The Kindle is a big, shiny, distracting object

Hey book people: don’t be fooled by the Kindle. Amazon has no interest in hardware. That’s the conclusion Joe Wikert reaches in an excellent bit of analysis. I couldn’t agree more. The Kindle is a big, shiny object that’s distracting…

Hey book people: don’t be fooled by the Kindle. Amazon has no interest in hardware.

That’s the conclusion Joe Wikert reaches in an excellent bit of analysis. I couldn’t agree more. The Kindle is a big, shiny object that’s distracting everyone from Amazon’s more subversive (and smart) move: It’s trying to become the source of ebooks. It doesn’t want to own that market. It wants to rule it.

It’s entirely possible that Jeff Bezos and Co. originally sought to duplicate Apple’s iPod-iTunes model. But take a look at the evidence Joe presents: At some point in the last two years, Amazon realized it’s not Apple. The hardware gambit only works if you create something miraculous. The iPod and iPhone certainly qualify as technical marvels. Spend 30 seconds with an Apple product and you’ll come away deeply impressed. Spend 30 seconds with a Kindle and you’ll want your 30 seconds back.

Amazon just can’t cut it in the hardware game. I bet the higher-ups don’t particular care, either. This is a company that redefined retail efficiency. It’s masterful at satisfying consumer demand, more so than Apple or even the big daddy of the retail chain, Wal-Mart. Publishers need to realize — and the smart ones already do — that the Amazon threat doesn’t lie in a device. It’s in the distribution.

Honing my thoughts on book publishing’s big issues

I recently had the privilege of being interviewed by Victoria Sandbrook. In a serendipitous twist, I found that by answering her questions I clarified some of my thoughts around book publishing’s big issues. What follows is largely for my own…

I recently had the privilege of being interviewed by Victoria Sandbrook. In a serendipitous twist, I found that by answering her questions I clarified some of my thoughts around book publishing’s big issues. What follows is largely for my own archival purposes.

1. What is the best thing publishers can do to get ahead in the digital marketplace?

The thing they can do right now is centralize their editorial and production processes around “content creation.” Not “print books.” Not even “ebooks.” They’ve got to create content.

XML is a big key here. It creates flexibility to take advantage of all forms: print, EPUB, PDF, HTML, a hologram imprinted on your brainstem, etc. A digital-centric workflow also lets publishers quickly adapt to new ideas.

2. What parts of the established publishing model are most hurting expansion into digital publishing?

There are a couple that occur to me. The first, and biggest, is a print-first mindset. That’s a massive detriment because print is locked down and inflexible. Building digital products out of print products is unbelievably inefficient. And really, it’s just dumb. Everyone creates content in a digital form these days — know anyone who still uses ink and parchment? Why would you take something that’s already digital, lock it down in print, and then retroactively attempt to create digital formats from that inflexible product? It doesn’t make any sense.

The second issue is disregard for consumers’ growing power. The old model worked to the advantage of publishers and retailers. High distribution and production costs meant only the most committed businesses had the clout needed to get books into the marketplace. These firms could set their own terms because consumers didn’t have an Amazon-like option as an alternative. But now they do. Any publisher who does anything that works against the consumer is shooting itself in the foot. DRM is a perfect example. You’re not protecting content with that. You’re pissing off your best customers by preventing them from doing what they want with the content they purchased. And you’re doing that within an environment where the consumer has the power! I understand the DRM impulse. I really do. It’s a reaction to an irrational fear. But cooler heads need to prevail here, and that requires a deep understanding of market reality.

3. Why should small publishers stay small?

I’m totally biased toward this “small” thing, so take all this with a grain of salt 😉 It’s the ravings of a small evangelist …

Anyway … after 5 or 6 years of studying digital disruption in the content industries, I’ve reached one conclusion: there’s a successful model here, but it’s much smaller than what we’re used to. Someone may very well figure out how to create a giant business within digital’s dispersed environment (Google certainly cracked that code), but this mythical company will not accomplish this feat by transitioning a giant business built in a different age wholesale to the digital world. It just doesn’t work. Pricing is lower. Audiences are large, but dispersed. Consumers have unbelievable choice. So a business can’t count on 20 or 30 percent margins in this environment. It might achieve those margins in time, but you can’t walk into a digital business expecting those.

