Work Matters

Is the Kindle a Disruptive Innovation? If You Ran a Large Publishing House What Would You Do?

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supermoxie

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The new forthcoming version of the Amazon Kindle has got pretty good reviews.  Predicting the future is impossible, but I saw one possible scenario when I looked at my sales as an Amazon Associate for this month (I am not getting rich off this, but the hundred or so bucks a month that I earn is nice and I enjoy spending it on Amazon).  Of the six books that people bought by connecting to Amazon through Work Matters yesterday, four were for Kindles.  And, looking at the month to date (through February 14th), people bought 39 traditional books and 11 for Kindles.  This is horrible sample to base any decision on, but it is instructive to ask "suppose this is the future?"  As science fiction William Gibson once wrote (if I have this right),
"The future is already here, it is just unevenly distributed." 

The publishing industry might be facing a scenario straight out of Clay Christensen's Innovator's Dilemma — the incumbents die or decline deeply because they can't break free from their routines and internal power structures, and the new entrants race in and win.  Indeed, Border's has hired bankruptcy lawyers, while — despite the downturn — Amazon had a record Christmas season.   And there is plenty of fear in the book business that their problems aren't
just caused by the downturn, but also by disruptive innovations that
will rival what we have seen happen to the music and newspaper
industries. The Kindle might not be the winner, in fact, there is a good chance that the ipod and iphone will be (especially if Apple comes out with a bigger itouch, for both seeing movies and reading books more easily… they have the infrastructure already and related skills).

 If I were a book publisher, I wouldn't just hunker down, cut costs, and do what I've always done until the downturn is over.  I would work to bring in people from outside the industry who understand the web and let them try some experiments — and if I was a venture capitalist, I would be looking for start-ups that can rush in and replace those giant but shrinking publishing houses in New York City.  History and the evidence is not on their side.  It is impossible to know which firms or technologies will replace them, but the odds they will be replaced by something different look pretty good to me.  Any publishing executive who believes that the best way to ride out the downturn is with a company that is an exact imitation of what they had in the past is living in a fool's paradise.  The process of cost-cutting all too often results in a "a puny but otherwise perfect replicant" of the old organization, which is only the right thing to do if the future is a perfect imitation of the past.  This is almost certainly not the case in the book business.

Having said all this, however, sniping from the sidelines is one thing, but figuring out how to navigate through these tough times is another thing.

If you were CEO of a large publishing house, what would you do? 

Comments

18 responses to “Is the Kindle a Disruptive Innovation? If You Ran a Large Publishing House What Would You Do?”

  1. michael webster Avatar
    michael webster

    1. Contact every college textbook author and advise that all new editions would only be kindle e-books.
    2. Drive every reseller of old textbooks out of the market by selling a bundle of freshman textbooks with a kindle – with a rebate of 50% for every textbook that they no longer wanted on their kindle. Treat books as a combination of time dated shareware, and unlimited but not free software updates for the real deal.
    3. Gently raise the cost of updates, realizing I was a monopolist. And from time to time, simply give away a ton of kindles, in order to garner public love for when the DoJ came after me on antitrust grounds.

    Reply
  2. michael webster Avatar
    michael webster

    1. Contact every college textbook author and advise that all new editions would only be kindle e-books.
    2. Drive every reseller of old textbooks out of the market by selling a bundle of freshman textbooks with a kindle – with a rebate of 50% for every textbook that they no longer wanted on their kindle. Treat books as a combination of time dated shareware, and unlimited but not free software updates for the real deal.
    3. Gently raise the cost of updates, realizing I was a monopolist. And from time to time, simply give away a ton of kindles, in order to garner public love for when the DoJ came after me on antitrust grounds.

