More Adventures in e-Books
In my last column I said that what the e-book market needed was better infrastructure. Since then one of the biggest pure plays in the infrastructure sector—Reciprocal—closed shop, netLibrary declared bankruptcy, and two of the biggest Digital Rights Management (DRM) providers (Intertrust and ContentGuard) declared, in effect, that they would cease marketing their products. So is that egg on my face?
To mix metaphors I shall save face by resorting to yet another two metaphors. The first is the Field of Dreams syndrome: "If you build it, they will come." In infrastructural terms: to play baseball, you need a stadium. One conventional wisdom would maintain that the problem with e-books is that there isn't enough content i.e., that there aren't players to make up the teams. But this metaphor suggests that you built the stadium in the wrong place. A stadium in the sticks without a sufficient population density to support a baseball team will fail, no matter that the stadium is prettier than Camden Yard or that the shortstop is prettier than Derek Jeter.
Reciprocal had a system that was effective and comprehensive, offering a suite of DRM, e-commerce, storefront and content hosting tools and partnering with companies like Texterity who would handle the conversion. They provided parking spaces, shuttle buses, popcorn, beer, hats, T-shirts, bobble-headed dolls, great sightlines and a Major League management team. Hundreds of content providers signed up. What went wrong? Well, one could certainly look askance at the five offices they maintained in New York, Buffalo, Raleigh, London and Singapore but the question that really should be asked is: What did their infrastructure enable? It enabled content owners to retail content from their web site. That allows publishers to sustain the fantasy entertained by many since the dawn of the Web, that e-commerce permits you to go direct to the consumer. In my next column I will go into this fallacy in greater depth but for right now, suffice it to say that it is well and good for a contractor to build a bricks-and-mortar bookstore for a publisher but no contractor would ever consider basing its contract in large part of getting a percentage of the list price of the books the publisher will sell from the bookstore.
The second metaphor is one that has been doing the rounds in recent months in analyses of the collapse in the share price of telecommunications infrastructure providers. The investments by companies like Global Crossing and MCI WorldCom in creating huge networks of broadband fiber optic cable has been compared to the building of the huge network of railroads across America by a host of private companies spending money loaned them by JP Morgan and others at the end of the 19th century. Most of those companies went out of business, because the capacity created far exceeded demand: similarly by most calculations the utilization rate of the fiberoptic networks built in the past ten years is about 5 percent.
Although it took about three or four decades to reach a profitable level of utilization in the case of the railroads, the Online Computer Library Center (OCLC), a non-profit organization that provides computer-based cataloging and resource sharing to 40,000 libraries in 81 countries, has decided that netLibrary, the e-book reference and collection service for libraries and institutions, has an infrastructure worth about $20 million (based on what is currently known about the terms of the pending purchase of netLibrary by OCLC). This would suggest that here we have an instance of an infrastructure that, unlike Reciprocal's, is delivering goods to the right place. (Again, the matter of arguing why this is the right place I will also defer to the next column.)
Fear of hubris prevents me from saying that the bankruptcy happened because netLibrary spent (and was continuing to spend) too much money developing the infrastructure but I can make the self-evident observation that the company could not structure itself in such a way as to provide an adequate return to its investors; its capacity was underutilized. I believe that the OCLC will see a pretty good return on its $20 million; it's cheaper and faster than developing and beta-testing such a system from scratch. (Marketing will of course be rather straightforward since their market is their membership!)
What this Tale of Two Companies tells me is that there is money to be made from providing an e-book delivery infrastructure; this is capitalism's way of telling us infrastructure is a good thing. It would also suggest that there is little value in building an infrastructure that allows publishers to sell a few hundred of their own e-books off their own site, and a good deal of value in providing 40,000 e-books to 18,000 libraries. Why this is true, and what else it can tell us about the future of e-books, is grist for the March/April 2002 mill.
-Richard Nash is director of acquisitions for Burnham, Munger & Root, a service company specializing in the sales and marketing of electronic content. Also a writer of fiction and criticism, his articles have appeared in numerous online and off-line publications. His first book, Organs of Emotion, was published in the fall of 2001. Nash will appear at BookTech 2002 to speak about "Succeeding at E-Content," Tuesday, February 12 from 10:45 a.m. to 12:00 p.m.