Three Kinds of Digital Book Publishing Start-ups to Be Bullish About

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Disclaimer: This is just one guy’s opinion about publishing start-ups in general. I could be wrong, of course. In addition, I don’t mean for this to be taken as a negative outlook (or positive one) for any start-up in particular. 

Bonus: One digital publishing start-up in particular that I’m extremely bullish on

startup maze

At the Tools of Change conference last week in New York, start-ups seemed to be a focus. In addition to sessions about social reading, library experiments and disrupting business as usual in publishing, there was a “start-up showcase,” which I attended.

As I circled the room hearing from the various start-ups, I had a sad epiphany: Most digital book publishing start-ups will fail.

1. Starting any new business is hard and most start-ups fail.

2. Book publishing is and continues to be a low-margin, slow-growth business, meaning that there is no prevailing economic reason that dozens of new companies and hundreds of new people should enter this business.

3. Trade book publishing in the U.S. is a $14 billion business and one that isn’t growing. The opportunity is in “disrupting” some of that revenue, which is already happening and it’s the big opportunity for start-ups in this space. That said, I don’t understand how a venture-capital firm looks at that number ($14 billion) and thinks that getting a small piece of it is worth making a bet on — which makes me think that a lot of investment in start-ups in book publishing are made with the heart and not the head. People in the ebook start-up world agree.

That said, I think there are three kinds of digital publishing start-ups that have a better chance than others to find success in the growth of ebooks:

 

open road logo

1. Digital publishing. This one is simple: a company that brings new ebook content to market — a publishing company.

Why I think these could succeed:
At least for the time being, there’s still a lot of money in producing highly sought after content. I think that this will always be the case. Despite what you may have heard, books aren’t a commodity. Each one is unique and takes some combination of quality, timing, hard work and luck to make into a success. The barriers to entry are low, overhead is relatively low, start-up costs are nothing by comparison to other kinds of start-ups (no need to build new technology) and the potential for a good return is relatively high. diversion books

One interesting aspect of this business that I like:
If you follow a consistent publishing schedule, you can start to build a list of ebooks that should generate an increasing amount of income over time. At the same time, every time you publish a new one, it’s like “swinging for the fences,” so to speak. It could become a best-seller and if it does, you get a huge return. And if it doesn’t, add it to the pile of income-producing ebooks.

The challenge:
There are two main challenges to these kinds of start-ups that rise above all the other challenges of starting a new business. First, it’s hard to find good content, make it better and then bring it to market. It’s a matter of skill, luck and timing. And, in the era of self-publishing, what’s to stop one of your potential authors from doing everything themselves and taking all of the rewards? Second, marketing and discoverability are a huge challenge for all publishers, let alone a tiny digital one with no big authors, no big back-list, no platform and probably little staff or money to spend on the endeavor.

Companies in the space: Open Road Media, Diversion Books, Cool Gus Publishing, basically any self-publishing author.

 

2. Online book retail start-ups. A company that sells books, particularly ebooks, online.

Why I think these could succeed:
If people are going to keep on buying books, which I think they will (see No. 1), then they will need places to buy them. Is there a great shortage of places to buy books? Not today, no. Today, there are thousands of bookstores in the U.S. alone as well as several significant online bookstores. However, there are two trends that I think create an opening for these kinds of start-ups:

zola-books-logo– There will be fewer physical bookstores tomorrow than there are today. This means that there will be fewer places for people to buy books. (Read: less competition.)

– More people are buying ebooks, which are mostly bought through online bookstores and through devices (another kind of online bookstore). As this trend continues, there will be a bigger pie for online booksellers to fight over.

Both of these trends represent possible revenue for online booksellers.

One interesting aspect of this business that I like:
The business has the most direct connection out of any in the book publishing ecosystem with the reader, the end-user and, therefore, it collects the money that the rest of publishing thrives on. First off, it’s always better to collect the money rather than to depend on others to collect for you. Second, having a more direct connection with the consumer offers interesting opportunities to develop new products and services to build additional revenue streams:

– Develop data on what readers like and package it into reports for publishers and other interested parties.

