However, this Black Friday showed a 4 percent increase in site visits versus Thanksgiving Day traffic - a stat that usually falls between those two days. The retail site that got the lion's share of traffic this year was Amazon.com, which netted 13.55 percent of the traffic seen by the top 500 retail websites. Read on for a few surprising stats that might signal changes in the U.S. economy - and changes in how U.S. consumers will be doing their holiday shopping.

The lesson: If you want to see a ridiculous upswing in traffic on a major American retail date, maintain relative stinginess and secrecy, then "leak" good tidings of great joy just before the big day.

Other sites that saw a significant traffic increase in this 48-hour period include Staples (47 percent), Dell (40 percent) and Amazon (9 percent).

So, Apple, Staples and Dell take the cake for getting the greatest traffic spikes overnight; how did websites fare on Black Friday overall?

As you can see in the graph below, Amazon and Walmart each performed admirably. What's more, most sites saw a marginal increase in traffic over last year's Black Friday traffic - as you'll recall, the global economy had recently tanked. Do we see this as a sign of tentative optimism about the economy, at least on the part of American consumers?

Finally, who got the most downstream traffic from Black Friday websites? That would be our friends at Walmart, Best Buy, and Target - the latter of which more than doubled its downstream traffic from last year:

Details for Cyber Monday - traditionally the online retailer's biggest day during the holiday season - will be available shortly.

Mint analyzed spending data and compared it to one year ago. The data is for top performers in the third quarter this year, based on "average monthly spend per user versus recession lows."

Check out the charts below and compare them to Forrester and comScore's data.

The highlights, via Mint.com:

• Aeropostale - the clothing retailer is up 10% year-over-year, having grown consistently quarter over quarter.
• Best Buy - the electronics retailer is up 1% Q3 year-over-year, hit a recession low of -7%.
• Fry's - while competitor Best Buy's sales exceed where they were at this point last year, Fry's remains down -7% year-over-year (though it's up from a -16% recession low).
• J.Crew - the clothing retailer's lowest point was -3%, but it has since entirely corrected and even improved sales 4% year-over-year.
• Sears - the department store's sales are up 8% over this time last year, having dipped to -10%.
• Target - after an initial drop to -8% in Q109, Target has halved that loss and is currently down only -4% year-over-year.

See also:

• Online Retail Thriving: 8% Growth Expected This Holiday Season
• Top Internet Trends of 2000-2009: E-commerce

Amazon.com was founded in 1995, but it famously didn't make its first annual profit until 2003. Those days of struggle for e-commerce vendors are long gone. In its State Of Retailing Online 2009 report, Forrester Research reported that the vast majority of Web retailers were not only profitable in 2008 - in a recession - but also that their overall level of profitability grew.

E-commerce Continues to Grow, Despite Economy

E-commerce has ridden the ups and downs of the general economy over the past decade, but it has continued to grow throughout. In the State Of Retailing Online 2009 report, Forrester Research reported that retailers saw their Web divisions grow by 18% in 2008. Given that Forrester described 2008 as "one of the worst years ever" in retail, that's significant growth in online retail activity.

Holiday Season Predicted to Grow 8%

Online shopping has always been a seasonal market and there are promising signs for the upcoming holiday season. The latest comScore statistics show that toy web sites grew 9% in October, which comScore claimed was due to some parents getting in early for holiday gifts. The retail apparel segment also grew by 9% in October.

Overall, Forrester Research predicts that online holiday retail sales (over November and December) will grow 8% this year to $44.7 billion.

Brick-and-Mortar Stores a Success on the Web

A noticeable trend over the past decade has been the slow but steady flight of 'brick-and-mortar' retail stores to the Web. In the early days of online retailing, Web operations were typically isolated from the main sales channels. But nowadays, Forrester notes that Web operations are a strategic part of the entire organization.

Two recent stories from industry website Internet Retailer show how traditional retailers are not only adapting online, but thriving. Best Buy's traffic has grown 18% over the past 12 months according to Nielsen Online. Meanwhile for the quarter ended October 31, 2009, Gap's Web sales increased 4.9% to $298 million. The web accounted for 8.3% of sales at Gap in Q3 09, compared to 8.0% in Q3 2008.

