Publishing 3.0: A World Without Inventory Part 2

In our previous posting we pointed out that today’s “speculative” publishing model, based on the returnability of unsold books, is no longer viable. It has served us well for the better part of a century. But the digital revolution has created a highly successful, efficient new model relying on pre-ordered and prepaid books printed on demand.

The publishing industry has had decades to deal with its addiction to returns. I have been beating this drum in vain for decades including an editorial in Publishers Weekly in 1992 (see Behind Publishing’s Wednesday of the Long Knives). Now it is too late. The old way can no longer be sustained. The good news, however, is that it no longer has to be. Amazon has demonstrated that the prepaid model is mature and ready to replace the old speculative one.

Publishing oracle Mike Shatzkin would seem to support this vision of things to come.  In a recent article he projected “about half of new book sales will be made through online purchases if we count the print book sales made through online retailers (mostly Amazon). Online print sales can be served through inventory generated on demand. So, if these estimates are right, we are less than three years away from a publisher (or author) being able to reach half the market for a book without inventory risk!”

“Every publisher,” he adds, “should be preparing for the disruptive effects” of this paradigm shift. Among his recommendations are:

  • Publishers are going to really have to rethink the development process for their ebooks.
  • It will be eminently sensible to launch books with a no-inventory strategy and move to press runs with returns allowable when reviews or sales have proven that it makes sense…The idea of printing and distributing speculatively will make less and less sense as the potential market to be reached by that tactic diminishes as a share of the whole.
  • By the end of 2012, we’re saying half of all the sales potential can also be reached with the product without a local nexus: no requirement of local inventory or any shipping or revenue collection facility beyond your digital distribution and print-on-demand partner.
  • Because books or ebooks will be purchased by half of their customers electronically, the potential exists to know exactly who those are and to establish interaction with them…This opportunity presents a new battleground for competitive advantage that publishers will have to pursue both for marketing and for author relations.
  • Publishers will have to start devoting the bandwidth and resources to direct sales that they devote to intermediary sales today. (See Direct Sales: Publishing’s Last Stand.)
  • There’s an inevitable concurrent downward spiral of brick-and-mortar retail inherent in this forecast that sales are moving online. The nearly-limitless online selection has been an increasingly powerful magnet since the day Amazon opened and in the new paradigm there will be a growing body of talked-about content not visible on store shelves.

“On-demand printing is very much in demand in 2009,” says David Taylor, president of Lightning Source, the biggest POD supplier in the business. “The business model, quality and cost structure have matured considerably in recent years. With POD, publishers can better match supply to demand, thus eliminating the risks and costs associated with the book market….A globally distributed print model, where publishers use the same file to print at multiple locations that are closest to the origins of the orders, has given the book industry a platform to publish smarter. POD is no longer an optional novelty; it is an integral and essential part of the future of publishing.”

Richard Curtis

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10 Responses to Publishing 3.0: A World Without Inventory Part 2

  1. Wonderfully lucid explanation of the inventory/returns problem that now plagues all publishers.

    How sad that, in 1992, people did not heed your call in PW to move to print-on-demand. Right now, POD feels like a solution that would’ve been ideal had it been implemented 20 ago.

    My guess is that e-books will soon be the preferred format, and given the migration to online purchasing, that will only speed the process. So I’m not sure that POD will be much of a savior. Or, at the very least, I don’t think it will do anything positive for the bricks-and-mortar bookstores.

  2. A postscript (I was discussing this issue on Facebook!) —

    Today I see many small publishers/presses that operate and succeed in exactly the way you recommend, using print-on-demand to serve individual customers, or using it for small, digital runs. They may fulfill orders with the big chains, but they usually send fewer copies than they are asked for – to limit returns.

    Since the big NYC houses operate on a much larger scale, I imagine (in today’s world, which is changing), they can’t properly conceive of a book P/L without thinking in terms of a big print run. I see this happening already at my publisher when we consider whether or not to reprint a title, or even move it to on-demand. Often there’s not enough projected revenue to justify the trouble. Of course lots of problems with this assessment, but I’ll stay away from that can of worms for now.

