Saving scholarly publishing, and saving civilization.

In 16 minutes.

The full text, and the YouTube videos, are at:

http://www.nap.edu/staff/mjensen/scarcity.html

or you can watch Part I (missing my preface, that’s available in the full text):

and Part II:

A few segments from the text:

The realities I see ahead of us, in the next ten to fifteen years, militate for some radical strategic choices, in the next three years.

I believe that we must shift our business models — publicly, transparently, intentionally, thoughtfully, but radically — to a digital one, with open access as the backbone of scholarly publishing. We must do this to survive a tremendously turbulent next decade, and to ensure that our mission, and its survival, continues to be fulfilled.

…

But CO2 does something much worse. While we bicker with global-warming deniers, the ocean is getting more acidic. Excess CO2 plus ocean produces carbonic acid. Ocean acidification is a clear and present danger. A slight rise in acidity dramatically affects calcium-carbonate-based lifeforms, like most plankton, shellfish, and coral, the cornerstones of the ocean biosphere.

If humans do not drastically reduce our CO2 output in the next ten years, our rich, biodiverse ocean will become an acidic, jellyfish- and algae-filled cesspool, in our lifetimes.

If, over the next decade, humans continue doing what we have done for the last fifty years, then we will construct our own hell, and our grandchildren will curse our names.

…

Within the context of a world in crisis, we *must* demonstrate that we’re radically rethinking our relationship to the future. We must demonstrate that we are part of the solution, not part of the problem. We must seize initiative now, and start making changes as fast as we can.

Open access + digital publishing will help get us to a sustainable world, and keep us in the mix.

Imagine, in five years, a different income stream where 50% of your income comes from some kind of value-added digital sales, and 25% from print-on-demand, and 25% through institutional support of fixed costs. Dissemination and societal impact will increase 50x, because the material is openly available and promoted online.

With that kind of documented dissemination of scholarly value and University brand, to the broadest public, no dean would be motivated to cut the support that enables scholarship to thrive online. And, our CO2 production will be radically decreased.

The presentation was controversial, and raised both some hackles and some hair-on-the-back-of-the-neck. Far more congratulated me than condemned my analysis — and many said they were rethinking strategy in light of what I showed them.

It was risky, but knowing what I’ve learned over the last two years doing the Apocadocs project, it was a risk I needed to take. Time’s a-wasting.

I’ve been interested to see the  responses, and this post can become a response locale — I’m linking back here from the fulltext, in hopes that some discussion can ensue.

The first, Europe Between Oceans, by the renowned archaeologist Barry Cunliffe, is a masterful work, combining history, archaeology, geography, anthropology, and a smorgasbord of other disciplines in explaining the transformation of human culture and society in Europe from prehistoric to the dawn of the modern, encompassing a ten thousand year period from 9,000 B.C. to 1,000 A.D. Cunliffe writes with erudition and clarity, never oversimplifying, but without the befuddling writing designed more to impressed than to illuminate that is so common in academic circles. The publisher, Yale University Press, is clearly at the top of its game here: the layout is splendid, with plenty of pleasing white space, yet full of helpful maps, photos, and charts. Europe Between Oceans covers much familiar ground, but drawing from the latest research in a multitude of disciplines it provides strikingly new insights.

The second is Lapham’s Quarterly, a literary journal edited and published by former Harper’s editor Lewis H. Lapham. I wasn’t enough in the cognoscenti, I’m sorry to say, to get on board for the first issue, nevertheless I’d learned of the journal’s existence by the second issue, had subscribed by the third, and purchased a gift subscription for my parents by the fourth. Published quarterly, each issue covers a theme—thus far War, Money, Nature, Learning, Eros, and the current issue, Crimes and Punishments. Lapham mixes and mashes genres and primary sources in his investigation of each theme, from ancient to modern, employing excerpts of stories, essays, poetry, art, charts, and photography. Imagine Herodotus and Lazarillo de Tormes slapping high-fives to Franz Kafka and Raymond Chandler because they made it into the latest issue. Reading Lapham’s is like being an observer to the musings of an accomplished collector gripped by bibliomancy during an extended weekend visit to his abode.

