There is another, emerging POD, however:  purchase on demand.  While print on demand (I will be careful about using the abbreviation here, as it can lead to confusion in this context) changes the economics of book production, purchase on demand changes the economics of book consumption.  Both forms of POD are likely to grow in the next few years and their development will increasingly be linked.

Consumers are used to purchasing things on demand, so what’s the fuss?  Someone walks into a bookstore, eyes a copy of The World Without Us or Sense and Sensibility, picks it up, and steps to the cash register, where it is purchased–on demand.  In this situation, the burden of maintaining the inventory lies with the bookseller, not the consumer.  The bookseller provides the necessary aggregation (the huge stock of titles in a bricks-and-mortar store), and the consumer plucks one copy out of that aggregation for purchase.

Not all books are sold one at a time, however; in not all instances is there a bookseller or an equivalent who is willing to bear the cost of carrying inventory.  In academic publishing, for example, one marketing practice is the standing-order plan.  For this kind of service, libraries fill out a profile (“Send me all books on American history, but do not include titles from the following list of publishers”), which is filed by a wholesaler.  The wholesaler then ships all books that fit the profile to the customer.  In this instance the cost of carrying the inventory is borne by the library, which receives hundreds, even thousands of titles, none of which have been individually examined by a librarian.

Purchase on demand arises when a subscription service such as a standing-order plan is already in place.  The aim of the purchaser is to disaggregate the subscription and pay only for specific titles.  This practice, which is just now beginning in the book industry, shifts the inventory risk from the library back to the wholesaler–and the wholesaler may in turn shift it back to the publisher.  The full economic implications of this are not known, but it is likely to result in fewer books being published, fewer copies of books being printed, and higher prices for the books that do get published.

Subscription bookselling is not new (think of the Book of the Month Club), but in a digital age, it is becoming more common.  One growing practice is the sale of digital aggregations of books to libraries, for which Oxford Scholarship Online is the model.  If OSO were to be moved to a purchase-on-demand program, the many titles in the collection would not be paid for until a library patron actually wanted to look at them.  Many publishers are now launching services very much like OSO’s, and Google is arranging to market even larger aggregations as an outcome of its recent legal settlement with publishers.  Will libraries want to acquire the entire collections, or will they determine to pick and choose, letting patron demand drive purchases?  It’s useful to ponder what purchase on demand will mean in the context of the recent Google-publisher settlement. 

For a library to move to purchase on demand, it will have to make a comprehensive catalogue available to its patrons, with instructions on making requests (“only two purchase requests per patron per week,” etc.).  The catalogue will serve as a front end to book acquisition (and it should be noted that many of the acquired books will be printed on demand).  There is no catalogue in existence today with sufficient information to support the various requirements of purchase on demand.  Amazon’s catalogue covers too much territory  for academic libraries and lacks summaries and other essential metadata; the catalogues of the wholesalers themselves are highly compressed; the catalogues of individual publishers are not aggregated in a single place.

While these examples are from institutional markets, it is likely that some of the same forces will apply as consumer subscription services are established.  We have already seen this in the music business, where consumers have gleefully been disaggregating the collections of songs stored on a single CD.  For producers of intellectual property everywhere, it is useful to bear in mind that digital technology can be applied to every point of the supply chain.  The use of bits over atoms does not put an end to the economic jockeying of producers, distributors, and customers.

Let’s say more and more real book readers find, “you know, reading on this iPhone, Android, smartphone I have is pretty good…” And the marketplace for reading on the phones grows quickly. Plenty of skeptics for that idea, sure. But not impossible. (Keep this in mind: three doublings make ebooks 8% of the market. Will that happen in 3 years? It certainly couldn’t take as long as five…)

Let’s further say that iPhone does not end up owning the world, and iPhone and Blackberry find themselves competing on everything — including “aps” and, of course, including books, with Nokia, Dell, Google Android, etc. And let’s say that (at least for a very long time) each device and screen and market channel creates enough need for some proprietary tweak that we add admin, tech, quality control, and a host of sales and marketing issues to be dealt with by the publishers and distributors. Seems like’s what’s happening.

And let’s say that multiple developers will create competing platforms to run on all those phones. We know about Stanza and Scrollmotion Iceberg for the the iPhone right now. Amazon bought Mobipocket specifically because it was multi-system compatible, which at that point meant it could play on both Microsoft dot lit and Palm PDAs. We already have a complicated distribution system with Ingram Digital and Content Reserve as the principal distributors to get publishers to online retailers and libraries, but not really putting you on Kindle or iPhone.

Just seems to me that ePub can’t solve all these problems automatically. I’m sure it will be a big help, but opportunities to complicate things are arising faster than standards can be created to keep up with them.

If sales of digital files become significant AND they are maximized only by managing the technology, deals, and marketing at a wide variety of major accounts, it is a good thing for publishers and for DADs (digital asset distributors). And, parallel to the physical marketplace, it will be interesting to see what tradeoffs develop between handling an account through a distributor and managing it directly. No doubt the technology pieces will prove to be best handled by an aggregator or consolidator, but the quality control and product marketing opportunities will be aspects publishers will want to control.

