B&N in a Fantasy World

The Amazon versus Hachette stories in the newspapers and the blogosphere started me thinking about Barnes & Noble yet again. (For those of you unfamiliar with the Amazon–Hachette dispute, it boils down to this: In a few months, the prohibition against agency pricing that came about as part of the settlement agreement between the U.S. Department of Justice and the big publishers expires. Amazon is trying to get Hachette to agree to a new division of fees — Amazon gets more, Hachette gets less — as a sort of preemptive strike to stop the reimposition of agency pricing. For the first time in its history, Amazon is under pressure to produce large profits and it sees as one avenue to doing so receiving a larger discount from publishers. Although the fight is currently over print books, most commentators see it as a proxy for ebooks. The speculation is that if Hachette succumbs, the other publishers will follow; if Hachette prevails, agency pricing is likely to be reinstated by all of the publishers.)

As many of you know, I buy a lot of books through B&N. In May alone, I received eight hardcovers from B&N and preordered several more. In looking at my list of preorders, I find that I currently have 11 preordered hardcovers and 18 that I am thinking of preordering. (I do not preorder ebooks. I only preorder books that I want in hardcover.) Since January 1, I have purchased (and received) another 21 books from B&N.

In my fantasy world, B&N cares very much about me as a customer. In the real world, B&N cares for me as much as Amazon does, which isn’t a whole lot. Yet with the Amazon–Hachette dispute, B&N has a golden opportunity to strike a blow for its own special relationship with its customers. Alas, if history is any guide to the future, this will be another opportunity that B&N misses.

So let’s look longer term than what B&N could do tomorrow while the Amazon–Hachette dispute festers. What is it that I, as a regular customer of B&N, would like that would entice me to spend even more money at B&N (and also might be appealing enough to draw in new customers)?

A fundamental rule for all businesses is that to survive and grow you need not only new customers, but you need to retain existing customers. B&N doesn’t do a great job at either.

Both Amazon and B&N use some algorithm that, when you buy a book, says “customers who bought this book also bought”. Who cares? I don’t care what someone I don’t know bought, especially when the suggested books are so unlike what I did buy. To me, it is like the anonymous reviews or the reviews by IAteMyTongueYesterday.

Instead, I would like to be given opportunities to (a) have forthcoming books by the author automatically preordered for me with (b) a guarantee that I will pay only the lowest price at which the book is offered by B&N and (c) with the opportunity to cancel the preorder before the book is shipped. This would be particularly valuable because customers would no longer need to remember to keep checking to see whether an author has a new book coming out.

I would also like to be able to create a custom newsletter that would keep me abreast of new releases in particular areas. Now I can sign up for broad categories but I want to be able to narrowly focus. I want to be able to say, for example, “World War II history, European theater” of “Fantasy but no vampires or time travel.” I also want to be able to set the frequency. Personally, I would opt for once a month; weekly is far too often for me.

It happens that I am also a member of B&N. With the number of books that I order, it is worth the $25 annual fee to save on the shipping. But except for the shipping savings, being a member is a pretty useless thing at B&N if you shop online. (It isn’t that valuable if you shop in the stores, either.) There area no member discounts or specials online; just the saving of the shipping charges and the getting of “express” shipping, which isn’t all that express.

Now, while Amazon and Hachette (and subsequently the other big publishers) fight over terms and Amazon cuts access to Hachette books, B&N should enhance its membership — give inducements to become a member and to shop at B&N.

I recommended a long time ago that B&N cut deals with publishers to offer a very significant discount on the ebook version of a book if a customer buys the hardcover version. Or, twist it around and offer a significant discount on the hardcover version to the ebook buyer. That’s one inducement that would work with someone like me. But there are a lot of people who are uninterested in having a second copy of a book, even if in a different format.

Perhaps the way to do it is to give members reward points. One point for each dollar spent on books and ebooks, with the points redeemable for a B&N gift card or as a discount on a future purchase.

The point is that B&N needs to quickly figure out some way to immediately take advantage of the Amazon–Hachette spat. It also needs to come up with some ways of inducing book buyers who are currently buying from Amazon to buy, instead, from B&N. Although B&N will not move those who are in lock-step with Amazon, there are a lot of book buyers who are open to shopping elsewhere.

