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"Are we blinded by e-light"

International Distribution and Supply Chain Specialist Meeting Frankfurt, October 2000

We can all relate to the driver, but today we now have to relate to the rabbits. We are caught in the glare of e-light of the e-revolutions that are bearing down on us at an alarming rate. What is certain, is that we can’t all expect this vehicle to brake and give us time to move.

Change within publishing is taking place at an alarming rate. Today, we all face many challenges in our business journeys. The question is, how we respond.

Do we:

• prepare against surprise - and build defence mechanism against the change
• prepare for surprise - and adapt to respond quickly to the changes as they occur
• or do we, recognizing the potential opportunities available, prepare the surprise itself

Today I intend to overview some of the traffic, that is bearing down on us and to offer some insights that may help us on our journeys and avoid us being caught, transfixed and blinded by the lights

The changes taking place today are significant. Larger players are getting larger and are changing the economies of scale and scope, vertical integration is blurring the roles of some within the supply chain, media convergence is introducing new players and globalization is challenging many of the traditional publishing "rules". Convergence and consolidation, is by itself, reshaping the supply chain.

We are all familiar with the impact that the likes of Guttenberg, Ingram and others had in shaping today's publishing environment. You may not be as familiar with the changes that effected the UK market in the 18th century. However, the 18th century literacy revolution completely changed the roles of booksellers, authors, printers and publishers. It redefined the value chain and removed a number of significant players. Like Guttenberg, Ingram and others, the likes of Robert Dodsley prepared the surprise in this revolution. The question we all must now ask is, who is preparing the surprise today?

Today, everyone is grappling with movement on these Product and Market axis. We all start from different positions, we all have different goals and different time-scales in which we aim to achieve them. Each of the following axis has a different impact, according to our roles within the value chain and the sector in which we operate:

The questions we now all need to ask are:

Where exactly are we? What is the position of the marketplace? Where do we want to go and in what timescales? What are the associated actions and risks.

Digitization is a subject in itself. The question of whether the ebook as we see it to today is a mere transitional stage like the CDROM and that broadband online technologies are the end game is another debate. The impact of the ebook alone is however forcing us to revisit standard such as the ISBN and the internet can clearly claim credit for the long overdue emergence of ONIX / EPICS standards. The jury remains out on the DOI.

In many cases we are not dealing with a future we can predict or control. We can't adopt a wait and see policy, if we do will not have the competencies to compete and more importantly will probably find others, sitting in our seat and eating our dinner.

Earlier this year I asked a similar audience to this, the following questions:

• When Simon and Schuster published “Riding the Bullet” by Stephen King and made it only available by digital download over the Internet, how many downloads were achieved in the first 24 hours?
• How many digital and e-articles appeared in The Bookseller in the first quarter of this year?
• How many online e-tailers databases are updated daily and weekly online with rich Bibliographic information via BookData?

The answers now seem dated, but when asked less than half the audience got any one question correct and they were extremely conservative in their responses.

We only need to open up our press today it see that the publishing e-lights are switched on.

The speed of change should not be doubted. A recent article in "wired" pointed out that technology is now outstripping Moore's law, which to-date, has accurately predicted the exponential rise computing processing power to time.

That change is happening should not be doubted. That all change costs money is a fact.

I think Terry McGraw captures the issue perfectly when he says its now about the speed of change.

However, we also have to remember that for some time the current traditional environment will still be the major revenue generator and will still require continued support and investment

In 1996, as a result of our research programme "Publishing in the 21ts Century", we predicted that the shift from physical to digital product would gather momentum in the year 2000, but that it would still represent the minority of the overall product mix. We also predicted that by 2020 the position would flip, with physical product becoming the minority of the mix. We are clearly moving in this direction and therefore face with an interesting quandary?

If we accept that overall growth in the market is at a marginal, say 3% to 5% and we take a hypothetical books and journals publisher with revenues around $80 million, we see marginal growth across the total business over the next 5 years. However we must respect that the e-publishing revenues will grow.

