The Long Fail of Books

Wed

Nov 2
2005

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Andrew Odewahn from our Research group recently went to the Bookscan book summit. One of the presentations was on the state of the overall book market, and had this factoid: 93% of all ISBN's sold fewer than 1,000 units and accounted for 13% of all sales. It's tempting to think of that as "93% of all books are failures", but that's not the full story. This being the Third Age of Capitalism and all, success and failure aren't measured by unit sales. They're measured by greenbacks, baby: wampum, moolah, shekels, Benjamin Franklins. Cold hard cash (or warm soft cash, so long as it's cash). Unit sales figures are only part of the equation: cover price and discount to the bookstore are the rest.

Those of you who haven't dealt with the vagaries of the publishing world before may not know that all books aren't created equal. Compare Perl Cookbook and Information Visualization: Perception for Design. The former has a cover price of $49.95, but you can buy it for $32.97 on Amazon. The latter has a cover price of $59.95 and you can buy it for $59.95 on Amazon. The difference is because general computer books like Perl Cookbook and textbooks like Information Visualization are sold to booksellers at different discounts. Big distributors like Amazon, Barnes and Noble, Borders, etc. get the general books at around half-price but textbooks at about 80% of the cover price. The rationale is that publishers will make up the bigger discount on bigger volumes. Very rare are the textbooks that sell like Robert Ludlum mindcandy.

So without the discount and cover price information, you can't figure out whether those sub-1,000 books were really failures. Andrew (remember him, he's the researcher who went to the conference and heard the 93% titles 13% sales rule) looked at the numbers we have on the tech book market and discovered that for tech books it's 85% of titles are 10% of sales. The numbers are a little hard to comprehend, so let's turn it around: overall, bestsellers are 7% of the titles but 87% of sales. In the tech industry, 15% of the titles make 90% of sales.

If you drew the long tail curves for the two markets, you'd find that the overall industry drops off quicker than the tech industry. This probably reflects the broken fiction publishing model: flood the market with different products, publicise poorly, and let the market find the 5% it wants to elevate to bestseller status. In computer publishing (and in O'Reilly in particular) we publicise and market our books. They won't be found in airport bookstores and supermarket checkout racks and the category systems in bookstores rarely reflect the way technical people think about computer books, so if you want nostalgic gamers to buy your new book, you have to reach out to them. This was another conclusion from the conference: "quality content for ever-smaller markets".

Long-tail pricing is a problem for the publisher. A lot of long tail analysis has focused on the retailer: with infinite shelf space, every niche product can become a bestseller. That's fine for the retailer, but cornholes the publisher (where short print runs are financially murderous), the creator (where low royalties discourage production), and the buyer (because to offset all the pains of short sales, the price is likely to be much higher as with textbooks). You end up with a multi-tiered price structure, so that the 1,000 people who want Perl and the Poetry of Thomas Wordsworth in a Post-Keynesian Economic Dialectic pay as much collectively as the 20,000 who want Crack Hacks.

This is different from what the music industry is trying to do as they pressure Steve Jobs to institute multi-tiered pricing on the iTunes Music Store. They're attempting to gouge on the bestsellers ("new releases would cost more than 99 cents") and under-price their back catalog ("oldies as little as 60 cents and recent hits somewhere in between") to juice demand. This is the delight of virtual goods--with no warehousing and reproduction costs, products can have an infinite shelf life. Classic Chris Anderson economics. But can you imagine a world where the publishing industry adopted the music industry pricing model? The key to the music business is time: songs are must-have for a brief period, then they become recent hits and ultimately golden oldies. New books would all cost $60 and old books all cost $20. You'd have Windows XP for Dummies (current top tech bestseller) retailing for $80 a copy, and Mythical Man Month retailing for $9 a copy (they're $21.99 and $34.99 respectively).
This sounds workable until you think about inventory: there are costs to printing and storing huge piles of books, and the economics of production are in opposition to the economics of popularity. The less popular something is, the more it costs in printing and storage. Remainders make old books cheap, as the music industry would do for songs, but by the time a book is remaindered the author and publisher have been cut out of the economics. Every remaindered book represents a publisher taking a loss.

The other difference between publishing and music is competition. The music industry creates stars with extravagant marketing and creates demand for a unique product. If we tried to sell Programming Java for $80, you can bet someone else would sell a similar Java book for $60. In this world, unique titles like Programming Perl (by the author of the language!) and Head First Java (the knowledge goes STRAIGHT INTO YOUR BRANE) would sell for $80 while books without those distinguishing features would sell for less, in lower numbers. You'd get lower rewards as author and publisher for doing a middle-of-the-road book, and consequently there would be fewer books on each topic in the market.

These are the questions the tech publishing industry faces as book sales slowly establish a new (lower) equilibrium after the tech bust of the early 2000s: Do we make blogs our long tail of tech publishing and only do bestsellers? How do we balance inventory and demand? Do we price for balance or for opportunity? It looks like Chris will address these questions in his book, as he already has a very interesting piece on Lego balancing physical goods and electronic sales. That's good--there are a lot of industries trying to figure out how to keep the Long Tail from becoming the Long Fail and we need all the help we can get.

