Are ABA's Members Ready For Another eRelationship?

The American Booksellers Association (ABA), has already walked away from one ebook marriage it said would solve all its members wishes and no sooner has the divorce papers been filed , it now appears to be teaming up for a new marriage based on Kobo. Is it a shotgun wedding , a marriage of convenience, or simply a marriage on the rebound?

The last relationship engaged with close to 400 stores but failed to work out. Now the same stores have another ‘arranged marriage’ with yet another suitor, but will this fair any better?. Maybe the Google relationship was destined to fail once the honeymoon was over and the reality sunk in. Just as the BA may have discovered in the UK, Google may have had different ideas about what they wanted, or expected from their partnership.

So stores are expected to simply flip from Google to Kobo , start to sell not just ebooks but Kobo devices and become overnight Kobo disciples. The ABA may be excited, Kobo may be excited , but are the stores really geared up to support it? 

In early 2011 we wrote two articles on the UK’s bookshops approach to selling ereaders and ebooks, we have since seen WHS dump Kobo POS displays and await the Waterstones  Amazon in store experience. We accept that Barnes and Noble offered a good in store experience but they were committed and it was their own show.

We must remember that the ABA stores will be basically selling other’s devices and the files will be sold by the service provider. They will not control prices, nor the overall experience and they will receive a commission for what some suggest is potentially handing over their customers to others to exploit. Some would say that it’s like inviting the fox into the chicken hut.

We would ask many questions, some obvious others not so and presume everyone signing up will have the answers:

·         Tax who owns the problem/issue and are equipment sales separated from file sales?

·         Are equipment sales based on sale or return or firm?

·         Who trains the in store staff?

·         Who provides the customer service first and second lines and is it online, offline or by retailer

·         Do stores train all staff or selectively will there by an expert on stand at all times?

·         Will stores sell proactively or passively?

·         If pricing is set by provider how do stores handle competitive questions?

·         DRM is a challenge, but can the customer play a kobo file on kindle, Nook, Sony or must they have a Kobo device?

·         How will staff handle questions about Google?

·         Must customers buy all their files for same store and if not, where else can I buy them and will they then appear as disparate accounts within the Kobo platform?

·         Who owns the customer data?

The important question is, how do stores handle questions about Kindle, Nook, Apple, Sony etc?

These and other questions can be thought through and can be negated, but we must remember this is not within one organisation, but across many different ones and the consumer is likely to be exposed to multiple experiences.

However, the experience maybe tested further with another ebookstore , Zola, setting its eyes on the same market opportunity and claims to be already in discussion with the ABA and have 50 stores signed up. Others such as Copia also can’t afford to be left outside. 

So is the KOBO agreement exclusive, or open to all? If it is open to others and how do the ABA plan to level the experience?

We wrote the Brave new World report some 6 years ago and at the time we strongly believed that there was an opportunity for book retailers to join the ebook marketplace. However, apart from exceptions such as Barnes and Noble, few rose to the challenge and those that did often stumbled and instead of collaborating to jointly develop and hone the opportunity, they choose to compete. Some would suggest that its somewhat ironic that they now find themselves at the same place, but without the same control. Instead of rising to develop their own offer, under their associations, they chose to ‘white label’ others with all the implications that strategy delivers. 

Barnes and Noble, Nook and NEWCO Come to UK

How many consumers know of Barnes and Noble in the UK? True those who have been to the US may be familiar with the stores, but in the main the ‘world’s largest bookstore’ has until now operated within the US and is relatively unknown in Europe. Neither is the Nook any better known outside of the US.

So it was interesting to read that they are finally venturing outside of the US and launching their digital Nook platform and devices in the UK next month.

Then we have that very interesting developing partnership with Microsoft and the new venture currently under the wraps of the name NEWCO. This venture should take over the NOOK and campus store business from Barnes and Noble and enable that other perennial latecomer, Microsoft, to get into the ebook business – again.

The challenge is not finding UK retail partners, and money can always be spent to promote the launch but who is the consumer dealing with? Barnes and Noble, Nook or NEWCO and will they have to rebrand if NEWCO happens?

