Wednesday, September 23, 2015

Disconfirming Books

Yesterday the The New York Times had a fascinating piece about how ebook sales, contra Aggregation Theory, are actually declining even as publishers and book stores are thriving on the back of print:
Five years ago, the book world was seized by collective panic over the uncertain future of print. As readers migrated to new digital devices, ebook sales soared, up 1,260 percent between 2008 and 2010, alarming booksellers that watched consumers use their stores to find titles they would later buy online. Print sales dwindled, bookstores struggled to stay open, and publishers and authors feared that cheaper ebooks would cannibalize their business… 
But the digital apocalypse never arrived, or at least not on schedule. While analysts once predicted that ebooks would overtake print by 2015, digital sales have instead slowed sharply. Now, there are signs that some ebook adopters are returning to print, or becoming hybrid readers, who juggle devices and paper. Ebook sales fell by 10 percent in the first five months of this year, according to the Association of American Publishers, which collects data from nearly 1,200 publishers. Digital books accounted last year for around 20 percent of the market, roughly the same as they did a few years ago. 
Ebooks’ declining popularity may signal that publishing, while not immune to technological upheaval, will weather the tidal wave of digital technology better than other forms of media, like music and television.
First off, I’m not necessarily surprised that publishers haven’t all gone bankrupt en masse. Much like the music labels publishers have always provided more than distribution, including funding (using a venture capital-like process where one hit pays for a bunch of losers), promotion (discovery is the biggest challenge in a world of abundance, and breaking through is expensive), and expertise (someone needs to do the editing, layout, cover design, etc.). And, as long as there is any print business at all, distribution still matters to a degree given the economics of writing a book: very high fixed costs with minimal marginal costs, which dictates as wide a reach as possible.

Still, none of this explains why ebooks have been stopped in their tracks, and that’s where this discussion gets interesting: not only is it worth thinking about the ebook answer specifically, but also are there broader takeaways that explain what the theory got wrong, and how it can be made better?


I think there are three things to be learned from the plateauing in ebook sales:

Price: The first thing to consider about ebooks — and the New York Times’ article touches on this — is that they’re not any cheaper than printed books; indeed, in many cases they are more expensive. The Wall Street Journal wrote earlier this month:
When the world’s largest publishers struck e-book distribution deals with Inc. over the past several months, they seemed to get what they wanted: the right to set the prices of their titles and avoid the steep discounts the online retail giant often applies. But in the early going, that strategy doesn’t appear to be paying off. Three big publishers that signed new pacts with Amazon— Lagardere SCA’s Hachette Book Group, News Corp’s HarperCollins Publishers and CBS Corp.’s Simon & Schuster—reported declining e-book revenue in their latest reporting periods.
Pricing is certainly an art — go too low and you leave money on the table, go too high and you lose too many customers — and there is obviously a case to be made (and Amazon has made it) that in the case of books there is significant elasticity (i.e. price has a significant impact on purchase decisions). Then again, while e-book sales have fallen, they’ve stayed the same percentage of overall book sales — about 20% — which potentially means that the price change didn’t really have an effect at all (more on this in a bit).

What is more interesting about the pricing issue, though, is that the publishers have removed what is traditionally one of digital’s advantages: that it is cheaper. That means the chief advantage of ebooks is that they are more convenient to acquire and store, and that’s about it. And, by extension, that raises the question about just how much lower prices play a role in the success of other aggregators.

User Experience: Note what is lacking when it comes to ebook’s advantages: the user experience. True, some people certainly prefer an e-reader (or their phone or tablet), but a physical book has its advantages as well: relative indestructibility, and little regret if it is destroyed or lost; tangibility, both in regards to feel and in the ability to notate; the ability to share or borrow; and, of course, the fact a book is an escape from the screens we look at nearly constantly. At the very best the user experience comparison (excluding the convenience factor) is a push; I’d argue it tilts towards physical books.

This is in marked contrast to many of the other industries mentioned above. When it comes to media, choosing a show on demand or an individual song is vastly preferable to a programming guide or a CD. Similarly, Uber is better than a taxi in nearly every way, particularly when it comes to payments; Airbnb offers far more selection and rooms that simply aren’t possible through hotel chains; Amazon has superior selection and superior prices, with delivery to your doorstep to boot. It’s arguable the user experience is undervalued in my Aggregation Theory analysis.

Modularization: Notice, though, that there is something in common to all of my user experience examples: what matters is not only that the aggregators are digital, but also that they broke up the incumbent offering to its atomic unit. Netflix offered shows, not channels; first iTunes then Spotify offered songs, not albums; Uber offered the ability to chart individual cars on-demand; Airbnb offered rooms, not hotels; Amazon offers every product, not just the ones that will fit in a bricks-and-mortar retail store.

Ebooks, on the other hand, well, they’re pretty much the same thing as physical books, except they need an expensive device to read them on, while books have their own built-in screen that is both disposable and of a superior resolution (no back-lighting though).

by Ben Thompson, Stratechery |  Read more:
Image: Stratechery