That’s why I believe small publishers are uniquely positioned to take advantage of digital. The Web creates stunning efficiencies. You can reach huge numbers of people through low-cost marketing (blogs, social media, etc.). You can manage inventory through low cost back-office software. You can even set up your organization to only produce physical products when they’re ordered (print on demand). There’s a lot of upside here. And small publishers have the agility to do these things. They aren’t trying to figure out how to support thousands of employees. They’re generally unencumbered by the old model. That’s liberating.

Problems arise when small publishers grow too fast for their own good. No one has figured out the end-all, be-all model of digital publishing. There are no assumptions, yet. There may never be. As such, a small publisher needs to be able to justify expansion because there’s no guarantee — or even a hint of a guarantee — that their larger size can be supported by fickle and fluid digital audiences. Think of it this way: Would you take on a $1 million mortgage if your annual earnings fluctuate wildly? Probably not (although that may be a bad analogy given events of the last two years …). I’m not saying don’t take risks. You have to do that. Just take smart ones. Understand how the digital environment is different from the traditional marketplace. Once you get that, you can correctly assess your options and make the best possible decisions.

I’m much more interested in building businesses, not saving them. “Small” is the foundation upon which all businesses are built. They get big. They don’t start big. We’re in an odd moment in history where the sea change of disruption is forcing big businesses to transition (“save themselves”). That’s unusual. In normal times — or less disruptive times — entrepreneurs build new businesses and grow them. Currently, we’ve got entrepreneurs doing their small-business thing, but we’ve also got these massive organizations attempting to shift to something new. I think those big businesses need to take a note from the small guys. They need to build businesses in this new environment. Not save them. Not ask for government handouts. Not hope for deus ex machina in the final act.

I’m reminded here of newspapers that closed earlier in 2009. The staffs thought they’d gather their resources and launch their own online-only publications. That’s not a bad idea, but they approached it the wrong way. They were trying to create something that could support 150-200 people out of the gate. Unless you’ve got massive venture capital funding, that’s not going to happen (even then … it’s just such a bad idea). Had they opted to create an online-only product and then grow it appropriately, they would have had a much better shot at success.

4. What do you think will “flip the switch” on digital text? What will make it become the dominant product we publish?

I think it’ll be a gradual evolution that builds toward a tipping point. We’re in the evolutionary stages now … the upside of digital is becoming apparent to envelope-pushing publishers. Devices are being created to deliver digital content. Younger generations are more and more acclimated toward finding and absorbing material in a digital format.

The thing that tips it could be a device. That’s always exciting and fun. But it might also just be the inevitable moment when more money can be made from digital content than print content. It’s really hard to say.

I know publishers of all types like to point to the iPod as a tipping point moment. And it was to an extent. But the debut of that device was made possible by a massive number of decisions made prior to the iPod’s arrival. The move from cassette to CD, for example. There’s no way the iPod would have arrived when it did if people weren’t already accustomed to digital music. The leap from cassette to “digital file” was too great. But the shift from cassette to CD to digital file was easier. See what I mean? There’s all these little steps that add up, and you really can’t see the lines connecting the dots until you look back over the history of a format or device. To me, that’s one of the most intriguing parts of this. There are forces at play and things happening that we won’t fully understand until much later. Again, acknowledgement of this is the first step. Creating the agility needed to take advantage of these opportunities is the second. It’s like catching a no-look pass. You need to read the situation to know that pass might be coming your way. You also need the dexterity to snare that ball when it suddenly appears.