Why is this good for publishers? Because the key way publishers ADD VALUE is by managing a complex set of revenue opportunities. To the degree that almost all the sales take place in Barnes & Noble and Amazon, plus what you can get from Ingram and Baker & Taylor, it weakens the publisher’s core competitive and value proposition. If ebook sales take off in a highly fragmented way, which now seems to at least be a possibility, it will drive the standards and interopability and efficiency wonks absolutely crazy, but it will give a lot of publishers some very constructive work to do.

When Amazon started out, we knew little of all the things Amazon subsequently taught us, things like the ease of ecommerce, the technology of user authentication and online processing of credit cards, the value of superb customer service, and that unique characteristic of the Web, the ability to create a storefront that could claim to hold truly comprehensive inventory in a particular domain.  While not all organizations do these things as well as Amazon today, and none do them better, the fact is that Amazon has taught us well:  more and more of what Amazon does is now available to rivals.  It is no longer necessary to build your own shopping cart, and if you are stumped by the risks involved in taking an order by credit card, there are vendors lined up to take this problem off your hands.  The gap is closing, and for Amazon to stay ahead of the pack, it must continue to innovate at a breathtaking clip.

Unfortunately for Amazon, other Web services are coming up with comparable innovations.  Amazon built a community around its offerings, but the Amazon community is nothing compared to those found at MySpace, Digg, or Facebook.  And Amazon created what may be the first credible ebook device, the Kindle, but already the possibility of reading etexts on the iPod and iPhone is making the Kindle seem like an unlikely winner.  We can imagine a Dr. Frankenstein of ecommerce rummaging in the graveyard for body parts to cobble into the monster that will resemble nothing so much as Amazon:  A second-best shipping system, a second-best shopping cart, a second-best print-on-demand service–but in the end, a credible alternative to Amazon’s systems:  not good, but good enough.

Where Amazon continues to trump all pretenders is in the breadth of its inventory–The World’s Largest Bookstore was its original claim.  It would be very, very hard to replicate this inventory (or, rather, the online catalogue that represents that inventory, which may be warehoused at Amazon or at Amazon’s many vendors).  It may no longer be necessary to catalogue and support all titles, however, if a new online merchant could dominate a particular subject area.  Mike Shatzkin has argued persuasively that the infrastructure of online bookselling marks the end of general trade publishers, which will be replaced with “verticals” in particular fields, abetted by tapping into online communities built around particular topics.  In time the science fiction vertical or the ancient history vertical or any number of other subject-specific sites could incorporate ecommerce activity and pressure Amazon at the edge of empire, relying on the intensity of community involvement to strengthen their marketing proposition vis-a-vis the industry leader.  Amazon tries to be all things to all people, but a niche site must simply be everything to a self-defined group of people.  The intensity of focus becomes the merchandising weapon of choice.

It is astonishing to think of how little a new, topically-based ecommerce site would have to do for itself.  Inventory can be drawn from Ingram or Baker & Taylor; ecommerce software can now be purchased off the shelf; fulfillment (once a big headache for warehouses that were not set up to handle orders to individuals) now has several suppliers; metadata for catalogue entries supporting the ONIX standard can be sent from publishers to the new site; and so on.  Part of Amazon’s position at the head of the pack derived from its willingness to invent new infrastructure and build it.  Now the world of ecommerce is being disaggregated, and the vertically integrated Amazon is beginning to look like it was built for an earlier era.

These thoughts, and the controlling metaphor, were prompted by a recent experience in my local, beloved used-book store.  I wandered among the idiosyncratically organized stock, the stacks of books of all description, the book spines whose lettering had worn away:  paradise.  There on a shelf I spotted the two-volume Modern Library edition of Gibbon’s Decline and Fall of the Roman Empire.  I hesitated before picking up the books and carrying them to the cash register, but I had promised myself to read Gibbon before I died.  I joked with the cashier that she wouldn’t see me for a long time because I had a very long book to read first.  She said that I would have to read quickly, as the store would close in a month.

Among other causes, Amazon had helped to put that store out of business.  But the proprietor has already begun his next venture, in online bookselling.  He is not himself a threat to Amazon (some of what he will do will be with Amazon’s many services), but he is one of many people and companies gradually coming to terms with the behemoth and finding new ways to find a customer, turn a profit.  It is an army of thousands and they are starting new ventures, testing new value propositions.  It could be said that if any of them achieve anything of importance, Amazon will simply buy them.  But Amazon can’t buy everything:  unlike the imaginative space opened up by a book, the balance sheet of even an imperial corporation is not infinitely extensible.

Is Amazon’s weakness its growing arrogance?  Perhaps.  Speak to the vendors who are now struggling with Amazon’s new Vendor Central system and you will find countless volunteers ready to bring down the tyrant.  Or perhaps Amazon, seeing the success of the iPhone and Stanza ebook reader, is getting desperate, as was suggested by one individual (not cited by name here as the comment was made in a private mailgroup); and this desperation has resulted in Amazon’s new insistence that it will only sell ebooks in the Kindle format.  Amazon would have us believe that resistance is futile, but the growing number of publishers studying alternatives to the Kindle suggest otherwise.

