'Digital Drop Ship' Logistics and Commerce

When we look at the book supply chain in its most simplistic form we find; authors, who create the work; Publishers, who acquire the rights, develop, hone, produce and take the work to market; Retailers, who promote and sell it and finally, the consumers who buy and read it. The Physical book supply chain was always made complex by the sheer numbers of unique titles, from thousands of publishers, which were sold through thousands of retailers. Consolidated publisher distribution and third party wholesalers helped aggregate the bulk, but it remained a ‘many to many’ and crowded supply chain. Some saw this as a weakness, but in reality, it was a strength, which despite its inefficiencies, it gave us great diversity.

In the late 90’s online bookselling saw both publishers and even retailers handing over their internet sales and customers to new internet entrants. It was amazing to see even large retailers initially prepared to duck out of the internet and align their internet fulfilment with the likes of Amazon. Some woke up and started to create their own internet offers as they realised that it was just another channel and it was their customers and margin that they were handing over. Others were happy to sell someone else’s range, through a customised generic ‘white label’ websites and just collect the commission on sales and many publishers developed their own web sites but still often handed over the fulfilment and sales to others such as Amazon.

Around 2006 the ebook re-emerged. It was now driven by a new breed of eink devices and a digital network capable of supporting media. Many decided it was too expensive, too difficult, or too risky to compete and again handed over the trade to a handful of digital aggregators/retailers. Many just sat on the fence and waited to see if it would happen. As a result we now find the ebook world is effectively serviced through a handful of digital aggregators which include the ever agile and market dominant Amazon. As a rule aggregators do not link to other aggregators to retrieve files, but instead demand all files reside in their own repository.

Some would suggest that the ebook supply chain just got very simple and cut out the majority of bookstores. Ventures such as Indiebound offer bookstores the white label solution, but the reality is, that with the exception of the likes of Barnes and Noble in the US, the retailers did little to embrace and invest in ebooks.

Many publishers were happy to create ebooks and were happy to mix direct marketing with indirect fulfilment.

We now even have an ‘honesty box’ sales environment were publishers no longer count the units out the back door. They hand over a single file and then rely on sales reports from others on how many units actually shipped and at what price.

A few however adopted a different approach. This separated the different activities associated with the sale on similar principles to the ‘drop ship logistics’ that is used by many in the physical and internet world. Here the retailer can sell anything from anybody. The customer finds the ebook at the online store pays for it and their cash transaction is processed locally. When cleared the transaction is automatically transferred via web services to the digital repository holding the title with instructions to ‘pick, pack and dispatch’ it electronically to the consumer. Once downloaded the retailer is notified of the completion and the whole process is completed all in real-time.

Some would suggest that is what happens today and to a degree they would be right. However, the fulfilment is often by one aggregator. In 2007 we created ‘digital drop ship’. This could use a combination of digital repositories many hosted by the publishers. The web service coding and messages were standard and the location of the file could be determined either locally at the retailer or remotely at a clearing centre. The same infrastructure could also support library and other rental services.

We could go on but the point is that the publisher were still able to send files as they do today to the half dozen major retailers and then service the rest themselves. They effectively be counted the downloads out of their own backdoor and controlled their assets. Importantly they now enabled anyone sell their ebooks, with no commercial risk, retaining tight control over their inventory and never letting a single unit out the door until it was sold.

Some may say we are dreaming, but it exists today.

Today we find the power in the ebook supply chain is shifting firmly into the centre - to the aggregators. As we have seen these then can be or become retailers, restrict the market to their white label offers and importantly control the channel. They could also become publishers themselves, initially in self publishing and later by their own imprint or perhaps acquisition of other’s lists. We have also seen the movement away from devices and towards the ‘closed platform’ often with its own DRM and file format nuances. The likes of Amazon, Apple, Kobo, Barnes and Noble platforms all close down the opportunities for others and have become the new ebook ‘king makers’.