    Since the print run is used as a sales estimate, and The Big Six still take on books for which they have big expectations, that usually requires big print runs that exude confidence. Without those print runs that proclaim “this book will be successful at exactly this magnitude,” I wonder how those value judgments will be made. (And how the author will receive an advance — which can also be based on the expected print run or sales.)

    Sometimes I’m forced to conclude that publishers without a long legacy or history of sales are much better positioned to meet the challenges ahead. Exhibit A: Ellora’s Cave.

    • Thanks, Jane. You’re not alone in worrying about what will happen to significant books if there are no longer big print runs. Mike Shatzkin, commenting about “A World without Inventory,” is majorly concerned. Here’s a link to his blog. http://tinyurl.com/y38699r

      Somewhere along the way some very smart retailers (no names but you know who they are) figured out that sending books back was just as profitable as selling them and maybe moreso. They ruined the good principle on which returns was created. The system broke down because of some predatory practices and now we live in an Alice In Wonderland returns culture.

      On the other hand, there’s still plenty of fuel in the bricks and mortar model and one lives in hope that publishers and retailers will finally figure out how to end their addiction to overprinting, overordering and overshipping.
      RC

  3. Joe Schick says:

    Thanks, Richard. It strikes me that increasingly Consumer Direct Fulfillment is becoming the norm: an online reseller takes an order for a POD title, routes it to a supplier (Lightning Source, Baker & Taylor, CreateSpace, etc.), and then steps out of the picture. The supplier prints the book, slaps a packing slip and a label with the reseller’s name and logo on it, and sends it to the end customer, who never knows the difference. That means the reseller doesn’t even need a warehouse, or even a single shelf for a book; having the books be non-returnable is a tiny price to pay compared to the savings. (eBooks, of course, have a similar—and also non-returnable—supply chain.) The new online world may therefore be one in which the reseller with the best customer experience, the best presentation, search technology, discoverability tools, etc. has the advantage, rather than the reseller with the best infrastructure (like in the old mail-order-catalogue days).

    The independent bookseller, by contrast, still needs to have an employee open the package when it arrives from the POD supplier, needs a place to shelve it, and still takes a chance that the customer won’t show up to pick up the non-returnable book. (Pay in advance!)

    For the customer there could be risk as well. If retailers won’t accept returns, then customers may be hesitant to buy—or at least to pay full price for some products. (If I had bought an expensive London guide book and then couldn’t return it when a volcano forced me to cancel my trip to the London Book Fair, I might have been a little upset.) Of course, we’re already facing similar pricing questions with ebooks: they’re non-returnable and non-transferable, so not only can customers not send them back, but they can’t sell them on eBay or give them away to friends. Predictably enough, many customers are demanding lower ebook prices for what they see as products with reduced utility and therefore lower value—and not just because ebooks have no printing costs, or because some retailers have been discounting ebooks so heavily. (The flip side, obviously, is for developers to add more features, convenience, and utility to ebooks in order to offset the non-returnable/non-transferable status.) I wonder if the print world may soon face a similar pricing backlash regarding non-returnable print books.

    All this does lead me to wonder if we’re entering a two-tiered world, at least temporarily, where online retailers and brick & mortar stores would buy and sell at different terms, and customers would have yet another thing to consider when they decide where and how to shop. Let’s hope the market remains robust enough for these transitioning businesses to find the right balance.

  4. Amy says:

    Thanks, Richard. It strikes me that increasingly Consumer Direct Fulfillment is becoming the norm: an online reseller takes an order for a POD title, routes it to a supplier (Lightning Source, Baker & Taylor, CreateSpace, etc.), and then steps out of the picture. The supplier prints the book, slaps a packing slip and a label with the reseller’s name and logo on it, and sends it to the end customer, who never knows the difference. That means the reseller doesn’t even need a warehouse, or even a single shelf for a book; having the books be non-returnable is a tiny price to pay compared to the savings. (eBooks, of course, have a similar—and also non-returnable—supply chain.) The new online world may therefore be one in which the reseller with the best customer experience, the best presentation, search technology, discoverability tools, etc. has the advantage, rather than the reseller with the best infrastructure (like in the old mail-order-catalogue days).