Both of these works, at the apex of modern publishing, might cause one to wonder how they could possibly be improved upon in electronic form. Surely they prove the point that e-books could never fully replace print. And yet, and yet…

Jumping just a bit into the future, let’s grab our podkinfliptop, with its color touch screen and multimedia capabilities, and run. Placing the cursor next to an unfamiliar term in Cunliffe’s book, like Bosphorus, brings up its definition. Clicking on the place-name of Tyre deploys Google Earth. Maps of migrations or empires, instead of static, depict the spread and flow over time. Instead of a single picture depicting the ancient city of Miletos, or a bronze warrior god from the 12th century, a gallery of photos is embedded in the e-text. Links lead to further scholarship or modules about topics of particular interest to the reader. Cunliffe’s tome is a big book, nearly too hefty to curl up in bed with comfortably for a nice reading session, but in its e-format it poses no problem on the podkinfliptop, which you read while touring the Aegean region with your family. At the ruins of the Byzantine fortress in Anadolu Kavagi, you take a striking photo and instantly upload the photo to the book’s gallery.

With Lapham’s, the electronic version might explore the theme over the course of a few months with a daily or weekly segment, loaded automatically onto the device, instead of a quarterly publication. Links abound between and among volumes; users add links to other content in order to further illuminate the theme, sharing the links with other users. The podkinfliptop version includes old newsreels, film segments, Billie Holiday singing “Strange Fruit” or Johnny Cash at Folsom, a poem read by its author.

All of these capabilities exist today, in one form or another. A central question is, of course, who pays for all of this? I’m not optimistic that many publishers can, with a positive ROI, create both a beautifully laid out print version and a link- and multimedia-rich electronic version, but nor is it yet clear that many electronic-only publications are financially viable. As I point out in my recent article, larger publishers like Cengage or Pearson certainly have the resources to create resource-rich electronic publications for higher education, and a number of non-profit initiatives, like Connexions or Yale Books Unbound, are underway. But while readers may not balk at forking over $35 for the beautiful hardcover Europe Between the Oceans, customers seem to expect a lower price for electronic versions. Perhaps instead of selling 20,000 copies at $30.00 each of the hardcover, and dealing with returns, YUP could sell 250,000 copies at $10.00 of the e-version. Lapham’s could get a larger number of subscribers at a lower price, or offer it free under a government grant, or corporate or foundation sponsorship. The “publisher” provides the platform and content, encouraging the community to contribute additional links and resources, building on the “book.” I have to remain optimistic that this type of publishing can survive and prosper in the digital age. The University of Michigan Press seems to be betting on it.

What also stuck me, besides the exhaust, while wondering at that car in the intersection, was that the iPod Touch in my pocket had at least thirty books on it, even though I’d had it for about a month. Say what you want about e-books, it’s not the same as paper, right, but try carrying 100 books in your pocket, or in your car, let alone the 1.5 million that Google is already providing for mobile devices.

I enjoy learning about technology, and take a keen interest in how it affects learning, networks, and society. Still, I’m not really much of a gadget guy, that is, I don’t feel I have to go buy every gadget that comes along. No video game consoles in my house, an ancient yet hardy stereo, no cable TV. My DJing rig is laughable. Traveling around South America, to use one example, tends to wean one from over-consumerist tendencies, not to mention thinking seriously about the condition of the planet and some of its possible futures.

So it’s been with both a sense of wonder and a bit of trepidation, perhaps, that I’ve been able to start playing around with both the iPod Touch and Amazon’s new Kindle 2. I remember reading about a study that tracked over time people’s attitudes about what they thought were necessities, versus what they considered luxuries. Things like cell-phones, iPods, and flat screens keep getting added to the list of necessities, but nothing ever comes off.