    Reply
  3. Murthy Avatar
    Murthy

    Hi Professor Sutton – very interesting statistics from your Amazon traffic. There is definitely an interesting Innovator’s Dilemma problem here whereby today’s food ends up being tomorrow’s poison.
    Although I generally believe it is true that traditional media models will gradually erode, I think proponents of this erosion might be a bit utopian in their vision of the future. The truth is that in any media supply chain, whether its news, music, video, books; the notion that somehow that any content producer can instantly connect with any content consumer is highly flawed. Even in the digital world, you still have problems like 1) content quality assurance 2) buyer quality assurance (i.e. fraud) 3) discoverability/marketing 4) electronic payment remittance from the buyer to the producer and a whole host of other problems.
    The fundamental revolution that I believe is happening in the content industry -and actually fascinatingly though for entirely different reason, in the financial industry as well – is the breakdown of the “Reseller/Repackager” model. This notion that suppliers take their products, whether its a physical product or media content or financial products like debt – to a large centralized broker (i.e. Sears or BMI or Random House or Goldman Sachs) who purchases the raw product, and then by virtue of their connections and skills, resells/repackages the product into a finished good worthy of consumption – this notion is basically what is under attack.
    The model is under attack not only because its becoming increasingly unnecessary, but we are starting to see its dysfunctions outweigh its value add. (example being our current financial crisis fueled by repacking of risky debt).
    This model made sense in a world with much larger technological inefficiencies/barriers. The only way you could incent someone to be a reselling/repackaging broker is by giving them the profit upside of volume. But producers and consumers are becoming increasingly empowered by technology, thus squeezing the reseller/repackager out of the supply chain, making their roles seem far more predatory than useful.
    So in a more technological world, the middleman still won’t be entirely squeezed out, because the digital world still has problems. These problems need solution providers. Someone still needs to edit book content; someone still needs to facilitate book tours, etc. But rather than buying the copyright from the producer and taking an ownership stake in the content, the middleman will evolve to being a service of the producer and consumer. If I’m an author, I can call Random House Consultants for an editorial review or to get me on a book tour – but I foot the bill and I take in all of the revenues from selling direct to my consumers on Amazon.
    So long story short, my counsel to the CEOs of publishing houses would be to start restructuring as large consultancies/service providers. Its inevitable: content producers and consumers are going to transact economically without you. Now, how can we help solve those critical problems in this transaction, in service to the producer and content?

    Reply
  4. Murthy Avatar
    Murthy

    Hi Professor Sutton – very interesting statistics from your Amazon traffic. There is definitely an interesting Innovator’s Dilemma problem here whereby today’s food ends up being tomorrow’s poison.
    Although I generally believe it is true that traditional media models will gradually erode, I think proponents of this erosion might be a bit utopian in their vision of the future. The truth is that in any media supply chain, whether its news, music, video, books; the notion that somehow that any content producer can instantly connect with any content consumer is highly flawed. Even in the digital world, you still have problems like 1) content quality assurance 2) buyer quality assurance (i.e. fraud) 3) discoverability/marketing 4) electronic payment remittance from the buyer to the producer and a whole host of other problems.
    The fundamental revolution that I believe is happening in the content industry -and actually fascinatingly though for entirely different reason, in the financial industry as well – is the breakdown of the “Reseller/Repackager” model. This notion that suppliers take their products, whether its a physical product or media content or financial products like debt – to a large centralized broker (i.e. Sears or BMI or Random House or Goldman Sachs) who purchases the raw product, and then by virtue of their connections and skills, resells/repackages the product into a finished good worthy of consumption – this notion is basically what is under attack.
    The model is under attack not only because its becoming increasingly unnecessary, but we are starting to see its dysfunctions outweigh its value add. (example being our current financial crisis fueled by repacking of risky debt).
    This model made sense in a world with much larger technological inefficiencies/barriers. The only way you could incent someone to be a reselling/repackaging broker is by giving them the profit upside of volume. But producers and consumers are becoming increasingly empowered by technology, thus squeezing the reseller/repackager out of the supply chain, making their roles seem far more predatory than useful.
    So in a more technological world, the middleman still won’t be entirely squeezed out, because the digital world still has problems. These problems need solution providers. Someone still needs to edit book content; someone still needs to facilitate book tours, etc. But rather than buying the copyright from the producer and taking an ownership stake in the content, the middleman will evolve to being a service of the producer and consumer. If I’m an author, I can call Random House Consultants for an editorial review or to get me on a book tour – but I foot the bill and I take in all of the revenues from selling direct to my consumers on Amazon.
    So long story short, my counsel to the CEOs of publishing houses would be to start restructuring as large consultancies/service providers. Its inevitable: content producers and consumers are going to transact economically without you. Now, how can we help solve those critical problems in this transaction, in service to the producer and content?

    Reply
  5. John Piwowar Avatar
    John Piwowar

    Bob,
    Small sample or no, I suspect the observation about percentage of digital book orders via Work Matters is also confounded by demographics…people who follow a blog on a regular basis are probably more likely to be consumers of other digital media.
    With respect to Kindle vs. iPhone, the Economist makes an interesting note this week: More people have downloaded e-book readers for iPhone than have purchased a Kindle. http://www.economist.com/opinion/displaystory.cfm?story_id=13109596
    Regards,
    John P.