    The independent bookseller, by contrast, still needs to have an employee open the package when it arrives from the POD supplier, needs a place to shelve it, and still takes a chance that the customer won’t show up to pick up the non-returnable book. (Pay in advance!)

    For the customer there could be risk as well. If retailers won’t accept returns, then customers may be hesitant to buy—or at least to pay full price for some products. (If I had bought an expensive London guide book and then couldn’t return it when a volcano forced me to cancel my trip to the London Book Fair, I might have been a little upset.) Of course, we’re already facing similar pricing questions with ebooks: they’re non-returnable and non-transferable, so not only can customers not send them back, but they can’t sell them on eBay or give them away to friends. Predictably enough, many customers are demanding lower ebook prices for what they see as products with reduced utility and therefore lower value—and not just because ebooks have no printing costs, or because some retailers have been discounting ebooks so heavily. (The flip side, obviously, is for developers to add more features, convenience, and utility to ebooks in order to offset the non-returnable/non-transferable status.) I wonder if the print world may soon face a similar pricing backlash regarding non-returnable print books.

    All this does lead me to wonder if we’re entering a two-tiered world, at least temporarily, where online retailers and brick & mortar stores would buy and sell at different terms, and customers would have yet another thing to consider when they decide where and how to shop. Let’s hope the market remains robust enough for these transitioning businesses to find the right balance.

  5. As a small press utilizing both Lightning Source and Booksurge when the Great Amazon Flap exploded two years ago, I really had to smile. First, because it was clear to me what was in the wind the moment Amazon acquired Booksurge–no speculation involved. And I was looking forward to it. Why? Because our net on books printed at Booksurge (and now Amazon) was double that received from LSI.

    I was also amused because when Ingram announced several years earlier they would no longer offer POD books not printed by Lightning Source, no one said a word. Where was the outcry then that Ingram sought to monopolize POD?

    I’ll also point out that Amazon’s “pulling of plugs” related only to POD books, many of which were being short discounted by their authors/publishers to the point Amazon had to be losing money on the sales. Alternate sales channels were still available, but books sold that way didn’t get free shipping and had to be supplied by the author/publisher.

    I’ll note that the loudest screams of protest seemed to come mainly from those short-discounters, as if Amazon existed solely for the purpose of being a charitable organization for selling their work. We’re talking discounts of 10-30%, which was also one of the reasons Amazon was often their sole retail outlet. What bookstore would stock at that percentage?

    Neither Amazon nor Ingram nor B&N nor any indie bookstore is obligated to do business with someone who doesn’t grasp the concept that THEY have to make a few bucks on the transaction, too. Baker & Taylor has acquired a POD arm. Borders undertook an abortive effort in that direction but missed the point, trying to play the vanity publishing card. So, focusing on Amazon is somewhat naive, in my opinion.

    And I agree with Richard that the EBM is the future of bookselling, especially for the indies. If their biggest problem is that they can’t compete with Amazon and major chains on the level of number of books in stock, what better way to level the gap? And do it using a really cool machine.

    • @Elizabeth Thanks for pointing out Lightning/Ingram’s tactics early in the POD game. As E-Reads has (full disclosure) worked with LSI from the beginning, liked the people there and got good service, we never looked beyond it to see what advantage their might be to working with a competitor. And there was talk that Amazon was leaning on customers to switch allegiances (indeed there is still a lawsuit pending on that very issue).

      Your observations are genuinely appreciated, Elizabeth.
      RC

  6. Rick says:

    Wonderfully lucid explanation of the inventory/returns problem that now plagues all publishers.

    How sad that, in 1992, people did not heed your call in PW to move to print-on-demand. Right now, POD feels like a solution that would’ve been ideal had it been implemented 20 ago.

    My guess is that e-books will soon be the preferred format, and given the migration to online purchasing, that will only speed the process. So I’m not sure that POD will be much of a savior. Or, at the very least, I don’t think it will do anything positive for the bricks-and-mortar bookstores.

  7. […] Curtis on [e-reads] Publishing 3.0: A World Without Inventory Part 2 “today’s “speculative” publishing model, based on the returnability of unsold books, is […]

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