Joe Wikert's DisruptorFest

How digital can be a companion for print

Congratulations, print publishers. You dealt with enormous disruption these past several years and you managed to avoid the same fate as your music industry counterparts. For example, most book publishers still generate 70-80% of their revenue from print. How many music labels can say they generate anywhere near that percentage from CDs?

Is the survival of print a good thing or a bad thing? Rather than worrying about that one, here’s the question we really need to think about: Why do we treat these two formats as mutually exclusive?

Depending on what they’re doing, why do consumers tend to use either print or digital but almost never use print and digital for the same product?

I’ll use myself as an example... Believe it or not, my wife and I still subscribe to our local print newspaper, the Indianapolis Star. Our subscription plan includes a digital version as well as print. When I’m at home I always read print and never bother opening the digital edition; when I’m on the road, of course, I’m limited to a digital-only experience.

Why do I never bother opening the digital edition when I’m home? Because it’s just a digital replica of the print edition I read over breakfast. OK, there might be a few extra bells and whistles in the digital edition but they’re not significant enough to get me to open the app after I’ve read the print edition.

The same is true for books and magazines. Digital simply replaces print, so there’s no reason to use both formats for any given title.

I think it’s time to reimagine digital as a companion to print, not simply a replacement for it.

Today’s digital editions are nothing more than print-under-glass. They’re digital replicas of the print product. As a result, we tend to buy one format or the other, but rarely both.

I used to publish technology books for IT professionals. Many of those books on programming languages and productivity tools had companion websites. The websites offered additional content, sample files and other goodies that didn’t come with the book. These sites also represented a way for the publisher to dynamically extend the original content with additional elements and coverage, some of which might not have been available when the book was originally published.

I’d love to see the industry evolve to the point where each print product has a digital companion, not just a print replacement. The digital companion would extend and enhance the print experience and would be an optional add-on to the print product. Some of these digital companions could be free but the more valuable ones could have a price.

Btw, publishers could offer these companions exclusively on their websites, converting print customers who bought from Amazon and elsewhere into direct customers. Promote them in the print product and bring those customers to your website where you can build a direct relationship, up-sell, cross-sell, etc.

A couple of weeks ago I wrote an article called Why Johnny doesn’t like e-textbooks. Maybe Johnny doesn’t want the print-under-glass digital edition of the textbook, but I’ll bet he’d be interested in a digital companion for the print textbook featuring notes from other students, cheat sheets for test prep, sample quizzes, slide decks from class lectures and better explanations of key topics from other students and teachers.

Textbooks aren’t the only products that could be further monetized with digital companions. Just about any type of content lends itself to digital extension and enhancement. We just need publishers and authors to start thinking of digital as a companion for print, not simply a replacement.

Finding the optimal streaming content value proposition

Have you paid much attention to the various pricing options used in the streaming content space? A recent article on re/code talks about the challenges the music industry faces as it wrestles with free, ad-subsidized streaming services. In short, the article says free is bad and paid is good. I’d add that’s true for everyone but the consumer, of course.

The problem isn’t perhaps so much about making free go away but rather making the paid options much more compelling.

For example, I’m a big fan of Spotify. At first I just used the free, ad-based version and created a bunch of playlists. The ads didn’t seem too intrusive but when I saw the opportunity to try a three-month, 99-cent trial of the paid version I couldn’t resist. For less than a dollar I could eliminate the ads and download as much music as I want to each of my devices.

I use Spotify much more frequently now but the three-month trial is about to end. Am I so hooked on the Spotify Premium that I’m ready to fork over $9.99 per month going forward?

No way.

Even though $9.99 sounds like a bargain that’s still about $120 per year, much more than I’m willing to spend for the service. Spotify would have better luck converting a freeloader like me if they offered something in between. For example, I’d sign up for $2.99/month for an ad-free version with no download capability. And I’d consider signing up for $4.99/month for downloads and no ads. They’ll probably never see another nickel from me as long as the options are limited to free and $9.99 though.

Spotify’s problem is the free version is just too darned good, at least for me.

