The Publisher's Dilemma

If you haven’t been reading A Newbie’s Guide to Publishing, you should. As with any blog, read it with a critical mind, but Konrath does address a lot of good points about publishing and the effect that e-books are having on the industry.

I’ve been reading The Innovator’s Dilemma recently. I’m about two-thirds of the way through, but I’m feeling resonance with literature as well as the academic world of digital humanities. For this blog post, I want to address how I see it playing in the publishing world. If you haven’t yet, read “At Home With the Sixes,” a post on Konrath’s blog. He covers some of the same ideas, but in a humorous story.

The basic premise in The Innovator’s Dilemma is that as companies mature and reacher for the higher end market, they find the lower end market not worth the trouble. If a company wants to grow at 5% per year and they have annual revenue of $1 million, they only need to find $50,000 in new business. But a company that is bringing in several billion dollars a year needs to find multiple millions of dollars in new business to sustain the same growth. The small stuff doesn’t interest them when they can focus on the larger, more lucrative markets. The problem is that this is entirely rational. To do otherwise would be considered crazy. You always want to maximize your income.

What happens is that smaller business which don’t need to bring in as much revenue to show robust growth will start addressing the markets that are too small for the larger companies. These markets usually have low margins, but they also don’t have as much overhead as the higher end markets.

Think about the difference between a cheap car and a Lexus. You don’t expect much service when you buy the cheap car. You just want wheels to get to work and to the store. But when you buy a Lexus, you expect the dealer to care about you as an individual. You want quality treatment. You pay for it. The margin on a Lexus is much higher than on the cheaper car because the dealer has to make enough money to cover the extra services it provides in connection with the purchase.

For this reason, the dealer won’t try to sell you the cheap car, because there’s not much money to be made. Instead, they want you to buy the expensive car. Even though the services they provide cost them money, they make up for it in in their profit margin.

Some else who is just starting out in the car business can afford to pass up selling the Lexus and focus on the cheap cars because they don’t need to make a lot of profit to show growth. The large dealer is happy to let them have the business because it lets them focus on the higher margin luxury models.

The problem is that the cheap cars will get better over time and eventually be as good as the luxury cars, but because the business built around them has become used to a lower profit margin, they can sell the equivalent car for less. As soon as buyers can get the same product in several different ways, they tend to go with the cheaper one. As soon as this happens, the larger luxury dealer loses his business, even if he had record profits just the year before.

In The Innovator’s Dilemma, this story is told over and over again in the disk drive industry, earth mover industry, and several other unrelated industries to show that it’s a general pattern not isolated to any. The same can happen in publishing.

Consider publishing. An editor has to look through a pile of manuscripts hoping that one will come through that might be publishable. If it does, then there are contracts to negotiate, editing to be done, typesetting, cover design, marketing. There’s a lot there that costs a lot of money. A publishing company that is willing to do all of this for an author is the Lexus dealer of publishing, and they focus on books that they feel will provide them with enough of a profit margin to pay for all of the services. They don’t want the books that might be publishable or the ones that will require some work to make into a bestseller. If they had their way, they would only do bestsellers.

A publisher doesn’t negotiate which services they will provide. They don’t ask the author if they know a cover artist who can provide the artwork, or if they can manage the editing, or the layout. They assume all of the publication management and then negotiate the final price, which is usually a large percentage of the value of the work. They assume that they provide about 80%-90% of the value of a book. Next time you’re in a book store, look at a book and see if that 80% of the value is really why you’re buying the book, or if you’re buying it for what the author provided.

Part of this is because of the processes that are in place in a publishing house. Individual editors might know there’s a problem, but they still have a process they have to go through. That’s the hardest thing to change. If you look at what some of the publishers are doing now with their spin off self-publishing imprints, you can see them trying to change this, but it’s going to be a while before they find the right model.

Someone who wants to focus only on writing might want this full service model, just as someone might want a Lexus. In many circles, it’s not the quality of the book that marks someone as a professional, but the fact that they went through a publisher and gave up most of their claim on the material, so they might want to go through a publisher so they can gain status in a community. I’ll cover this angle a bit more when I discuss The Innovator’s Dilemma in the context of academics. Going through a publisher is not bad or evil. Consider it a luxury.

Publishers are perfectly happy to have low-margin books be self-published. As publishers grow, and they have through the mergers of the last few decades, they have to attract more and more business to show the same percentage growth year over year. This means they need more bestsellers, fewer mid-listers, and far fewer experiments. The small publishing houses tend to pick up the lower profit-margin books, but they too are slowly going up market.

The main room for self-publishing is at the bottom of the market where the publishing businesses aren’t really interested in working. This doesn’t mean that a book is bad because it is self-published. This just means that the book hasn’t been produced as a luxury good. Instead of the author providing 10-20% of the value of the book, the author is providing all of the value. Instead of getting mass-produced product from the local megamart, you’re getting handcrafted works from artisans.

The reason mass production works is because buyers can expect a consistent quality and a reasonable price. The problem is that though a cheaper method of production might not start with the same consistency in quality, it will eventually meet it. When that happens, the cheaper method will win.

Self-published books might not have the consistency that big publishing houses can provide, but they will eventually catch up as the community figures out how to identify good, well-written self-published work. Once that happens and buyers can find consistent quality self-published work, the larger businesses will fail. No one will see it coming before it happens, and it will happen almost over night.

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James

James is a software developer and self-published author. He received his B.S. in Math and Physics and his M.A. in English from Texas A&M University. After spending almost two decades in academia, he now works in the Washington, DC, start up world.