Joe Wikert's Digital Content Strategies

Towards a better book recommendation service

The ideal content discovery service has yet to be invented. Plenty have tried but none have truly succeeded. The latest is venture is BookScout from Random House. It’s a nifty Facebook app that uses your social graph to help you discover relevant content. As Laura Hazard Owen recently discovered though, it’s far from perfect.

Reading Laura’s post reminded me of something a wise person told me last year: Just because I’m Facebook friends with you doesn’t mean we have the same reading interests. In fact, I’d be willing to bet my reading interests don’t map very well to any of my friends, real or virtual.

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Introducing the TOC Affiliate Program

We know you already say good things about TOC. Our community grows stronger every year, and we recognize we can’t take all the credit for that. So this year we’d like to share a little more than credit. Help us spread the word about the TOC NY conference on your site and we’ll pay you for each eligible registration you refer:

3-Day Pass – $100 per eligible registration
2-Day Pass – $100 per eligible registration
1-Day Pass – $50 per eligible registration

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Taking a page out of ESPN's playbook

If you missed this recent BusinessWeek article about ESPN you owe it to yourself to go back and read it. ESPN is so much more than just a sports network and their brilliant strategy offers plenty of lessons for publishers. Here's just one important indicator of their success: While the average network earns about 20 cents per subscriber each month ESPN is paid $5.13. That's more than 25 times the average!

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Why Advertising Could Become Amazon's Knockout Punch

It all started harmlessly enough with Amazon's Kindle with Special Offers. That's the cheaper Kindle that displays ads when the device is in sleep mode or at the bottom of the screen when paging through the owner's catalog of books. It is very unobtrusive and, since it lowered the price of the device, has made that Kindle an extremely popular device.

Now there are rumors that Amazon is selling ad space on the Kindle Fire's welcome screen. That sounds pretty reasonable too as it's a simple way for Amazon to drive a bit of additional income that's pure profit for them.

Given that Amazon's goal is to offer customers the lowest prices on everything, what's the next logical step? How about even lower prices on ebooks where Amazon starts making money on in-book ads? Think Google AdWords, built right into the book. Of course Amazon won't want to use Google's platform. They'll use their own so they keep 100% of the revenue.

The changes the DoJ is requiring for the agency model means a retailer can't sell ebooks at a loss but they can still sell them for no profit, or breakeven. IOW, the 30% the retailer would keep on an agency ebook sale can be passed along to the customer as a 30% discount on the list price, but that's as deep a discount as that retailer can offer.

The rules are different with the wholesale model. Amazon already loses money on sales of many wholesale model ebooks. Let's talk about a hypothetical wholesale model title with a digital list price of $25. Amazon is required to pay the publisher roughly half that price, or about $12.50 for every copy sold, but that ebook might be one of the many that are listed at $9.99 for the Kindle. So every time Amazon sells a copy they lose $2.51 ($12.50 minus $9.99). Amazon has deep enough pockets to continue doing this though, so they're quite comfortable losing money and building market share.

So what's preventing Amazon from taking an even bigger loss and selling that ebook for $4.99 or 99-cents instead? In the wholesale model world, the answer to that question is "nothing is preventing them from doing that." And if selling ebooks at a loss for $9.99 makes sense, especially when it comes to building market share, why doesn't it also make sense to sell them at $4.99, 99-cents or even zero for some period of time? It probably depends on how much pain Amazon wants to inflict on other retailers and how much attention they're willing to call to themselves for predatory pricing.

Make no mistake about the fact that Amazon would love to see ebook pricing approach zero. That's right. Zero. That might seem outlandish but isn't that exactly what they're doing with their Kindle Owner's Lending Library program? Now you can read ebooks for free as part of your Prime membership. The cost of Prime didn't go up, so they've essentially made the consumer price of those ebooks zero.

Why wouldn't they take the same approach with in-book advertising?

At some point in the not too distant future I believe we'll see ebooks on Amazon at fire sale prices. I'm not just talking about self-published titles or books nobody wants. I'll bet this happens with some bestsellers and midlist titles too. Amazon will make a big deal out of it and note how these cheaper prices are only available thru Amazon's in-book advertising program. Maybe they'll still offer the ad-free editions at the higher price, but you can bet they'll make the ad-subsidized editions irresistable.