– Build sales outside of books that are related to books and would appeal to readers. E-commerce is only 6% of all U.S. retail. It’s still growing and has a ways to go.

Bookish_HomePage-1The challenge:
Two big challenges here: starting up and competition. This particular business is very complex. It requires building technology, fitting many moving pieces together and making it all run smoothly for the reader. They have to be able to find what they’re looking for (or stumble across something they want), learn more about the product, purchase the product and then have the product delivered to them. It’s not impossible, but the other challenge amplifies the first one: Amazon. Amazon is an incredibly tough competitor. It delivers fantastic services to its users at incredibly low prices. To make matters worse, it is incredibly established in the marketplace with tens of millions of customers and has already built up a very successful and enticing ecosystem around book sales to keep those customers coming back (its reading apps, selling other things, Amazon Prime offerings and its ebook library management, which is a way of saying that if you buy Amazon ebooks and you want to have your ebook library all in one place, you probably want to continue buying from Amazon).

Companies in the space: Zola, Bookish, Inkling*. While it may look right now like these firms have a long way to go toward success, I think they have better chances than other kinds of digital publishing start-ups out there.

* Obviously, book sales isn’t the whole of what Inkling does, but I include it here because I think it’s a promising side of the business and the company has made a push in the past month or so to make this a visible part of what it does. 

 

Mark Coker, founder and CEO of successful author services start-up Smashwords

Mark Coker, founder and CEO of successful author services start-up Smashwords

3. Author services. A company that helps authors create, format, distribute and market their books or manage their businesses.

Why I think these could succeed:
One of the biggest trends in book publishing today is the rise of the author. A decade ago it would have been impossible to get a wide audience for a work that an established publisher didn’t publish. Today, self-publishing is one of the fastest growth areas in books. Every week we see a handful of self-published titles on the Digital Book World Ebook Best-Seller List.

While many of the tools to do what authors need to do are in place (and self-service and cheap or free), authors will always need (or consider needing) editing, design and art, formatting, programming, marketing help and rights management help. Further, as long as there are more people, there will be more authors. It’s a customer base that is growing and will continue to grow.

One interesting aspect of this business that I like:
It’s the Wild West right now when it comes to author services. Some firms offer it for free for a cut of book sales revenues. Others charge up front. Others have free services mixed with premium services for which they charge. To me, this indicates that the market hasn’t settled yet and that different business models could thrive. The smart author services companies out there are ruthless about getting to know their clients and trying out new strategies to engage with them: changing prices, offering new services, etc. Related: What Authors Want — Understanding Authors in the Era of Self-Publishing author solutions 2

The challenge:
There are established players in this market and those players have the endorsement (or have drawn the ire) of big-time self-publishing gurus like Joe Konrath. In general, the market for information about self-publishing is fairly flat. Authors share intelligence and ideas online as well as any community out there. That means that entrants into the marketplace need to provide very good value and make sure people know it. In my opinion, every company should try to do this but not all companies do and still manage to make a buck.

Companies in the space: Kindle Direct Publishing, Smashwords, Author Solutions, Lulu, FastPencil and many, many more.

Bonus: One digital publishing start-up in particular that I’m extremely bullish on.

Jeremy Greenfield

About Jeremy Greenfield

Jeremy Greenfield is the editorial director of Digital Book World. Opinions presented here are his own. Read more of his work here.

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13 thoughts on “Three Kinds of Digital Book Publishing Start-ups to Be Bullish About

  1. Pingback: Most Digital Publishing Start-ups Will Fail: This One Won’t - GEEKKENYA

  2. In the world before Internet start-ups you simply “founded a new business.” The idea was to earn a living doing something you enjoyed or were good at. As sales expanded you hired staff. Profits were desirable, but most important was having enough cash to pay your staff and pay your bills. Growth of 10% or so each year was entirely respectable.

    The start-up meme is destructive for the publishing industry because it suggests that there are publishing opportunities analogous to Facebook, Google or Twitter. Publishing start-ups can only be judged harshly in that light.

    But if we could return to more fundamental business values — a worthwhile idea, well executed by knowledgeable and passionate entrepreneurs — publishing “start-ups” would seem far more appealing and laudable.