Forrester outlined a number of reasons why online channels are appealing during a "challenging" economy - including enabling consumers to find products online that they can't find elsewhere, offering comparisons on product features and pricing, avoding holiday crowds and more.

All of this data is very encouraging to online retailers. Even during a down economy, the Web has come through for most of them. Web entrepreneurs, if you're looking for opportunities then look no further than online retailing!

Photo credit: Sⓘndy

Their struggles in the old model have been well documented (of course, we should have expected them to write about their experiences): the starving writer up in the garret who uses rejection letters from publishers for wallpaper is an established literary hack. In the new world of print on demand, e-books and social media marketing, the author takes center stage. Those with an appetite for it can really take control of their work and commercial fortune.

In Part 1, we looked at the three big waves crashing down on the traditional book publishing business: Google Search, e-books, and print on demand. In Part 2, we tried a bit of science fiction, speculating on how this might play out for all participants: readers, authors, printers, publishers, retailers, and e-book device vendors. In Part 3, we looked at the economics of returnability and the impact of the Espresso Book Machine on the supply chain. In Part 4 here, we focus on authors, without whom we would have nothing to read.

Narrative or Reference?

The impact of digitization depends on the type of book you're talking about:

1. Narrative books, such as novels, biographies and other stories. The printed book is an ideal format for narrative books. Amazon had to recreate the print-reading experience to make the Kindle work for narrative books. Using an e-book device scores on many counts: choice, delivery, price (possibly), storage; but whether it beats the experience of reading a good old fashioned book is still unclear. In any case, narrative books are not well suited to typical online or mobile devices. Reading a novel on a laptop browser or iPhone is a degraded experience.
2. Reference books, such as education, scientific/technical/medical, and business books. Historically, these have been squeezed into the book format because no better alternative existed. The online experience could be far better than print in this case. Online, you can search, link to related works, drill down into details, see and hear rich media, etc.

Thus, we expect the impact of digitization will be much bigger and more immediate on reference books than on narrative books. Both will be affected, but reference books may see a music industry-style wave of change, while the change to narrative books may be slower and more nuanced.

New or Established Author?

This is another huge factor. This quote from an excellent report by Gilbane on "Beyond E-Books" says a lot about the business from the author's perspective:

"During the 2009 O'Reilly TOC Conference, Jason Fried of 37signals described the book that he and his colleagues had written based on lessons learned from creating and servicing their successful project management and collaboration product named Basecamp. They published their book with Lulu.com and report sales of almost $500,000 in the last several years. This enabled them to reach number three on the Lulu bestseller list at one point. Ideally, this story would have a happy ending, and they would publish their next book with Lulu.com. Alas, the success of their previous book motivated a traditional publisher to offer them a significant advance for their second book. The offer was too tempting to refuse. They now have to hope that the traditional economic model, with 10 to 20% royalties, will generate more than Lulu.com's 80-20 split. In essence, they are wagering that the traditional publisher will be able to sell at least four times the number of books that Lulu.com would have sold.

"When asked about this, Young was nonplussed. He simply stated that his goal was to publish their third book and to make them loyal authors in the future. It is his number one goal to help his authors become successful."

This will be music to the ears of traditional publishers. They can leave first-time authors to self-publish via print on demand (POD), because once the authors are established, they will want the kudos, branding, and distribution that only traditional publishers can deliver.

Well, perhaps. We are still in the very early stages of this wave of change.

Get Me Into the Book Store

Publication doesn't feel real to an author until they see their book in a traditional bookstore. Seeing it on Amazon.com is nice, but everyone knows that shelf space is unlimited online. The real prize is occupying scarce shelf space at Barnes & Nobel and independent bookstores. What the author wants to know from their publisher is, "How are you going to get me into that bookstore?"

Pure online players will respond with something along the lines of, "Well, if a lot of readers find you online, then enough of them will buy your book for a traditional publisher to become interested in you, and then that publisher will get you into bookstores." That is a relatively weak answer.

But the traditional model of stuffing shelves with "returnable" books, many of which end up getting shredded by the publisher, is clearly unsustainable, as we explored in Part 3.