We are not saying that ebook consolidation is bad, but we are saying that it creates new challenges, risks and opportunities and perhaps its time to consider some of these before we sleepwalk into a position we may feel uncomfortable wakening up in.

Supply Chain Thoughts 3 Digital Reality

Digital logistics presents opportunities that enable the book trade to remove the physical logistics constraints that caused so much waste. In principle a digital title should only be stored once, full stop, and rendered many times. Obviously there is often more than one format of the titles but again, store once applies to each format and render to many still applies.

Does this mean there is only one winner, one store and we simply adopt the flawed iTunes model – No. It means that we create an inclusive not exclusive framework that supports and distributed files on demand. Why should a publisher not retain their assets within their own repository and only let files out on an on demand basis? This is not a theory and is being adopted by the likes of Taylor and Francis and Elsevier today. The alternative is to hand assets over to an increasing number of digital aggregators, who end up effectively controlling the channel to market and restricting it to their reach and relationships. Ask any publisher today who has to deal with many aggregators; how they control or even know what is being sold, how they ensure that their total catalogue is available through all aggregators and how they reconcile sales with different reports, schedules and terms? Often they have little control on what are their assets. With physical goods the next person down the chain buys them at a discount off RRP and sells them again at an increased margin. With digital, the money doesn’t move until the sale happens, its effectively distributed consignment stock.

Drop ship logistics can provide the mechanism which if adapted for digital distribution can go one further removing the need to build huge repositories and the current bragging rites about ‘mine being bigger than yours’. All that matters is the ability to fulfil the demand for online or download, rental or purchase. For many this may be a central aggregation service, but for those who want control of their assets it can remain effectively in their own warehouse and and leave when its sold or rented. The model may be complex to grasp on first hearing, but it is what is being rolled out by Gardners Books in the UK, Danish library service eBog and adopted by publishers such as Taylor and Francis and Elsevier.

Ironically you will find this model described in concept on page 75 of the 2006 Brave New World report.

The digital offer should be fully integrated with the physical one enabling the consumer to have a ‘one stop shop’ transaction experience and not be handed over to a separate aggregator in order to buy digital books . Separating out the transaction and the customer relationship from the instructions and communication flows from the actual pick pack and dispatch of physical and digital or whatever makes consumer sense, publisher sense and supply chain sense.

Digital Distribution on Demand

Every time stock stands still and every time it moves it costs money. So logically industries move from a 'just in case' production and distribution model to a 'just in time' one. They migrate from huge warehouses full with stock and cost, from stuffing shelves with stock that exceeds demand and is either returned or dumped, to more streamlined demand driven models built on optimising stock and minimising costs.

The book publishing industry has many challenges in moving to a demand driven model but has made significant headway with its adoption of shorter print runs and back list demand management through services such as print on demand. However, production still exceeds demand, stock is often over merchandised and pushed into stores to be only returned at a cost to all. The physical logistical issues of a many to many complex supply chain such as the booktrade have long been documented and debated.

But what of digital stock?

Digital distribution today is still based on passing files around like we pass books today. If someone wants to sell ebooks they have to have the files. This means that you either give everyone all your files or you give them to a few trusted aggregators who will sell them. The problem with the aggregator model today is that it means another mouth has to be fed or the channel and it is often restricted to their ability to service it. One major publisher today hands their files over to some 20 plus aggregators, tomorrow this could double, treble or even quadruple. If they restricted it to a handful they believe that they will miss sales or become potentially overly dependant on others to make their money.

This model may have made sense yesterday as the digital world was immature and somewhat restricted but does not make sense today. There will always be those whose market presence demands files but today that should be globally no more than the fingers of one hand and obvious to even a novice.

The digital file only needs to be stored once and rendered on demand when a sale is made, limiting the financial reconciliation of sales, ensuring that a digital catalogue is consistent and available to everybody and anybody, whilst also minimising risk. The key is an 'inclusive' and not 'exclusive' distribution model.

