In this series of posts I've been looking at how the Book Industry Supply Chain is changing, whilst giving that change a wider frame of reference. Now it's time to narrow the focus back down to our industry, and to mention an uncomfortable truth - which is the adversarial undercurrent in relationships between many publishers and their distribution partners (and in "partners" I include outsourced distribution services and resellers further down the chain). Publishers regularly put their distributors through competitive tenders, book wholesalers and retailers routinely press publishers for margin. All of this is sound cost-management. But if supply chain costs aren't looked at in the round (that is within a strategic context) we risk putting short-term savings ahead of a collaboration that could benefit all of us.
Over the past decade many publishers (but not all - and I have the great privilege to work with many in the latter category) have been prone to regard distributors as a necessary evil rather than as key partners in the crucial endeavour of servicing customers. The supply chain is seen as a place to shave cost, not gain a competitive or strategic advantage. Meanwhile customers are frustrated that outside of Amazon and a few other on line retailers, their expectations for information and supply of books, particularly specialist and back-list books are rarely well met.
Last Wednesday I mentioned that Peter Kilborn of BIC had been surprised when he read the first draft of my New Trends keynote, having anticipated a narrower and possibly more pessimistic view of the future. To redress the balance I rounded off with five “distributor-type” implications of the observations I had made. Except they aren't just for distributors or publishers. They're for all of us interested in the supply chain for physical books - and the new suite of products and services that are related to them. Change can be an opportunity, and it's time for us to look through the other end of the telescope and see it that way. And this is how:
Those of us in the supply chain for physical books have reached a point where to remain competitive we have to put our arms’ length and mistrusting relationships behind us. The economic forces at play in our technological environment, economic environment and social environment are creating empowered, demanding customers. To make a paradigm shift into the service economy, we must collaborate to deliver services across multiple product and service ranges – which will include books – and to interface with customers in many new and different ways.
Our industry needs to hire in new customer service and transactional expertise. This could be a hard one to swallow because traditionally we like to think in term of volume sales in big round numbers. But very soon we are going to have to get to grips with micro-payments. A less scary way to think of it might be: much larger volume sales involving fractions, not rounding.
The supply chain requires investment in systems, expertise and human and electronic interfaces. Big investment. We need to think about how we can afford great customer-facing staff and excellent transactional I.T. systems before we cost-cut in the supply chain.
1-3 above suggest to me that we are approaching a time when publishers and third-party distributors might have to consider putting their financial relationship on a different footing. In a changing world, commission on print book sales may not be fit-for-purpose much longer.
Collaboration starts with open, honest and trusting conversations. And those conversations need to start now.
Reviewing this five-point call to action, I find myself thinking: gosh, that's not actually all that difficult then, is it? And then I remember, as Dr Seuss said, "Sometimes the questions are complicated and the answers are simple".
In last week's posts I (re)presented some observations on change I originally made at last June's Book Industry Communication summer seminar. In two post this week I’m going to summarise why I made them and in particular what I think there relevance is to people who still put print books into the retail & consumer supply chain, and make money from doing so.
Until recently book distribution has actually meant, “print book distribution”. Bearing in mind Moore’s Law (cf. last week's posts) and its technological and social impacts, it is obvious that within a very short time the majority of publishers will earn very significant revenues from products and services other than books. In fact publishers have derived revenues from a variety of sources including, permissions, serialisation, foreign language rights, co-editions and so on for many decades. However now is the first time that income has derived simultaneously in volume from multiple products, channels and services through multiple transactional interfaces. Income ancillary to the printed book traditionally derived from a few transactions of high value. That is now being turned on its head to multiple transactions of low value.
Something I’ve been talking about here for years is the fact that most publishers know almost nothing about customer or consumer transactions because they’ve been outsourcing them to intermediaries for decades. As an industry we seem to really like to put people and things into silos. And that’s not the way the world is moving. Empowered, informed consumers expect instant answers to all their needs and questions, so woe betide us if we haven’t anticipated them correctly. Publishers with diversifying distribution mechanisms for their content need to have a much more detailed understanding of their individual consumers: who, when, what and how.
At the 2011 O’Reilly Tools of Change conference in New York Brian O’Leary give a presentation Context First in which he coined the phrase: “context not containers”. O'Leary is a work flow expert and Harvard MBA who came to publishing from a magazine background, and who understands that publishers getting their digital work flow right will enable them to effectively use and monetise content in multiple channels. He proposes that in order to survive and prosper, publishers must understand the contexts in which consumers wish to obtain and utilise information and content. The context of the interaction with the content then takes primacy over the container in which that content is delivered. Brian’s thesis, in a nutshell goes: hire people and partners who know about creating content components, selling them directly and accepting micro payments. A theme he developed further later on in 2011 with a presentation titled Opportunity in Abundance. Both are available at the Magellan Media Partners web site.
Brian’s thoughts ought to threaten the distributor in me because at face value they further liberate content from physical books. But in fact they chime with mine on the fact that the publisher has got to get a whole lot more interested in the customer – and in particular how consumers want to access content, and where, when and how they are prepared to pay for it (or someone else is prepared to pay for it on their behalf). Publishers are going to have to get interested in customer service. At the moment, distributors are at the front line of customer interactions, and even in the context of new work flows and delivery, distributors' experience of customers has immense value, and needs to be both retained and built on, not eroded through aggressive downward commission negotiations and short-term cost analysis.
Tomorrow I’ll round up this series of posts with a list of five things I believe we- as an industry - need to be doing urgently.