How this will play out is far from clear. But one thing is clear: the landscape will look quite different.

And Do It NOW!

If you are writing a timeless classic, then the traditional three- to four-month lag between the completion of the manuscript and the book's appearance in bookstores is fine. If you are writing about something timely, that just won't cut it anymore. Bloggers and online writers will steal your thunder before your book hits the shelves. The immediacy of print on demand and e-books eliminates this time lag.

Write About What You Know

Writers do love to write, so it is not surprising that some are starting to document their experiences in the new world of POD and e-books. One that caught our eye is Literary Adventures in POD, but there are many more.

Literary Agent 2.0

In the old model, first-time authors usually had to find an agent, who then found a publisher. This site has good FAQs on the process and on deals.

These relationships -- between author and agent, and agent and publisher -- are often very personal. As such, they can be totally wonderful or totally awful, and there are plenty of tales of both. They are typical "Let's do lunch" relationships. So, bringing Web technology to this match-making experience is logical; one venture that has done this is Creative Byline.

Four Big Changes for Authors

1. Fewer advances. The lack of an advance will be compensated for by...
2. A bigger share of the pie. We expect this to grow from 10% to 30% (or more) of the retail price. The retail price will likely drop, too, and so authors will have to...
3. Create the finished product themselves. Authors will have to pay for cover art and editing out of pocket, as well as...
4. Become savvier about online marketing. A lot of tools are out there: social media, affiliate networks, email lists, SEO/SEM, and so on. Some authors will leave this up to intermediaries (the next form of publishers), and some will do it themselves.

The future of authors can thus be summed up as: do more of the work, get a bigger percentage of the retail price (which will be lower), and hustle online.

We would love to hear from authors about their experiences.

We outlined the practice of "returnability" in Part 1, but it took a pioneer in print on demand (POD) from Canada to help us see the scale of the issue. Bruce Batchelor is a successful publisher and author. Back in 1995, he created the world's first POD publishing service, Trafford Publishing, which was recently acquired by US competitor Author Solutions, Inc.

So he knows this game from the inside. Through some emails exchanged with him, we began to see that eliminating this business practice was critical. Eliminating it may seem radical and impossible to book industry veterans who have never known an alternative. But change may now be feasible: necessity is often the mother of invention.

Further down, we'll look at new technology that could change the supply chain even more radically.

The Problem

Bruce describes the problem very well on his site. There, you'll find a 7-minute YouTube video for people who need the basics. Those in the book industry already know this, but for outsiders, here are the basics:

• Publisher says to retailer, "Here are some books. If you don't sell them, we'll take them back."
• According to Bruce, "Returns (and eventual shredding) reportedly run between 40% and 80%." That is massive waste.
• How can publishers afford this? By charging the retailer more. In most other markets, retailers get 50% off the retail price. For books, they get 40% off.

Bruce's mission is to get publishers to change this 70-year-old practice (it started in the Depression of the 1930s). That would save publishers a ton of money.

What About Retailers?

Our question to Bruce was, "Nice idea for publishers, not having to deal with returns. But retailers are already struggling. How will they survive if they have to deal with this added risk of inventory?"

Bruce told us:

"The answer is to give the retailers a deeper discount [which he explains in his video and on his website]. If retailers now get 40% and are barely surviving, think how much better off they would be getting 50% off. That's a 10% (of gross sales) reduction in expenses and would go directly to the bottom line.

"The sad truth is that small booksellers already order carefully and are not rewarded for doing so. It is the chains that grossly over-order, according to every publisher I've ever talked to. And the chains are already getting 50% to 65%(!) off simply by bullying the publishers. So, the smaller stores are subsidizing the wanton waste of the chains".

Retailers do pay higher prices, then. They pay to return books, and that cost is significant. It is not a free lunch for them, and it is a disaster for publishers.

Without this practice, what would happen? There would be inventory sales and discounts: i.e. the normal functioning of free markets.

What Other Industry Has this Practice?

Music retailing engages in returnability as well, and that industry seems to be doing just fi... er, nevermind.