Amazon’s decline will come about because it will not be able to monopolize ebook distribution with the Kindle; because new business models (mostly based on subscription sales of aggregated content to consumers, not unlike Safari Books and similar in form to NetFlix) will challenge Amazon’s operating philosophy; because social networks organized around special interests will help to solve the problem of bringing traffic to a new or series of new online stores; because so many of the pieces necessary for an ecommerce site are available at modest cost from multiple vendors; and because many people are motivated to storm the barricades, whether for profit or just for the hell of it.

Amazon will not go quietly or quickly.  It is a great company and no stranger to risk or innovation.  But we are not likely to see Amazon continue to grow and increase its dominance of publishing and bookselling.  Sometimes it’s just time to go.

It may depend on which point you wish to make, however. I happen to agree with the idea that the brands of trade publishers have little meaning to consumers, despite the handful of exceptions (such as Penguin, Dover, and branded reference works such as Frommer’s, the For Dummies series, and Merriam-Webster). And I am all for aggregations. But RH may be looking beyond this. This is because on the Web, aggregation can take place in real time, and what appears to be a would-be stand-alone destination site may really be a starting point for syndication, not to mention an important element of an intellectual property strategy.

To begin with the easy point: the RH Web site is a natural outcome of the proposed legal settlement between various publishers and Google. That settlement marks a significant change in the publishing landscape, from a time when the key split was between works under copyright and works in the public domain, to the settlement terms, where the split is between what is in print and what is out of print. By building an extensive POD site, RH is now asserting that more and more of its titles are in print, thus keeping them under RH’s direct control and away from Google’s agreed-upon right to exploit titles that are out of print. So score one for RH in terms of intellectual property: What was out of print is now in print, and the POD Web site is proof positive.

Once RH asserts its rights, it can then exploit them. One way of doing this is to create a Web site that is search-engine friendly, which will drive traffic to the RH site. But the traffic need not come to the RH home page; the links can be deep inside the site, on the granular level of individual titles (or keywords associated with individual titles). This is real-time aggregation: the Google search-engine results page is the new B&N, the new Amazon, an aggregation created dynamically every time somebody does a search. In the ecology of the Web, a publisher’s own site is simply a loose assembly of parts, each of which is indexable by Google–thus findable and potentially leading to purchases, whether on the RH site or at the site of any other designated storefront. Offline, few publishers’ brands mean much of anything; online, only one brand matters, and that is Google. All the rest of the Web is a basket of keywords, woven together by the act of search.

If all that matters is keywords and the individual products they support, why not build a Web site for each book? Not a bad idea, costs aside, but this raises the question of climbing high in search-engine rankings. Now, the algorithms of search engines can change at any time, but at this time a collection of pieces (books, book descriptions, articles, etc.) has a higher ranking on search engines than would an individual item. The individual book, that is, benefits from the combined search rank of the rest of the site. This is seen clearly with Wikipedia. Test it. Go to Google and search on an obscure item. You will find a link high in the rankings for Wikipedia. You may be the only person who has ever searched Wikipedia for that item, but still the link to Wikipedia is usually among the top four or five on Google. This is because search ranking is cumulative: your search for an obscure item is raised up by the billions of Wikipedia searches on such popular terms as “Obama,” “Britney Spears,” and “George Bush.”

We should not assume that RH does not know how search engines work. RH’s Web site will give a higher ranking to all its books simply by putting them in one place and playing to Google’s current search algorithms. The RH brand may have little meaning to consumers, but it will develop a huge significance for Google. It’s simply wrong to think that the RH Web site is built for people: it’s built for search engines, who then direct people to the ranked sites.

Another reason for a publisher to have its own site is simply to assert control of the information about its products. For all the merits of reader reviews, comments, and the like, few marketers of any product like to have others determine what is said about their products. The RH site gives RH an opportunity to create metadata (including abstracts, summaries, reviews, etc.) about each book, content that may then be syndicated across the Web even if no one ever reads it on RH’s own site. If a particular title is available from Amazon as well as RH, Amazon may choose to use the RH metadata to sell books at its own (that is, Amazon’s) site. This is true of any venue for books, which benefits from free access to the information RH has developed. In this scenario, the RH site is not a Web destination but a toolkit for other sites–not an aggregation in the conventional sense but a repository for others to draw on.

Having taken great pains to assert that the RH brand means little or nothing to consumers–but that having a RH-branded site is valuable regardless–it’s probably worth asking if RH may be undertaking a long-term effort to give meaning to its brand. It couldn’t do this in bricks and mortar; it couldn’t do this when it sold one book at a time. But online, many things change. RH may begin to market subscriptions to certain categories–The Mystery Subscription or The American Politics Subscription. In effect, RH may be taking the earliest steps toward a new kind of consumer publishing, one in which publishers’ brands will matter. Offline, this was impossible; online, anything is possible.

Fundamentally, it’s time to stop thinking of the Web as a universe parallel to bricks and mortar. Offline, there are stores; online, there are evolving dynamic relationships. Offline, aggregation is critical; online, aggregation takes place in real time and sweeps up virtual objects wherever an IP address can be found. Offline, B2B brands matter little to consumers; online, such brands can cleverly insinuate themselves into the value chain. We should not assume that the people at RH are stupid, despite the fact that they are, ugh, book publishers.

