Pearson, REDgroup, Amazon and the Depository: The Market Concentrates

Big news the past couple of days! So very big that I’m still having trouble digesting it all. But here it is – Pearson, the parent company of Penguin Australia – have bought the online arm of the bankrupt REDgroup (that is, Angus & Robertson and Borders). That was a couple of days ago. And then in unrelated related news, Amazon bought the Book Depository – the only real international competitor they have for selling books.

This is big news for everyone in the Australian book industry (and possibly everywhere else). But particularly the Australian industry. The Book Depository represents only a small part of international book sales – and still only a small proportion of the UK book market, where the company is based. But in Australia? A massive chunk. Forget Amazon. The reason local booksellers are threatened by online bookselling is largely to do with the Book Depository and their loss-leading free-shipping tactics.

So what the hell is going on? Was there monopolistic Kool-Aid in the water supply over the past week? Or am I cynically bundling two vaguely related stories into one neatly packaged blog post? You be the judge.

Let’s start with Amazon and The Book Depository. The Book Depository was founded by ex-Amazon people, and I’ve always secretly thought they didn’t see the business model as particularly sustainable, and were waiting to be snapped up by Amazon at a later date and a decent profit, once they’d had off with as much investment money as they could garner (which, I should point out, they’ll pay off in spades with the sale of the company to Amazon). There’s no evidence I can find that they were profitable yet – though they may well have been eventually (or might have been already – I’m not one of their investors). According to some reports it appears that they were somewhat dependent on a massive discount from the Royal Mail – which they may not continue to get with Amazon in charge. At any rate, there is already speculation about investigation from various trade commissions into this new potential monopoly.

Either way it’s quite possible that the Book Depository will cease to be as good as it used to be at doing what it did best. And what the Book Depository was very good at doing was stealing market share from Amazon. That is without doubt a blow to competition. It’s certainly true that since the Depository has been around, books have been available more cheaply to readers – especially in Australia. But there’s also an argument to be had here that this was a bubble that was always going to burst – based as it was on investment rather than profit – and in the meantime it has contributed significantly to the decline of local booksellers (both on and offline).

Now to the Pearson–REDgroup Overmind. This is a real noodlescratcher. There’s a diversity of opinions here. Peter Donoughue over at Pub Date Critical believes that it’s a stupid move by Pearson. The intricacies and subtleties of running an online retailer are too great a burden for a mere publisher, he says. On top of that, it might be that the dual (and sometimes conflicting) responsibilities of being a publisher and a retailer will be too much for one company. But I guess if they run into trouble, they might ask Amazon for advice. It’s very likely that some publishers, as Donoughue says, will be deeply suspicious of Pearson’s intentions, and may refuse to work with them. Just as other book retailers have been unwilling to stock the books that Amazon’s publishing imprints are beginning to put out in print.

Once again, I’m of two minds about this. On the one hand, it seems to me that a massive corporation like Amazon needs to have competition from someone – and perhaps one day that’ll be from someone like Pearson. On the other hand, however, all this concentration of power into the hands of fewer owners doesn’t seem to me to be a good thing for anyone except the owners. Cultural diversity is a beautiful thing. Being flexible and nimble is also a good thing. Monopolies are traditionally not very good at fairness for their customers in the long run, nor at adapting to change. This has been the whole problem with publishing companies in the past few years – too slow to react, too massive and too conservative to change when a reaction is deemed necessary. You can see the Big Six publishers in the US (and Australia) are struggling under the same conditions now. Does it really make sense for Pearson and Amazon to be getting bigger and even more burdened by conflicting responsibilities in this climate? As always, I do not have the answer. But I’ll admit that this news makes me distinctly uncomfortable. Let me know what you think in the comments below.

Special thanks to Twittervirate @ryanpaine, @mrconnorobrien and @felicetherese for the long email conversation this evening. Most illuminating.

As A Retailer, They Made A Good…

It’s been a week and most of us are still reeling over the likely demise of Red Group Retail‑owned Angus & Robertson and Borders.

I wasn’t planning on weighing in on the debate, both because I don’t think I have all the answers and because I think others can say it much more incisively and eloquently than me. But having pored over the flurry of blogs and articles that have emerged over this last 10 or so days, I think there are a couple of things that need to be clarified.