If Trees Could Vote

Trees would vote to change this business practice. This is an ecological disaster. If consumers knew the environmental cost of those stacked shelves, they might change their behavior. Yes, it would accelerate the trend to e-books and many would see that as a positive, but it would also cause terrible hardship to all who work in the industry and would deprive people the inexpensive pleasure of the good old-fashioned book.

Can technology deliver a solution that totally eliminates waste from the physical book supply chain?

Is the Espresso Book Machine the Answer?

We are all techies here at ReadWriteWeb, so we tend to look for answers in technology. In Part 2 we described something we thought was science fiction:

"We can even imagine digital printers setting up shop in the back of coffee shop/bookstores."

What we thought was science fiction is already a reality called the Espresso Book Machine. It is POD in the retail store. You order something that you can't find on the shelves and, 20 minutes later, voila: a freshly minted book!

Ah, the wonders of technology. We love this stuff. Because Bruce is a pioneer in POD, we had to ask:

"Do you think something like the Espresso Book Machine is a part of the solution? Could it really remove the costs, risks, and inventory from the supply chain?

"Or is that a techie's pipe dream?"

Bruce responded:

"A decade ago, a small company called Sprout.com tried to introduce similar devices to bookstores. They even managed to get Borders to buy into the concept and install one machine. But the enterprise died because of many factors that are still around today. The machines work only for some formats of books: no color or oversized books, no hardcover or coil bindings, a lot of dust, fumes, and production issues, and s-l-o-w. Lack of demand is the real kicker. No one seems to want these out-of-print books very much.

"So, my answer is no, I don't think Espresso machines will make a significant difference to the situation."

We would take issue with his response. He is on a mission, and it is a good one, so he is probably smart to stay on message and not get sidetracked by this technological wonder. He talks of retailer POD as being only for out-of-print books. But there is no reason this could not work just as well for the latest blockbuster. If retailer POD became widespread, we would get an Amazon-like long tail for physical books at the retail level. That would eventually change both author and reader behavior.

Perhaps 20 minutes is too long to wait for a book in our rushed ADD world? My advice, of course, would be to "Chill out, dude!" But there are times when 20 minutes might really be too long; say, when you are rushing to catch a flight. But mobile devices could help with that. You could browse the catalog on your mobile device while waiting in line to pass security, order the book, and then pick it up as you head for the gate.

We are also likely at an early stage with this technology. These devices may be comparable to the IBM mainframes of the 1960s: amazing that they work at all.

This is a potentially big market for printer companies. It is hard to imagine HP, Canon, and Xerox not wanting a piece of this action.

The two approaches (eliminating returnability and retail POD) are complementary, not competitive. They are two approaches to a supply chain problem that is really hurting the industry. Whoever holds the inventory carries the old curse of "May you have much inventory on you!"

Eliminating returnability could trigger faster adoption of retail POD. Knowing that retail POD is feasible might make retailers more willing to accept the change in practice.

Just-in-time manufacturing worked for Dell in the PC industry, and book printing is a bit simpler.

Part 4 Returns to Regularly Scheduled Programming

We had planned for this Part 3 to focus on the author's point of view. We got diverted down the supply chain. Tune in to next week's thrilling installment to find out how our starving genius who hacks away at a typewriter in the attic might be able to prosper in this new world...

Readers have the money that makes all of this happen, so they will, eventually, get what they want, which is:

• Broad selection of titles,
• Choice of format and device,
• Fast delivery,
• Low prices,
• Freemium model.

In other words, readers will be able to order any book in the universe and have it sent to them in print wherever they want or sent digitally to whatever device they have. Readers have grown accustomed to getting their online content for free, so they will expect to get at least a degraded experience via the regular browser (the "free" in freemium).

This will take a while to play out. We live in a world today of bilateral negotiations, so different titles are available for different devices and in different bookstores. But play out it will. This is the logic of digitization. Until we reach that stage, plenty of entrepreneurial opportunities will exist to meet those reader demands.

Readers will pay more for print. They will understand that it costs more. Some readers will resist e-books as long as they live. Others will be selective, choosing print for certain titles and situations and digital for others.

Will Books Be Free?

Here is my free review of my free copy of "Free."

