Joe Wikert's DisruptorFest

The eContent Innovator’s Dilemma

As I think a bit more about yesterday’s post, I can’t help think about the points Clayton Christensen makes in his classic book, The Innovator’s Dilemma. Consider these take-away’s from the book, as presented by getAbstract:

Established companies do all the important things right, which sometimes makes these companies fail.

Disruptive innovations usually start by selling to new – or unprofitable – customers.

Established company employees often discover or invent disruptive innovations, but the firm’s most valuable customers typically have no interest in innovation.

The pioneering employees often quit to build new firms to market their innovation.

How true. No matter how many people say that “e-books are a solution looking for a problem,” I wholeheartedly believe we’ll see a demand for them once a viable platform emerges.

Scott Karp on the Profitability of Media 2.0

Scott has a wonderful blog called Publishing 2.0. If you appreciate my blog you’ll really like Scott’s. One of his more recent posts is entitled “What If Media 2.0 Is Less Profitable Than Media 1.0?” He talks about the reduced costs (and profitability) of advertising online vs. via traditional (mass) media. I suspect his short-term observations will hold true in the long term as well.

There are parallels between Scott’s points about advertising and the model in book publishing. For example, I believe that a successful e-book model would probably have to feature products that are lower-priced than their print equivalent. Some publishers are trying to play up the value of the intellectual property and say that the price should be the same for every format. Given that the manufacturing cost of a typical book is approximately 10% of the cover price (rough approximation, no nit-picking on this, please!), you could argue that the e-book price should be approximately 10% less than the print book’s price. (I’m oversimplifying this a bit, ignoring things like DRM costs and the benefit of no excess inventory write-off – to keep things simple, let’s assume these are all a wash.)

Is a 10% price differential on an e-book vs. a physical book significant enough to make the model work? I don’t think so, not as long as the e-book is nothing more than a digital image of the printed book, which is what we see today (e.g., a simple PDF of the physical book). Regardless of the author’s credentials or the unique value of the content, the world has grown accustomed to e-content being fairly inexpensive if not free. Plus, physical books have the benefits of portability (you can read them just about anywhere) and re-usability (after you’ve read it, you can give it to someone else) – these are two key attributes that cause physical books to have a higher perceived value than e-books.

Let’s next assume that the publisher has the ability to sell these e-books directly, cutting out the retailer middleman. This creates a significant savings since the average book in a store is selling for approximately twice the price the store paid for it. (The problem here is that the typical publisher simply doesn’t generate the website traffic levels to compete with Amazon, for example; they also don’t have the depth and breadth of product offerings that you can find on Amazon.)

Combining the 10% manufacturing cost savings and the 50% retailer savings results in a model where the e-book sells for 40% of the price of the printed book. So a $30 physical book has a $12 e-book equivalent, for example.

This sounds good and leaves publishers with roughly the same margins they’ve enjoyed up to now. The big assumption here is that publishers can truly establish a direct selling relationship with their customers. That’s a pretty big leap of faith, at least when considering how the model works today.

A better model is one that allows for a new middleman, one who specializes in e-book sales and doesn’t require the same margins as a physical bookseller. Perhaps they would need as much as 20% of the pie to make their business profitable. Now you’ve got a scenario where that $30 printed book has an $18 e-book equivalent, which is still a pretty good pricing spread…or is it?

Don’t forget that the $30 physical book probably sells for about 35% off on Amazon. Now we’re talking about a $19.50 physical book on Amazon vs. an $18 e-book. The prices just got too close again, unless the e-book reseller is willing to offer everyday discounts like Amazon.

One possible solution: The publisher has to live with a lower price so that the e-book is more of a bargain relative to the printed book. One way to avoid this outcome is for e-books to be something much richer than a simple PDF. The content would have to be reworked in a manner that takes advantage of the e-book device/platform. Links are embedded throughout to related topics elsewhere in the book. Video is integrated to provide a visual way of driving home a point. All this requires more effort by both the author and the editor/publisher, likely causing the publisher to still make less in the long run.

Old Media In Denial: Movie Theaters

Mark Cuban’s production company, HDNetFilms, is trying to reinvent the movie business. This isn’t exactly news, but I got a chuckle out of a recent Wired interview with Peter Brown, CEO of AMC Entertainment. Go ahead…click to the link and read the brief answers Mr. Brown gave Wired…I’ll wait.

OK, now that you’ve read it, did you laugh too? My favorite quote was in response to Wired’s question, “Why deny theatergoers the chance to see Bubble?”:

We want to put up on the large screen a product made with that format in mind. Bubble, and some of these other direct-to-video titles, are simply not. We want to serve steak, not hamburger.