    Reply
  6. John Piwowar Avatar
    John Piwowar

    Bob,
    Small sample or no, I suspect the observation about percentage of digital book orders via Work Matters is also confounded by demographics…people who follow a blog on a regular basis are probably more likely to be consumers of other digital media.
    With respect to Kindle vs. iPhone, the Economist makes an interesting note this week: More people have downloaded e-book readers for iPhone than have purchased a Kindle. http://www.economist.com/opinion/displaystory.cfm?story_id=13109596
    Regards,
    John P.

    Reply
  7. Richard Avatar
    Richard

    I think I’d start by understanding the difference between publishing and distribution. Borders and Amazon are distributors, not publishers. Both types of business face challenges, though of a different sort, and arguably those of traditional bricks and mortar distributors (aka bookshops) are more severe.
    For distributors, I think your examples illustrate how traditional bookselling models based on a wide selection and a reasonable price are finding it impossible to compete with online services. Even the largest retail properties cannot profitably stock the range of titles an Amazon can. Partly this is because there are a large number of titles relatively few people buy, and there aren’t enough customers at any given location to get enough sales (this was what the old “customer order” process was for at bookshops, ordering books from warehouse services very much like the one’s that back up Amazon, too). Even for popular titles, central distribution (i.e. like Amazon) cuts down on the number that need to be shipped out to sit on bookshelves and potentially even returned (or remaindered), and so the price for these popular titles can be very keen indeed.
    Even though the mass market for bookselling is changing, technology advances like Kindle on top of internet distribution notwithstanding, I suspect there will remain a premium niche for knowledgeable booksellers in the right locations. Good bookshops offer an implicit editorial process, often because they cannot stock as wide a range as larger shops, and their customers will value the quality of browsing and the knowledge of the staff. This will not be a way to get rich, but I don’t see central distributors like Amazon replacing this any time soon.
    As for publishing, I think it also comes down to the editorial process. Self publishing is now almost free, whether online or in print with ad hoc vanity presses like lulu.com. Consumers increasingly expect to buy online and do not care whether the print run is two thousand, twenty thousand or one However they probably do care about whether what they are about to read is worth the money, and a trusted publisher can play a role in this alongside critics, friends etc.
    The challenge for publishers is to see that they are not, in fact, in the business of creating and selling books (as physical objects). They are selling information, distributed in a variety of formats and potentially with other value added services on top. As such, it is the quality and authority of the information they publish which will drive their success and enable them to command a premium over titles increasingly published without traditional editorial intervention. I think this means they will have to cut loose from a relatively narrow model distributed almost exclusively via expensive print runs. I see a broader model, with potentially more titles and authors, but with cheaper, electronic or ad hoc printing distribution for all but the most successful authors or properties. This places a lot of pressure on editorial quality, and probably implies consolidation at some future (soon) point when publishers who add value principally by turning manuscripts into 5,000 physical copies of something are winnowed away by the new economics.
    In turn, I think this will mean we see less physically produced to sit hopefully on bookshelves, and that can only increase the pressure on traditional booksellers.

    Reply
  8. Richard Avatar
    Richard

    I think I’d start by understanding the difference between publishing and distribution. Borders and Amazon are distributors, not publishers. Both types of business face challenges, though of a different sort, and arguably those of traditional bricks and mortar distributors (aka bookshops) are more severe.
    For distributors, I think your examples illustrate how traditional bookselling models based on a wide selection and a reasonable price are finding it impossible to compete with online services. Even the largest retail properties cannot profitably stock the range of titles an Amazon can. Partly this is because there are a large number of titles relatively few people buy, and there aren’t enough customers at any given location to get enough sales (this was what the old “customer order” process was for at bookshops, ordering books from warehouse services very much like the one’s that back up Amazon, too). Even for popular titles, central distribution (i.e. like Amazon) cuts down on the number that need to be shipped out to sit on bookshelves and potentially even returned (or remaindered), and so the price for these popular titles can be very keen indeed.
    Even though the mass market for bookselling is changing, technology advances like Kindle on top of internet distribution notwithstanding, I suspect there will remain a premium niche for knowledgeable booksellers in the right locations. Good bookshops offer an implicit editorial process, often because they cannot stock as wide a range as larger shops, and their customers will value the quality of browsing and the knowledge of the staff. This will not be a way to get rich, but I don’t see central distributors like Amazon replacing this any time soon.
    As for publishing, I think it also comes down to the editorial process. Self publishing is now almost free, whether online or in print with ad hoc vanity presses like lulu.com. Consumers increasingly expect to buy online and do not care whether the print run is two thousand, twenty thousand or one However they probably do care about whether what they are about to read is worth the money, and a trusted publisher can play a role in this alongside critics, friends etc.
    The challenge for publishers is to see that they are not, in fact, in the business of creating and selling books (as physical objects). They are selling information, distributed in a variety of formats and potentially with other value added services on top. As such, it is the quality and authority of the information they publish which will drive their success and enable them to command a premium over titles increasingly published without traditional editorial intervention. I think this means they will have to cut loose from a relatively narrow model distributed almost exclusively via expensive print runs. I see a broader model, with potentially more titles and authors, but with cheaper, electronic or ad hoc printing distribution for all but the most successful authors or properties. This places a lot of pressure on editorial quality, and probably implies consolidation at some future (soon) point when publishers who add value principally by turning manuscripts into 5,000 physical copies of something are winnowed away by the new economics.
    In turn, I think this will mean we see less physically produced to sit hopefully on bookshelves, and that can only increase the pressure on traditional booksellers.