Chris Anderson, author of The Long Tail, recently came out with the book "Free: The Future of a Radical Price." So the question of whether books will be free in the future is a natural one to ask. The short answer is, No. If books became free, authors would stop writing, printers would stop printing, and electronics factories would stop churning out e-book readers. In other words, there would be nothing to read... except:

• Free copies given to reviewers to generate free reviews. I got a free copy of "Free" when I attended Wired's "Disruptive by Design" conference. But the practice of giving away free copies to reviewers has been happening since publishing began.
• Free excerpts and abstracts online. Using free content to entice you to a paid version will continue. Freemium models will be the norm. People with more time than money will take the free version online through their browser, even if the paid print version or e-book is a much better experience. This is nothing new, either: people with more time than money already get free books through their local library. Enabling people with more time than money to read for free is a good thing.
• Promotional publishing. Traditional brochures have lost all credibility and value in this online world. And everyone has a blog; blogs are no longer differentiators. So, published books are the new blogs. Consultants can charge more if they have a book published. To be credible, the book would need a published price (preferably a high one), but all potential clients would get one for free. This is just an extension of blogging as an attention-getting tool.
• Passion publishing. This has been called "vanity publishing" in the industry. This is a pejorative term that can be translated as, "This is not real publishing because no one is paying for it." If the author's passion relates to a cause, funding may come from a non-profit foundation. But volume will accumulate from simple books such as your family memoir or a cookbook inspired by your vacation in Tuscany. Again, this is not much different from spending time on a blog. Free books may come with advertising, like blogs.

How much does Chris Anderson's "Free" book cost on Amazon? List price: $26.99, discounted to $16.19. Not free.

Authors

What about people who harbor a desire to live off of their writing? After all, most writers write because they couldn't imagine not doing it. It is not a profession in the normal sense. They feel compelled to write in the same way that painters feel compelled to paint and musicians are driven to create music. But they have to eat and pay the rent, too.

Intermediaries who mistake that urge to write as a willingness to be exploited will get their heads handed to to them. In a free market, intermediaries are always replaceable, but we need both our authors and readers to always remain motivated.

We are seeing today the early phase of intensified competition in book publishing, as is happening in other industries affected by digitization. Competition will mean, first, more choice and lower prices for readers and, secondly, a bigger share of the pie for authors.

Specifically, we expect to see the following:

1. The end of advances. The irony is that the authors who really need advances, the new ones scraping by on Ramen noodles, cannot get them. Meanwhile authors who don't need them, the ones living the high life off of previous royalties or whatever made them famous enough to get an advance, are showered with ridiculous advances at the end of bidding wars between big publishers. Authors will write without advances. Unlike movies, books are relatively cheap to create. In the digitized world of e-books and print on demand, authors get paid as soon as someone buys the first copy. The lack of an advance will be compensated for by a bigger share of the revenue pie.
2. Authors getting a bigger share of the pie. It makes no sense for authors to get only 10% in a digitized world. We expect this to grow from 10% to 30% or more. Digitization takes most of the costs out of the supply chain. So, unless an intermediary such as Amazon charges monopoly-like rents, authors will get a bigger share. Amazon has amazing power today and will squeeze everyone in the supply chain. But new competition will emerge (we'll look at this later), and keeping authors happy is critical to the success of publishers. Authors are like software developers, not powerful individually but incredibly powerful en masse (and just as ornery!). Authors will need a bigger share also because prices will be coming down. But the drop in price, coupled with globalization, will open up new markets in which to sell books and therefore generate more revenue.
3. Authors creating the finished product. Today, authors write and publishers look after the cover art and editing. If authors were to get 30% or more, they would have to take on these two other jobs. But in a world of desktop publishing tools and social networks to organize work and editing, this will not be hard.
4. Online marketing replacing book tours. It is the bane of the author's life. The book tour is wonderful the first time: "Wow, I am a real author now." But this is not the same as musicians going on tour. Musicians are performing their job in its natural environment during live shows; not true of authors reflecting on their books on stage. There are many and much better ways to promote books online.

The future of authors can be summed up, then, as: do more of the work and get a bigger percentage of the retail price, which will be lower.