Digital Pricing

GalleyCat has lifted the stone on ebook publishing and used an ‘expert’ to tell them,

"The large publishing houses' cut is generally 45-55% of the book's list price (this is split with the author whose cut is 15% of list price). Distributors are generally taking 10% or more of list price. Amazingly, the less expensive the book, the distributor cut can grow pretty dramatically because almost all distributors include a minimum charge. DRM providers are generally taking 3-5% (and in the case of less expensive books even more) of list price. The credit card processors, even with micropayments, take 3-6% of the sales price."

Their ‘expert’ concluded that ‘these overhead costs will keep driving e-book prices higher and hurting e-book retailers’

We would offer the following thoughts.

Today the publisher takes a physical product and converts it to digital formats. This obviously costs money and the more formats or the more complex the tagging, the more it costs. However, as publishers change their editorial and production processes to a digital tagged workflow we would envisage the average pre production costs reducing by some 20 to 25% and this would obviate and post production conversion costs. These benefits could be taken as a bottom line benefit or reflected in the price.

Digital files need to be hosted, picked, packed and dispatched. The storage and the carrier may be cheaper, but it’s not free, nor is it the same as the physical world. Publishers tend to outsource digital distribution to one distributor who in turn supplies several aggregators who in turn sell through eretailers. Not an efficient distribution model and often with different players to the physical world and so incurring additional cost in itself. Digital Drop Ship would make sense, cut costs and increase asset control, but this is not the model being pursued by many.

Are we talking about the list price of the hardback or paperback? In the case of hardback and paperback pricing, we have the same content in a different package but at a different price. What is the pricing relationship and why can’t the same be applied to digital? One publisher we know sells ebooks at a fixed percentage off whatever is the current format price so when the paperback comes out, down goes the price of the ebook. Does this make sense? We also see no price difference between say an Adobe eBook and other more complex formats, even though today one costs more to produce and potentially offers more.

DRM is not cheap both in its development and its provision. If the industry wants to use DRM it is not free.

Finally, go to Amazon’s Kindle store and look at their pricing. Personally I like the $9.99 price point and although it’s not uniform, it creates an iTunes perception. Look at the difference between the publisher print price quoted, (usually the hardback) and the digital list price, (usually different) and of course the saving claimed by Amazon. This is where the rubber hits the road, consumer perceptions on pricing are created.

Store Once, Render Many?

It’s interesting to look at the economics of publishing with respect to the digital opportunities we now face. Today a book is sold and the publisher and author are rewarded. Is that the end of the book’s life? No, it could be seen as the start of its journey which may see it shared with friends, sitting unread on a shelf, sold to a used book dealer and read more than once by the same person. Yet the publisher and the author get paid once at its birth.

The emergence of online services that can act as rare and second hand clearing houses that join millions of books from thousands of vendors to millions of buyers has revolutionised the used and rare book marketplace. They have given the consumer not only access and global reach but also price transparency. Many books which would have died now have a second, third, fourth life.

The digital environment now potentially changes the life of a book. We go to a library to borrow a book and we return it once read for another person to borrow. After a while the book starts to lose its looks – it happens to us all. After a while a book may not have the same attraction and demand – again it happens to us all. The book then ends up being disposed of and if still in a reasonable condition may end up starting another life listed on ABE books or another such service.

A book’s content and style may age, but a pure digital copy never loses its looks. So why not offer a rental or lease as a market option on all titles? The book is effectively always on the shelf available to be borrowed. The digital copy need never leave the publisher’s repository and is effectively created once and rendered many times but on demand. In the same way that drop ship logistics separated the transaction and customer facing activity from the pick, pack and dispatch, then digital drop ship can add the dimension of separating the digital marketing and bibliographic from the content.

The question of whether the consumer buys a downloadable copy or merely rents access to a copy is an interesting one and given the permanently connected world in which we live a question that can’t be answered today. However it makes more sense to consume online than offline as it immediately deals with the majority of the DRM issues, gives the consumer instant portability between devices and a single consumer interface can be fed transparently and consistently from literally thousands of sources.

