2013-10-17

Co.Labs

Can E-Books Save The Neighborhood Bookstore?

A startup called Zola Books has paired with the popular novelist Audrey Niffenegger, author of The Time Traveler’s Wife, to try to save brick-and-mortar shops.



While no one in the publishing world wants to halt the march of digital distribution, many would like to ensure the neighborhood bookstore doesn’t go the way of the record store. That’s why there are a growing number of people in the industry who are looking to disrupt the disruptors and show Apple, Amazon, and Google how to do digital publishing right--by embracing the new while keeping the best of the old. One of those people is Audrey Niffenegger, author of The Time Traveler’s Wife--one of the most popular debut novels of the last decade. She’s recently become involved with, and invested in, a new digital publishing startup called Zola Books--an e-bookstore that, among other things, aims to help physical bookstores thrive in a digital age.

The New Dividing Line

The Frankfurt Book Fair, the largest trade show of its kind, ended its run this year on Sunday. Though, like always, the fair was dominated with deals being made for new novels, selling foreign rights for existing books, and a continuing discussion on e-books versus paper books, this year’s fair also saw a new level of wariness growing for the encroachment of the big three tech companies--Apple, Amazon, and Google--into a world many feel they care little about. As the fair’s director Juergen Boos told industry insiders and members of the press, “The dividing line is no longer between old and new, print and e-books, analog and digital. Instead it runs between those who have a passion for content and who want to provide access to it, and those who don’t really care what they’re selling.”

A Cycle Of Passion-Fueled Profit

Boos’s “passion for content” comment was a reference to not only the authors and publishers but, primarily, the traditional book reseller: the bookstore. In the past the bookstore was a tender distribution point curated by those that really cared about the written word. To open and run a bookstore, after all, took time and money--and it never made many people rich. Selling books was a work based on passion. And that passion, in turn, helped readers discover new writers, which helped new authors make a living, which allowed publishers to continue to commission more books by more authors. It was a cycle of passion-fueled profit.

It was also a profit that could be measured in more than dollar signs and extended way beyond the authors, publishers, and booksellers. That’s because the bookstore itself was often a focal point in the community where people could go to not only buy books but, through talks and events, meet other readers and authors and explore and exchange new ideas. Indeed, in many cities it was the neighborhood bookstore that acted as the rock that other businesses, such as cafes and coffee houses, sprang up around--giving the local community its “vibe.”

But as the tidal wave of digital publishing progresses many in the industry increasingly bemoan that all that is built around the traditional bookstore is slowly fading away. They say that Apple, Amazon, and Google are only interested in books as a means to sell more of their own hardware, caring little about the material nor the community of readers, writers, and neighborhood bookstores they are disrupting.

To the tech giants, many argue, a book is no different than an app like Plants vs. Zombies: It’s just more arbitrary data to push people to buy each company’s impersonal hardware. And as more bookstores close and Amazon’s grip on digital distribution tightens, the rhetoric of the “battle between print and digital” only grows more heated.

But need there be a battle at all?

The False Fight

“It's a false dichotomy to put e-book and paper book against each other,” Ms. Niffenegger says when I meet her at her London flat and tell her that it surprises me that she, out of all people, is supporting and investing in a new e-bookstore initiative.

I think that not only because, until now, Ms. Niffenegger has avoided releasing The Time Traveler’s Wife as an e-book--despite the physical version selling 7 million copies worldwide--but also because I know she is a trained book conservator, is an expert in the art of paper bookmaking, and is also a teacher at the Center for Book and Paper Arts at Columbia College in Chicago.

“I think it's really important that people stop and don't get all hostile about it,” she says when I mention some of the feelings in the book industry about traditional versus digital. “It's ridiculous that there even are sides. There should be the book community looking at all the things available to it and making choices about what each person wants.”

Niffenegger says that, despite what some assumed, the reason she never released The Time Traveler’s Wife on Kindle or iBooks wasn’t in protest against the book industry’s transition to digital, it was simply out of patience.

“I'm always a late adopter of things, you know, I never have an early version of anything,” she explains. So instead of jumping in to e-books, Niffenegger and her agent, Joe Regal, thought thought they’d wait and see how the technology took shape. But what occurred in the years since 2003, when her first book was published, wasn’t something either of them liked. Instead of using e-books to build upon the communal aspects of reading and distribution, tech giants like Apple and Amazon appeared to be using them solely to move hardware--and their bottom line.