Printers

Printers. Who loves you, baby! Predicting the decline of the printing industry is easy, but hopeful signs exist:

• Print on demand will significantly increase the types of books that can get printed.
• Lower prices, resulting from costs eliminated from the supply chain, will increase demand.
• Globalization will increase demand.

It will be interesting to see how digital printing technology, the fundamental driver of print on demand, changes the role of printing over time. Today, we have two extremes:

1. Mass-scale printers, centrally located. We even saw printing move offshore, where labor is cheaper. But this will likely reverse in a print-on-demand world, where immediacy and delivery costs are critical: printing will be done closer to the consumer.
2. Do-it-yourself printing, also known as using the printer in your home or office. Do-it-yourself printing is both expensive (those ink cartridge costs really add up) and a hassle.

Digital printing could quite possibly move to a hyper-local network model. Orders would be automatically routed to the printer closest to the consumer. The already existing infrastructure of small-scale local print shops would welcome this model. The book would then be delivered (quickly and cheaply) to a local retailer or the consumer's home or office. Perhaps the printer would be located in the back office of the retailer?

This fits the trend on the Internet of everything moving towards the edge. It is also an environmentally friendly model, reducing emissions from delivery trucks.

The model won't really help existing large-scale, centralized printers, though.

Publishers

NYMag has a very good article on how big old publishers are faring. It is not a happy tale. It illustrates once again the perils of financially engineered consolidation (think banks and car companies). Book publishing used to be a business in which small firms, run by passionate editors, found great authors and developed personal relationships with them. Occasionally, they struck it rich when one of their authors "caught fire" with the reading public.

Today feels like the calm before the storm. Publishers are worrying about the recession. That is a small wave and will soon pass. But we won't be returning to normal when GDP growth resumes. The three big digitization waves -- Google Book Search, e-books, and print on demand -- will have a far bigger and more lasting impact.

Publishers did quite well during the first phase, when retailers got "Amazoned." They sold more of their back catalog (i.e. they enjoyed the long tail).

On the surface, all is well with the Kindle. Publishers get the same percentage from an e-book that they get when a retailer sells a print version of the book, and their costs are lower. Amazon is playing along. But when it gets more traction, it will squeeze.

Publishers have to figure out not so much how to negotiate with Amazon (competition from other consumer electronic devices will take care of that), but how to remain relevant to authors. Even saying this seems contrarian. Publishers have had all the power till now. The bane of an author's life has been to find a publisher. Plastering the wall with rejection letters and recounting tales of arrogant editors are rites of passage for every author.

Unbundling Publishers

But what services exactly do publishers provide to authors? Let's disassemble the package:

1. Advances. Newbies don't get them, and the rest don't need them.
2. Editing. Do you have a social network that could give you constructive criticism?
3. Cover design. Yes, a great one can make a book. But how much do graphic designers charge?
4. ISBN. Here is an interesting one. To be a publisher, you need international standard book numbers (ISBNs). This is actually what defines you as a publisher. An ISBN is a 13-digit number that uniquely identifies a book or book-like product that is published internationally (read more about it here). The application process that takes about 15 days and costs about $250 for 10 titles.
5. Marketing. Some authors will say, "What marketing?" For mega-star authors, publishers have to spend a ton on marketing to recoup their advance. Authors who don't get advances won't expect much marketing and will end up doing a lot of the work themselves, which wouldn't be so bad if they were getting 30%, rather than 10%.
6. Brand. An author may realistically know that the publisher won't do much marketing and yet still want a brand-name publisher. The reason is partly to feel good: "Wow, I am a real author now." But it is also a rational calculation. Which is better, selling 100 books and keeping 30% or selling 300 books and keep 10%? That's right: it is about the same. Does a brand-name publisher increase sales three times?
7. Retailer shelf-space. Publishers take a big risk on their "sale or return" policy with major retailers. So, you might get retail shelf space, but that is changing, as we will see below.
8. Amazon "shelf space". This is unlimited, so your publisher will get you in here. But any publisher will get its authors in there. Technically, any entity with an ISBN is a publisher.

If any entity with an ISBN is a publisher, then authors could act as their own publishers. Or we could see cooperative publishers emerge. Or alternative publishers, such as indie and network publishers, could grow stronger.