This challenge isn’t limited to the music world though. My wife and I share a Premium subscription to Next Issue, the all-you-can-read digital magazine service. We pay $14.99/month for unlimited access to more than 140 magazines. At first it seemed like a great deal but I’m opening the app less frequently every month and $180/year is starting to feel quite expensive. The other challenge here is that with the right combination of bookmarks, alerts, newsletter subscriptions and RSS feeds, it’s possible to gain free access to most of the content I’m paying for via Next Issue. As a result, our Next Issue subscription is likely to end soon.

Let’s compare that to Oyster, the all-you-can-read ebook service. Once again, my wife and I share a $9.95 subscription and we couldn’t be happier. I’d probably be willing to pay even more than that and I figure the price will go up before too long because Oyster’s business model isn’t sustainable at $9.95/month. But there’s no legal free alternative to this ebook content, so Oyster has much more leverage than Next Issue when it comes to the threat of “free” cannibalizing “paid.”

If you’re thinking of jumping into the streaming content marketplace, be sure to study the results of comparable existing products and make sure your free option isn’t so good that most consumers will never consider upgrading.

What’s the biggest obstacle facing Oyster, Next Issue, Spotify, et al?

I used to buy ebooks from Amazon but now I read almost exclusively on Oyster Books. Years ago I subscribed to a bunch of magazines and now I read all but one of them through Next Issue (The Week is the only exception). It wasn’t that long ago that I bought CDs and music tracks but now I’m mostly streaming through Spotify.

Since I’ve wholeheartedly embraced the content rental model, what’s preventing me from dumping Oyster for Scribd, Next Issue for Zinio or Spotify for Rdio?

The answer is “almost nothing.” All of these rental services face the enormous challenge of building customer loyalty. Since I don’t own the content and I’m on a month-to-month agreement with them, I can easily leave at any time. And when I switch, I leave almost nothing behind.

Contrast that with the likes of Amazon, where they focus on walled gardens and making it hard to leave. If you’ve built a large Kindle ebook library you probably don’t want to abandon it for another retailer and another reading app, particularly since you can’t bring your old books with you.

You might figure this is no big deal as customers who leave for a similar service will be offset by ones who go the other direction and switch from the competition. As with pretty much any business today though, it’s generally far more profitable to maintain an existing customer than it is to acquire a new one.

So how will these rental services deal with this? The most obvious answer is to expand their catalogs. But they’re all doing that and we’ll eventually reach a point of equilibrium where catalogs are almost identical between the services. Publisher exclusives could impact this, of course, but I’d like to think publishers learned their lessons from walled gardens and won’t make a similar mistake with exclusive distribution deals.

Another way rental services can distinguish themselves is to create more unique features in their apps. The competition will likely copy those features though, so any gains here will be short-lived.

Lower pricing isn’t an option either as that can be quickly copied and is nothing more than a dangerous race to the bottom.

How will this all play out? As much as I hate to admit it, I think all of this only further strengthens Amazon’s position. Amazon specializes in customer loyalty. That’s why so many of us first look to Amazon when buying almost everything these days. They’re also terrific at linking services together. Look at how Amazon Prime has evolved from free two-day shipping to now include Prime Photos, Prime Music and the Kindle Owners’ Lending Library. Critics will argue that none of these add-ons are as good as what consumers can find through other competitors; the difference is Amazon offers them for free, as part of Prime, and you can bet these add-ons will continue to improve over time. Lastly, when it comes to low prices and losing money, well, Amazon is the king.

The lesson here is that while consumers will continue flocking to the rental model, the lack of customer loyalty means the leaders today may not even be relevant tomorrow.

A business model I’m sorry we’ll never see

We’re all intimately familiar with the cell phone business model. Buy the phone today at a reduced price that’s subsidized by what’s typically a two-year commitment with that carrier. Other options have emerged in the cell phone arena but this low-price-plus-lock-in model remains extremely popular.