I've been astonished at the response to and the page views of this week's posts. Thank you to everyone who has been taking an interest and for the comments which have been coming in via Twitter and email rather than in the "comments" function here. I suspect there's a lesson I should learn from that, but right now I'm not sure what it is. It's Friday, it's late and I have been travelling for much of the day. So I'm going to wrap up this week with my fifth and final brief point about change. Next week I'll move onto the final section of my keynote, which focused in on and explored the implications of my observations very much from a supply chain perspective.
Observation 5: change requires investment
Change doesn’t just happen. It requires decisions and investment in those decisions. Alexander Graham Bell didn't just happen to invent the a mechanism for transmitting speech and sound. He spent years exploring sound and hearing - an intentional activity culminating in his eventually being awarded the first US patent on a telephone. In the modern supply chain, change always requires an investment in software (be it a new system or ongoing improvements to an existing one) and follow-on investment in training. Distribution is underpinned by data, and databases cost money (lots of money). Improving and upgrading databases costs even more money. Mining, exploring and exploiting the meaning and value of data from those databases costs even more more money.
Our industry started off well in pioneering change in the form of isbns and bar codes, but failed capitalise on its advantage by not following up swiftly enough with EDI initiatives, more and better metadata, RFID and so on. We relied on point of sale data collated only from bricks and mortar bookstores long after they were no longer the only game in town (or more precisely in our homes via the web). Despite the sterling work of people like Peter Kilborn at BIC (and his counterparts at BISG) pushing for the standards that came to facilitate the transactional basis of our businesses - we failed to understand how investing in systems and databases is key to our future success. We let disruptive technologies and technologists steal our advantage.
Of course change is not only technological: it’s cultural. Systems are only as good as the people who specify them and the people who use them – and unless those people are educated, trained and buy into what you are trying to achieve, it will all be money wasted. Or as my I.T. manager said to me last week: if you think training is expensive, try ignorance... And in business, cultural change can be expensive because it can mean re-organising work flow, work forces, and business models. Particularly in Europe, making structural changes in work forces can be costly in terms of HR resource, cash and management time. But in highly process-driven environments where there can be a focus on what "the system" requires as opposed to what the customer or the future of the company needs, change that puts the customer and the future of the company - not the process - first must be made if there is to be any chance of success.
Change requires intentional investment in systems and people. Next week: suggestions for what this all means for books and the supply chain...
Yesterday I offered up the first part of my keynote to BIC’s 2011 New Trends summer seminar, sliced into short posts. I began with two of five key observations about change (as it pertains to publishers and the supply chain). First, Change isn’t new, and second Change can go unnoticed. So here goes for observations 3 & 4. No literary references today – instead we're skimming over some economic principles. I like to keep my frame of reference eclectic...
Observation 3: change happens
I grew up in the North East of England when the region was suffering an identity crisis of epic proportions. The traditional employers (coal mining and shipbuilding) were dying, resulting in social and economic pressures that culminated in the miners’ strike (immortalised in the musical and film Billy Eliot, and engraved painfully deep into the psyche of those of us who grew up witnessing the conflict and social schisms that accompanied the stand-off). In the following decades the employment profile in the area has migrated to service industries such as call centres and financial services (until the sub-prime mortgage market did for Northern Rock, in any case).
Those of us studying A’ level geography at the time learned that what we were witnessing was the economic theory known as “Tertiarisation”, or “the three sector economy” (developed by Jean Fourastie and Colin Clark) in action. Something that puzzles me about the Book Industry is that because we work with books – which have been around for so many centuries – we seem to see ourselves as insulated from the great economic trends that sweep the world’s economies. Publishers’ self-perception seems rooted in phase one of the three-sector economy (extraction) – extracting IP from authors, or possibly stage two (manufacturing) – making books as physical objects. Perhaps we’d all do well to take a running jump into the third sector – the service economy – because if we regarded ourselves as service providers – we might get back ahead of the game.
We are operating in a world where our product is rapidly uncoupling from its long-established delivery method (the book). Yet right now, revenue from those same books still forms the majority of revenues and cash flow for most publishers and booksellers (innovators like Sourcebooks being possible rare exceptions). Therefore we must buy ourselves time to invest in our future by making the process of obtaining physical books as easy and as pain-free for consumers as possible. That is to say we must invest in an efficient, effective supply chain that competes credibly with other offline and online consumer experiences in the service economy.
Observation 4: change is speeding up
Yesterday I was dismissive of a tendency to panic at the notion of change – however I do believe the pace of change gives us plenty to be concerned about - and Moore's Law is why I believe this. Wikipedia describes Moore's law as follows:
“a long-term trend in the history of computing hardware. The number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years. This trend has continued for more than half a century and is expected to continue until 2015 or 2020 or later. The capabilities of many digital electronic devices are strongly linked to Moore's law: processing speed, memory capacity, sensors and even the number and size of pixels in digital cameras. All of these are improving at (roughly) exponential rates as well. This exponential improvement has dramatically enhanced the impact of digital electronics in nearly every segment of the world economy. Moore's law describes a driving force of technological and social change in the late 20th and early 21st centuries.”
So not only have content and books moved out of their exclusive marriage into an open relationship that can include all sorts of other partners (web-based delivery, e-book readers, apps), but publishers and booksellers are operating their businesses within the context of an technological information infrastructure that is being propelled by laws of exponential change, with knock-on effects on the pace of change within our social and economic frameworks. The book is a product with a comparatively stable (if low) perceived value fighting for life in a dynamic, volatile world of constantly upgraded high-price consumer goods, free social media applications, rapidly changing social expectations and enormous peer pressure.
Moore’s law has made change exponential technologically, economically and socially.
That’s enough for one day, don’t you think? Observation 5 tomorrow…