The iPhone and Touch portend much more the future than the Kindle. While the Kindle works great as a reading device, accomplishing that feat with panache, I don’t think that enough people really want a reading device, and a separate talking device, and a writing device, and so on. Do I want to carry around all that stuff with me, or take four or five devices on a trip? The Kindle will indubitably evolve more toward the direction of the iPhone than the reverse. Doubtlessly Apple, Amazon, Sony et al. have in mind to create a device slightly bigger than the iPod Touch that combines facets of the cell phone, iPod, Kindle, Flip camera, and laptop. Let’s call it a Podkinfliptop. There is, of course, more than a little speculation already that Apple is on the verge of such a release. Its educational potential, in particular, are enormous. With thirty million iPhone/iPod Touches in use already, and the huge success of the App store, Apple seems natural to expand its dominance with a netbook type device, but many others will follow.

This makes me wonder how much of this model is applicable to publishing. There are already some entries into this, such as Harper Collins’ Authonomy, Smashwords, CompletelyNovel, Amazon’s CreateSpace. I haven’t seen any yet, though, that quite come close to the level of participation, excitement, and cool/hip level as Threadless. But I think it’s possible, and even probable, that someone will, sooner rather than later.

In the academic space, I find that Common Ground publishing, which runs the International Journal of the Book, has an interesting business model and process. They run ~15 conferences, on subjects in the humanities and science, each with an associated journal. When you present at one of their conferences, as I did in October, you receive a year’s access to the associated journal, and you can submit an academic paper to the journal. When you submit your paper through the journal’s peer review process, you also agree to peer review two to three papers for the journal. Common Ground also is able to implement a striking balance between technology (everything is submitted and approved online) and personal touch (you always have a sense that there are real people involved). They also encourage and offer opportunities for collaboration and participation.

My article on “Innovation and the Future of e-Books” was recently published in The International Journal of the Book. My premise is that the development and acceptance of e-books today parallels incunabula in the 15th century. The paper considers three examples of innovative e-books to illustrate the potential and pitfalls of electronic publications. This peer-reviewed paper is now available on the RAND web site (free download):
http://www.rand.org/pubs/reprints/RP1385/

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.

     Let’s take a look at audiobooks. For the book publishing industry, audiobooks are one of the few areas of genuine growth. Let me qualify my terms. By “book publishing” I mean consumer or trade books in the developed world and the U.S. in particular. By “growth” I mean industry growth, not the success of a particular title or format or even of any individual publisher. The book industry thus defined is mature, but the audiobooks segment is only in its adolescence. Audiobooks are growing because they reach a new market:  people who want to read books but can’t because for any of several reasons they cannot use their eyes. Among these reasons: visual impairment; a desire to “read” while driving a car; a desire to “read” while working out in the gym, walking the dog, or jogging–any number of reasons when the eye must give way to the ear.

     It is thus unfortunate that digital technology may serve to diminish sales of audiobooks in some channels, though I think that digital audio is likely to help build the market overall (think of audiobooks on wireless phones). In the library sales channel, however, digital audio may cannibalize some sales. This is because the combination of audiobooks on digital compact disks and the iPod will drive up usage of audiobooks in libraries, putting downward pressure on demand for purchases in retail outlets (including online bookstores).

     Some background. The audiobook industry developed very differently in the trade and institutional market. Trade sales have largely been of abridged titles published by the very same publishers that publish the corresponding print books; library sales are more likely to be for unabridged titles, and in libraries a new group of publishers, led by Recorded Books, Inc., has sprung up. I would add, though I have no hard evidence of this, that trade sales seem slightly tilted toward younger (though not youthful) listeners, and those listeners include a higher proportion of men than institutional listeners (more likely older and female). All this is changing now, however, as the characteristics of the two channels are converging. The convergence is significant in that the two channels, which were formerly complementary, are increasingly rivalrous.

