From stratechery:
Disconfirming Ebooks
UPDATE: There is a question as to whether The New York Times properly represented the state of ebooks. I address that and other questions in this Daily Update, the pertinent part of which is available for free.
As I’ve noted repeatedly, I believe the impact of computing and the Internet on the world will ultimately rival the Industrial Revolution in importance. And, by extension, I think said impact has only just begun. For the first several decades of the high tech industry most firms were occupied by competing with each other; it’s only in the last half decade or so that attention has increasingly turned to industries which have at most leveraged computing and the Internet to do what they did previously slightly more efficiently.
For example, you’ve been able to book hotels online for a long time, which meant the Internet was basically a super efficient travel agency. Airbnb, on the other hand, is challenging the fundamental assumptions that underly the existence of hotels in the first place. You can say the same thing about Uber and transportation, Amazon and retail (and infrastructure), and Netflix and TV.
It’s no accident that these companies were my primary examples in Aggregation Theory. I know theory talk bores some of you, but there is a purpose: if there do turn out to be common elements to events that are happening in multiple industries, then perhaps we can build a predictive framework that anticipates what industries will be affected next, and how (or, on the flipside, identify opportunities for new companies and a plan of attack).
In that light, while it is satisfying when the theory is seemingly borne out, what is most interesting — and most useful — is disconfirming evidence: industries that seem to prove the theory wrong. Like, say, book publishing.
Ebook Expectations
In a nutshell, Aggregation Theory states that:
- The Internet has made distribution free, neutralizing the advantage that pre-Internet distributors leveraged to integrate with suppliers
- The Internet has made transaction costs zero, making it viable for a new kind of aggregator to integrate forward with consumers at scale (their advantage will be a superior user experience)
- Prior supplier/distributor relationships will be modularized, resulting in suppliers selling an increasing portion of their goods/services directly to the new aggregators, effectively resulting in a worldwide two-sided market due to winner-take-all effects (and a significant loss in value for the old distributors)
Given this, what we should expect with ebooks is that because the Internet has made book distribution free, publishers should be at a significant disadvantage to an entity (i.e. Amazon) that, thanks to a superior user experience, owns consumer relationships at scale. And, over time, the previously integrated relationship between distributors (publishers) and suppliers (authors) should be broken apart as the latter sell directly through the aggregator (Amazon).
However, that isn’t happening in practice.
Ebook Reality
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.
See also: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?...MUCH MORE
"The Artists' Road To Serfdom: The Commoditization Of Creative Content"
The book reader of the future (April, 1935 issue of Everyday Science and Mechanics)
