Tim:
This isn't so much a question as much as a suggestion. It is predicated on the fact that O'Reilly publishing (1) is visionary, (2) focuses on technical reference books, and (3) consistently puts out the best technical books on the market at a great price.
Check out www.itknowledge.com ...
I would urge you to consider doing the same but for the O'Reilly series and if not all your books, perhaps just the Java series. You have the potential of revolutionizing how technical reference books are provided. Although it might impact book sales a bit, I think it may be a better business model for you in the long run. People always want paper books, but the online system provides something that books just can't do---cross searching capability at blinding speed. In addition, the online content is easily updated/revised. Personally, I don't know why more book publishers haven't provided their content in the form provided by the aforementioned company for those that also purchased the paper book?
In terms of a cost model, I would venture a guess that many companies would subscribe to the service for their staff and independent programmers would also sign on. There are many permutations in terms of possible arrangements, but I could see charging individuals $15/mo. Some would not purchase your books anymore, but even these folks would be paying $180/year! That is equivalent to purchasing 6 of your paper books per year if they average $30 each....
Why it is likely to work if marketed correctly:
Sorry for the lengthy note, but just wanted to provide a suggestion that I think is very consistent with your company's character and vision.
Providing a "Knowledge Portal" to your content would be a very powerful and popular thing. In addition, the business model is a good one in that you are likely to make significant profits without printing more paper.
Cheers,
Mike Hogarth,MD
Author: "An Internet Guide for the Health Professional"
What a great posting, Mike! I really appreciate your thoughts. You're absolutely right that online information delivery is a better mousetrap for the user, but we need to figure out how to make it work for authors and publishers as well. Right now, there are a lot of people who are suggesting business models that are, quite frankly, short sighted and destructive for the industry.
You say: "I could see charging individuals $15/mo. Some would not purchase your books anymore, but even these folks would be paying $180/year! That is equivalent to purchasing 6 of your paper books per year if they average $30 each...." This is a terrific business model, and in fact, we're looking at offering subscription based access to many of our books online within the next six to twelve months at something like this kind of pricing. As you point out, the possibilities for corporate adoption are also terrific.
The one thing that you have to account for, though, is that the majority of book sales are through resellers, and there needs to be significant margin there for them as well. Right now, O'Reilly sells perhaps 10% of its books direct to the end user. The rest buy them through some kind of bookstore. Everyone likes to think that the internet cuts out the middleman, but in fact, there will just be different middlemen, because the real function of middlemen is to create more "surface area" for contact between users and products.
If you really love O'Reilly books, you'll buy them from our site. But imagine having to go to ten different publisher sites if your search is subject-focussed rather than publisher-focussed. Most people want to go where they can find all of the products they need in one place.
So let's look for a moment at the deals being offered by some of the current people who are trying to set themselves up as online publishing middlemen. You specifically mentioned itknowledge.com, but there are several other people who are trying to act as aggregators for online books.
At bottom, their pricing model sucks, at least for publishers and authors. Here's the math, as I worked it out for one of the vendors who was trying to get me to sign up:
They sell subscriptions for $400/year (though I believe itknowledge.com is now down to $99). The publishers get 20% of that--either $80/year per customer, or $20/year, depending on the price you use. But this is for perhaps a thousand books, and for all the publishers in the aggregate...and that's what set off all the alarm bells in my head. You see, there's this listing we get every month from Ingram, the largest wholesaler of printed books, called the "Ingram top 1000 computer books." O'Reilly typically gets about 8% of that list, in terms of number of units sold.
So I took $80/year, and assumed that we'd get 8% of that, just like we do in the print world...or $6.40 per year--for perhaps a hundred of our books. So that's 6.4 cents per book. At the $99 subscription price point, it's 1.6 cents...
Any publisher who goes along with this ought to have his or her head examined. There's not enough money there to justify the effort required to publish the books. Even if supplemented with advertising revenue, there just isn't enough to go around. The revenues are several orders of magnitude less than the costs of developing the content.
The only reason a publisher or author might want to use these aggregators is because they believe that it's good advertising for print books, or that there is some "magic pixie dust" that the Internet sprinkles on everything so that it makes money in defiance of ordinary business logic. And to be frank, I think that the real strategy of companies that are putting up these sites is just that: to make their money in the stock market, and hope they come up with a real business model before it runs out. I would also venture that most of the books that are available via these services are books that are no longer pulling their weight in traditional channels, and so the publishers have nothing to lose by going online and collecting whatever small revenue they can draw.
The real challenge for all of us is to come up with pricing models that reflect the real cost of doing business, passing along real savings to the consumer, but not more than that.