Remember that they can only do this for books in the wholesale model. But quite a few publishers use the wholesale model, so the list opportunities are enormous. And as Amazon builds momentum with this they'll also build a very strong advertising platform. One that could conceivably compete with Google AdWords outside of ebooks too.

As long as Amazon still has to pay the full wholesale discount price publishers and authors won't suffer. Other ebook retailers will though. Imgaine B&N trying to compete if a large portion of Amazon's ebook list drops from $9.99 to $4.99 or less. Even with Microsoft's cash injection B&N simply doesn't have deep enough pockets to compete on losses like this, at least not for very long.

At the same time Amazon will likely tell publishers they only way they can compete is by significantly lowering their ebook list prices. They'll have the data to show how sales went up dramatically when consumer prices dropped to $4.99 or less. I wouldn't be surprised if Amazon would give preferential treatment to publishers who agree to lower their list prices (e.g., more promotions, better visibility, etc.)

By the time all that happens Amazon probably has more than 90% of the ebook market and a nice chunk of their ebook list that no longer has to be sold at a loss. And oh, let's not forget about the wonderful in-book advertising platform they'll have built buy then. That's an advertising revenue stream that Amazon would not have to share with publishers or authors, btw, and that might be the most important point of all.

What do you think? Why wouldn't Amazon follow this strategy, especially since it helps eliminate competitors, leads to market dominance and fixes the loss leader problem they currently have with many ebook sales?

TOC Podcasts: Now in iTunes

A month or so ago we decided it was time to extend TOC's reach with industry news, interviews, etc., in the form of video podcasts. I've already featured many of those segments here on the 2020 Publishing blog but now you'll be able to retrieve them in a more convenient manner.

Head over to iTunes and subscribe to the TOC podcast series using this link. Four of the first sessions are currently available via iTunes and more will follow shortly. Going forward we plan to create 1-2 new segments every week.

We're always on the lookout for new and interesting people, products and platforms to cover via this podcast series. If you know of any be sure to send them my way and I'll make sure the TOC team follows-up on them.

Adam Salomone on Atomized, Rich & Free Content

The Harvard Common Press is a highly respected publisher of a variety of cookbooks and parenting guides. In this TOC interview (viewable here or below) we hear from their Associate Publisher, Adam Salomone, as he provides insight on curating, pricing and distributing content at its most granular level. Recipes are all over the web and many of them are free for the taking. Adam explains how publishers can not only compete with "free" but leverage it as well. He also shares his thoughts on ad-supported content and whether it's appropriate in the book publishing world.

Zite CEO Mark Johnson on the CNN Acquisition and Zite's Future

Every couple of weeks it seems yet another iPad news reader is released in the App Store. Many of them leverage your connections in Facebook and Twitter but only one of them learns what you read and serves up more related content to match those interests. I'm talking about Zite, of course. It's been my favorite iPad app since the day I downloaded it. I've tried others but I keep coming back to Zite. This TOC podcast features an interview with Zite CEO Mark Johnson. He talks about the recent CNN acquisition, what makes Zite special and how the platform might eventually be extended into book-length content.

Porous Paywalls and Book Publishing

Felix Salmon recently wrote an article talking about how the New York Times paywall is working because it's porous. He contrasts that to other paywalled sites who haven't enjoyed the same success as the Times. As I read Salmon's article I was thinking less about pourus vs. rigid paywalls and more about DRM'd vs. DRM-free books.

There are definitely some similarities here. At O'Reilly we believe in a DRM-free world because we trust our customers and we believe they value our content enough to pay for it rather than steal it. It would be naive of us to think this philosophy totally eliminates the illegal sharing of content though. We just happen to believe those situations shouldn't cause you to penalize all your customers. Shoplifting happens from time to time at your local grocery store but that doesn't mean the store manager should put everything under lock and key.

But it was only when I read Fred Wilson's follow-up post to Salmon's article that I realized what other connection this has to book publishing: advertising, sponsorship and other revenue streams. As Fred points out, the Times doesn't necessarily have to charge for each online page view since they run ads on every page served.