And B&N has to move because its big box competitors, like Walmart, are attempting to woo those same Amazon customers with steep discounts on Hachette books. The odds are long — very long — against B&N doing anything but blowing this opportunity, but one can hope.

Richard Adin, An American Editor

 

Advertisement

Smashwords is the Real Threat to Agency Pricing of eBooks

Smashwords and ebooksellers like Smashwords (such as Books for a Buck) are the real threat to agency pricing and the Agency 5 (Macmillan, Hachette, Simon & Schuster, Penguin, and HarperCollins). The reason is simple: the combination of quality and low price.

I find it hard to justify paying $14.99 for a fiction ebook unless I am absolutely enthralled with the author, and even then I am more inclined to pass on the ebook than spend that kind of money on a read-once-throwaway ebook. No need to repeat all the reasons; they have been bandied about the Internet and the magazines for months. And if I don’t know the author, I certainly wouldn’t pay the agency price. Amazon may have had it right when it set a top price of $9.99.

But look at Smashwords and similar sites. They sell ebooks in many categories from authors with whom I am not familiar for a reasonable price. I’m much more likely to spend $3.99 on an unknown author than $14.99. Of course, that isn’t enough to be a threat to the Agency 5. The Smashwords threat comes by Smashwords’ authors also being available in the iBookstore and Amazon, but primarily in the iBookstore.

It is in the iBookstore that the Agency 5 are face to face with competing books that cost significantly less. In publishing, it isn’t the publisher who sells an ebook; it is the author, the story synopsis, the ebook itself. No one goes around and says “I bought a great Hachette ebook yesterday.” Publisher branding value among ebookers is nearly nonexistent and I suspect noninfluential in the decision whether or not to buy an ebook.

For agency pricing to succeed, by which I mean the Agency 5 at minimum do not see a decrease in ebook sales from the pre-agency days, ebookers have to equate quality reads with the names of the giant publishers. Otherwise, all that will happen is that the blockbuster bestseller from the Stephen King-/Dan Brown-recognition-level authors will sell at the agency pricing and less-recognized authors down to unrecognized authors without the Oprah kick will have less-than-stellar ebook sales.

It is these second- and third-tier authors who have to compete against the Smashwords authors and for whose readers price is a major component of the decision to buy or not. In a bricks-and-mortar world, the Smashwords authors stand little chance, but in the Internet world they stand an equal chance — the Internet is the great sales leveler.

The playing field is level because all books display a cover, offer a sample read, have similar story blurbs. The differences are price and publisher name, but the latter has little, if any, swaying power, especially when you get down to the subsidiary names with which few readers are familiar. (Can you tell me who owns Ballantine? DAW? Basic? Do you care?)

The advantages that the Agency 5 do retain really relate to the level of professionalism in putting together the ebook — the professional editing, the professional cover design. But that advantage is easily eliminated by Smashwords authors who could hire these services independently [see, e.g., Professional Editors: Publishers and Authors Need Them (Part 1) and Professional Editors: Publishers and Authors Need Them (Part 2)], and with the right pricing, is readily overlooked by ebookers. Even though I am an editor and find amateurish errors annoying (see On Words & eBooks: Give Me a Brake!), I am more forgiving of them in a $1.99 ebook than in a $14.99 ebook, where I won’t forgive them at all. (Perhaps the Agency 5 should rethink offering a warranty of quality; see A Modest Proposal II: Book Warranty.)

The big gamble that the Agency 5 is making is that ebookers will associate quality reading with their brands and be willing to pay an inflated price for that quality. The reality that will strike home eventually is that such thinking is delusional. eBookers do not equate quality with the Agency 5 brands; if anything, the Agency 5 have done such a poor public relations job with every aspect of ebooks that any association of their brands with quality have long disappeared. eBookers, as is true of most readers, look first for an interesting and seemingly well-written story. Then they look for pricing and production quality.

Combine an interesting and seemingly well-written story with a reasonable price and you have an ebook sale. The ebooker doesn’t care if the ebook is from Smashwords or Hachette. Consequently, Smashwords-type ebooksellers are the real threat to agency pricing and the Agency 5. The more Smashwords and its companion ebooksellers, like Books for a Buck, do to increase quality of the books they offer and the lower the prices they offer those books for, the more in trouble agency pricing and the Agency 5 are. I’ve yet to meet an ebooker who only buys Simon & Schuster ebooks. And we haven’t even touched upon the all the places that offer free ebooks, such as Feedbooks.