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Comments: 9

PhilipD [11.02.05 02:34 PM]

In general book publishing (not computer book publishing) the publication first in hardcover, then in paperback is a way that publishers charge higher prices when titles are new, then lower them for a broader audience.

Also, POD (print on demand) is coming on strong for niche market publishing. Right now per unit manufacturing costs for POD are pretty high, but I would expect these to fall over time. Check out the 100 bestselling titles at Lulu Press (lulu.com) and you will see a number of computer book titles

Tim Stoop [11.02.05 04:13 PM]

I'm not even close to an expert on this subject, but would POD (print on demand) not solve this problem?

Another solution I dream about is an eInk (or similar) appliance that can make reading an eBook much more comfortable, so we can buy books online for a reasonable price and download it directly to the eInk appliance (just like iTunes and the iPod). That would be so perfect...

Peter K. [11.02.05 09:44 PM]

My goodness, this is a confused article. Let's start by trying to unpack this gem:

Since when is charging more for a product that consumers value more highly a de facto sign of gouging? It's called price discrimination, and almost every business on the planet practices it. When you buy a first class plane ticket, are you being gouged because the airline charges a premium beyond the cost of the glass of wine and bowl of mixed nuts? Amazon sells O'Reilly's "Dynamic HTML" for $37.77, which works out to $0.61 per oz of book. But O'Reilly's "RSS and Atom" retails for $26.36, a whopping $1.70 per oz. Clearly O'Reilly and Amazon are conspiring to gouge me.

...and under-price their back catalog...to juice demand.

Those fiends! Diabolically attempting to manipulate consumer demand by altering their pricing! But what exactly is "under-pricing" of the back catalog? Was the $0.99 price level inscribed on a tablet at Sinai? Is underpricing on iTunes the intellectual property equivalent of dumping? I look forward to the day that Britney appeals to the WTO to stop the flood of underpriced Shakira downloads washing down the pipes from Colombia.

Chris Anderson, Mr. Long Tail himself, has come out in favor of variable pricing on iTunes, for the simple reason that variable pricing almost always leads to the creation of greater total economic value (for both producer and consumer).

http://www.thelongtail.com/the_long_tail/2005/08/could_the_label.html

The rest of this post is similarly inexplicable, particularly the bit about competition.

You'd get lower rewards as author and publisher for doing a middle-of-the-road book, and consequently there would be fewer books on each topic in the market.

So...you should get higher rewards for a middle-of-the-road book? My head hurts.

Look, we can all agree that record companies are stupid and evil, but beyond that an analysis of the economics of intellectual property would benefit from less knee-jerk hatred of large companies and more, you know, actual understanding of economics.

Julian Bond [11.03.05 12:44 AM]

The challenge for the book industry (and for O'Reilly the book publisher) is how to change the model to exploit the back catalogue market and hence the long tail. The current process of print runs, remaindered books and the "broken fiction publishing model" is broken. So find a way of fixing it. I'm not in the business of publishing so I have no idea if it's POD, some link with Amazon or what. But there's gold in there somewhere.

Owen [11.03.05 10:17 AM]

I've commented on all this a little before, but what this all really reflects is that the book publishing business is RIGHT NOW stalled in a moment in time before a big change. The current model only works well for the top 10% (or whatever the number is) that the bookstores can afford to give shelf space to. They all sell simply because they are in the bookstore and being actively marketed and promoted by publishing companies BECAUSE they are in the bookstore. This works for the publisher because of volume. Now we get into very real book publishing math. The bookstore gets the book at a 40% discount (absolutely standard). The distributor/wholesaler from whom the bookstore orders the book (NOT typically from the publisher) gets an additional 10-25% depending on a lot of factors. The publisher has to also pay to ship the book to the distributor/wholesaler in the first place (again economy of scale helps here) and of course to manufacture the book in the first place as well as to produce it (design, editing, writing, etc.) Royalties take another bite. Of everyone in the chain, the publisher often gets the LEAST. Sometimes the auther - depends on the royalty arrangement. I pay 20% royalties because I started out a writer and feel I can still make money paying writers properly. But that means that I make less than $1 per copy on a $20 book I sell by that mechanism.

Amazon is similar - they take 55% off the top plus you hav to ship copies to them periodically to stock warehouses. I make a tiny bit more that way. But still not enough.

So I sell as much as I can directly - where I make about $10 per book - and also by ditributing to bookstores directly myself and at events. Both more than double my regular bookstore sales return. The result is that I only have to sell 700 copies of a book to make a profit. I don't care about being in the top 10% anymore. I can also sell my books over years.