I'm not suggesting we can suddenly give away book content and make the exact same amount of revenue with advertisements. But what I am saying is that advertising and its close cousin, sponsorship (e.g., "This book brought to you in part by..."), can and will play a role in the future of book publishing. Every publisher won't necessarily experiment with that model but many will.

24symbols is a great example of how this can work. 24symbols offer both freemium (free, ad-supported content accessible only while online) and premium (for-pay, without ads and can be read offline) models. The customer decides which option they prefer. That last point is critical. 24symbols isn't just serving up free content and hoping that alone will somehow create a successful business model. They're also offering an ad-free offline option that some number of users will upgrade to. They key is to make the premium service feature set compelling enough that customers want to pay for the it.

Will 24symbols be successful? It's too early to say (although I'm a huge fan of Justo Hidalgo and what he's doing with 24symbols; if you missed it, check out his presentation at our TOC SneakPeek from earlier this year). But I'm convinced the future will bring more advertising-based book publishing experiments, not fewer. And as I've said before, I can see a future where Amazon offers two versions of many (if not all) Kindle titles: an ad-free version with pricing similar to today's models and a second one with ads but at a lower price. Amazon has taken the first step with the hardware itself by offering the lower-priced "Kindle with Special Offers." As Jeff Bezos mentioned in the 7th paragraph of Amazon's most recent earnings announcement, "Kindle 3G with Special Offers has quickly become our bestselling Kindle."

Customers are already voting with their wallets and overwhelmingly choosing the advertising-subsidized version of the device itself. These results will undoubtedly encourage Amazon to start experimenting with ad-subsidized content as well.

Services like 24symbols and the Kindle platform are one thing, but the next logical step after that is for publishers to expose more of their content to the major search engines. How long will it be before some of the current New York Times bestsellers are fully and freely readable online with ads? If the stories are good enough and the premium alternative offers a significantly better reading experience (e.g., no ads, can be read offline, includes other features/services, etc.), some number of customers will upgrade, just like they're doing with Times subscriptions.

Ads in eBooks Are a Good Thing. Deal with It.

Amazon is introducing an advertising component to the Kindle platform.  I love it.  Kudos to Jeff Bezos & Co. for their forward thinking on this initiative.  I'm talking about the less expensive ($114) device currently known as "Kindle with Special Offers & Sponsored Screensavers."  (It's not the sexiest name but it certainly describes the product!  Still, I wonder what Apple would have named this...)

I've blogged before about how advertising and its close cousin, sponsorship, will take on a larger role in the ebook world and most people have criticized that logic.  They say "books aren't magazines", "the book reading experience needs to remain free of ads", blah, blah, blah.

Why?  What makes books so special?  More importantly, who's to say there can't be two flavors of a book?: One without ads (higher-priced, for purists) and one with ads (lower-priced, for everyone else)?

Before I get too far ahead of myself, I need to point out that what Amazon introduced with this new Kindle isn't what I'm describing.  They're not talking about including ads in books.  Yet.  At this point, all this new device offers is a slighly lower price ($25 less), periodic offers from Amazon (e.g., a discount on an Amazon Gift Card) and "sponsored" screensavers.

Wait a minute.  I recently bought a $139 Kindle without Special Offers & Sponsored Screensavers and now I feel gypped.  So I paid $25 more and I won't get any of these nice discounts Amazon plans to offer owners of the new Kindle?  That stinks.  I wonder if they'd let me opt in after the fact.  Seriously, this makes no sense.  They should let all Kindle owners opt into this program, not just the ones that paid less than the rest of us.

I know prices are always subject to change but I really wish Amazon would have initially priced this new device at $99 or less.  As soon as the Kindle gets below $100 they'll have a mass market hit on their hands.  I can't believe I'm saying that, particularly since I gave up on the Kindle a year ago.  Amazon has done some smart things since then though and this is just one example.

Don't think this new Kindle is the furthest Amazon plans to go with ebook advertising though.  They're playing it smart by taking one small step at a time.  There's no point rushing into this, but one day ads will be presented as splash screens when you open an ebook and even somewhere on the screen as you read.  It's OK.  The world isn't going to stop spinning on its axis when this happens.  We'll all be fine.  In fact, this model will put more content in front of more people than could have been reached without advertising.  That's a good thing.  And if you want to pay more to avoid ads I'm sure that option will exist (just like it does today, where you can pay $25 more for a "regular" Kindle.)