5. Why is Amazon’s e-book pricing problematic?

Amazon’s pricing is only problematic for publishers. It’s great for consumers. It’s great for Amazon, too, even though they’re currently subsidizing a whole lot of the cost. But Amazon is a long-view company. I’ve always respected Jeff Bezos’ ability to shrug off short-term naysayers and keep his focus on the horizon. And that’s why Amazon’s $9.99 price point is a big problem for publishers. In Amazon, they’re up against a company that’s in it for the long haul. Amazon is willing to pay a lot of money short-term to redefine the marketplace for digital books. If that redefinition happens — and I can’t see why $9.99 wouldn’t be more successful than $19.99 or $29.99; lower is almost always better — Amazon will be able to go back to publishers and say: “We’re your biggest retail channel. We set our prices at $9.99. We’re ending our subsidy and taking 20% for ourselves. You’ll need to adjust your pricing (and your business … and your entire model) accordingly. Take it or leave it.”

That’s the power of popularity. That’s what Amazon is doing here (I think … Bezos and Co. are a lot smarter than me).

Now, some in the book publishing world believe they need to create a competitor to Amazon. Collusion concerns aside, that’s not a bad idea. Competition is a good thing. But there has to be a Plan B, and it must come from within publishing organizations. Publishers need to figure out how to make money on $9.99 books (or $4.99 if they’re iPhone apps …). You do NOT want to challenge consumer expectation. Truly, the price point isn’t about Amazon. It’s about Amazon’s ability to harness consumer expectation as leverage. And they’re doing that masterfully. So publishers need to get out in front of this and figure out how to make money on those lower price points. Centralization of content through an XML workflow is one way. That increases efficiency. But publishers also need to experiment with different platforms (iPhone, Android, their own sites, etc.) They also need to consider ways to serve consumers through non-book products. I don’t have the answers here. I just know that when you’re confronting an adversary head on, it behooves you to consider flanking maneuvers.

An exclusive search engine deal for newspapers can’t be far off

Reports suggest Microsoft is courting European publishers for some sort of Bing-based news thing. Meanwhile, Rupert Murdoch continues to shake his fist at Google. Cory Doctorow connects the potential dots at Boing Boing: So here’s what I think it going…

Reports suggest Microsoft is courting European publishers for some sort of Bing-based news thing. Meanwhile, Rupert Murdoch continues to shake his fist at Google. Cory Doctorow connects the potential dots at Boing Boing:

So here’s what I think it going on. Murdoch has no intention of shutting down search-engine traffic to his sites, but he’s still having lurid fantasies inspired by the momentary insanity that caused Google to pay him for the exclusive right to index MySpace (thus momentarily rendering MySpace a visionary business-move instead of a ten-minutes-behind-the-curve cash-dump).

So what he’s hoping is that a second-tier search engine like Bing or Ask (or, better yet, some search tool you’ve never heard of that just got $50MM in venture capital) will give him half a year’s operating budget in exchange for a competitive advantage over Google.

Toss in the growing idea that Twitter, Facebook and other recommendation-based results are now more important than Google traffic and we’ve got a very interesting set of signals.

Want to encourage piracy? Netflix and the movie studios show you how!

Looks like Netflix and the movie studios are about to make piracy more enticing. Good move, guys. From TechCrunch: Here’s what this will do: It may drive sales of DVDs a bit short term. But soon, online movie piracy will…

Looks like Netflix and the movie studios are about to make piracy more enticing. Good move, guys. From TechCrunch:

Here’s what this will do: It may drive sales of DVDs a bit short term. But soon, online movie piracy will pick up to new heights. If the movie studios have nightmares about piracy now, their reality will be truly terrifying with this plan in place …

… with this new 30-day window in place, the masses would be driven online to search for more illegal content — and more importantly, it would begin to fuel a piracy ecosystem for Hollywood content. There would be more people downloading, but also more people sharing. That’s the key.