We usually start to see the best sellers, both fiction and non-fiction, a year or so after they come out, and are flooded with them over the next several years. Not surprisingly, all of our donations lag trends by several years while our sales tend to reflect current trends. Before my time, Westerns were a large category. Now they are down to a couple of shelves. Hard cover fiction doesn’t sell as well as it used to, and we can now sell trade size paper backs, in good condition, for the same price as regular hardcovers ($1) and often more. The hard cover fiction section is shrinking, but mystery/thrillers is growing. The public donates far more self-help/medical/family books than they will buy. Poetry is surpringly, at least to me, popular and we rarely have much left after our second sale. I’m still waiting to see when we’ll start to get more than a few Manga books. It should be happening any year now. There’s no big surprises about any of this. What I really want to write about are video tapes and CDs.

Five years ago, we were getting a modest number of video tapes, maybe 200 or so. They easily fit onto 3 shelves for display. The numbers grew slowly for several years and we’ve been gradually expanding their display space. By 2006 we were getting enough that we started selling them in both our sales, where previously they were for sale only once a year. But over this summer they suddenly started pouring in. We have most of 2 bookcases full and have stored 14 boxes (the kind that hold reams of paper). We’ll be dropping the price from $1 each to 50 cents. Given the shift over to DVDs, it’s not at all surprising that we’ve seen so many video tapes coming in. What has really surprised me is the suddenness with which we’ve been innundated. I shudder to think what will happen next year.

Five years ago we didn’t get any DVDs. Over the last several years we’ve been getting gradually more and more of them. Where we might have had a dozen 3 years ago, we probably have well over a hundred this year. I’ll be curious to see how quickly folks switch to video on demand and become comfortable enough with it to give away their DVD collections. That will be the point at which we start receiving them in massive quantities.

We accept and sell vinyl records and people have been donating their collections for years. No particular change there. We’re seeing fewer audio tapes, although we still get plenty. But the CDs have mirrored the video tapes. Five years ago we had a modest number, and the volume has increased steadily ever since. Last year we dropped the price from $2 to $1. Now this year we are suddenly overwhelmed with them. We’ve had people bringing us their entire CD collections, boxes and bags at a time. This is the first year that we’ve had so many that we feel obliged to sort them out into categories as we do with the records. Previously, if they were sorted at all, it was only into classical music and non-classical music categories.

We all know about the shift from video tapes to DVDs and the trend toward keeping music on computers and buying it online. So none of this is really surprising. But in thinking about what I’m seeing at the Booksale, I’d say that at least some folks are now far enough along in those trends to finally be willing to give up collections. It looks to me as if, at least in my fairly affluent part of Northern New Jersey, there are increasingly more households who have completed their shift to DVDs and are now ready to get rid of all those old videos which “aren’t worth much”. I expect that we’ll see the same huge numbers of video tapes for quite a few years to come, just as we still get vinyl records. Folks have been slower to donate their CDs, but just this year I think we’ve hit the tipping point there as well. Next year will show whether that’s the case, but I’m quite confident in my prediction that we’ll have even more CDs to deal with then.

If what I hear the pundits say is correct, and people move away from DVDs to video on demand, netflix, etc. then eventually the Booksale should start getting a flood of DVDs. But that hasn’t happened yet. I think we’re still getting duplicates, the I-didn’t-like-that-movie, etc. rather than full collections. Which suggests that DVD collections still have some perceived value. I’m quite curious to see how long it takes for the trend to take hold. When material floods in, and demand is slowing enough that we have to lower the price, that will indicate that the trend is mature.

I think most of the E-Ink ebook readers in the market are doomed to failure. They don’t do enough, and what they do, they do poorly. The world gave up on monochrome screens some ten to fifteen years ago; even the New Yorker and the Wall Street Journal started printing color pages about then. E-Ink displays are kind of like dancing bears — it’s not great dancing, but it’s remarkable that it dances at all. Amazon’s Kindle is an interesting exception, because it’s not really about reading. It has several features which distinguish it:

• An always-on no-subscription-fee Sprint EVDO connection. This means that it’s always connected (or at least tries to be that way), and that connection is part of the sale price, not something extra to sign up for. No WiFi hotspots to hunt for, pay for, and sign on to. How much is Amazon paying for this? I’m told that access to Sprint’s EVDO network for unlimited data transfers is on the order of $50/month — surely Amazon has negotiated a deal here…
• But still — how do they pay for that EVDO? Perhaps with the fact that the Kindle serves as an always-connected consumer-carried sell-me-something terminal for Amazon. Think of this: the consumer carries around with them a sales terminal which only connects to your store, and makes buying something very very easy. What’s more, it’s big enough that it preempts any other retailer’s similar store-in-your-pocket. They sell one big flat-screen TV and they’ve recovered the cost of the Kindle. Do they give a cut to the EVDO provider?
• Amazon has moved agressively into the book market, both with paper books and then with ebooks, buying both Mobipocket and Audible.com, the big seller in the spoken book market. And any of these can be purchased from the Kindle (and then “read” on the Kindle). Book purchases are not an important factor for Amazon here, but the fact that it’s a book reader is. This gives the consumer an excuse to carry it around, a critical factor for success as a impulse-purchase terminal.
• The Kindle has an “experimental” web browser, email support, a keyboard so that you can type into it. In fact, it’s sort of like a butterflied laptop with a bad screen — looks a lot like those old Alan Kay DynaBook mock-ups. So Amazon is pushing into the “Internet tablet” space; this isn’t really just an ebook reader. The apps are not great, and the keyboard is pretty stiff, but at least they are there.