First, while I would love to credit tenacious, community-based, customer service-driven, independent, ‘David’ retailers for toppling this big-box ‘Goliath’ (as some blogs are doing), I can’t. Because I’ve seen the inside of the behemoth and it wasn’t being toppled by independents nipping at its heels—it was already fundamentally going to pieces within.

Time now, for a confession of sorts: I once worked part-time at Borders. I’m not claiming to have been privy to the company’s financial statements, but I’ve had more experience in retail than I care to admit courtesy of a long, long university enrolment and subsequent need to feed myself. I’ve especially had experience in retail in a really competitive, low-margin environment courtesy of having worked for Sanity/Virgin/HMV for the better part of a decade. And it didn’t take a rocket scientist of an employee to know that things weren’t so good at Borders.

Morale was low, stock variety was reducing, prices were increasing, and changes to systems didn’t put the customer first (say, for example, the push to get customers to conduct their own searches and place orders via the online store, typing in their credit card details while other customers hovered nearby).

Staff weren’t being supported to do their jobs (the database we had to ‘use’ to find books was an absolute clunker and the customer order system nightmarishly random and manual). Staff’s vast book knowledge and passion wasn’t nurtured or drawn on, senior management was all but invisible, and the company was directionless and had no clear plan for winning customers back from the alluring cheaper online options.

The independents are surviving because they’re doing all the things that Borders didn’t—valuing their customers and working hard to find and then share the books they’ve found. But to say they kneecapped the giant with their above-and-beyond personalised service? No, the giant purely and simply shot itself in the foot in its fumbling.

We talk about mining magnates but not bookselling ones for a reason—there’s money to be made raping and pillaging the land for precious natural resources, but feeding the mind and soul appears to be less fruitful. There’s also a reason why independent bookshops don’t really branch out into multiple sites—the margins are tight, and the exhausting necessity of closing monitoring every dollar and every margin in every book brought in to be sold, as well as fostering personal relationships and subsequent trusted recommendations, is necessary but exhausting. Larger, multi-site operations dilute this.

Arguably, big-box retailers dilute this to the nth degree. Borders, for example, operated on a kind of ‘if you build it, they will come’ philosophy. And come they did. Even people who you’d least expect to be there would show up. I spotted more card-carrying ‘I support my local independents’ book buyers than you’d believe during my time working at Borders. Some of them bought books (because few book lovers can leave a bookshop without having fallen in love with and had to have some text-based tome-y goodness), but even more of them used Borders as a resource. A library resource.

And that’s perhaps the greatest tragedy of Borders’ demise: as a book retailer, it made a great library. Should it go under (as it’s reported based on the trends of companies that go into administration it has over a 90% chance of doing), we’ll lose an invaluable resource.

I long held reservations about what such a big-box retailer meant environmentally (and I’ve touched on this in a previous blog), with vast quantities of books being produced and shipped and then returned after having served as three-dimensional wallpaper to fill and flatter huge shelf space.

But I haven’t touched on how the vast shelf space and the initially diverse range of books enabled so many of us to see, smell, touch, and maybe even taste what was available on a given topic before purchasing it. It helped us put books side by side and pick the best one for our tastes and needs. It also helped us discover books we didn’t know existed and be swept up in the desire to read.

Sure, many people then took the knowledge they’d gained from picking staff’s brains about the available books, trawling the shelves, and flipping through the books, and then bought their book of choice at a cheaper, often online store. For many others, Borders was the closest they came to stepping into a library and conducting school or university research.

As a side note, I’ve often wondered why, although I’m a big library visitor, bookstores excite me much more. Methinks it’s because the books are shiny and new and merchandised nicely and are emitting the new-book drug/perfume that says buy or read me (or both).

There’s obviously a certain amount of schadenfreude to be had at Borders’ current and likely further demise. But while they might not have been the retailer you supported or wanted to support, as a library they supported us more than we probably realised.

What the Failure of REDgroup Means for Ebooks in Australia

Anyone who follows book news cannot have failed to hear about the collapse of REDgroup’s Borders and Angus & Robertson bookchains last week. But what does this mean for ebooks? Depending on who you listen to ebooks are one of the causes of REDgroup’s slide into administration. But is this true? Are ebooks destroying the common dead tree bookseller? And did video kill the radio star? Read on to find out more.

