big deal. That kind of publicity is hard to buy.

Amazon vs Walmart

Amazon gets a lot of ink about its innovations and business practices. Deservedly so. Wired magazine’s Tim Carmody has even compared them to Walmart. In a provocatively titled article penned last year, Carmody asked: “If Amazon Out-Walmarts Walmart, Can Anyone Out-Amazon Amazon?”

Good question. Flawed premise. Amazon’s biggest problem, a persistent one, is that after twenty years it still doesn’t know how to manufacture a decent profit. We go to MG Siegler of TechCrunch for the most recent evidence:

  • “Not only did Amazon only make $177 million on sales of $17.4 billion last quarter, they’re warning that they could actually lose money this quarter.”
  • “Last quarter, Walmart pulled in $109.5 billion in revenue, which led to $3.3 billion in profit. As with Amazon, the margins are awful, but at that scale, it doesn’t matter.”
  • “In fact, Amazon’s margins are so slim that Facebook, which just filed to go public [...], recorded nearly double the profit of Amazon last year ($1 billion versus $631 million).”

Notes Siegler: “Compare this to Apple’s most recent quarter in which they posted a record $46.33 billion in revenue and, more importantly, a record $13.06 billion in profit. The margin difference could not be any more stark.”

I write this not to diss Amazon (although paying a little more attention to the bottom line couldn’t hurt) as much as to put Amazon in perspective. On the publishing side, there is great fear of Amazon. A recent article by Nico Vreeland points fingers at the publishing industry for not having their act together as compared to Amazon. Point taken.

Just remember who Vreeland’s talking about when he says:

So publishers: it’s time to embrace technology, put your customers first, and entirely revamp the logistical architecture of your industry, or Amazon’s publishing arm will do it for you (and nobody wants that).

iBooks Author: First Look

Apple yesterday introduced a new eBook creation app, appropriately called iBooks Author. I say appropriately named because, if you charge a fee for the eBook so created, you can only sell it on Apple’s iBookstore. In other words, iBooks Author is not, nor is it intended to be, a general purpose eBook creation tool.

iBooks Author license

After a quick tryout and eBook creation exercise, I also conclude that the tool is definitely scoped for textbooks, NOT general purpose eBooks like trade or mass market fiction.

This has much to do with the constraints of the templates, which impose a structure that a straightforward eBook can do without. A Chapter and Section layout is pretty much required. This fits well with textbooks, not so well with other types of content. And, in its current iteration, iBooks Author offers no flexibility here.

Chapter and Section Layout Grid

iBooks Author layout choices

For example, take a look at the two template choosers below. The first is from iBooks Author; the second is from Pages (which, by the way, seems to have served as the code base for iBooks Author). Pages has, well, a ton of templates; iBook Author has six. That’s not intended as a knock; rather, it’s offered as proof of the latter’s limited flexibility.

iBooks Author Template
Six templates. That’s it. Six beautiful templates, though.

iBooks Author templates

Pages Template
Multiple templates. Including the highly flexible “Blank Canvas.”

Pages template

Push Pop Press Lives

After downloading the free E.O. Wilson Life on Earth textbook, created with iBooks Author, I can see where Apple is headed. The Wilson textbook is cut from the same cloth as the Al Gore Our Choice opus, available exclusively on Apple’s iBookstore. They share a very similar navigation, structural and interaction model. I wonder if Apple hired some of the Push Pop Press devs responsible for the Al Gore work. If so, Facebook got the company but Apple got the better deal.

Bottom Line

This leads me to my conclusion: iBooks Author is but the latest installment in the battle between Apple and Amazon over the future of eBooks. Both are moving toward HTML5, albeit in proprietary or otherwise restricted ways. Amazon is offering publishing deals to lock in authors to exclusive contracts. Apple is using its (so far superior) toolset to the same end.

This is not a case where I feel comfortable saying “let the best bookstore win.” Of course, I recognize that the traditional publishing model is also based on exclusivity. But both Amazon and Apple blur the lines between publishers and distributors. It’s difficult at the moment to see how the “best of both worlds” can emerge in this model. Too many walled gardens, I fear.

Other Views

Back to the Audience

As an author, you think about your audience. Your “dear reader.” Or at least you should. Even if it’s only your inner audience. After all, there’s a reason you’re committing all those words to the page. A message, perhaps?

But getting your work published adds another dimension or two, enough so that you start to think perhaps the publisher is your audience. I say this from the perspective of someone for whom it took eight years from inception to publication. Twenty rejection slips. A complete rewrite of the entire work. The publisher held the keys to the kingdom and was, in a very real way, an arbiter between the author and her audience.

