M Daniels, June 2006

The existing mass market channel that services the physical book through “bricks and mortar” stores, will potentially be very different to the direct channel that services the digital impressions via the Internet. Not only will the work be digital but how the buyer finds, values and buys it will be different. Although they may want to buy it from the same retailer, it is evident from other media sectors that the consumer will not expect to purchase digital downloadable material from the same physical store. However, it is likely that they may wish to buy both physical and digital works at the same time.

We now find ourselves no longer talking about supply chains and physical logistics but value chains and digital access and permissions. Therefore, those who today are critical to the efficiency supply and servicing of the physical supply chain, need to ensure that they understand the value they add today and they need to do to adapt to this new virtual market.

The diagram below shows the complex relationships between the work and its many impressions. A single title can result in many different impressions (physical, audio, digital etc) and each of these may appeal to a different audience and also could be serviced by the same or different channels.

It should be remembered that all sales are rights sales. If a consumer buys a physical book they effectively have bought certain rights associated with it. They can give it to a friend, write or draw on every page, even sell it as a used copy, but can’t reproduce it or digitally capture, store and transmit it or parts of it, without permission. However, in the digital world the work is exposed to a greater threat of abuse and therefore the rights need to be defined better and tightly controlled and managed. This applies not just to the rights sold, but also to the increased number of rights potentially acquired and available.





 

The Value Chain Model

The traditional view of the value chain is based on Michael Porter’s model and separates the support services that run across an organisation from those core activities that add vale and are part of its life cycle. By focusing on these core activities in this manner it is often easier to establish the real value added and in doing so create differentiation and margin.

In the late 90’s this model was further developed for publishing as part of the Vista “Publishing in the 21st Century” research series. However, the model was very “publisher centric” and focused on the author to market rather than author to reader. It is also very important that we recognise that the publishing life cycle itself is not linear and is very iterative and that this is further accentuated in the development of digital products.

If we look at the value chain from the Creator - author, illustrator, photographer, researcher, compiler, editor through to the reader we need to identify the value elements that add value and understand these in relation to who performs them and who benefits.




 

Based on work that Mark Bide (the ex Editor of the Vista research programme) did in 2000 we have identified eight generic value elements within the value chain from Creator to Reader.






 

Selection - the narrowing of choice from a wide to smaller range based on knowledge, skill and understanding. It is performed for example by commissioning editors and publishers in general, by bookstores and libraries with respect to the range and quantities stocked.

Development – the editorial and production process that converts the manuscript into the book. In general this is performed by the publisher but aspects such as actual production are nearly always outsourced.

Access – the activity of “Publishing”, making the work available to buy and getting it into the market. Over the years the trade has built a very strong B2B infrastructure to enable this.

Aggregation – the act of consolidating the total range, be it a physical distribution unit, a wholesaler, a virtual store or repository or a bibliographic library of reference.

Search & Discovery – how we find that “needle in a haystack”. The bigger the range, the more virtual the search, the greater the value. The trade has heavily relied on agents such as Bowker and NBD to facilitate the trade whilst players such as Amazon have dominated the consumer market.

Authority & Relevance – the act of qualification, ensuring what is selected is appropriate. Again if the physical product is not “in hand” then the value of validation is greater. When presented with twenty different travel books on Barcelona, which fits the readers requirements best? Is judgement made on a jacket, a blurb, the author, the publisher brand, the detail maps inside, the layout, the ease of use, its size?

Fulfilment – is the act of transacting the sale and getting the product. There is less value when you have the book “in hand” at purchase, than when the book has to be shipped separately or downloaded to a PC.

Management – is about CRM (Customer Relationship Management). It is about adding value through creating a direct relationship and servicing the “individual”. This is obviously easier in the virtual direct market environment than the mass market physical one.

Although we may all share the same vision of the value chain we may have a different perspective of it and the value elements importance.

It could be said that we are all “looking into the same house, albeit through different windows”. We all often see what we wish to see and what we think is important.




 

Obviously, the Creator is critical as they provide the origination and intellectual property. At the other end of the chain the Reader is the ultimate arbitrator of value and the only one who actually puts money in. The rest may be viewed as intermediaries and seen to merely add cost. The balance is therefore to ensure that the cost of adding value is smaller than the perceived value and revenue return it generates.

Intermediaries survive in the chain because of the value they add to it. However, if they fail to add value then they do not have a position in perpetuity. As with the troubadours and scribes of the early middle ages, when the press was invented, times of radical change often results in a change of the players.

Value Add

The traditional book market has many players who all add value differently. Where do all the different players add their value and will they continue to do so in the future?

The reader seeks value, but this will be different in the physical and virtual environments.

In the physical High Street world the reader values the selection made by the Bookstore. This is not an aggregation, but a selection from an aggregation and reflects the bookstore’s knowledge etc.