For those who don’t know, Kobo is a Canadian ebook platform that partnered with Borders in the United States, and Borders/A&R in Australia. As I said back at Christmas, it may not have been the brightest move on Kobo’s part to tie themselves so closely to Borders, but they did. And that means that even though Kobo is not REDgroup, they will suffer some of the consequences of the collapse, including the withdrawal of books by some publishers from their joint library.

Although I’ve complained about the Kobo ereader and their flaky platform before, they were the only real competitor to Amazon’s Kindle ecosystem and Apple’s iBookstore. They were unique in Australia because their partnership with Borders brought them mainstream, nationwide legitimacy and a physical retail presence – something neither Apple nor Amazon can compete with. From all reports this partnership has been relatively successful – it was one of the few areas of their business that REDgroup wasn’t entirely bungling. This is part of the reason why ebooks cannot be blamed for the collapse: like it or not ebooks are still only about 1% of the industry here in Australia – and REDgroup had already carved themselves a healthy chunk of that 1%. While that number is growing very fast, ebooks are not putting booksellers out of business just yet.

No, what destroyed REDgroup was incompetence and greed. While various pundits have tried to blame parallel importation, the GST, and even the internet as a whole – the fact of the matter is that REDgroup are the only Australian bookseller currently under administration. And while plenty of booksellers are struggling, they haven’t had fraught relationships with suppliers for the last twelve months, and they haven’t been jacking the prices of their books up over RRP. And they haven’t been selling barbecues instead of books.

Regardless of the outcome of REDgroup’s period under administration, the Borders brand has been seriously tarnished by this collapse, and that’s only going to get worse with issues like the recent decision not to honour customer book vouchers. You can safely predict that Kobo’s ascendancy in Australia will be slowed for a while to come.

So where does that leave ebook buyers and readers? Or rather – where does it leave readers who don’t want to submit to the Amazon or Apple gulag platforms? Well, with the recent news that Google are looking to partner with groups of retailers rather than individual booksellers, things on the indie front appear to look a bit bleak. But it’s not all doom and gloom. The annual post-Christmas survey in Bookseller+Publisher demonstrated that while the dead tree book industry is trembling under the threat of a shrinking market – ebook readers and ebook sales are healthy and growing. Not only that, but 40% of booksellers not already selling ebooks are planning to do so in the next year. This is great news for readers – with the freeze of Borders/Kobo, there is a lot of room for new growth. And new growth in books can only be a good thing.

As a culture, we’re currently undergoing one of the largest paradigm shifts in cultural consumption ever. It is now more than any other time that we cannot afford to have dead weight like REDgroup dragging the rest of us down. So I say the king is dead – long live the king.

Ebook News Christmas Wrap-up

So the silly season has come and gone, bringing with it what is most likely the biggest shift in consumer behaviour in regards to ebooks that has ever occurred. As I’ve been saying for the past six months – the future isn’t just coming sometime soon, it’s already here. Here’s a wrap-up of the ebook news over the past couple of weeks that you might find useful.

As predicted, Amazon made great strides this Christmas into the ebook space. They announced that the Kindle is now their best-selling product of all time. This means it has outsold the final Harry Potter book, so we are talking millions of Kindles out there over the Christmas period. And due to the instantaneous nature of ebook purchasing, we’re quite likely to see a spike in ebook sales over the few days of the Christmas period – though we’ll likely have to wait a while before anyone releases those figures. Guestimates so far have pegged the number of books sold as close to 3 million, which is damned impressive.

A poll has shown that almost a third of internet users say they already have a Kindle or plan on buying one in the next year, and that 40% of iPad owners already have a Kindle or are planning to buy one – which seems to support the assertions of Jeff Bezos (Amazon’s CEO) that the Kindle and the iPad are not in direct competition.

All in all this has been a superb holiday period for Amazon’s Kindle – all the more reason to hope they don’t do anything (else) evil in 2011.

Google has hinted at a timetable for the Australian launch of the Google eBookstore initiative, indicating they may launch early this year.

The Borders/Kobo tagteam appears to be coming apart at the seams – at least one major publisher in the US has halted shipments to the embattled chain and Hachette are considering doing the same. This is bad news for Kobo, which has tied itself quite closely to Borders in the US and here in Australia (Australia’s REDgroup – which includes Angus & Robertson and Borders – has been considering cuts and facing disappointing sales for months).