“There was a kind of bare knuckles capitalism going on and it was all about market share,” Niffenegger explains. “Then came the Department of Justice lawsuit against Apple and the publishers and the whole time Joe and I are just sitting there and going, ‘Whoa, look at that.’”

The Amazon Problem

The events that culminated in the DOJ’s e-book price fixing lawsuit against Apple were ultimately born from a publishing industry trying to find a way out of “the Amazon problem.” The Amazon Problem was the term the industry gave to Amazon’s loss-leading approach of selling e-books for $9.99. Although at that price Amazon was losing $3-4 on each e-book sold, it was more than making up for that loss by selling its own hardware--the Kindle.

As a result of The Amazon Problem, cheap e-book prices were cutting into the sales of more expensive hardback copies, hurting the physical book resellers’ bottom line. This led the publishers to worry that Amazon’s e-book prices could ultimately force physical bookstores to close up shop--leaving the publishers’ primary reseller only Amazon, which could further cheapen the value of a book by setting lower prices, all in an effort to sell more of its hardware.

That’s why when Apple came out with the iPad and its iBookstore the publishers were more than happy to enter into an agency model agreement with Apple, which saw higher-priced e-books across the board--first on the iBookstore and then, through renegotiations between the publishers and Amazon, on the Kindle store as well. While the agency model isn’t itself illegal (Apple uses it in its App Store, for example), a few clauses in the contract between Apple and the publishers caught the DOJ’s eye, which then sued Apple and the publishers for price fixing. While the publishers settled, Apple went to court and ultimately lost (they’re now planning to appeal).

The court battle was a result of a publishing industry in the throes of trying to adapt and survive in a digital world, while those that sell the hardware enabling that digital world clearly care more about the outcome of their device sales than books. But while many just shrugged their shoulders over the legal chaos between the two tech giants’ involvement in, and their effect on, the publishing industry, Joe Regal confided to Niffenegger that he and Sothebys.com digital manager Michael Strong thought it would be a good idea to start an e-book platform that would do digital books in a way that was more community minded; a way that was not only about improving the experience that a reader might have with the e-book, but also about improving the relationship among the various parts of the community--including publishers, readers, and bookstores.

“There was this feeling that a reader was being asked to commit to a particular device and thereby only be able to buy books here, or only be able able to buy in there,” Niffenegger says of the lock-in problem buying books on the Kindle and iPad presented. “So Joe and Michael were just both thinking, ‘Let's make good e-books that are available for all devices and then the readers don't have to choose, it doesn't matter what they’ve already bought. We'll have good relationships with the publishers. We'll be the Ben and Jerry's of e-books. We'll be ethical and we'll play nice and we'll be good. We'll try to be a force for good.’”

And that’s how Zola Books was born.

Your Community E-bookstore

From outward appearances Zola Books looks like your standard e-book app and webstore. Users can create a free account and then buy e-books via Zola on the web or directly in the Zola app. However, that’s where the similarities to Amazon’s and Apple’s e-bookstores end.

That’s because Zola isn’t built around selling hardware--or even locking readers into one platform. If you buy a book from Zola, you can download a copy (actually, multiple copies) in any format you want: Kindle, Nook, or ePub for iPad and other e-readers. This gives readers the flexibility to take their books from one device to the next--something Amazon and Apple would never dream of letting you do.

Zola isn’t just about liberating the e-book from hardware lock-in, however. Through Zola’s native Kindle Fire, Nook, iPad, and HTML5 apps the company hopes to make e-books more social. Zola relies on the human touch, hosting curated lists from publishers, authors, critics, bookstores, and readers to help with discoverability--something Amazon and Apple solely rely on algorithms for. It also allows users to follow their friends, authors, and publishers to see what’s new in the publishing world. The site will even host Q&A’s with authors so readers can interact with them.

If all of the above--books free of hardware, author talks, sharing thoughts about what you’re reading--sound like a familiar feature set, that’s because you could find all of that in a traditional bookstore. And though Zola hopes to be a good alternative to the forces of Apple and Amazon in the book world, it doesn’t want to see physical bookstores go anywhere either.