In short, I think the Kindle may have a future, despite its technical shortcomings, because it directly supports Amazon’s very agressive selling (books and otherwise) business plan. I expect the Kindle to evolve as technology does, perhaps a bright color OLED screen, possibly with a touch surface, coming eventually. This seems to be an example of a perceptive and forward-looking business strategy, perhaps somewhat hampered by relative inexperience in consumer product design.

Note the similarities to the iPhone: always on, point-of-sale terminal for iTunes music and movies, agressive moves into the music and movies businesses, Internet tablet apps. Different design points, to be sure; Apple had to go with bright color to sell movies, and “it’s a phone” is the excuse for the consumer to carry it. I wonder if the bright color screen, plus the woeful state of current battery technology, dictated a pocket-sized phone rather than a larger tablet — would a big screen wear out a small battery too quickly? MacBook Air and iPhone 3G reviews suggest as much. Or was the “phone” necessary as the excuse for the consumer to carry it?

The competition isn’t exactly head-to-head here; one can’t buy soap or basketballs from Apple (yet). However, as a point-of-sale terminal, the iPhone has a number of differences from the Kindle, most of which seem to be advantages:

• Both products have high-dot-pitch screens (163 dpi for the iPhone, 167 dpi for the Kindle), which gives a crisp sharp detail to the edges of text. However, the Kindle screen is limited to 8 (4?) shades of gray, and relatively slow to update (to save on battery life), while the iPhone appears to be 32-bit color, and updates quickly enough to play movies and games. In addition, the iPhone screen includes a backlight, so it can be read in the dark without additional lighting. Perhaps most importantly for a retail device, the iPhone can display mouthwatering full-color alpha-blended photos of products for sale, while the Kindle has to settle for that 2- or 3-bit grayscale. The iPhone’s screen is a fair bit smaller, 320×480 (3.5 inch diagonal) versus 600×800 (6 inch diagonal) for the Kindle.
• The “excuse” of buying a phone, rather than buying a dedicated ebook reader, is much more palatable for many many people. As I explained elsewhere, a dedicated ebook reader competes with much cheaper and more durable book technology, while buying a cell phone has become a standard practice for many people, and is subsidized by the phone companies. What’s more, Apple has reversed the income flow for connectivity that Amazon must be paying; the consumer pays Apple (indirectly through the phone company) for connectivity, rather than the other way around! Beautifully done, Apple.
• The iPhone fits in a pocket; for most pockets, the Kindle doesn’t.
• The iPhone is designed as a communication device; the Kindle isn’t. This seems to me to be a huge advantage for the iPhone; human beings are natural communicators, and they flock to anything that gives them cheaper/better/different ways of talking with each other.
• A consumer can “watch TV” on the iPhone (which should speak for itself).
• The iTunes App Store opens up the iPhone to other uses, and to other retailers. Fictionwise has already released an app to sell books in eReader format from their bookstore. Stanza connects a reader to a huge free backlist of out-of-copyright (or open source) books, stories, and articles. A variety of free applications connect readers to news stories and RSS feeds, and the full-color standards-compliant Web browser is there for other sites. You can even shop Amazon from your iPhone. Where’s the Kindle equivalent of this?
• What’s more, the App Store creates an incentive for developers to imagine and then create new uses for the iPhone. This makes it more useful to consumers, thereby increasing sales. Nice market penetration strategy. Apple keeps 30% of the sales price for their efforts, and sends the other 70% off to the developer.
• The iPhone handles HTML, PDF, Word, and Powerpoint formats. The Kindle supports HTML, PDF, and Word through its mail-us-your-document conversion service, which installs the document in Amazon’s proprietary AZF format, but this is a problem — corporate clients would like to be able to convert their reports and presentations in-house, or better yet not convert at all. The iPhone now supports that mode of operation. Neither device has a good strategy for managing collections of documents or syncing documents.
• The Kindle has a hardware keyboard; the iPhone doesn’t. This seems an advantage for the Kindle.
• The Kindle supports an SD memory card; the iPhone doesn’t. The iPhone has a camera (which supports communication); the Kindle doesn’t.

(Looking at these differences, I’m very tempted to assign Myers-Briggs personality profiles to each device. But I’ll leave that up to our readers; what do you think the personality of each is? :-).

Overall, I’d say that the iPhone 2.0 firmware release, and the iTunes App Store, has raised the bar a good deal in this competition for the pocket of the consumer. I expect to see a competitive release from Amazon in the near future, but I wonder how they’ll compensate for the shortcomings of the E-Ink screen?

But the iPhone might be kind of different. Buying a book to read on the iPhone isn’t about buying the iPhone. The reader already has the iPhone, and they bought it for a different purpose. So paying $5 for a book to read on the iPhone would be much more reasonable to the consumer. Sure, you’ve got all the same fragility concerns, but now it’s about your phone, not your ebook reader. The direct competition of the $300 reader with the $5 paperback isn’t there; it’s more of an oblique competition.