Choice magazine has named the Sony Touch the best ereading device, which is good news for the ereader (and for the potential fortunes of other independent ereading devices that aren’t chained to a single retailer).

Forecasts are showing that tablet sales will more than double this year in the US, which is great news for Apple and the iPad, which will likely snap up a big chunk of that.

2011 is shaping up to be the biggest year yet for digital reading. Thanks for reading in 2010, and I look forward to your comments and support if you decide to stick around this year. If there’s anything you’d like to see covered or analysed in more detail – let loose in the comments or get in touch on Twitter.

Sony Reader (Finally) Launches in Australia

Sony’s line of ereader devices have been around since 2006, but for the first time the company has made them available for sale in Australia. Sony has done a content deal with the Kobo / Borders ebook store so owners will be able to load up ePub books from those stores. They’ll be making two models available, the Sony Pocket ($229) and the Sony Touch ($299), but sadly don’t have any plans for now to release the Sony Daily Edition, a model that uses 3G wireless technology so that readers can download books on the fly.

So is this too little, too late? These latest models of Sony readers have been around for a year, and have already been superseded by the cheaper and some would say superior Kindle 3. There are some things about the Sony readers that are unique, but more importantly than that, Sony’s move into Australia is evidence that the rest of the English-speaking world is finally taking us seriously as an ebook market.

So is the Sony worth buying? Your answer depends largely on your philosophy. For the most part, the Sony readers are considered technologically inferior to the Kindle, but more open. The screen technology is a little more advanced on the Kindle, particularly noticeable in the Sony Touch, whose touchscreen layer detracts from the screen contrast, making the text seem a little less sharp and a bit greyer on the vaguely grey background. Nonetheless, it is an e-ink device, so that means you can read it full sunlight and the battery life is long (in comparison to something like a laptop or an iPad). The touchscreen itself is kind of fun, but to those who are used to using iPads or even an iPhone, they do feel a bit old hat and unnecessary. The Kindle just has buttons, but they work just fine. The touchscreen does enable you to take notes on the pages of the book you’re reading with the stylus, but there’s no way to export these notes, so the editors among my readers won’t really get much use out of this function. Additionally, the Kindle ebook library, via Amazon, is massive in comparison to what you can buy for the Sony readers via Kobo or Borders.

So in that case, why would you buy a Sony? The benefits of these devices are accessibility. Unlike the Kindle, which exists in an entirely closed environment, managed completely by Amazon, Sony readers can access almost every kind of DRM (except Amazon’s), and read multiple file types, including PDFs, Word files and rich text – without having to be converted for use. These features make the Sony readers a great choice for those of us who desire interoperability above all else. The Sony Readers will also be available in physical stores in Australia, unlike other readers, giving them an edge when it comes to selling in.

Having said that, for my money, the Kindle 3 is still the best e-ink reader out there for now. It’s far cheaper, and the process of buying books, annotating and checking words in the dictionary – not to mention the access to your books you’ll have through your PC, Mac, iPhone, iPad or Android phone through Kindle software there – is worth the trade-off of being stuck in the Amazon ecosystem. For now. I’m happy to see a Kindle competitor launched in Australia, but I’m looking forward to something a bit meatier from Sony in the future – if they manage to hold on against the Kindle juggernaut for long enough.

Review: Borders Launches Ebooks in Australia

The launch of the Borders ebook offering in Australia finally brings a contemporary local ebook buying experience to Australians. The store is fresh and easy-to-use, and Borders is a recognised name in books in Australia. The prices look reasonable, and if all goes well they should soon have a reasonably wide selection of ebooks to sell as their existing relationships with publishers are finalised for ebooks.

Thus ends the good part of this review. While the front end of the store seems to be well set-up, the user interface end is not as good. Borders have reached an exclusive arrangement with Kobo to run their ebooks platform, but the Kobo platform is flaky at best. Kobo (previously Shortcovers) is a competitor to Amazon’s Kindle – they are both aiming for device independence. There are Kobo apps for the iPhone and iPad, there is a standalone Kobo reader (for the impressively low price of $199). Unfortunately, however, you get what you pay for. The standalone reader lacks the most rudimentary ereader features – like search and annotation – and supports only ePub and PDF (and does PDF badly, like most e-ink devices). The iPad and iPhone versions– since they are software only and not really limited by the physical specs of the standalone reader – should have, at the very least, a search function. But they do not.