Take a look through any torrent site (looking is legal) and you’ll see that most of the activity occurs around new releases. And that’s happening under the current system where new releases are available for purchase or rental. Remove rental from the equation (you know, the lower priced, easier, less restrictive option) and suddenly pirates go from fringe-dwelling copyright violators to service providers. I’m guessing that’s not what the studios are shooting for.

Well, damn. DVRs aren’t so bad for advertising after all

Remember how DVRs were going to kill TV advertising real bad? Yeah … about that: Against almost every expectation, nearly half of all people watching delayed shows are still slouching on their couches watching messages about movies, cars and beer….

Remember how DVRs were going to kill TV advertising real bad? Yeah … about that:

Against almost every expectation, nearly half of all people watching delayed shows are still slouching on their couches watching messages about movies, cars and beer. According to Nielsen, 46 percent of viewers 18 to 49 years old for all four networks taken together are watching the commercials during playback, up slightly from last year. Why would people pass on the opportunity to skip through to the next chunk of program content?

I love the explanation for this seemingly impossible turn of events:

The most basic reason, according to Brad Adgate, the senior vice president for research at Horizon Media, a media buying firm, is that the behavior that has underpinned television since its invention still persists to a larger degree than expected.
“It’s still a passive activity,” he said. [Emphasis added.]

Sure is! Never underestimate the power of passivity.

The New York Times deserves kudos for writing this story because, far too often, the Chicken Little projections of execs and analysts are left unchecked. Consumer behavior and disruptive technologies are moving targets, so remember that the next time the latest iPhone killer or Kindle killer or ad killer or media killer is touted. Reality is contextual and complicated.

Early signs that content creators and platform providers aren’t on the same team

It often seems that major content companies and platform firms walk in lockstep when it comes to digital distribution, but two articles published today reveal significant philosophical differences. Here’s an excerpt from a Bloomberg story on Viacom’s uneasy relationship with…

It often seems that major content companies and platform firms walk in lockstep when it comes to digital distribution, but two articles published today reveal significant philosophical differences.

Here’s an excerpt from a Bloomberg story on Viacom’s uneasy relationship with online viewing:

Viacom has to ensure that placing television shows and films online adds to its profit, through sources such as advertising sales, subscription fees and revenue from enabling users to buy content by downloading it, [Philippe] Dauman said. The viability of such a model relies on strong intellectual property safeguards, he said. [Link added.]

And here’s a passage from an AP story looking at a similar online offering from Comcast:

Comcast executives said the company plans to generate revenue by adding more and different types of ads on the sites. But the company’s goal is not necessarily to profit from it but to keep subscribers happy enough so they don’t cut the cord or defect to a competitor. [Emphasis added.]

The content creator is worried about direct revenue from the content, while the platform provider is more concerned about keeping its subscribers happy. It’ll be interesting to monitor Comcast’s mindset if/when that NBC deal goes through.

Twitter’s most impressive attribute, explained in 115 characters [Quote]

“Essentially, Twitter left a ball and a stick in a field and lurked on the sidelines as its users invented baseball.” — Steven Levy in an excellent Wired piece….

“Essentially, Twitter left a ball and a stick in a field and lurked on the sidelines as its users invented baseball.” — Steven Levy in an excellent Wired piece.

Fear = Epic Fail

The disruption sweeping across the content industries tends to whip the fear up in media folks. Newspapers are dead! Newfangled gadgets are killing predecessors! Free is locked in bloody conflict with pay! “Human sacrifice, dogs and cats living together…

The Science of Fear, by Daniel Gardner The disruption sweeping across the content industries tends to whip the fear up in media folks. Newspapers are dead! Newfangled gadgets are killing predecessors! Free is locked in bloody conflict with pay! “Human sacrifice, dogs and cats living together … mass hysteria!

It’s all a bit much.