I dug out this article by Anna Louise Genoese to see if a $5 book on the iPhone could compete. And it turns out to be an interesting price point.

Of that $5, Apple will keep $1.50, and give $3.50 to the “publisher”. Compare that with a paperback: For a typical $6.99 paperback, the publisher might get about 60% of the cover price for the book from “direct outlets” (Barnes & Noble, Borders), or about $4.19, but only 40% from “indirect outlets” (airports, gift stands at hotels, grocery stores, Walmart), say $2.80. Actually a little bit less for the direct, because of something called “coop” (for co-operational advertising), say $4.15. And the indirect is the lion’s share, say 2/3. So the revenue to the publisher for that $6.99 book might average $3.25 per copy, or less. Before returns.

The cost structure is a bit different, too. In a typical print-book mass-market paperback deal, a starting author might get royalties of 8-10% of the cover price (perhaps a bit more if the editor misjudges the advance, and the book doesn’t sell well). Suppose the author got 10% of the $5, or $.50, from the $3.50 that Apple will send to the publisher. That would leave $3.00 per book, to handle editing, art, promotion, “printing” (conversion to an iPhone format), etc. With a paperback, the publisher might have to spend $.40 – $.60 per book for printing, paper, binding, and associated costs. With an iPhone book, that cost might shrink to $0.05. So in the paperback case, the publisher would have $3.25 – $0.70 royalty – $0.50 PPB (printing, paper, binding) – $0.40 art, promotion, etc. for a not-so-grand total of $1.65, and in the iPhone case the publisher would have $3.50 – $0.50 royalty – $0.05 PPB – $0.40 = $2.55 from a $5 book.

So by selling books as $5 iPhone books instead of $7 paperbacks, the publisher makes $0.90 per book. And, of course, if the publisher charged $6.99 for the iPhone book, the numbers would be $4.89 received from Apple – $0.70 royalty – $0.05 PPB – $0.40 art, promotion, etc = $3.74, or a profit of $2.09 over the paper book.

But now suppose the author decides to self-publish the book at $5.00 on the iPhone App Store. Suddenly that $3.50 is going directly to the author, who we’ll assume has spent some money on a book-”printing” program that takes their (proofread, edited) manuscript and turns it into an iPhone app. Suppose this still translates into a $0.05 “PPB” cost for the author (x 8000 copies sold would be something like $400 to cover the cost of the program). Suppose, too, that the author has much higher costs for the equivalent cover art, promotion, etc., say 5X higher, for a cost of $2.00 instead of the publisher’s $0.40. The author still makes $1.45 per book, instead of $0.70. More than a two-fold increase in profits from self-publishing.

The iPhone App Store might be very, very interesting…

I’m pretty sure my demos sold three Kindles this weekend. I am more convinced than ever that the overall value proposition here — easy connectivity and the fast and direct acquisition of many of the books it would occur to people to want — will create success despite the real flaws in the product design.

I made the leap long ago to reading books on a hand-held device, currently a Palm Pilot. The always-with-me aspect combined with the back-lit screen for reading in bed in a dark room created book-reading opportunities no paper book could fill. And I learned to like the small page and short line width; I have come to notice when reading something forces my eyes to move and to have to work to find the beginning of each new line on the left. Doesn’t happen on the Palm. Or the Kindle.

For straight narrative reading, there are two serious disadvantages to the Palm, both solved by the Kindle. One is the purchasing and loading experience, which for the Palm is time-consuming and often frustrating. You shop either at Powells.com, which isn’t bad, or EReader.com, which is atrocious. Then you download to your computer, open the file, and load it to your Palm by hot-synching it. Failures can occur at every step. The other issue is the battery life. I can only read the Palm for a couple of hours before it starts needing juice. And I have other things I need the Palm to be functional for. So it isn’t a good tool to provide airplane reading for a trans-Atlantic flight.

The Kindle gadget itself is actually pretty seriously flawed. You have to get used to holding it while you read in a way that avoids inadvertent page advances. The “cursor” and selection wheel is limiting and, consequently navigation is over-involved. If using the iPod and iTunes defines elegant, using the Kindle and Amazon through it defines clunky. And yet…

Once you get used to keeping your fingers off the page-turning bars, reading on it is just fine. I hate right-justified lines, which it’s got (and why no way to choose out of it?), but the page width and depth are very paperback book-like. I’m fine with the default type size, but changing it to a larger (or smaller) one is two clicks. It’s lighter to hold than a book and advancing through pages is no harder or more distracting than with a paper book. Halftones and line drawings are okay — not great. I have a feeling, as I’m reading it, that I’m missing a lot of visual elements in the Stephen Colbert book. Like maybe they just left them out of the Kindle version. But I don’t read that many books that have visual elements.

It is solving my two prior ebook complaints: ease of title acquisition and battery life. And it is adding something fabulous: Amazon offers quick-loading samples of every book that are free. What you get in the sample, which you have about ten seconds after you click for it, seems to be all the front matter and a chapter or two. In an otherwise busy week, I’ve downloaded about ten samples, bought two books (and read big chunks of both of them) I’ve only had the device for ten days, but it looks to me like I will actively be reading two different books on devices from now on: one on my Kindle and one on my Palm. Which I’m reading at any time will be a function of circumstances and, of course, the urgency of reading the next chunk of one book or the other. The Palm is in my pocket all the time; the Kindle will travel in my laptop case and be with me at home, at the office, and in my hotel room and in transit when I’m travelling.