Is this a dream? No. Leading digital exponents such as Taylor and Francis are already working with such a model today. It’s not new, just different.
So what could such a model offer authors and could the potential new business models offer reward across the life of a book as opposed to its birth? Could it offer publishers the control of their assets that they want? Could it offer the consumer interoperability? It may not suit all but there are no silver bullets in digital publishing.

Sell Students Stuff

SellStudentBooks.com is one of those ventures that is simple and hits you like a brick when you see it. Set up as a student social network site it did what it said on the tin and sold students books. These were used text books and obviously were a hit. They also recognised that students had other needs, dating, meeting other students, accommodation and used laptops . The result is a first class example of what a social network site should be about – a community and their basic interests.

Its ironic that this week SellStudentBooks.com extended their reach with selling ebooks. Not downloads but online subscriptions. After all they can better meet the student’s needs and that’s what SSB is all about. Available via sellStudentBooks.com and SellStudentStuff.com the offer shows enterprise and flair.


The have even gone one step further in teaching others the basics in that they don’t store the files merely handle the transactions and the student interface. Today they have some 20,000 Taylor and Francis titles available to their audience via Digital Drop Ship.

At a time when misconceived social book sites stumble these guys are certainly remaining focused and demonstrating what social networks and commerce are about.
Well done.

Letter From America III

I was honoured to be invited to speak in Minneapolis at the National Association of College Stores (NACS) Innovate 2008 conference. The focus was about how the members could gain competitive advantage through technology. Campus stores are being squeezed by many and also face lots of new digital challenges.

The issues that face all campus stores are many and complex but are no different to those facing all bookstores. There are many questions:

Who are their customers?
How do they engage with their community?
Are student customers for life or just for a short time and why can’t they retain the customers past student life?
What do their customers want?
What is the size of their market and their percentage of this?

Once they have established where they are they have to decide where the want to be and how they get there. It is not about digitisation nor is it about technology – it’s about retail. The campus store is not dead it is merely changing and adapting to new opportunities. Will it survive – I believe so but it will be different and will be built on its existing relationships with its community and its publishers.

The following are the digital recommendations I left them with to consider:

1. Adopt Digital Drop Ship as the model to engage all bookstores into an effective channel for all publishers. Some would argue that the aggregators do this today but look at the exclusive models and demand more. You need an inclusive, integrated and independent model that is inclusive not exclusive and builds on the relationships you have today not one that merely put someone else between you and your supply.

2. Widgets. Ask yourself how you can maximise this within your environment to sell more books. You could even use them in-store to qualify stock you don’t carry. If I am right and they become ubiquitous, how are you going to manage them? I believe the association has a clear role to play to make sure the right widgets are created and distributed to its members in a way that they can be fully exploited and increase revenues today. Don’t wait for someone to sell you the package do it yourselves. Solutions here need to offer both development and be built to be ‘out of the box’

3. E Inspection copies. I believe you are integral to the process today and going forward. If you aren’t plugged into the process, where will the sales go? Only by working collectively and with others will the real benefits on offer here be realised. After all the reviewers are your customers, the students are your customers and the books are what you should be selling, so why wouldn’t you work with others to secure it?

4. Print on demand offers much but is a significant change. It may work in one store but not in another today. However if you became the first movers and viewed it as a local resource could it secure a bigger market. If you wait someone will do it first. That may be a competitor, a print shop, a library, even a coffee shop. What being a follower mean to your business and community relationships.

5. 508 is my last suggestion. This is not an individual store option today as much as a co-operative one which could provide high visibility, take away a painful exercise for publishers, provide a real service and relationship link to the thousands of disability officers and the solution is not difficult not expensive.

You can read the full presentation at http://www.value-chain.biz/Brave%20New%20World%20ii.htm