Retailers

Here is a bookstore owner's nightmare. Customer walks in; browses around; has grand old time in this temple of knowledge; peruses a book that costs $27; takes out Kindle and orders it for $17, right there in front of your nose, using your wi-fi connection. Aaagh!

You wake up sweating at 3:00 in the morning.

Have you noticed all of those best-seller books stacked up at the front of your local bookstore? Did the retailer buy them hoping to sell them all? Of course not. They are relying on a variant of the age-old practice of "sale or return." Publisher have agreed to take back unsold ones for credit. As this article on Bloomberg states:

"Returns date back to the Depression, when publishers implemented the practice as a way to ensure that bookstores would continue stocking new books."

Now that we are in a major recession, or micro-depression, or whatever we're calling it these days, surely this practice will continue. Well, probably not. Digitization, whether via e-book or print on demand, makes it unnecessary. And publishers simply cannot sustain it. Approximately 25% of their books are being returned. Think of what that does to their profit margins.

How can retailers survive if they have to decide what to buy based on their forecast of what will sell? The answer is, they can't. No one can forecast fickle consumer taste. With retailer's profit margins being what they are, one small error could lead to an operation's failure.

But they have to stock their shelves with something, right?

Not necessarily. Have you noticed that bookstores are becoming more like coffee shops and coffee shops are becoming more like bookstores? And that both have wi-fi?

Retail bookstores might look more like community hang-out spots in future, with the following:

• Good (but expensive) coffee and snacks,
• Free wi-fi,
• A few best-selling books and DVDs (under the sale or return policy),
• A way for patrons to order any book in the universe, while taking a cut of the transaction.

This last possibility is not hard to imagine. The customer could have the book delivered to the bookstore if they will be passing by again soon or, for a little extra (plus guilt for the bigger carbon footprint), their home.

These coffee shop/bookstores could even host virtual "Meet the author" sessions on a big screen, with back-channel chats going on via Twitter. And they could host book clubs for both face-to-face meetings and online gatherings.

If the "local printer" model becomes a reality, book delivery would be immediate. We can even imagine digital printers setting up shop in the back of coffee shop/bookstores?

That sounds like fun for readers, authors, and store owners. But for students and the unemployed, the walk to the local library seems all the shorter.

And what about big-box bookstores in malls? Nope. Sell your commercial real estate and big-box retailer stock. That will get ugly.

The E-Book Device War

Today, the Kindle rules, just as the iPhone and iPod have beaten the devices in their product classes. The Kindle is simply better for readers than Sony's device. At least, most people think so, and that is what matters.

This dominance is threatened from two directions:

1. The Android model. Google has not revealed its long-term plans related to book publishing, but being Google's, its plans will be ambitious and centered on driving traffic to vendors through free content. Because e-book readers are similar as consumer devices to smartphones, Google will likely use the Android platform as leverage to bring all consumer device manufacturers who want a piece of the action on board. Sony and Google are already working together.
2. The offline/online combo model. We tend to think of book reading as a solitary activity, but that is not how it started, and it is not how you started reading (if you were read to by your parents). The popularity of book clubs proves that it can be a great social activity. It is not hard to imagine some entrepreneur mixing online and offline to create a great social experience, and monetizing it with book purchases. There is no cost to creating the venue for that social experience, but it may be the differentiator.

Network Indie Publishing Model

The traditional publishing industry refers to its alternatives in pejorative terms, such "self-publishing" and "vanity publishing." We prefer indie publishing. Indie movies bypass the big Hollywood studios. Indie music bypasses the big record labels. And indie books bypass the big publishers. We look at how this could play out in more detail later.

Indie publishers already exist, and we may see a lot more. With digitization, the barriers to entry come crashing down. In fact, highly trafficked niche websites could become publishers, because:

• They draw traffic, which they could use to market books,
• Their brands are respected, at least within their niches.

A website about food could sell cookery books, a site about cars could sell books about cars, and so on. The steps are relatively simple: get an ISBN, make a deal with a print-on-demand vendor, make a deal with Amazon and Sony, and you're in business. Last but not least, choose good authors.

When all you need is an ISBN to become a publisher and earn 30% or more, why make do earning only 4% to 10% as an Amazon affiliate.

In this new world, we could see the pie fairly evenly divided in three:

• Author: one-third,
• Publisher, who also creates traffic and demand through their website: one-third,
• Printer or e-book service: one-third.