The press release was brief gave nothing but we can’t help quoting from it on the statements on the NEWCO situation and what must be the longest sentence ever written,

Such statements reflect the current views of Barnes & Noble with respect to future events, the outcome of which is subject to certain risks, including, among others, the general economic environment and consumer spending patterns, decreased consumer demand for Barnes & Noble's products, low growth or declining sales and net income due to various factors, risk that international expansion will not be successfully achieved or may be achieved later than expected, possible disruptions in Barnes & Noble's computer systems, telephone systems or supply chain, possible risks associated with data privacy, information security and intellectual property, possible work stoppages or increases in labor costs, possible increases in shipping rates or interruptions in shipping service, effects of competition, possible risks that inventory in channels of distribution may be larger than able to be sold, possible risk that returns from consumers or channels of distribution may be greater than estimated, the risk that the expected sales lift from Borders’ store closures is not achieved in whole or part, the risk that digital sales growth is less than expectations and the risk that it does not exceed the rate of investment spend, higher-than-anticipated store closing or relocation costs, higher interest rates, the performance of Barnes & Noble's online, digital and other initiatives, the performance and successful integration of acquired businesses, the success of Barnes & Noble's strategic investments, unanticipated increases in merchandise, component or occupancy costs, unanticipated adverse litigation results or effects, product and component shortages, the potential adverse impact on the business resulting from the review of a potential separation of the NOOK digital business, the risk that the transactions contemplated by the partnership with Microsoft to form Newco, including with respect to any spin-off, split-off or other disposition by Barnes & Noble of its interest in Newco, are not able to be implemented on the terms contemplated or at all, the risk that the transactions do not achieve the expected benefits for the parties. 


An interesting piece in bloomberg on the relationship and Barnes and Noble -  Barnes & Noble Investor Elation With Microsoft Deal Fades

So How Will Digital Growth Impact Physical Decline?

We all now accept that digital ebooks will continue to grow at speed, but that it is still highly speculative what the rate of growth and market size will be and that this is likely to vary between genre. We agree with Bloomsbury’s CEO Nigel Newton, when he states that physical books will remain and that we will have a mixed market for in the future. The question that we feel is missing in the digital debate is the impact that digital growth will have on the inevitable shrunken physical supply chain. Some may feel that the digital market is supplemental we would suggest that this will not be so and that the current practice of merely pouring physical content into digital containers will lead to a cannibalisation of physical sales.

The publishing supply chain remains finely balanced and somewhat complex. It remains a ‘many to many’ chain trading in many unique products from many sources. The reality is that any cost or inefficiency to one, is born by all within the chain and so the efficiencies that have been driven into the existing physical chain over the last decade could easily unravel as the economies of scale and scope change and numbers become even less predictable.

We ask the question of what the potential high level impact may be and what the supply chain may look like if the physical market were to shrink by say 20 to 30%?

Many predict the death of the physical bookstore and for many this is probably their fate if they remain wedded to their current model. The front list ‘sale or return’ model has worked well but is in danger of going past its ‘sell by date’ for many. Other retailers are now creaming off the volume on the big sellers and with their pricing clout are making the High Street a no go area for many. The independents have to wake up and sell old, used, bargain and respect that the cosy days of letting the publishers wallpaper their shelves are going and if a 20 to 30% reduction in physical sales were to occur they will have to find alternative revenues. A  reduction in revenue can be compensated by higher prices, which is highly unlikely, or by a reduction in cost, which in simple terms would mean a shrinkage in physical square footage – less stores. Waterstones are probably focused on reducing their estate by a significant percentage, getting these right and in doing so retaining their viability, but this option doesn’t exist for independents were the decision may be more binary.

A reduction of selling footage on the High Street is not going to be just down to digital but compounded by other retailers such as the supermarkets and the Internet creaming off the best sellers and higher volume sales.

Some will argue that the independents and High Street is doomed and so what. But as the percentage of the physical sales grows across a handful of channels and the overall volume of physical sales reduces, this has to impact and question the distribution and efficiency of the supporting supply chain. Today many will look to compensate any home sales reduction with exports but there is little to believe that this will not also be effected and the strategy may be more tactical than strategic. There is a clear case for greater physical supply chain consolidation and it is hard to envisage the same number of distribution and wholesale operations.  

There is the question of returns. As the physical High Street demand contracts there will be the inevitable increase in consignment errors. The stores will continue to support the low risk returns model which will lead to even more product being shipped around the country with no revenue being generated. The waste is a cost to everyone and will increase as declining sales make some publication’s sale less predictable.

It is fair to assume that you can’t have a significant disruptive impact on one area of the supply chain without the effects also impacting all other areas either in the form of the ripple, or domino effect.

Publishers have many challenges if the physical market were to shrink by 20 to 30%. It’s true that they will still have digital revenues to compensate and to do so at probably better margin and positive impact on their bottomline, but what will this mean to their organisation, processes, and cost structure? It is also true that different publishers will be impacted differently according to their sector coverage and mix of titles, but a 20 to 30% reduction in Physical sales will impact all.

Like any army one has to adapt your resources to fit the battle you are engaged in. The question now is what the organisational impact of not just digital but a contracting physical market will be on publishers?

Rights obviously become even more important but the onus changes with resources need to be deployed to discover and deal with digital infringement, a growing importance of permissions and the obvious greater need to capture, manage and access all rights detail more efficiently.