We could expect e-publishing growth over the same period to rise to 25% of revenues. Some may say this is conservative, others that it is generous. The point is that if we accept the principle, we have to accept that revenues from the physical product must decline to compensate the switch to electronic product. The principle is simple, if the revenues remain relative flat and electronic revenues is growing, then physical revenues must reduce

The publishers now find themselves having to continue to support the cost of the declining physical product overhead with declining revenues. Whilst at the other end they are having to invest heavily to make the e-publishing transition in order to realize the new potential revenues. A clear double wammy and new squeeze on the margins.

In this new environment we need to step back and realize we need to re-evaluate how we do business, the marketplace in which we do business, partners we do business with, our competitors etc. This is not an IT or logistics issue it is a corporate one that clearly forces strategic vision, corporate consensus and corporate action if we are to avoid being paralyzed by e-lights. Piecemeal actions are no longer the answer

I have drawn up 7 principles of e-business that I believe you should consider when formulating or reviewing your corporate e-business strategy. They are not comprehensive neither are they mandatory. They just make a lot of sense in this brave new world.

First is a focus on your core competency.

Recognizing the key elements of trading involve:

• Content the product in a digital, physical or any combination of media
• Context the bibliographic information that describes the product
• Commerce the commercials and customer information and processes

Just as within any environment, all are essential within the e-business world, 2 out of 3 will not do. All are linked irrespective of whether you are selling virtual or physical product or servicing customers the on the Internet

The key question to ask is where is your core competency, where do you add value in the evolving value chain and proposition?

Some may believe that they provided added value and competitive advantage by doing all three themselves and that they are truly self-sufficient.

You may develop and publish content, but can you provide it in every format, every type of ebook, Digitally distribute it, and provide it on demand? Or do you recognise the competency of others and outsource those tasks? Are you equally focused across your full list? Are you now focusing on being "never out of print?"

These are just a fraction of the new players on the radar of publishing who deal with content and need to be evaluated, understood and positioned. Many will fail, but what is certain, is that a number will succeed and will radically change aspects of publishing as we known them today. Are you comfortable that you understand their competencies and value add?

Remember, only a few years ago Amazon was dismissed by many. An interesting thought to ponder…is that all major trade publishers now have a clear vested interest in Amazon’s continued growth and success and that failure of the some of the dotcom’s could have a fatal impact on some.

Ask yourselves what the role of the wholesaler is today? Look at how many are currently positioning themselves for tomorrow. They clearly are embracing digital distribution, they are clearly providing total web fulfillment services to many bookstores, they are providing drop shipment and could even be regarded by some as distributors. What is their core competency and value add and where do they now position themselves in tomorrow's supply chain?

Second is a focus on Integration - not replication

When it comes to online fulfillment Publishers have a clear choice - replicate their commercial systems online or seamlessly integrated their e-business activity with their existing systems and existing information.

Unfortunately, many have learned the hard way. The skill and knowledge set required to achieve this business integration, is different to that owned by even the best web designers let alone the “garage boys”, that are all too often here today and gone tomorrow.

An example of replication. The commercial systems feed the digital warehouse in real time, with information on customers, products, trading terms etc. The consumer enters via an intermediary and selects the ebook and required format. They submit an order on behalf of the consumer to the digital warehouse, who proceed to download the ebook to the consumer and confirm the transmission to the etailor and the sale to the publisher. Finally, the publisher's commercial systems raise an invoice to the etailer. Seems fairly straightforward, until you start to think about the synchronization between the Digital warehouse and the publisher's commercial systems and the fact the digital warehouse will have to virtually replicate the publisher's commercial systems etc.

Unfortunately this process is not fictional but is one fraught with risk.

When we look at the integration options, we start to remove duplication and synchronization of data and replication of functionality. The solution is simple and importantly recognizes the core competencies of those involved and importantly is consistent with physical fulfillment.