POD is absolutely an good tool for publishers but not as much as it might be because it adds cost to printing and more importantly distribution. THe evolving model is to have a short traditional print run (say 1000 copies) and then have all traditional orders (to bookstores and Amazon) fulfilled via POD. Print costs go way down and so does the risk.

It should be pointed out that LuLu is NOT really a POD shop - it can work as one but it is really a subsidy publisher - the more copies you sell and the more books you put out the less good a choice it is - but it is also a very good low cost way to try out and break into publishing.

Joe Shelby [11.03.05 02:10 PM]

The difference is extremely easy to see and i'm annoyed you didn't account for it: Plane Tickets are a limited commodity: you can only sell as many as you have, and increasing the number of tickets increases your cost. The comparison to iTunes is inapplicable.

Web downloads are effectively free (unless your ISP is charging you by the megabyte, which usually only happens to prevent rogue porn sites). If I sell 10 copies, 100 copies, 1 million copies of an iTunes track, the cost difference to me for that is negligable.

The iTunes model (no increased cost per item sold) is up against the "superstar" approach with a clash -- normal logic would be to decrease the cost of the item to sell an "infinite" amount more, as it doesn't cost anything per item for the additional copies. But superstar logic works to create an artificial demand in an environment where scarcity doesn't exist, and increased demand == increased price per item.

Its the labels' call, and I'm sure they'll stick to their "what the market will bear" attitude (and milk the market for every dollar they can get). They are a business, and not one known for putting ethics ahead of profit under any circumstances.

We've created a market of supply and demand that simply never conceived of the idea of unlimited supply at zero additional cost. I agree that its unrealistic to expect the music industry (who were fighting the music downloads revolution tooth and nail 'til Jobs called their bluff and put it out anyways) to be the pioneers at coming up with a new business model that encouraged sales to a new level; they are perfectly content with their existing sales numbers. iTunes sales are "free money" to them, but not enough in their eyes to warrent a new business plan based on maximizing iTunes sales through lower and lower prices on the product -- they still see iTunes as competition with their core product: one-owner-only compact discs (preferably with copy-protection on them) marketted by payola-based radio airplay (in spite of the laws against that, they do still do that and always will).

Until they decide that iTunes will replace that model (that the CD becomes the enhancement of the iTunes sales), iTunes pricing will increasingly get more expensive against the logic of the new technology's capabilities.

Mitchell Waite [11.09.05 05:39 PM]

Here is another spin on the Long Tail idea as it applies to books:

END OF BOOKS? WHATBIRD.COM RELEASES MAKE-A-GUIDE

The buying of books has parallels to the music industry...until iTunes and similar services listeners interested in one or two tracks of an album had to pay for the whole album. Book buyers face the same issue today -- you can't just buy the chapters you want, you have to pay for the entire printed book. Mr. Waite's spin on buying books is to let the reader choose just the content they want, and this may open a new chapter in the publishing industry.

His first example of the technology is birding guides. The site where the first MAG is found is whatbird.com http://www.whatbird.com, a search engine for identifying birds. Nearly 46 million Americans take bird watching trips each year and the market for publishing of field guides is huge. And yet until recently the way we learned about birds was the field guide -- a book whose basic system of identification has remained the same for over 100 years.

The Make-a-Guide beta, which is free for now and which can be found at http://www.whatbird.com/mag/make-a-guide.aspx lets you build a field guide answering the questions in a set of screens, selecting for example all the birds of a particular state or family. Then a PDF of the book can be downloaded or a custom printed book ordered -- usually for much less than the cost of a traditional guide.

WhatBird's highly visual, easily navigated database uses something called parametric search which allows you to find what you are looking for in a few easy steps. Each step narrows the search results, as opposed to most search engines that provide an all or nothing approach. Whatbird.com is now a holy grail of descriptions, hand drawn illustrations, maps, quizzes, photos, video and audio recordings of over 800 species of birds in North America -- all accessible in a simple web browser or via a cell phone or PDA.

Supported by a group of ornithologists, including David Lukas and Simone Whitecloud, the site not only provides valuable information, but allows people to communicate with experts who can answer any questions you have about birds, helping to make it the preeminent online community for birders and nature lovers who share this passion. The site is so accurate and easy to use that the Wild Birding Institute is using it for Project Wildbird, a three year study on backyard bird feeding habits.

The market for identification books is hundreds of millions of dollars a year -- one popular book has over 2.5 million copies in print. With birds in the news each day from the re-discovery of the Ivory Billed Woodpecker, to fears about West Nile Virus or Avian Flu spreading to humans, this site and its new ground breaking Make-a-Guide system, provides not only a valuable tool for people seeking more information about birds but a way to purchase field guides that are custom tailored to there needs.

To learn more about Whatbird.com or schedule an interview, please contact Mitch Waite or call 415 888 3233.

Dallin Salley [11.16.06 10:09 PM]

Singer George Michael lends the piano on which John Lennon wrote Imagine to an anti-war exhibition...

Anonymous [08.24.07 09:43 PM]

Nice...