    • Agreed, Thad, but that’s not the kind of business that venture-capital firms want to invest in. They want to make bets on businesses that can scale to big size. The kinds of start-up businesses that you describe are the ones you can get bank loans for, which is probably more appropriate for the book publishing industry.

      One other thing — I left off businesses like Firebrand, Aptara, Innodata, etc. because I don’t think about those like I do about Oyster, Bookish, Bookshout and others. They are closer to the kinds of businesses you describe at this point.

    • I agree Thad

      I have an ebook creation and publishing services company. I don’t want to become so big I loose the relationship I have with my clients. It’s personal and one to one… to me it is earning a living doing something I’m passionate about. I have been around ebooks in one form or another since the late 90′s. It’s always been about presentation for me… I don’t charge large fees and most would say it doesn’t even cover the cost of man hours… but again I’m not looking to become so big I loose sight of my own values I’m there to help those that don’t have unlimited amounts of money to spend in getting their book to look good….

      Maybe I’m naive but I’m not looking to make huge profits – steady growth and no borrowing and not to big.

  3. As an ex mainstream-published author turned author/publisher at Blackbird Digital Books I can confirm that our author-friendly share everything 50/50, keep all your rights model of business is working very well. Like any publisher we are highly selective. Well-edited, well-produced quality content is king. One of our authors has gone back to mainstream contemporary fiction but has kept her children’s book with us. Another, our top seller, is currently writing her 6th book for us. Low overheads, sales growing steadily each month, authors paid every month: it works.

  4. Pingback: Digital Book Publishing Start-ups to Be Bullish About | Zola

  5. I think a fourth book-related business that can be successful now is one that helps people sift through the hundreds of thousands of books published each year (and growing) to find what they will enjoy. Sites like LitPick and Copia.

    • Hey Zev–

      Thanks for the comment. I have to disagree with you, however. I don’t think that most readers in the U.S. — people who at best read a handful of books a year — have trouble finding new ones. They go to the best-seller lists or to recommendations from friends. For the very small percentage of people who read dozens or even hundreds of books a year, discovery can definitely be a problem. Unfortunately, they don’t make up enough of the population to support a meaningful business, in my opinion.

      New discovery tools are neat, but I don’t see them taking off as big business, certainly not one that legitimizes a significant investment from private capital.

      Of course, this is just one guy’s opinion! If you run a discovery start-up, please do not be discouraged by this….

  6. I do not fully agree with your statement, “Companies in the space: Open Road Media, Diversion Books, Cool Gus Publishing, basically any self-publishing author.” I understand that you are discussing start-up risks and not the merits of self-publishing per se, but Scott Waxman has been very smart about Diversion’s structure which far elevates it above a self-publishing business model. I am published with Diversion Books, and in the intervening 11 months I have seen a tremendous difference between my having published with Diversion and my having self-published. Being associated with Diversion has given me access to opportunities that a self-published author would have difficulty obtaining, such as membership in the International Thriller Writers and a deal with Audible.com to turn my book into an audio book. So, with due respect, Diversion and self-publishing should not be in the same category.

  7. You are forgetting Goldman Sachs invested in Kno. They were a tech company that originally wanted to create a tablet that would be used in schools. They dropped that plan and created a reading platform for textbooks. They began by targeting colleges but have now changed their focus to high schools. So you are misinformed if you believe “but that’s not the kind of business that venture-capital firms want to invest in.”

  8. Hi Jeremy,

    We at AuthorsDiary are doing our bit. Though we have not still launched ourselves as yet, but soon would do it (by end of March). We are a social networking website for authors and to every one who has little interest in publishing and (e)books and yes, we are bringing an eBookstore too with this site. We are also bringing tools helping authors to analyze sales, readership of their ebooks, building fanbase, eBook development to any format, and so on. We would also be bringing physical bookstores on this site using our automated tools.

    This would be a platform to follow in coming months. It’s almost a year that I am quietly working on it without much fanfare or advertisement as I believe in first displaying services and then ask for favor.

    Best,
    Gaurav Bhatnagar

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