Smashwords, Books for a Buck, Feedbooks, and other smaller, independent publishers or ebook outlets are squeezing ebook pricing. eBookers want a good read at a reasonable price, which is what they get from these alternatives. The Agency 5’s plan to force ebookers to “value” ebooks by keeping pricing artificially high will not withstand the assault. Yes, the very top authors — the most popular authors — will probably be able to command the Agency 5 ebook prices, but they are not enough to sustain traditional publishers. There are too few Stephen Kings and JK Rowlings to build a business around the popularity of their books.

If iBookstore sales aren’t significant for the Agency 5 at the higher end of the agency pricing scheme, and if iBookstore sales for the Smashwords-type publishers/sellers show growth, the Agency 5 are doomed. Of course, it doesn’t help the Agency 5 that Random House is sitting on the sidelines. Imagine if its ebook sales continue to grow while the Agency 5’s sales decline.

A Modest Proposal III: Dying Days of Giant Publishers (Part 1)

In two earlier Modest Proposal posts (A 21st Century Publishing Model and Book Warranty) I offered suggestions for changes publishers could (and should) consider to their business model. The first proposal, to make ebooks the new paperbacks and to publish only hardcover and ebook versions of books, was not well received by consumers. (Interestingly, some of the most vocal opposition to demising paperbacks came from people who claim to only buy ebooks!) The second proposal was much better received, probably because everyone loves perfection and loves the idea that something comes with a warranty.

Now comes my third modest proposal, which begins with a prediction: The big, multinational book publishers have begun their funeral march. Within a decade or two, possibly sooner, there will no longer be giants of publishing; instead there will be a reversion to the preconsolidation era with numerous small (by comparison to today’s Hachettes and Random Houses) publishers dominating the industry.

Before getting to my suggestions about what today’s giants can do to stave off their funeral orations, let’s consider why they are now walking that funeral path. What follows are a sample of publishing’s self-destruct problems.

First, they are too big to react with grace and ease to changes in the publishing world. Imagine a sumo wrestler dancing Swan Lake. Decisions that need to be made quickly and locally cannot be made because there is always another corporate level to consult. It’s hard to survive when you need to turn on a dime but can only turn on a half dollar.

Second, they haven’t learned what I call the Dell lesson: Tell the customer he can have it his way and then limit the options. Dell always touted how customizable their computers were. Yet try to really customize a Dell computer — you can’t; Dell has limited options for particular computer models and you can’t take options from one model line to another. This is no different from what the automobile industry has done for decades. To get one feature you want, you have to buy an option package or do without. Or, better yet, cable TV. Few choices there. You pay for sports channels whether you want them or not. Unlike other industries, publishers let others dictate what they will do and offer. Publishers need to rethink this action model.

Third, publishers haven’t yet recognized where they are in the policy-setting chain. Although they should be in the catbird’s seat, instead it is the distributors and the retailers who drive publisher policies. What is the single most hurtful policy to publishers’ bottom line today? My guess is the returns policy. Who does this policy help: distributors and retailers because they do not have to pay for ordered product. No other industry has such a policy and no industry — including publishing — offers such a system to the consumer. This policy of returns for books started decades ago for a reason that was valid decades ago but is no longer valid or sustainable, yet publishers can’t stop killing themselves — it’s the fear of being first.

Publishers need to regain the catbird’s seat and immediately do away with returns. If, say, Random House were to unilaterally declare an end to the current returns system, most publishers would soon follow. Unlike computers and automobiles, there is no substitute for a Dan Brown best-selling novel that would give a competitor a leg up by keeping the return policy. Readers either want Brown’s novel or they don’t; no retailer is going to tell a customer that they can’t buy the Brown novel because the publisher doesn’t accept returns so the retailer won’t stock the book, but here is Joe Unknowns’ similar novel instead.

The returns problem highlights a fourth reason: Publishers are confused about who are their customers. Until recently, except occasionally, the giant publishers didn’t sell books directly to readers. Although the publisher has to produce books that readers want to buy, their immediate customers today are the middlemen between publishers and the readers. With the changes that ebooks are bringing to publishing, the giants will die on the vine if they do not rethink who their customers will be in the coming years and their relationship with them.

Alas, there is more to say, so this discussion continues in tomorrow’s post, wherein I reveal my modest proposal.