There are many people who we now have to interface with. We need to think about how we interface them. Integration not replication is the only answer. Many who adopt a replication route will fail not because their digital warehouse was wrong but because they introduced risk and cost when it could have been avoided. Think about how you will need to synchronize functionality and data and not just with one but many partners. Critically, you are not just replicating your functionality and data, you could find, you are also giving away your customers and your interface with them.

Third focus on a Standard Interface

Many believe that the ability to process a credit card transition is all that is required today and that B2B and B2C are completely separate.

Increasingly, the demands of servicing even the B2C customers will become complex. They themselves will be more demanding and their needs will be driven not by what publishers can provide but by their total e-experience.

The need to manage all customer’s through a standard interface is compelling. It offers standardization, commercial flexibility, development economics and effective customer service.

Fourth focus on Core Relationships across the Value Chain

In one of our research reports, "The Impact on The Publishing Value Chain of Online Networks", we created, from the work of Professor Michael Porter, a modified Publishing Value Chain. It is critical that we focus on product and customer information and the associated trading terms across this lifecycle.

As illustrated by the initiatives such as ONIX/EPICS and the earlier BIC Basic, product information does not just materialise when the product hits the warehouse and neither does it stop there. Over 70 % of customer Service calls are about basic information. The demand for product information is exploding, after all if you can't find it you can't value it and you can't buy it.

Today all the major chains, e-tailers, wholesalers all have book in hand processes. Collectively this is a huge cost to all. It's primarily focus is to collect rich information which is often not available any other way. The problem is that this is too late in the lifecycle.

Inconsistent and inaccurate information is costing this industry millions and also losing sales.

The question is not so much as to who will provide the information to the marketplace, but how publishers will produce and provide the information in a timely manner.

To survive in this new environment, all publishers now need a rich product database with full export capability as much as they need a customer database and fulfillment system.

Fifth focus on the different user / community perspectives

Yesterday we would have built different systems for different users groups and even different networks.

Our problem is that we all have:

• Close relatives and friends with whom we share close information. (our Intranet)
• More distant relatives and friends we see less frequently and share less information with (our Extranet)
• Finally, relatives and people we only see at births, marriages and deaths and share little information with (our Internet).

However we have all three types within the same user groups and their individual closeness will vary over time.

In addition, we also have to recognise that the difference between what one group customers wants and another group may vary as little as 5%. There is often more commonality than we think.

We now need to recognise that there are many community builders out there. However we need to be wary. Some want to totally own their community, others only wish to be service providers. In all cases, we have to recognise what is best for the user and the community and ensure that intermediaries don't lock you out from even knowing who your customers are.

Again Terry McGraw recognizes the key focus required. Sharing information and trust, and in doing so understanding behaviour become important if not critical factors. Some today will give these away in the belief they are growing business, they are wrong, they are giving away their future.

Sixth - focus on servicing everybody - not the just the few

Although it is relatively easy for large publishers to trade electronically with large booksellers, this is often restricted to base transactions and rarely filters down to the 80% that constitute 20% of value and volume but a high cost of service.

Here we see traditional communications such as fax, phone and even post. EDI or e-commerce is often too complex and costly to prevail, is not real time and doesn’t deal with customer service queries effectively.

Also we need to remember that 40% of the UK Book trade is export, they can’t be ignored, they need 24 x 7 hour access to their information and ability to trade both efficiently and effectively.

Last - focus on Web access

Yesterday users wanted an integrated desktop, one from which they could access all their information in a consistent manner. Today is no different except it is no longer restricted to the confines of the local environment, it is global and more important people now only want to see and have access to their world. They want "My Web", identification, personalization and consistency from anywhere and anytime. ebusiness is about providing solutions to all both inside and outside of the organization.

Theses seven principles are not fixed they are fluid, they will evolve but they are today's issues. The technology exists, the opportunities exist what is now required is a broad e-business vision, a corporate strategy and the business commitment to make it happen.

Today we must stop thinking that ebusiness is different. It is business.

We now need to cross the road, recognise the opportunities, actions and risks and avoid being caught in the glare of the e-light.

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