Books purchased on one device can be downloaded for free to any other device – but how is the user supposed to figure out where they are up to? If I’m reading a book on my iPad, and then switch to my iPhone – there is no way to find the place that I’m up to. On the Kindle platform, this happens wirelessly and automatically through Amazon’s servers (through a service enticingly called ‘Whispernet’). I don’t necessarily expect this level of functionality – but at the very least let us search! What’s the point of being device independent if you still have to manually flick through hundreds of electronic screens to find your place?

This is not the only problem with the Kobo platform. Although the books that come with the reader for free (out-of-copyright titles including Alice in Wonderland, Pride and Prejudice, Dracula and so on) look great on the screen – other purchased titles are cut off at the edges and are nigh on unreadable (see images). Additionally, the App Store for iPhones and iPads features both a Kobo and Borders app – both of which are backed by the REDgroup (Borders’ parent company) catalogue of ebooks in Australia. However, consumers will need a separate account for each app (which look almost identical, save for branding), and if a book is purchased in one it will not transfer to the other.

I really want to love the Borders/Kobo ebook offering. But I emphatically do not. Kobo should be applauded for their attempt to do device independence, but the implementation is ultimately flawed. Borders should be applauded for taking a step forward with ebooks in Australia – but it’s a pity they have wedded themselves to this particular platform. There is a very good chance that over the next year or so software and store selection will improve and many of these problems will be ironed out. But how many readers will be burned in the interim? How many readers will turn off ebooks altogether because of a cheap entry-level offering that is clearly not ready for the market? And, more importantly, how much further ahead will the competition be by then? If you’re looking to get in on the ebook experience in Australia – your best bet, sadly, is still the Kindle.

The agency model: hot or not?

The Agency Model: A lot more boring than     this picture.

I’ve implied in the past that ebooks are likely to change the way we buy, sell, read and perhaps even write books in the future. One of the ways things are already changing is the way that publishers supply ebooks to booksellers. This is what’s called the ‘agency model’. The agency model has the potential to fundamentally change the way that publishers interact with people who read books, so it’s worth knowing the basics.

To understand it, though, you first have to get an idea of how dead tree books are sold now. In the current dead tree publishing model, the company sells a certain amount of books to a bookshop and ships them out in dead tree boxes. The bookseller tries to sell as many as possible. Whatever is left can be returned to the publisher. There is a recommended retail price (RRP), but the bookshop decides how much to sell the book for – and they’ve demonstrated a lot of flexibility in doing so. In Australia for example, the big discount stores (K-Mart, Target and Big W etc.) will sell books for a fraction of the recommended retail price. Borders, on the other hand, has been known to increase the price. In other words, books are sold pretty much like any other product.

The agency model is something that has come out of selling ebooks – specifically when Apple came on the scene with the iBookstore and the iPad. Basically what it means is that instead of the bookshop selling digital products directly to you, the bookshop becomes an ‘agent’ (hence ‘agency’ model) of the publisher. The publisher sets the price of the ebook and then give the bookshop a license to sell ebooks on their behalf.

I’ve covered the reason for this change in a previous blog, but the consequences so far have been steady prices for readers (Amazon have increased the prices of ebooks by a few dollars, but other ebook stores will eventually drop their prices). It also means that no single bookshop (I’m looking at you, Amazon) can artificially prop up a price point that no other store can match. This is essentially what K-Mart, Target and Big W do in Australia with dead tree books. You can get very cheap books in these stores, but not a big range. Smaller bookshops around Australia have closed as a result, and the sales for midlist authors (authors who don’t always sell in the big discount chains) aren’t as good as they used to be.

So, the questions is – is the agency model hot or not? As with all of these kinds of questions the answer is that it’s complicated. Do you prefer a good range or a good price? The prevailing wisdom is that the cheaper books become, the fewer risks publishers will be able to take on new and interesting authors. Having said that, ebook stores do not have the physical limitations of their dead tree cousins – the range of books they can supply is almost infinite. What do you think? Sound off in the comments.