The rise of the internet and eBooks is supposed to change all that. Chris Meadows over at TeleRead takes it as a given that writers whose books the Big Six won’t take can sell directly to customers via Amazon, Apple and Barnes & Noble. The counter-thought, here from publisher Teresa Nielsen Hayden, is even more provocative:

Stated axiomatically: If you’ve written a book that people want to buy and read, you stand an excellent chance of getting it published by a real commercial publisher. If you haven’t, no clever workaround publishing scheme is going to help, because there’s no way to force readers to buy and read books they don’t want.

The backdrop here is whether or not publishers — traditional publishers — really care about “dear reader.” The accusation, which some in the industry (like Brett Sandusky) are taking seriously, is that publishers are not as customer-focused at they should be. If not, the argument goes, the customer is being underserved. This creates an opening for others. Are independent publishers more attuned to customers? Will they take over while the giants fail? Is Amazon poised to play a similar role?

The critical question is whether traditional publishers still hold the keys to the kingdom. Or even matter.

Certainly the pressure is being felt on all sides. Publishers are getting hit over agency agreements, which drive up prices. Authors are finding their work potentially highjacked by Amazon, which is pushing wholesale pricing at a cost to author royalties. Some customers are having second thoughts about eBooks themselves (though eBook sales are up 202%).

The tragic thing is what’s being lost in this conversation. All the forgoing “pressure” is focused on customers and the bottom line. Consumers want cheaper books. Authors want higher royalties. Publishers want profits.

But there is an older relationship that, I think, is more important. As an author, writing for your audience is paramount. They are more than mere customers. They’re your first duty. If you just write for the money, you’re a hack. Let me repeat. A hack. Good publishers — great publishers — recognize and support these obligations. And find writers whose work deserves a wider audience because it actually has something to say.

Teresa Nielsen Hayden puts it better than I: “Being focused on readers and their reactions is a marker for people who work in the commercial publishing industry. Reader-fixation is water, and [they spend] decades being a professional fish.”

Is the model that Hayden defends the only way? Heavens no. The internet is there, eBooks aren’t going away. But you better write the best book you can.

Kindle Fire: By the Numbers

The Kindle Fire is emerging as a certified hit for the holiday season. With a few lumps of coal thrown in for good measure. Here’s a look at the Kindle Fire, by the numbers.

No big surprise on the last one, except that Android is continually positioned as an “open” platform. Which implies that Kindle Fire users should also be able to get to the Google Android Market. They can’t. I guess that’s what “forked” means.

October 19, 2011

Like I Was Sayin’
Bookstores Drop Comics in Battle with Amazon

One group is watching the tablet war with a certain detached amusement: comic book stores.

“This fight between Amazon and Barnes & Noble is like the tide or a storm or an earthquake,” said Jack Rems, owner of the Escapist Comic Bookstore in Berkeley, Calif. “Nothing I can do about it.”

Amazon Makes the (Next) Move

Amazon Signs Up Authors, Writing Publishers Out of Deal [David Streitfeld, The New York Times]

Yes, This is About Publishing

As a disrupter, Amazon wants to shift the way people purchase and consume things. Books have always been high on their agenda. In some respects, in fact, it has taken longer to get there than Amazon expected. We’ve been talking about Amazon’s goals here since the mid-90s. If anything, they have been exceptionally patient (as have their investors).

Over the years, they’ve built an end-to-end infrastructure and platform. They know how to fill the channel. They’ll fill it with books, software and the devices to get (and keep) you there. As part of their keeping-the-channel-full strategy, they think it makes sense to go the last mile. They’ll start with the author-as-entrepreneur. One assumes they will eventually get some very big names, with extensive back catalogs, to sign on. Their hope is that the rest will follow.

This is the sound of the next shoe dropping. It comes just as I was getting excited about more publishing options for authors, not fewer.

But there is at least one competitor that can outflank Amazon. Update: Maybe too much so.

In the iPad, Apple has a great general purpose Post-PC that also happens to be a reading device. Competing on this level is not Amazon’s forte nor, I would venture, a core goal of its device strategy. Apple, meanwhile, seems to have an interest in keeping the publishing market (or at least the App Store) vital and competitive. Like Amazon, they increasingly sell an ecosystem.

This ultimately means that Apple must will take steps to ensure that Amazon does not become dominant in areas where their interests overlap. This is where we have historically seen Apple make alliances with other industry players. I expect that to play out again, although many in the industry worry that Apple already has too much power and would very much like to see Amazon become a countervailing force. I lean that way myself.

At the moment, it’s still a game of big ships, maneuvering into position, cannons at the ready. Not just these two giants. The entire publishing industry is on the water here, guns in various states of readiness. I’m keeping my options open. Which, for the moment, I can.