That’s why I find the reasoned perspective in Daniel Gardner’s excellent book “The Science of Fear” so refreshing. For example, the following excerpt objectively traces the genesis of fear in just a few dead-simple sentences. Entire fields of rigorous academic inquiry have failed to define fear’s pathways so aptly:

But how do people choose which risks to worry about and which to ignore? Our friends, neighbors, and coworkers constantly supply us with judgments that are a major influence. The media provide us with the examples — or not — that Gut feeds into the Example Rule to estimate the likelihood of a bad thing happening. Experience and culture color hazards with emotions that Gut runs through the Good-Bad Rule. The mechanism known as habituation causes us to play down the risks of familiar things and play up the novel and unknown. If we connect with others who share our views about risks, group polarization can be expected — causing our views to become more entrenched and extreme.

Seems easy, doesn’t it? If we acknowledge bias and our own reactionary triggers, we can elevate analysis above the muck of fear. No more killing gadgets or dying industries. With a little reflection, we can view the issues at play within the context of what’s actually happening.

Amazon Resurrects Orwell Annotations and Opens a New Can of Worms

In an attempt to tie up the Orwell debacle, Amazon is offering affected customers replacement copies of “1984” or “Animal Farm” and the reinstatement of any personal annotations. From the New York Times: Amazon said in an e-mail message to…

In an attempt to tie up the Orwell debacle, Amazon is offering affected customers replacement copies of “1984” or “Animal Farm” and the reinstatement of any personal annotations. From the New York Times:

Amazon said in an e-mail message to those customers that if they chose to have their digital copies restored, they would be able to see any digital annotations they had made. [Emphasis added.]

It’s been more than a month since Amazon extracted the questionable Kindle editions, yet assumed-dead user notes now spring phoenix-like from the Orwellian ashes. Why the delay? Amazon, it would appear, claims jurisdiction over the saving, disassociation, and, if it’s feeling magnanimous or motivated, full reinstatement of user notes according to its own schedule.

Playing devil’s advocate, it may be that Amazon felt the controversy surrounding the Orwell deletions warranted back up of the notes, and perhaps the restoration delay was tied to a rights issue. But even with these (potential) explanations, a “surprise note resurrection” reeks of creepiness. If Amazon didn’t delete annotations associated with illegal books — an unfortunate but reasonable bit of collateral damage — then what does it delete? Are the mistakes and alterations in my shopping cart history burned into a permanent record? Can a deleted S3 file miraculously reanimate? I can’t help but raise an eyebrow toward all of Amazon’s services, which is a shame since I admire the company’s non-Kindle offerings.

Naturally Scarce Products Call “Shotgun.” Advertising, You’re in Back

In an interview with CNBC, Gary Hoenig, general manager for ESPN The Magazine, says the economic downturn put advertising in the hot seat: … the overdependence on advertising is a real crutch for media and this is an opportunity for…

In an interview with CNBC, Gary Hoenig, general manager for ESPN The Magazine, says the economic downturn put advertising in the hot seat:

… the overdependence on advertising is a real crutch for media and this is an opportunity for us to actually get to the consumer and say, “Hey, what are you willing to pay for”?

The advertising conundrum is something I’ve run up against throughout my career. In an odd way, my focus on Web content forced me to confront the detriments of advertising earlier than my print and broadcast comrades because Web ad rates have always been low. The rest of the industry is learning what Web folks already know: ad revenue kinda sucks.

When I started to conceptualize a sustainable model for online content businesses — a project I’ve been working on for quite a while — I pushed advertising to the back burner. It’s still present, and money can certainly be made in the online ad realm, but it’s a rickety foundation for a content business. That’s why I diversified the revenue streams across naturally scarce products (education, consulting, research, in-person events), sponsorships, and advertising. The aggregate is far more stable than advertising alone.

And speaking of that sustainable model for online content businesses project: each section includes a comments area, and I welcome all suggestions and criticisms. The model’s fundamental concepts aren’t original, and I’m certainly not positioning this as anything revolutionary. Rather, it’s a collection of ideas, theories and guidelines that I collected over the years and arranged into a structure. What it becomes and where it goes are up in the air, but I found the organization and writing process quite useful. The framework helps me parse the vast number of perspectives and innovations I run across.