     A peculiarity of audiobooks is that the analogue format (books on tape) is still very strong, though analogue media has virtually disappeared for music (partly offset by resurgent sales of LPs among passionate music buffs). Tape works well for audiobooks because tape creates a good bookmark. Try it and you will see. I listen to audiobooks on tape, on CD, and on an iPod and have found that tape is still the most convenient (CDs are at the bottom).

     So step into your time machine and enter a public library 4-5 years ago, where you seek the audiobook section. There you have a selection of unabridged books on tape, with a trifling number of CDs. You decide to check out a title, take it home, and begin to listen. If you listen an hour or two everyday, you might finish a book in two weeks. I suspect most listeners take longer. When they are done, they return the tape to the library, check out another, and repeat the process.

     Of course, the library may not have a desired tape on the shelf. With every instance of circulation taking two weeks or more, from time to time the patron cannot find what he or she wants and turns instead to a local bookstore or perhaps to Amazon. More recently some patrons turned to Audible for downloads. The library, in other words, is not a comprehensive source of supply in part because the time it takes to listen to an audiobook restricts the utility for other patrons of the library’s inventory.

     With digital CDs, abetted by an iPod, the library’s inventory is likely to experience higher utilization. Consider this example. A patron goes to the library and checks out one, two, or more audiobooks on CD. Arriving home, the patron rips the CDs to a computer and synchs with an iPod. The next day the CDs are returned to the library, where other patrons in due course check them out–and the cycle repeats. The inventory utilization drops from two weeks or more to as little as less than one day. The need to shop at the local bookstore or online has been diminished a bit. Thus libraries carrying digital media potentially compete with other sales channels and cannibalize some sales.

     If this became widespread, it could not stand. In time publishers’ compensation for audiobooks in libraries will likely parallel that for videos at Blockbuster and Netflix, with payment to publishers being linked to the frequency of rentals. (Seth Gershel made this point to me concerning audiobooks several years ago.) Or other marketing schemes can be concocted, probably including switching the firm sale of a tape or CD to a library to a subscription-based model–anything, that is, that restrains sales cannibalization.

     Another implication of the change to digital CDs in libraries is that more trade publishers will want to control library sales directly, the better to manage the cannibalization issue. There are signs that this is already happening. Trade publishers will also be more aggressive about acquiring the rights to unabridged audio, rights that at this time are sometimes retained by literary agents, who then forge a license directly with a library audio publisher. The growing competition between trade and library sales for audiobooks will thus spawn a consolidation of rights ownership under a single brand manager–that is, the originating publisher of the book.

     This is not to say that publishers should not publish audiobooks; it is not to say that audio should not be in digital form; and it certainly does not mean that publishers should forsake libraries. What it does mean is that the digital edge cuts both ways, and that publishers have to think strategically, with an eye toward the longer-term implications of new tactics. The time to introduce Blockbuster-like pricing is not after the horse has been stolen from the barn but before the barn gets built.

     The moral of this tale is that profitable strategy is neither digital nor analogue; it is not about whether information should be free or paid; it is not about what is cool; and in its winning form by definition it cannot be what everyone else is doing. Profitable strategy is about identifying new markets and creating new value. Digital audiobooks can lead to a winning strategy, but without a thoughtful strategy, digital media giveth and digital media taketh away.

     The Kindle is a watershed event in electronic publishing.  It is not the first ebook device, and it may not ultimately be the one that will prevail (it could of course be one of several). But its appearance marks the point where ebooks move from theory to actuality.  Whether the leading device is the Kindle, the Sony electronic book, a cell phone platform, or some variant on an iPod, ebooks are here to stay.  In discussing the Kindle, then, I am thinking about ebooks in general.