The reader can select and value the book in their hand. They can value the overall selection of the store. They can value the book’s development, quality, authority and relevance of the individual work for themselves. They pay for the book and walk out the store with it. The fulfilment value is about the effectiveness of the store checkout operation. Finally, the retailer is often ignorant to the identity of the reader and only has information on basket sales.



 

Interestingly, the reader’s perceived values flip to that of the physical world when buying physical or digital books on the internet,.

 

They now seek aggregation not selection – after all there is little point to providing a reduced selection unless it is tied to physical stock (mail order) or a niche player. What they want is to see everything that is available.

The search and discovery and authority and relevance are paramount elements. It is about finding that one title, in the format required and ensuring that it meets the needs. The reader perceives value from the aggregation, comprehensive search capabilities, relevance and authority of the results listed.

A search that merely responds with product placements or links to further search facilities is often seen as not adding value.

All sales over the internet benefit from these same value shifts. Amazon and ABE through their “book in hand”, affiliate programmes and focus have significantly consolidated their positions within this market.

For a variety of reasons the traditional retailers have largely given the Internet market to the likes of Amazon. Without these core competencies and market presence they will now find it hard to compete in the evolving digital content environment.

Some smaller retailers have created virtual presence built on the basis of affiliate programmes. However, although this has helped them create a web presence it has also perversely enabled the likes of Amazon to further consolidate their own position.

Web fulfilment on the Internet will differ between the digital download and the physical book delivery, but in both cases the reader expects an efficient service and quality delivery. The “book” does not need to come from the retailer but the services needs to be seamless and transparent.

CRM comes into its own in the virtual world. Not only does the seller know all the reader’s buying history, they also potentially know everything that they searched for and didn’t buy and have the ability to mail shot them on things that are of interest to them. They can create a personalised “My World” service. Google clearly see a huge potential to extend this further into all searches and as a result, fuel their business revenues by selling even more advertising placements and direct marketing facilities.

It is possible for selection to still be a high value in the virtual world, but this may diminish if the bookstore wants to supply “everything” and doesn’t distinguish its selection in a value added manner.

Context

The movement of physical books onto the web resulted in a significant change in bibliographic records. No longer were jackets restricted to AI sheets. They were mandatory for web sales, were closely followed by reviews and now “search inside”. Content is now becoming the contextual information, which enables the reader to see what they are buying before they purchase. It enables them to see the relevance, judge the style, and review the look and feel. “Judge a book by its cover” is becoming just judge a book by what’s inside.

This is a major change for publishers. It will not just affect digital sales but all sales. The reader may use it to qualify a physical sale in the same way as music samplers and free material has proved so successful in the music market.

Digital Context is no longer restricted to just content but could utilise streamed video “trailers” as being developed by some major publishers today, “meet the author” interviews, press coverage and associated events. It is about using the media to exploit the medium to sell books.

To facilitate this, a publisher would need to digitise their content, potentially their processes and workflow and make this content available potentially for all formats. They may only be selling the physical book but will need to show digital content to sell it on the Internet. This is were the likes of Google, MSN and others such as MPS and DPS etc. step in with services to digitise content and make it available in multiple formats. These services differ greatly in their business model and approach and will be very attractive to all publishers.

The Creator provides the initial value.

The greatest value is obviously in the publisher’s selection and development and their author’s authority and relevance.

Due to the cost of publishing, distributing and marketing the physical book, self publishing is rarely successful. However this can potentially change dramatically in the virtual world. The impact of the likes of Amazon and ABE on the antiquarian and used book market provides a clear lesson.
You only needed the one copy of the book that is sought, to be available at the right price to the buyer. The price impact on antiquarian retailers who previously “named their price” was also significant.

The Virtual world does not respect size nor geography but still respects quality, relevance etc. Publishers could find them squeezed in many directions if the ebook becomes successful.

Authors, illustrators, photographers, biographers, historians etc often have their own brand which can in many sectors be more important and of value to the reader than that of the publisher. High brand authors may wish to follow the road created by many of their counterparts in the music world and take greater control their works.

The forgotten back list authors can return by retaining and using the rights that have reverted.

The first time author could create their own following similar to that of the “Artic Monkeys” in the music world. Once a creator has a direct channel and is able to leverage a direct relationship with “fans” all is relatively easy.

However, there are a number of sectors that are significantly different (STM, academic etc). Here brand authorisation and relevancy value lies with the journal or publisher and references and citations become important value elements. Interestingly the Creator and Reader can also often be the same person in these sectors.
 

Development

As publishers go digital then the thing that tied them together – the book, changes and their businesses potentially diverge. There are many different types of publishers as well as many different sectors that they operate within. Where a packager adds value may differ from where a reference (information) publisher or a fiction publisher adds theirs.