In this regard, note that there are widespread assumptions that Internet delivery vastly reduces the cost of doing business for publishers. After all, you don't have inventory costs, distribution costs, returns, and so on. But again, let's do the math.
Let's take the retail cost of a typical computer book. For the sake of argument, let's assume a book that lists at $39.95 -- but let's call it $40 to simplify the math. And let's note that these figures are for O'Reilly, and for computer books. For other publishers, or other publishing segments, your mileage may vary.
The retailer gets approximately half of that on average. (Trade discounts might range from 45% for a few copies sold through a local bookstore, to 55% to the largest wholesalers, but 50% is a pretty fair average across all channels.) These costs don't go away--they are presumably replaced by the margin that an online reseller needs for their business. But note that in the itknowledge.com model, the "online retailer" gets 80% of the revenues, not 50%.
But leaving that aside, note that the print publisher receives perhaps $20 per copy of each book sold. Manufacturing cost (at least for O'Reilly) accounts for only about 16% of net (or 8% of list). There are some warehousing and shipping costs that might also go away, but these are only a few percent of sales. You might also argue that there might also be some customer service and order-entry costs that could be clipped, but I would argue that there are not insignificant customer service costs in online businesses as well. In any event, the cost savings at most represent 25% of the net costs of publishing. All of the development costs, including author royalties, editorial development costs, production, marketing, sales, and so on remain. You could even argue quite convincingly, based on the Amazon experience, that the cost of marketing and sales is higher in the online world--sufficiently so, in fact, as to offset whatever savings there might be. But that isn't material to my argument.
Let's assume the most rosy case, that we save 25% of the costs. The pricing models of the online aggregators seem to assume that we save 99% of the costs. We're down from a model that gives $20 per unit to the publisher to one that gives only a few cents. This just doesn't fly.
As a result, we've worked with online resellers who understand that the price point for online books needs to be within spitting distance of the price for printed books, passing on to the consumer something that represents the actual savings. For stand alone books sold only online, we might look for a list price that is 30% less than that of the print book--which, when split with the online reseller, who might still keep half of the revenue, will neatly pass on the bulk of our manufacturing savings to the consumer.
One of the things that I think will be most exciting are better ways of letting readers purchase both print and online versions of the same book. We've actually done this in one way with our CD Bookshelf products, which bundle books on CD with a print book in order to leverage the distribution advantage of the physical bookstore channel. But the rise of online bookstores turns that model on its head. I expect that before too long, when you shop at an online bookstore, you'll have the option of buying the print book, the online book, or both for a bundled price. We see a lot of experiments in this direction already, with fatbrain.com's recent announcement of their eMatter service, which uses signed pdf as a delivery mechanism, being a sign of things to come.
We're also starting to see a number of online book consolidators coming around to our views on pricing, and we expect to be working with a number of them over the next few months. But we're also going to be beefing up our own efforts in this direction, creating something much like the "knowledge portal" you're looking for. Expect to see some subject-focussed sites with content from all of our books in a given area, as well as the ability to buy books on a title by title basis, with integrated searching across not only the books you own but also those you don't, so you can decide if what you are looking for is in the book before you decide to spring for it.
But enough of the business model--what about some of your other comments?
You argue that online books can be more up to date. To some extent this is true. It is easier to update an online document than one that you print thousands of copies of, and store in a warehouse. But this assumes that authors, editors and publishers are available to work full-time on those online materials. In fact, the biggest barrier to keeping books up to date is not the lag imposed by print production, but the inability of authors to keep up. Successful authors with more than one book in print actually rely on the inefficiency of the distribution system to buy them time to update their books in round-robin fashion.
And you'd be surprised at how many books are written by authors who move on and never look back. One of the "big lies" in the publishing industry is one perpetrated on authors by publishers, who get people to put in years of effort in hopes that their book will be a big hit. But in fact, only a small percentage of books pay enough royalties to sustain their authors' interest in them; the rest were fueled by dreams.
If you look at online documentation, you'll see that bit-rot hits it quite often. It gets out of date just because no one has the time or energy to keep working on it.
In the end, it does all come back around to business models. When there's sufficient revenue for keeping the content up to date, it will happen. That's the big challenge facing the industry, not a technical one.
I really see it as only a matter of time before things settle down, before the various players--authors, publishers, and resellers--figure out what they each need to work productively. Along with the evolution of business models and a business ecology that works, we'll find ourselves evolving the form in which we deliver the information. Already, for instance, the ability to organize user comments and community in a productive way is a key part of any online site. The same will be true of online information sites.
--Tim
Return to: Ask Tim Archive
Copyright © 2007 O'Reilly Media, Inc.