Marketing and Sales faces change. It is less about filling shelves and spread betting and more about engaging directly with the consumer marketplace. A migration from mass to direct marketing even though the product may be physical or digital. The challenge is whether the sale moves direct or remains through third parties? If the physical market shrinks and consolidates then the need for field sales must also reduce. Perhaps we shall see even more collaboration between competitors to share field sales resource, perhaps we shall publishing outsourcing to call centres to up-sell direct basis. Whatever the mix it will be a mix and it will be interesting to see how not only the large but also the small publisher organises this to balance their digital and physical sales.

Marketing material also stats to change as the physical market declines and consolidates and at the risk of being pillared by the every standards people, maybe the bibliographic and metadata also changes with the remaining clients still requiring more detailed metadata whilst the digital discovery forces more of content itself with secondary promotional materials to be used to engage with the audience.

We could also think about the obvious impact on editorial and production , the author relationship and their royalties, front list, mid list and back list mix and market differences. However,  what is clear is that any significant rebalance of the mix between digital and physical markets is going to have an impact on all and we need to think just as much of what this will mean in the physical world as we do in the digital world.

Unfortunately we somehow doubt that there will be an explosion of publishing conferences on the mixed economy and managing the physical offer in a digital world ….   

Waterstones: Kissing Their Customers Goodbye

Today we read the opinions of many in the trade and business press on the surprise move by James Daunt to let Amazon in to Waterstones through the front door. It is interesting to note that many state the obvious and then pull back to cover the bases just in case it’s a move that may win. Many talk about the so called capitulation over digital and hand over of that business to Amazon. Many cover the usual hypocrisy of some statements made about Amazon before Daunt’s cathartic moment, when the lights came on and he became a believer.

Irrespective of all the noise, the one fact that one can’t get away from, is that Waterstones is not just handing over their digital futures in terms of sales but more importantly the very thing that drives them - their customers. It’s no surprise to be told that book readers like a mix of physical and digital and that they are often eclectic in their reading taste, but to build a strategy on retaining the physical business at the expense of the digital is at best questionable at worst naive. However, the real issue is about customers, today, tomorrow and for ever. 


Waterstones couldn’t tell you today who walked in their store, what they browsed, what the dithered on, what they bought and even if they had been in the store previously or bought at all in the past. Yes apart from their online business they are relatively clueless unless the customer has a loyalty card and uses it. Amazon will log,  what was bought, what wasn’t bought, what was bought with what, what was browsed, what pages were browsed and literally every aspect of the sale and every related salel. Reusing this information proactively is what the future is about and is what Waterstones is effectively handed over. They have consigned their business to mass marketing with a little direct marketing on the fringe – hardly a wise move or something any retailer should be even considering today. They may know who bought a Kindle and their first purchase but after then they may be kissing them goodbye. Is that giving the customer what they want or just naïve retailing strategy?

So the reality is that the deal is not just about digital, and online it about really knowing what your customers want and not what you think they want.

Waterstones Let The Fox Into The Chicken Hut

Today is a new dawn for UK Booksellling, as its premier retail chain Watersones, effectively handed over its digital if not its future to Amazon. We will read in the press how this is a logical move by Waterstones and is the dawn of a new ebook beginning under its new management, but some will now start to ask whether this is the end of the beginning, or in fact the beginning of the end? 

They first started their digital adventure with Sony. Sony themselves were bullish, gave Waterstone’s an exclusive window and spent heavy on advertising. It failed for many reasons; Sony didn’t have the content, the market wasn’t ready, the price wasn’t right, the stores couldn’t or didn’t want to sell digital, the eink devices by themselves were not the answer, etc. Waterstones then tried to accommodate all the eink ‘lookie likies’ and proceeded to badly merchandise the goods, failed to engage customers in store and as we previously wrote in our article ' Would You Buy an eBook Reader Off This Man?' , they made a hash of the opportunity. Now they have chosen to partner Amazon and their Kindle platform. 

We have to ask why they didn’t partner Barnes and Noble, not today but a couple of years ago, when a partnership could have been mutually beneficial. Imagine a situation today when you could have Microsoft, Barnes and Noble and Waterstones, all on the same team and remember Barnes and Noble and the Nook is virtually unknown outside of North America. Both Barnes and Noble and Waterstones could have kept their own customers and shared a Nook platform with a giant partner called Microsoft.

Imagine if they had chosen Kobo before everyone else did? Could they have done any better than WHS? They would have however chosen an international player and one with a heavy weight parent and importantly they could have probably retained their customers or at least limited the damage to digital.

What does Amazon have that Waterstones doesn’t have in the UK? A significant internet store that sells all books (used, rare,new), a growing publishing business, a self publishing business and growing affinity with authors, a customer mail list, demographics and data to die for, a viable audio book business in Audible, a successful internet book business in The Book Depository, an agreement with the major UK supermarket Tesco to sell Kindle,  a digital music offer, a digital on and off line film offer and now a High Street presence across 300 outlets and for what is probably ‘chump change’.