But let's consider first how book retailing might evolve.

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.

Data on market size is hard to come by. Albert N. Greco, in his book "The Book Publishing Industry" (the relevant extract of which is available, ironically, on Google Books), pegs the number at $65 billion in 1993. The value is probably higher by now. In any case, it is big.

An author writes a book, and you read it. A lot of money is exchanged between those two actions. Consider the steps an author has had to go through in the past to make a living from writing books:

1. Find an agent, who takes a cut and finds a...
2. Publisher, who arranges everything and takes a very big cut and delivers the manuscript to the...
3. Printer, who takes a cut and delivers the product to the...
4. Distributor, who takes a cut and delivers the books to the...
5. Retailers, who sell one to you.

Courtesy of iReaderReview, we have created a very simplistic view of how the pie is currently divided:

• Author: 10% (This in fact ranges between 8% and 15%, depending on the author's clout -- e.g. Stephen King does better than most. If the author has an agent, the agent's cut comes out of this. It is indeed tough for new authors.)
• Publisher: 30% (This ranges between 25% and 32%, again depending on the author's clout -- e.g. their percentage is less with Stephen King because the risk is lower too. Note: this is their net revenue, after deducting author royalties and printer fees.)
• Printer: 10%
• Distributor: 10%
• Retailer: 40%

Enter the Dragon: Amazon

Jeff Bezos, who could go down in history as the most driven and talented entrepreneur of the Internet age, shook up this last stage: retail. About a decade ago, people were talking about how retailers were "getting Amazoned." But then a couple of things happened:

1. Amazon discovered that pick-and-pack distribution through warehouses was almost as expensive as running stores on Main Street.
2. Because the end product was still a physical object, many people still liked browsing in bookstores.

During all of these bruising battles, the publishers did just fine. The long-tail of online media enabled them to sell more of their back catalog.

So, we know how e-commerce played out. But then along came three more waves.

The Three Big Waves Hitting the Industry

One massive wave crashing down is confusing enough. But when three crash at the same time, even seeing what's going on (let alone predicting how things will play out) becomes really difficult. These three big new waves are:

1. The digitization of print books by Google Book Search.
2. Increasing consumer acceptance of e-books, mostly because of the Kindle.
3. Print on demand.

Wave #1: Google Book Search Archive Digitization

The first wave, Google Book Search, has kicked up a storm of controversy, with some waving lawsuits in the air. Google threw down the gauntlet in classic Google style, threatening every player in the industry. Its initiative has reached an impressive scale:

"On October 28, 2008, Google stated that it had 7 million books searchable through Google Book Search." (Source: Wikipedia)

Google is dealing with three types of books here:

1. Books in the public domain but no longer in print or easily accessible outside of libraries. These are useful for research and can be downloaded as PDFs. Google has scanned these at considerable cost, and the content does not seem to be a good platform for selling ads, and so we would assume this is not a directly commercial venture. Non-profit initiatives in Europe are doing the same sort thing. No one could really argue with this point.
2. Books that are out of print but still copyrighted. These were the subject of legal action taken by the Authors' Guild and the Association of American Publishers to protect publishers' revenue from back catalogs and authors' royalty streams. The case was settled in October 2008.
3. Books that were scanned by 20,000 publishing partners and sent to Google, which restricts how much of any one you can read online. Publishers are using Google in its classic role as a source of traffic. They hope the extracts entice you to buy the books.

But this does not bear on the best-sellers and books that you buy at airports. Google is simply performing its normal role of directing online traffic.

That is where the second wave, Amazon's Kindle, comes in.

Wave #2: E-Books

With the Kindle, Jeff Bezos finally gets rid of those warehouses and delivery trucks. He still works through major publishers. As Steve Jobs did with the iPod and iPhone, Bezos is using a device to extract high rent for digital products delivered through the device.

Alternatives to the Kindle exist, of course. But alternatives to the iPod and iPhone exist, too, and Bezos is betting that his device will exact similar loyalty in consumers, forcing all of the major players to work with Amazon.