    Reply
  9. Diego Rodriguez Avatar
    Diego Rodriguez

    Yes!

    Reply
  10. Diego Rodriguez Avatar
    Diego Rodriguez

    Yes!

    Reply
  11. THE BIZOP NEWS Avatar
    THE BIZOP NEWS

    How Disruptive an Innovation is Kindle?

    Image via CrunchBaseBob Sutton writing at his website wonders about how disruptive the Kindle technology is.  Here are his thoughts, after seeing more of his associate…

    Reply
  12. THE BIZOP NEWS Avatar
    THE BIZOP NEWS

    How Disruptive an Innovation is Kindle?

    Image via CrunchBaseBob Sutton writing at his website wonders about how disruptive the Kindle technology is.  Here are his thoughts, after seeing more of his associate…

    Reply
  13. Wally Bock Avatar
    Wally Bock

    I really like Richard’s analysis above. The disruptive innovation for publishing isn’t the Kindle. It was digitization. Digitzation made it makes it possible for an author to self-publish for a fifth or less of what it used to cost. It also makes POD possible, so individuals and companies can self-publish without investing in inventory.

    Reply
  14. Wally Bock Avatar
    Wally Bock

    I really like Richard’s analysis above. The disruptive innovation for publishing isn’t the Kindle. It was digitization. Digitzation made it makes it possible for an author to self-publish for a fifth or less of what it used to cost. It also makes POD possible, so individuals and companies can self-publish without investing in inventory.

    Reply
  15. Drew Boyd Avatar
    Drew Boyd

    Bob, I don’t think Kindle is disruptive. I believe it is here to stay for two reasons: publishers WANT it, and schools want it. This is a way for publishers to get out of printing and reduce the secondary markets for books. They will do well with Kindle and its competitors, on both top line revenue and bottom line profit.
    The question of can Kindle compete with iPhone, etc: one answer – innovation. Here are some suggested approaches:
    http://www.innovationinpractice.com/innovation_in_practice/2009/01/the-lab-innovating-the-kindle-with-task-unification-january-2009.html
    Drew

    Reply
  16. Drew Boyd Avatar
    Drew Boyd

    Bob, I don’t think Kindle is disruptive. I believe it is here to stay for two reasons: publishers WANT it, and schools want it. This is a way for publishers to get out of printing and reduce the secondary markets for books. They will do well with Kindle and its competitors, on both top line revenue and bottom line profit.
    The question of can Kindle compete with iPhone, etc: one answer – innovation. Here are some suggested approaches:
    http://www.innovationinpractice.com/innovation_in_practice/2009/01/the-lab-innovating-the-kindle-with-task-unification-january-2009.html
    Drew

    Reply
  17. THE BIZOP NEWS Avatar
    THE BIZOP NEWS

    Can Kindle Replace Text Books?

    Image via WikipediaIs the Kindle a disruptive device? Technology which displaces conventional methods of trading, and in the process drives out the previous winners -who…

    Reply
  18. THE BIZOP NEWS Avatar
    THE BIZOP NEWS

    Can Kindle Replace Text Books?

    Image via WikipediaIs the Kindle a disruptive device? Technology which displaces conventional methods of trading, and in the process drives out the previous winners -who…

    Reply

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