“Early on when we were thinking about Zola we thought, “Okay, if we're successful then does that mean we're hurting bookshops?’” Niffenegger explains, “That’s something we very much did not want to do.”

So what Zola came up with is a way to allow bookstores to make money from e-book sales. Called the IndiePledge, a bookstore can create a virtual storefront on Zola’s website. Bookstore owners can then give their Zola storefront URL to in-store customers who say they’d like an e-book copy of a book they are shopping for. Readers can then choose to buy their e-books through that bookstore’s Zola portal, enabling that bookstore to get a cut of every e-book sold. Readers can also set up a pledge account, so even if they buy a book through Zola, but not their favorite bookstore’s Zola storefront, that bookstore will still get a cut of every Zola e-book that customer purchases.

For Christine Onorati, owner of WORD Bookstores in New York and New Jersey, Zola is a welcome solution from the tech world. “I like the fact that Zola is ahead of the curve,” she tells me. “What we've found is that most of our customers are reading in multiple ways: in print, on their phones or tablets, on dedicated devices. Very few customers tell us they are reading 100% exclusively digitally. The more options people have to find their next book and support an indie bookseller at the same time is a win-win for me.”

It’s a win-win for readers too.

If you’re a fan of Audrey Niffenegger’s The Time Traveler’s Wife be sure to check out the first e-book version of it on Zola. With it you’ll get a 25-page sneak peek at the sequel and find out what happened to Henry and Clare's time-traveling daughter, Alba.

[Image: Flickr user Jean-Etienne Minh-Duy Poirrier]






Add New Comment

7 Comments

  • Mirjam Buettner

    If Random House gets 15 dollars for an ebook of which the costs we're covered after a small percentage of the books were sold, isn't the problem that publishers receive too much? Ebooks that are sold that often could be much cheaper. What work and material cost did they put it that needs 15 mln?

  • Brian D. Meeks

    "The Amazon Problem was the term the industry gave to Amazon’s
    loss-leading approach of selling e-books for $9.99. Although at that
    price Amazon was losing $3-4 on each e-book sold, it was more than
    making up for that loss by selling its own hardware--the Kindle."

    This is an argument created using ABC (Activity Based Cost accounting). The problem is, ABC is outdated because, while it creates pretty numbers, they aren't based in reality. The premise is that by allocating costs (Labor, Rent, and other Overhead), one gets a "cost" for a product. The flaw is that one doesn't buy the labor, building/office, ect by the piece.

    The hundreds of thousands of Kindle books rest on a bunch of servers (servers are cheap) along with all their other products. The product itself, unlike a paper book, has zero raw material costs.

    In the world of throughput accounting, which strives to give management data that will help them improve how much money they have in the bank (as opposed to a cost-accounting "on paper").

    Amazon does NOT lose 3 - 4.00 per ebook. It a pure profit machine and when they sell a hundred thousand ebooks in a day it is nothing but a big pile of cash. (Note: The electricity it costs to run those servers IS a totally variable cost, albeit a minor one, but it is passed on to the authors who pay a "delivery fee" of a few cents per book)

    Is it possible that they are selling the Kindles at a loss? Yes. It would make sense to do so. It is much like the age old Gillette razor marketing plan that is studied in every freshman marketing class in the world. Sell the razors at a loss and make a massive markup on the blades. It is the same with computer printers. Sell the printers at a loss and make a fortune on the ink.

    The point is, without me going into 50-100 pages of explanation of Throughput Accounting (And don't think I can't), they make $3.00 per $9.99 book sold. And they sell a bunch.

    I understand the book industry wanting to put forward the "Evil" Amazon image, because they are taking a beating. If the Big 5 want to be profitable, move to Des Moines. The rent alone would likely be enough. Or better yet, send your editors home, don't have an office, use email, which is what EVERY self-published author does who hires editors and cover designers. Offices are pure vanity.

  • Jeff 'SKI' Kinsey

    As Brian so thoroughly explained, cost world "mentality" is to blame for the misconception about Amazon losing money on each book. They make a lot more money on an e-book than the paper version. A significant amount more. Two years ago I tried to fix the Kindle Cloud Reader on the BlackBerry PlayBook, one of the most amazing platforms [but one for which very little software exists] when the v2.0 operating system upgrade broke the process, and I actually talked with an assistant to Bezos in the Kindle book division. She assured me they wanted to help fix the problem. When I asked about the PlayBook competing with the Kindle hardware, she was quick to point out her role was to move books via the Kindle format regardless which device was used.