When I show people the device, they’re intrigued. When I show them the reading experience, they’re satisfied and accepting. But when I show them the buying procedures, they’re entranced. Amazon’s core competence ain’t devices, but they sure know how to maximize the shopping experience.

As you’ve read elsewhere, the Kindle takes you quickly and directly to Amazon, where you shop selections (bestsellers or new and noteworthy) or search the site in the normal way. Then you get the full Amazon data set, including those reviews they have. And you are offered an opportunity to buy or download the sample with a click.

I didn’t know the price of either of the two books I have bought when I bought them, so quick and seductive is the purchase button. And, of course, I was “sold” because I had, in both cases, read the sample. But I was pleasantly surprised. Ken Follett’s “Pillars of the Earth”, for which the new paperback costs $11.99 at Amazon, and the cheapest used copy is $11.05, was $6.39 for my Kindle edition. And Stephen Colbert’s “I Am America (And So Can You)”, a current hardcover bestseller for which the publisher’s list is $26.99, the new book is $16.19 at Amazon and the cheapest used copy is $12.48, was $9.99 for my Kindle edition. Based on this very limited sample, savings (over Amazon prices) are $2-5 per book. If that holds up, it would take 100 or so books to repay the $399 (current) cost of the device (assuming one didn’t plan to re-sell the print editions after reading them.)

I have seen Jeff Bezos quoted to the effect that ebooks should be cheaper because you can’t pass them around like printed books. On that basis, the price comparison above might not be accurate. But one of the people I showed the Kindle to, who travels a lot and reads lots of books and who does not re-sell her printed editions, did the arithmetic for herself about the same way I did above.

And the Kindle does more than deliver you cheaper books; it also, in a way most people wouldn’t use a lot but which can certainly be helpful from time to time, delivers the Internet.

The dynamic the book business needs to wrap its collective brain around is that the more straight text narrative books you read, the more useful Kindle is and, on balance, the less it costs. And once you have a Kindle, it will take some real reason to make you buy a book of that kind another way. This is fraught with implications, which will be the topic of another post.

What Doctorow doesn’t say, however, is that if the Kindle or its ilk (meaning useful ebook devices) becomes successful, Doctorow is going to have to come up with a new marketing trick.

Some background is in order. As a founding contributor of Boing Boing, frequent online poster, and established author of science fiction, Doctorow is something of an Internet celebrity. He is also a frequent commentator on that all-absorbing subject, How the Web is Intended to Work. And one way it works, he says, using his own fiction-writing as an example, is as a promotional medium for hardcopy books. Doctorow was among the first to experiment putting the entire text of a book online for people to sample, with the aim of then having that sampling drive the sale of hardcopy. It works for him; his sales are up. And, I should add, for every single example of similar online product sampling I have been able to study, it has worked as well. Free text on the Internet sells hardcopy books. There may be exceptions to this among reference titles (e.g., cookbooks, dictionaries), where viewing a short entry online may sate a reader, but generally, Doctorow is onto something, and he has personally profited from it.

Two important limitations to this marketing tactic, however. Since few current book-length works are available online at no cost, Doctorow’s free books are something of a novelty. If everyone took Doctorow’s advice and made the full texts of books available for free online, however, it would require greater and greater effort to call attention to individual titles: free online texts may drive hardcopy sales, but you have to find the online texts first. Thus if everyone followed Doctorow’s lead, few or none would prosper. Doctorow might have to go back to trying to get an appearance on Oprah.

More fundamentally, however, the great gamble that Doctorow is making is that the reading of a digital text will always be inferior to the reading of hardcopy. Print is better than digital formats for most people, especially those who read what have come to be called “long-form works,” which is supposed to call to mind something that looks like and is structured like a novel, meaning 200-1,000 pages long and organized more or less linearly. Sample a longish book online, sure, but read it all the way through? Not for most of us. Thus Doctorow’s business model: post texts in a “disergonomic” manner online and invite readers to get the better format through Amazon or your local bookstore.

Kindle and the Sony reader and some other devices, not to mention the many on their way, are making a different bargain, however: they propose that reading a digital text could be as satisfying as reading hardcopy; and on top of that, you get all the bells and whistles (search, bookmarking, etc.) that are peculiar to digital forms. Now we post the full text of a book online for free. Do we read it through a browser? Probably not. Instead we download it to our ebook device, where the text is displayed in a highly satisfying manner.

Thus, as ebooks get better (and Kindle is very good, if not what many observers were hoping for) the opportunity to use online texts to market hardcopy versions of the same books disappears. Doctorow needs a new marketing plan; he is battling with the giant behemoth of Amazon, IT innovator and marketer extraordinaire.

There is an intriguing implication here. Free text (also called Open Access content) is becoming more plentiful for a number of reasons, and one of them is the canny ability of marketers (Doctorow included) to begin to use OA as a marketing tool for other formats or services. Widespread use of ebooks may thus put downward pressure on the growth of OA texts, as the open content may come to be viewed as cannibalizing sales rather than promoting them.