Oh please! This statement is still remarkable even after you scrape off all the excessive arrogance. How do these guys measure quality anyway? I’d take a great story with less than optimal video quality over a weak story with amazing video every single time. I wonder if Mr. Brown has spent any time watching some of the truly lousy movies that find their way into theaters every single month. I know I have and that’s why I go to the theater less and less each year.

No, this isn’t about video quality. This is all about Cuban’s desire to change the playing field, disrupting the model that’s made the theater owners fat and happy. Cuban’s model makes a ton of sense. Why can’t a movie be available in any and all formats from day one?

Good luck Mark – I hope you hang in there and turn the industry on its ear!

getAbstract: A Book Summary Service that Really Works

Their tagline is “compressed knowledge”. I once tried a competing book summary subscription program and was highly disappointed, so I approached getAbstract as a full-fledged skeptic. I’ve now read 6 of their summaries and I was wrong. This is a great service and a real time-saver.

I firmly believe that most of the good information you find in the typical business book can be boiled down to 4 or 5 pages. That’s the model for getAbstract. They carefully read each book, taking note of the key points and condense it down to three headings: Take-Aways, Relevance (What You Will Learn/Recommendation) and the Abstract itself, all in 5 pages.

To convince myself that I’m not missing anything in a summary, I started off with a couple of books I already read from cover to cover. Sure, there were a few memorable stories or bits of background information from the book that didn’t make it into the summary, but overall I truly felt the summary covered all the critical highlights.

On a long flight to the west coast yesterday I wound up reading the Clayton Christensen trilogy:

The Innovator’s Dilemma

The Innovator’s Solution

Seeing What’s Next

I had already read the first one but the summary was a good refresher before I moved on the other two. I’m a slow reader, and even more so with these summaries because I want to make sure I spend some time thinking about each of the take-aways, etc. Despite taking my time, I managed to get through all 3 in about an hour (total). Although I was seriously considering buying a copy of Seeing What’s Next, I’m glad I didn’t – the summary showed that it’s mostly a rehash of the first two books.

getAbstract’s summaries are available on a wide range of topics and in many formats including PDF, PocketPC and Palm. Quite a few are also available in audio format, enabling you to “read” a book on your drive home from work. The subscriptions aren’t cheap ($299/year for an unlimited Gold subscription and $89/year for a 30-summary Silver subscription), but you’ll probably find the timesavings more than makes up for the subscription price.

The Economist on New Media

Here’s a good article from the Economist that talks about various types of media and where things are heading. Some notable excerpts:

In the new-media era, audiences will occasionally be large, but often small, and usually tiny.

“We are entering an age of cultural richness and abundant choice that we've never seen before in history. Peer production is the most powerful industrial force of our time,” says Chris Anderson, editor of Wired magazine.

“Self-publishing by someone of average talent is not very interesting,” he says. “Talent is the new limited resource.”

The last quote above is from Barry Diller, the head of IAC/InterActiveCorp. Later in the article Diller is referred to as an “ignoramus” by Jerry Michalski, a consultant who also has a blog called Sociate. (Speaking of which, I see Diller just lost the head of his search business – Steve Berkowitz, a fellow I ultimately worked for a few years ago, just left Ask.com and is heading to Microsoft.)

My challenge has been and continues to be separating the good from the bad. There are way too many blogs to sample and it’s impossible to know if you’re really capturing feeds from all the best. Then, if you go too far and only read those with the highest rankings, are you becoming overly narrow and missing out on interesting, new and obscure viewpoints?

Much like hiring a new employee, I find references to be one of the most valuable resources for new content. I keep a close eye on all the feeds coming in through my Bloglines subscriptions. If one of them lists a couple of new blogs as their favorite or just something new that caught their eye, I take a look as well. I’d say that 90% of the new feeds I add to my Bloglines subscriptions are found this way; the other 10% are more random.

Rather than relying exclusively on computer rankings or the occasional reference from a trusted source, does it seem like there’s an opportunity for someone to create a better blog directory, built around the recommendations of experts who read all the posts/comments every single day? They wouldn’t just be aggregating the content…they would also comment on it, provide references to other related commentary, etc.

I know there have been some attempts at this, but they seem to have produced modest results. I’m talking about something as significant as USAToday, for example, having an entire section (online only, of course) dedicated to blogs, updated real-time, applying their editorial expertise to present and summarize the most interesting blogs (and posts) for all the major topic areas. If you trust USAToday for your news, and a lot of people obviously do, why wouldn’t you trust them for your blog news, feeds, etc.?

USAToday is just one example. Virtually any/all major news sources could be substituted for them in this scenario.  (Steve Berkowitz, maybe you should think about this in your new MSN world...) Currently the major news sources seem to treat blogs like a sidebar item, something that’s here today and likely to disappear tomorrow, so why invest much? I’d like to see one of them step up and implement something like this – it’s a real opportunity to take a leadership position and help them look a lot less like “old media”.