There was a time when I thought we’d see the same model applied to e-readers and tablets. I wasn’t the only one speculating that eventually the Kindle’s price would go to zero for consumers willing to commit to purchasing some minimum level of content over a period of time. One example is this sort of offer: “Get a free Kindle when you agree to purchase at least 15 ebooks over the next two years.” The same model can work with any digital content, of course, not just ebooks. So newspapers, magazines and music could have been used to attract consumers.

That never happened and I’m not optimistic it ever will now. Why? Because Amazon doesn’t need this option to grow their business. Amazon is now so powerful it not only influences but also determines the business models for everyone in the ecosystem including publishers and other retailers.

A few years ago it would have made sense for another retailer to try and gain some momentum with a free device that’s subsidized by a content purchase commitment. Fence-sitting consumers might have been more inclined to acquire a free e-reader or tablet even if it meant committing to future content purchases. The ebook retailer market share numbers we see today might be somewhat different if someone not named Amazon would have tested this model a few years ago.

So why is it too late for another retailer to give it a shot? First of all, it would now come across as a Hail Mary, a futile, last-ditch effort to remain relevant.

Second, I don’t think consumers would respond as well as they might have before Amazon added so many elements to Prime membership. Prime not only means free two-day shipping these days. It’s also an alternative to Netflix and Spotify, for example. And even though Amazon’s video and music catalogs aren’t as broad as Netflix or Spotify, most consumers perceive those services as throw-ins to the free two-day shipping that’s still the heart of Prime.

Third, and perhaps more importantly, I think other retailers now know that any model they offer will quickly be copied and likely squashed by Amazon. That may have always been the case but it feels like there’s no less room for retailers to innovate and compete than ever before. Besides, Amazon is (and should be) more focused on making Prime as broad and irresistible as possible and less interested in the more limited goal of free devices to secure future content purchase commitments. Even though Amazon started with books they’re now making more money from people like me because I’m ordering so many other things. They don’t want to be the next Barnes & Noble when they’re on their way to becoming the next Walmart instead.

Why econtent prices will erode even further

If you think econtent prices are too low today, well, in the immortal words of Bachman Turner Overdrive, you ain’t seen nothing yet. In fact, “nothing” is precisely where more and more econtent prices are heading. Here are a few reasons why:

eInk dies while tablets reign – It’s no secret that sales of dedicated e-reading devices, mostly featuring the eInk display technology, are fading. eInk was terrific in the pre-tablet days, particularly since it was so lightweight, you could go weeks between charges and the price was right. More consumers are opting for multi-function tablets these days though and that means publishers are no longer simply competing with each other; on a tablet you’re also competing with games and other addictive time-wasting apps. As publishers struggle to maintain relevance and eyeballs many will undoubtedly become desperate and experiment with lower and lower prices.

More and better free content competition every year – Look around and consider all the terrific free content options out there. Whether it’s long-form like Wattpad or breaking news like countless websites, every year consumers seem to have less and less reason to open their wallets for econtent. Today you have more free options than you did a year ago and a year from now that number will only go up further. 

New, lower pricing models driven largely by startups – Even if your competitor’s content isn’t free it’s still often much lower-priced than traditional publishers are comfortable with. Startups don’t have all the infrastructure and fixed costs of a traditional publisher so it’s easy for them to experiment with lower pricing models. Look at what Oyster and Scribd are doing in the ebook marketplace. These two startups are bringing the music subscription model into book publishing Consumers (like me) love it because they’re spending far less and able to read so much more for one low monthly price.

Digital first, print never – Most traditional publishers are still operating with a print first mentality. They view e-version sales as incremental, a way to drive a bit more ROI for their print product. The market is already starting to favor digital first publishers though and that trend isn’t going to change. Digital first publishers tend to be younger, more aggressive organizations, ones that are looking for volume, not necessarily top-line revenue or even profitability (in the short term).

Kids and free – As this recent survey notes, the younger generation thinks your content should be free. Content sharing is their way of life. Good luck changing their thinking as they gradually become a larger part of your target audience.

Are you discouraged yet? Don’t be. There are plenty of ways to combat this trend and even turn it to your advantage. Stay tuned…that’s the topic of next week’s article.