Doctorow may or may not be aware that if many or most writers and publishers followed his lead, he might have to find another way to earn a living. It is a curious position to be in: To have the distinction of being a leader, but having a personal interest in having no one follow.

But I, at any rate, wish to follow, at least part of the distance. The noise Doctorow has made about himself and the virtues of free online texts has made me want to read one of his science fiction novels. So I am now browsing the used bookstores near my home. Buying a used copy is an article of faith, as it would be inappropriate for any money to find its way back to the author or publisher. Free means free. Cory Doctorow taught me this.

I want to first talk about a surprisingly little-known phenomenon in Eastern Europe, that I observed in the years immediately following the fall of the Soviet Empire.

Between 1990 and 1994, I worked a lot with scholarly publishers across Eastern Europe, including some seminars organized by Peter Kaufman, from whom you’ll hear later. My deepest experience was in Czechoslovakia, before it split.

The Soviet scholarly publishing model was to have every university publishing its own stuff–introductory biology coursebooks, collections of essays, lecture notes, monographs, research–at the professor’s behest. There was heavy subvention from the universities, which were of course subvened by the state. There was no economic feedback system, because there were no cost recovery systems beyond a token fee of a quarter or so per “scripta,” as the class publications were called. Traditional hardbacks cost the equivalent of a pack of cheap Czech cigarettes.

Editorial selection scarcely mattered. Every year, a few works were designated as worthy of being put in hardback, usually in an attempt to give their universities a medium of exchange — trading books for books from the outside, non-Soviet world.

The overall system separated to the point of immeasurability, by massive bureaucracy, all publishing costs, and in fact discouraged cost containment systems based on merit or audience. Instead, decisions were [often] based on old-boy status. By having the right connections, an important professor could arrange to have 50,000 copies of his book on the aerodynamics of bat wings printed, in Czech; this was to his advantage, because his royalty was based on numbers printed, rather than numbers sold.

Other publishing houses published scholarly work in philosophy, science, metaphysics, etc.; they had somewhat more freedom of choice of what to publish, but their work was also heavily subsidized by the government, and even in smaller specialty houses, prices and print runs were at the whim of, ahem, important people.

When the Soviet Union collapsed, there were warehouses with hundreds of thousands of copies of the writings of Stalin which nobody would ever buy. And the warehouses also held about 49,800 copies of that bat wing book.

In the prerevolution days, a socially supported, exceedingly expensive publishing industry created very inexpensive books, and that deeply affected the Czech culture. New books came out once a week, and the bookstores were like flowers in a field — every square had bookstores, every tram stop had a cardtable selling books. When I first spent time in Prague, about nine months after the Velvet Revolution, I saw everyone — and I mean the butcher and the hardhat and the professors alike — reading on the trams, the metro, the streetcorners, and lining up to pay a few crowns for new titles — and not escapist trash, but history, philosophy, science, metaphysics, in Czech. This system of subvention created a highly literate, well-educated populace, who read ideas for fun, all the time.

In the aftermath of the collapse of the Soviet centralized economy, suddenly universities, whose subventions were being completely reconsidered by new governments, were telling their “presses” that they had to become self-sufficient in two years, and many were told they had to start giving money back to their universities. For most of the Czech university policymakers, their naive recipe for capitalism was a pinch of slogan-level ideas picked up from Dallas reruns and the Voice of America, a dash of Hayek, then spiced with understanding gleaned from dinnertable conversations over the years.

Their consequent policies had no consideration of the realities of publishing costs and cost recovery, no understanding of the infrastructure (like editorial selection, distribution, and warehousing, not to mention computers, databases, predictive knowledge of the market) required to have a viable publishing marketplace, no understanding of the place of scholarly publishing in the educational system, and no recognition that in a revolutionary economy, nobody would have spare money to make discretionary purchases.

Four years after the revolution, the prices for books had become ten to fifty times as expensive as they used to be. The publishers who were surviving were subvening their own translations of Derrida by publishing – literally – soft-core pornography.

Bookstores closed down everywhere. Publishers closed down everywhere. And people stopped reading every day. By 1995, nobody was reading metaphyics on the tram. A quarter of the university presses I knew of were closed, over half of the small scholarly publishers I’d known, well over half of the bookstores I knew of in Prague were closed, and the scholars I’d befriended were telling me that they couldn’t get anything published anymore — there were fewer outlets than ever.

Neither model was right–the absurd redundancies and inefficiencies of the Soviet system were far too costly, but its result was a marvelously high level of intellectual discourse. The follow-on naive-capitalist model was far too brutal and had consequences that they are still feeling–far fewer high-level publications in their own languages, far fewer high-quality scholarly publications in general (a significant problem in a small language group), and cultural costs that are hard to quantify but easy to identify as causing a sort of poverty in the intellectual culture.

What this has to do with the current revolutions may not be fully clear, since it’s about content scarcity, not content abundance. But the story is also about how a society can change its habits and patterns, and how quickly that can transform the culture. In those three or four years, among the unintended consequences was that quality content, and a society of ideas, was trumped by convenience, capital, and entertainment.