People have asked whether Amazon would open up physical stores, it doesn’t have to as long as stores such as Waterstones open their doors and let them in. Some would suggest that it is like letting the fox into the chicken hut and only time will tell what will happen. Maybe some will see it as a quiet reverse take-over without the exchange of shares and money. It will be interesting to watch how Waterstones shops now step up with renewed enthusiasm to sell themselves out of their digital future, give away their customers and even loose more physical sales. If Waterstones are unable to compete on price will the increased foot fall of folk coming in potentially once to buy a Kindle be enough to save all but a small number of their estate? 

Game Over!

As we watch another media High Street outlet chain stumble and fall we have to ask if there is a retail future for digital media on the High Street? This may sound a very stark viewpoint but digital has changed and challenged many brick and motor stores and there are far more losers than winners and the street is becoming littered with fatalities in music, video, books and games.

Does the public want to search in-store when it can search online and get instant gratification? Do the staff in-store really want to sell something that many perceive to be eating their lunch? We have seen some bad examples of retailing of ebooks and devices in-store, but perhaps the point we have missed is that online shopping is becoming social and brick and motor is often now the opposite an interesting could be seen as anti social. This may be hard to understand as we often go shopping with others, but we don’t go shopping with potentially everyone we know in our trusted communities.

Today video games specialist Game has officially entered administration and this is expected to result in heavy job losses and the closure of up to half the it's 609 UK stores. Last year it had sales of £1.6bn but many factors have caused the demise of Game. It has not been helped by a slow down in new games from major suppliers such as Electronic Arts and Nintendo. It has also had challenging cashflow and profit issues whilst it tried to clear high rents, wages, suppler and tax bills.

So as Waterstones readies itself to launch its ereader and step up to the digital challenge we would question how it will fair. Barnes and Noble have shown that digital can work if viewed as somewhat separated from stores. Indigo happily let KOBO plough its own furrow. However looking at the retail digital in-store offers in the likes of WHS makes us beg the question of whether clicks and motoer works in this new social world.

'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.

Kobo Unplugged

The one thing that you can say about Kobo is that they remain focused and determined to forge an international offer and pit themselves in the face of some formidable competitors. Their international strategy was eloquently conveyed by their evangelist and Vice president of content, sales and merchandising , Michael Tamblyn, speaking at the Digital Book World conference in New York. Michael said that when you start from Canada you have no option but to go International.

Michael’s presentation is good and well worth a listen and brings home some of the realities of managing a tight roll-out to many countries and the need to segment operations and stick to a template approach. They aim to establish themselves in 12 more countries this year, which may not sound that ‘gun ho’, but is a country a month and will get harder as they break out of the English speaking and ‘western’ markets.

However, international growth, which is heavily reliant on ‘partners’, can have its challenges. Last weekend we visited a large WHS store and saw first hand how a partner can let you down badly. Getting some retailers to treat it better than just an instore franchise is itself a challenge, but this was in what was a ‘hotch potch’ of a ‘pick and mix’ store that frankly made the old Woolworths look good and was hardly aligned to the messages Kobo needs to get across. Yesterday, Asda announced that they would be selling the Kobo touch reader for £87 which is just under the Amazon Kindle price of £89, which enjoys the Amazon brand and is backed by significant mainstream advertising campaign. Simply relying on spot buys, bin end POS and a comparable price isn’t exactly pushing the boat out. We have already seen how the old Waterstones was unable to retail ebook readers in store. Its one thing to have retail partners, its often another thing altogether to control their representation of your offer.

Michael presents some very interesting figures for Kobo sales of self published titles in various countries. Self publishing represents some 7% of US unit sales, this rises to 8% in Asia, 9% in South America, 10% in Australia, New Zealand and Europe and 14% in Africa. He explains some of the reasons behind the local variances but the percentages are somewhat higher that we expected and demonstrate that the opportunity that is potentially starting to blossom under the ebook umbrella.

Michael also shares some interesting insights on local and global pricing which demonstrate how many publishers still see physical and digital pricing locked together.

Kobo are now within the Japanese giant Ratuken, which will give them better backing and they know that they will need it as they race to get themselves established in many countries and across all the continents. This is about raising brand awareness and credibility just as much as it is about service. Whilst Barnes and Noble still today remain largely unknown outside of publishing and the US market, Kobo now has a better street profile in a growing number of countries. It will be interesting to see how the Kobo brand stands up to the potential Waterstones’ adpotion of B&N’s Nook and how they both compete with Amazon in the UK later this year.

To hear Michael's 15 minute presentation

Related posts
Kobo Steps up to go Global (Nov 2011)
Can Kobo Win at the Races? (oct 2011)
Kobo Has to Follow (June 2011)