    This post is an interesting read, and most of us love our local indie book stores, but a number of the pieces of logic used to describe the conflict [besides the "loss leader" issue] are flawed.

    I wish Zola all the best. It is one more tool to help, but the true constraint was not addressed. And by the way, Apple will be vindicated. They did not collude in price fixing. I alone set the prices for my works and in some cases, no price for some of them. As Brian points out I would never consider using cost accounting to determine the price [or lack of price] for my efforts.

  • Joe Regal

    I appreciate where Brian and Jeff are coming from, but actually, in cold hard numbers, Amazon was losing money on eBooks. The terms set by publishers were to give the retailer a wholesale price - typically something like 50% off the cover price (suggested retail price) - which the retailer had to pay no matter what they charged the customer. To use one example, Amazon charged customers something like $8.99 for GIRL WITH THE DRAGON TATTOO, but had to pay Random House about $14. While they were offering the eBook at that price, they were losing $5 per sale.

    This has nothing to do with the method of accounting; in raw numbers, they lost money on every copy of DRAGON TATTOO sold. Since Amazon announced the author as a member of its 1,000,000 copies sold club, that means it may have lost as much as $5,000,000 simply from discounts on eBook sales of that one author.

    One can argue whether publishers were setting fair prices ($28 for an eBook? Come on.). But whether Amazon was losing money selling those eBooks under cost is not debatable.

    As for Zola Books's prices, please feel free to come check them out! On newly published bestsellers, which Amazon continues to sell at a loss, we can't compete, but on the huge range of backlist titles, we are usually pretty close. And yes, indie booksellers can benefit from our competitive prices in real terms -- just not if we decided to sell books at a loss to compete with Amazon's long term (and ultimately destructive) strategy.

    Joe Regal
    Co-founder, CEO
    Zola Books

  • Jeff 'SKI' Kinsey

    As a former CFO may I suggest that accounting, even given all the rules and policies and mandates, is more of an art than a science? {grin} I really doubt Amazon lost money on "Dragon Tattoo". However, they are publicly traded so if it were important, one could get close to the truth. As Brian and I will tell anyone, pricing is about perception or value "in the eyes of the beholder" and best not left strictly to bean counters. I find Zola of interest and will investigate further. Regardless any differences of opinion on cost accounting. Joe, did you happen to read "The Art of Profitability"? Great story on transforming local bookstores in one of the profit models. A game of inches can reward beyond all "common sense".

  • Joe Regal

    Jeff - Whether they ultimately make money because they acquired a customer who bought other books or other products after buying those books, there is no creative accounting that changes the facts of the basic transaction: having a contractual obligation to pay publishers about 50% of the list price on each ebook sold, Amazon could not have made money on books they sold significantly under 50% of list price. If the list price is $30, and Amazon contractually has to pay $15 to the publisher, and Amazon charges $9, they lose $6 (not including credit card processing fees of probably 30 cents).

    I am sure there are interesting nuances of accounting that can make these transactions profitable - aggregating revenue from the session in which the ebook was purchased, allocation of "co-op" money spent by the publisher, placing all revenue from sales of ebooks in a pool with sales of devices and the concomitant profit on those, etc - but on the sale of each individual book, Amazon lost real money.

    It's a great strategy for a retailer looking to transform an industry and capture dominant market share, though, if you have the resources to support it. The new book THE EVERYTHING STORE describes it all pretty well, including the shock of publishers when they realized their very profitable hardcover business was being destroyed by Amazon's ebook pricing. Check it out...and meanwhile I'll check out THE ART OF PROFITABILITY, which I notice that Zola has for $8.49 and Amazon for $8.89. (Though at the moment customers can still only read on the iPad/iPhone.)

  • Jeff 'SKI' Kinsey

    Let's not major on the minors. I was suggesting you not bet the farm on pitching your cost model vs. Amazon's. That is not your unique value proposition, or at least I don't believe it to be your "weakest link" in gaining marketshare. I will check out the book you mentioned. Thanks.