     Not a few people have been waiting for “the ebook moment” for years.  The arguments in favor of ebooks are many and include: efficiency in the supply chain (because there are no atoms to move around); the ability to store multiple titles on one device (a boon to travelers); and the added value of links, bookmarks, and adjustable text size.  We should add to this a very important aspect of ebooks: the coolness factor.  I read a post recently by a woman who extolled the virtues of the Kindle, which she took to bed with her.  She could have taken a print book to bed, of course–she could have dragged into bed the entire Oxford English Dictionary (think of all the dirty words!)–but that would not have been as cool.  We love some gadgets precisely because they are gadgets.

     One of the unintended consequences of the Kindle and its brethren (desirable for readers, more woe for publishers) is that it will reduce the number of books that are actually sold. This will happen not because of piracy (with the proprietary Kindle, piracy may be a small problem, though ebooks built with open standards may pose larger problems for publishers), but because the architecture and business model for the Kindle support a “buy only when you need it” frame of mind, aka “just in time” inventory management.  In the hardcopy world, where many books (no one knows how many) are bought “just in case,” the number of books purchased exceeds the number of books read.  The Kindle will remove the excess, adding to the legions of misfortunes of publishers and authors.

     Let’s back up to the bricks-and-mortar world to see why this will be so.  When John Doe steps into a bookstore, he browses a bit.  He may buy a specific title that brought him to the store in the first place, but he also may buy something that happened to grab his attention. He buys that second book with the intention of reading it after book #1 is completed or perhaps for some future time–that upcoming vacation in Aruba–where, blessed with time, he will immerse himself in a book.  Book #1 is just in time, #2 is just in case.

     Prior to departing on that trip, however, something may have come up.  A friend recommended another book (worse: a friend wrote a book, signaling a requirement to read it), or something broke in the news that demanded attention in the form of a book, or Doe’s mood has changed, or any of dozens of other reasons.  The result: Doe now has in his hands book #3.  This is also just-in-case.  If Doe is compulsive, the number of just-in-case books grows and grows; if Doe’s house is like mine, the number of not-yet-read books greatly exceeds one’s life expectancy.

     With ebooks you don’t purchase a title to have it waiting for you when you get time to read it.  You purchase at the very moment you are going to read it.  There is no reason to purchase it sooner, because it is always available: there, in the Cloud, living 24/7 on Amazon’s servers.  What the Kindle does is introduce digital accountability to book publishing and purchasing.  It saves consumers money, but it does so at the expense of publishers, whose income statements for decades have been propped up with the sale of things that ultimately do not get used.

     Digital accountability has already reached into many corners of the publishing industry; in this respect, the nefarious implications (from a publisher’s point of view) of ebooks are nothing new.  Retailers have computerized inventory systems that, when they are working well and are properly managed, help to cull slow-selling stock.  Librarians review Web statistics for online journals, canceling those that are not used.  And publishers have always reviewed their own sales records in order to help determine what new properties to invest in. What’s different about the digital accountability brought about by ebooks is that it does not simply result in one title being chosen over another; it results in the wholesale reduction of the total number of books sold.  It is an industry-killer–or, if that language overstates the case, an industry-diminisher.

     What’s at issue here is that publishers who look to ebooks for grand sales opportunities are in fact taking steps that reduce the overall market.  There are exceptions to this, however.  College textbooks will likely sell more copies in electronic form, since many students currently fail to purchase expensive hardcopies at all.  And in the developing world, it is possible that digital texts may find markets that print never could (assuming the digital infrastructure can be put in place).  But for consumer books in the developed world, ebooks shrink the market.

     Not that publishers have any choice.  If consumers want their books in digital form, a publisher would be foolish not to satisfy the demand. After all, if HarperCollins decided to be print-only, it would lose sales to Simon & Schuster, if S&S decided to be both print and digital.  This is a fight for market share, however, not a strategy for growth.  Publishers who have hoped that ebooks could be a vehicle for growth will have to look elsewhere.

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?