Here's where it all gets very intriguing: Will Amazon (and other retailers) compensate authors and publishers for this advertising/sponsorship income?  I'm not convinced they have to, but think about the revenue-sharing models this could present.  Amazon could ask for additional discount points from a publisher and offer that publisher a cut of the advertising/sponsorship income.  Interesting.

The Truth About Paid Models, by Matt Mitchell, Founder & CEO of MediaPass

The following is a guest blog post written by Matt Mitchell, Founder & CEO of MediaPass.  I love what he has to say about the importance of balancing free vs. paid content as well as making sure advertising is a component of the overall revenue picture:

The process of launching, running and attracting paid subscriptions isn't a competency that online publications generally have. This was one of our assumptions when we started MediaPass but we had no idea the extent to which it would prove correct. We also had no idea that some of the smartest publishers in the world would commit some of the most egregious subscription strategy offenses. So I've decided to point out a couple of the more basic mistakes being made and also discuss the way publishers should be thinking about paid subscriptions.

Please Tease Me!
One of the greatest myths about charging for online content is that a publication will lose traffic. This is not to say that declines in traffic aren't possible. There are actually many ways to lose visitors and the Times of London picked perhaps the best: they ignored the fact that users need to be drawn in by the actual content. Go to their site and click on one of their sections such as Business or Life. The site will immediately take you to a subscription wall before you even see if there's an article you’d like to read. I'm not kidding. Check it out. This is not a good conversation to have with your readers:

Times: "Please pay us."
Visitor: "Why?"
Times: "Because we're the Times."
Visitor: "What articles are behind your pay wall?"
Times: "Pay us and find out."

People generally buy a subscription because they are interested in a specific article. When you're at the airport shop deciding which magazine to buy, do you pick one because every article in the glossary is something that interests you? No, you pick a magazine that has one or two articles that grab your interest. You do this because you are guaranteed to like at least something in the suite of content you paid for – even if the rest of the magazine isn't so great.

"Switching" to a Paid Model
Whoever said that free and paid models had to be mutually exclusive? Publishers don't need to "switch" to a paid model. Subscription elements should simply be added to better monetize the website as a whole. The key for any publication is finding the optimal mix of free vs. paid content that is right for their site. And it's rarely 100% one or the other.

Why Remove Advertising?
Some sites are now offering a paid model where users won't be forced to see ads if they are a subscriber. There is no benefit – either financial or usage related – to doing this. The core reason why online ads don't monetize well is that people have evolved over the last 10 years to the point where their brain doesn't even see ads anymore. Unless the ad is incredibly intrusive, users don't mind it being on the page. By taking the ad-free route, publishers lose additional revenue and get little-to-nothing in return. Advertisers will also pay much more for subscribed users because they are more engaged. So, publications that do this are getting rid of ad real estate that has doubled in value.

Many publishers are surprised when we tell them not to abandon their advertising. We think of advertising as a "why not." Ad monetization is very low but every little bit helps. There are actually many good ad networks and other companies trying to improve the poor performance of advertising. We're glad they are continuing their efforts because we all have the same goal of improving publishers' revenue.

Ads to Oranges
Forgive me for the cheesy title, but initial subscription results can't be compared perfectly to advertising monetization. The reason is simply that subscription revenue builds on itself over time through renewals and ads don't. The WSJ.com had only a few thousand subscriptions when they launched a decade ago. They now have well over a million. Luckily for the WSJ and others starting to charge for content, subscription monetization is usually so much better that it beats the performance of ads even when handicapped in the first few months.

There is a lot of speculation and commentary on initial numbers of large sites like the Times. They've been making the mistake of giving their great content away for a long time now. Unfortunately for them, they don't get to simply press a button and immediately recapture all the money they lost. They have clearly made some subscription process mistakes but luckily they are all errors that can be fixed. They have at least made the right move this year by beginning to charge for content. Now it's time for them to refine their approach and grow their subscription base the way the WSJ has. And I think they will.

Matt Mitchell is Founder and CEO of MediaPass, a service which helps online publishers increase revenues through the use of customized subscription model.