However in all cases their selection of what to develop and publish remain high value add elements.

Authority and relevance become greater added value in the virtual network environment and potentially the publisher has the ability to add value with readers via direct channels and again this will be more appropriate to some sectors than in others.

Omnivores

Microsoft, Google, EBay, Yahoo are not in the business of creating digital content nor today selling digital books. They are in the business of information aggregation, search and discovery and qualification. They will then link the buyer to the source. They get paid for advertising or driving eyeballs to sites or a commission on sales achieved.

The model is simple and their drivers are different. What they wish to do is aggregate all information and return books as one source of response to a search.

There are questions with respect to their business models and revenue streams. Whether this like Google, will be from advertising placement and direct marketing or whether they may wish to move into book selling in the long term.

Theses new omnivores wish to eat up all and aggregate everything, both context and content. They aim to scan books and convert them, but have different approaches to the retention of IPR and the process of ascertaining the availability of rights.

The bibliographic agents NBD and Bowker are all about aggregation of contextual information and have provided an authoritative search and discovery to the trade. The questions in the digital world are whether they can also hold the content, how they provide extended richer information to help qualify the search and how retain their revenue streams as a B2B service whilst enabling their information to be used in the B2C environment?

Is the “Killer Store” already here?

In recent times one company has often gained a position that effectively “kills off” the opposition. Often the economies of scale and size dictate an advantage that others can not compete with. Examples are many; in retail, Walmart, Home Depot, Tesco; in technology and software, SAP, MSN, Oracle etc.

When Amazon captured the internet high ground, it did so with a far wider implications than many realised.

Today Amazon has built an affiliate programme that is openly supported by authors, bookstores, publishers. It gives them access to front and backlists, remaindered and antiquarian books and even used books on a global basis. Its range is the most comprehensive available and all available through one site.

Today, it sells not only physical books, but through its newly acquired subsidiaries, it can also supply ebooks in mobibook format, and now POD through Booksurge.

It has always had a powerful search capability and has now started to aggressively market its “search inside” facility to display digital content.

It has long been at the leading edge of enriching bibliographic record and was the main driver of digital book jackets and also pioneered the use of reader and author reviews.

Its “one click” fulfilment process was a major customer service coup. It is being enhanced by new innovation such as their “upgrade” service, where a reader can by the physical book and upgrade to get access to the digital impression of the same work. It must also be acknowledged that its ecommerce engine now drives the likes of Marks and Spencer’s and other large retail organisations’ web sites.

Customer service is where they established themselves and continue to develop. They have long offered services such as “people who bought … also bought”, and “titles you recently viewed”. This will continue to improve as more and more use the service and the data becomes richer.

Finally, the only aspect of the value chain they don’t cover today is publishing development. It is very easy for them to do so and this may be more a question of when more than if.

The diagram below clearly shows their unique presence right across the value chain and also the threat they pose.





 

A true killer creates not just economies of scale and scope but an overall position that no one party can easily compete against.

Value Chain options

It is clear that the value chain elements that are pivotal to the digital content are those of Aggregation, Search and Discovery and Authority and Relevance. These are where external threat from new entrants is greatest and were the internet and global and network truly change the parameters.

Interestingly, these are where the industry should be strongest but is currently weakest.


 

However, the position is far from lost. If it is to avoid losing it to a new entrant, or more likely the likes of Amazon then the trade will require consensus, co-operation, commitment and leadership. Not qualities it is always best known for.

There are a number of optional routes available but what is clear is that no one existing player can cover all the bases. The challenge is not new, nor unique to the trade. A similar but different issue was covered in the STM world by the co-operative creation of the Crossref service.

It also clear that there is not a “one shoe fits all” for the global market. Different geographic blocks are facing different markets and constraints. The UK and US markets face the greatest difficulty but also the greatest prize.

The consumer wants the richest search and discovery and one which is cognisant to the way they work and search today. This means that the industry has to embrace a standard search and discovery tool or potentially risk fewer visits. It needs to embrace the consumer search environment. In some cases it could be said that it is better to have the potential enemy “inside the tent” than outside it.

The current physical distribution of digital content opens up the whole issues of access, rights, royalties and copying.

What is important that that content developers retain control and management of their digital content. Content aggregation and search and discovery are different activities. They don’t need digital content but do need persistent and resolvable indexing references and access to it.

The retention of the content by the developer, albeit at a designated repository, would enable them to also retain control of their representation on ebookstores where digital content is used to enrich contextual information.

Authority and relevance provides opportunity for all. It is important however that bland reference is not adopted in preference to genuine substance. This now offers the bookseller who is willing to invest input to their selection, the opportunity to differentiate at the expense of the “catch all pretender”.


 

Finally digital fulfilment can be both direct and indirect and can be transparently attached to the transaction.

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