So, what does the book publishing revenue pie look like with the Kindle now in the eco-system? Let's look at this from the point of view of authors. That seems a good starting point. Without authors, there would be no readers and thus no value for intermediaries to extract. Well, it turns out that the Authors' Guild (yes, the one that sued Google and got a settlement) has a strong opinion on the Kindle, as its President, Roy Blount, explains in an article in the New York Times.

Blount probably gets good legal advice. He is going after a weak link in Amazon's legal defense, as he explains:

"Serves readers, pays writers: so far, so good. But there's another thing about Kindle 2 -- its heavily marketed text-to-speech function. Kindle 2 can read books aloud. And Kindle 2 is not paying anyone for audio rights."

But this seems like a side issue. The real questions are:

1. Does the reader get a cheaper product? Well, not yet. But consumers seem to be sending a loud message that e-books should be cheaper.
2. Will authors get more than the 8 to 15% share of the pie that they currently get? That should be possible, because a few big pie-sharers have been eliminated by the Kindle, namely:
   • Printer: 10%
   • Distributor: 10%
   • Retailer: 40%.
   Unless Amazon is giving a bigger percentage to publishers (which is unlikely, but possible), 60% of the pie is available to be shared between Amazon, publishers, authors, and readers.

Here is an author asking all the right questions. And in the comments, another writer addresses the question of royalties on Kindle sales:

"One-third of the cover price. If Amazon discounts the book, they still pay you one-third of the cover price you submit."

He goes on to explain that authors are paid monthly, and they do not ask for exclusivity and do not get advance royalties. That all sounds fine. You can check the actual terms and conditions on Amazon's Digital Text Platform, and the forums contain other advice.

But note that one-third of the cover price goes to the publisher. That is not the author's cut. So, with the Kindle in the mix, the pie appears to be more like this:

• Author: 8%
• Publisher: 33%
• Printer: 0%
• Distributor: 0%
• Retailer: 0%
• Amazon: 59%

In other words, publishers and authors get no more than they did before, and Amazon takes everyone else's cut. This is very good if you own Amazon stock and quite a worry if you are a printer, distributor, or retailer.

Wave #3: Print on Demand

Not everybody wants to pay $359 for a Kindle, particularly when e-books for it are not significantly cheaper than print versions. Also, most books are not yet available on the Kindle, and many (for example, ones with a lot of high-quality images) are not suitable for the device (at least not the current version).

This is where the third wave, print on demand (POD), comes in.

While printing single copies of books using traditional technology such as letterpress and offset printing was simply never economical, digital printing technology now makes it possible.

POD caters to the new long tail: new books that are not best-sellers. Authors go through one of the POD intermediaries: Lulu and Blurb.

In simple terms, the intermediaries allow you, the author, to sell books one at a time. (You could give your book away for free, but you would still have to pay Lulu or Blurb for printing costs.) The model requires no up-front cost from you and no minimum purchase from the reader. Your print-ready content goes to Lulu or Blurb's printing partners, which print and send the books to readers. The printers are willing to work with these intermediaries because they aggregate demand.

You, the reader, see no difference. You order online, pay by credit card or PayPal, and get the book delivered to your home or office.

This initially caught on in the self-publishing and vanity publishing industry, where books often had no market beyond the author's immediate circle of friends, family, and associates. For a good breakdown of the types of publishers in this industry and what to look out for, see this article.

A lot of publishers specialize in this area, including Epigraph, Xlibris, I-Universe, AuthorHouse, SelfPublishing.com, and BookSurge. But they typically require a minimum order, albeit a small one. Blurb and Lulu have used the Web to take this idea to its extreme: no up-front costs, and books printed one order at a time.

Part 2: Wiping the Muck from Our Crystal Ball

In part 2 of this series tomorrow, we will look at how this could play out for the major players:

1. Readers: will we all get more choice at better prices? Almost certainly.
2. Authors: will making a living from writing books be any easier for them? This is important to a lot of people but far from certain.
3. How will the other players (publishers, printers, distributors, and retailers) evolve to meet the challenges of this new world?
4. What new intermediary models will emerge, and which players stand to profit from them?

UPDATE: Part 2 of this series is now available. It explores how this could play out in the future, specifically for the major players of book publishing: readers, authors, printers, publishers, retailers, and e-book device vendors.