Friday, November 27, 2009

Redrawing Borders Part 1

The news of Borders UK going into administration demonstrates the changes happening in book publishing. It will be bad from many and good for some. In an industry so diverse as publishing, change is inevitable but often difficult. We have seen the supermarket and others take market share and apply limited range focus couple with high discounts. We have seen the chains wander aimlessly into discount wars they can’t win. We have seen the emergence of new entrants who aim to dominate through new models.

So is it bad or merely just change? What will be the outcome and who will emerge tomorrow?

We can no longer separate the physical from the digital worlds. Amazon has proved that people are happy to buy physical books on the Internet. The urban myth that you had to see, smell and feel a book in order to buy in it is broken. This doesn’t mean that only the Internet will survive it merely says that the economies of scale and scope that supported the chain model of yesterday are no longer applicable. Today anyone can sell virtual stock and the new chains are potentially aggregators such as Overdrive, Ingrams and Gardners. However, as they widen that offer to digital they themselves face new entrants who see their models as broken as we see the chains today.

There are only two people who matter in all this extended chain – the author who creates the value and the consumer who pays for it. Everyone in between has to earn their place and add value.

So ignoring today’s fresh battles where are we heading next?

We may not have the answers but we can offer some pointers to watch:

Polarisation. The economics that once penalised the small can now work for them. They increasing don’t have to fight the chains, but players whose offer is significantly different. If one looks at music, gone are the many chains that once populated the High Street. We now have maybe one chain and a small, but healthy, number of local small players. The small players have to focus on their selection, offer and customers. What chains that do survive, now have to now fight virtual giants, new entrants, supermarkets etc. It's interesting times, when the largest digital music seller is iTunes, and the largest physical music seller is Walmart.

This polarisation is not just about retail, it applies right across the publishing value chain. The economics and changes effecting book retail equally apply to book publishing, distribution and every aspect of the value chain as we knew it. Those who believe size matters better look over their shoulders at some of the new entrants. Its technology, aggregation and collaboration that often is the key and publishers aren’t in that space today. This collaborative need is particularly relevant given that we wrote about iMags only yesterday.

Small publishers now have the real opportunity to flourish alongside small bookshops.

Next we will look at the vertical market, author power and the freeconomy

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