Tools of Change Conference Notes

I just returned home from the O'Reilly Tools of Change Conference in New York and thought I'd share some of my notes.

TOC had a record turnout this year. The conference was sold out with 1,200+ people packed into the Marriott Marquis in Times Square. They had a waiting list of people who wanted to get in but couldn't.

A good conference challenges you to stretch your thinking, and on this count the O'Reilly conferences I've attended (TOC, Web 2.0 Summit, Web 2.0 Expo) have never disappointed.

Killing DRM Softly

O'Reilly has been criticized in the past for using the TOC conference to browbeat complacent publishers on topics near and dear to O'Reilly's heart, such as the evils of DRM (Digital Rights Management). The DRM-will-kill-you theme was less prevalent this year, although Angela James of Carina Press (the all-digital imprint of Harlequin launching this June) struck a more constructive middle ground tone by urging publishers to tip their toes into the DRM-free waters by experimenting with a few titles.

Publishers to Get Closer to Customers?

One theme this year was how ebooks give publishers the opportunity to get closer to their customers. In the past, big print publishers kept their customers at arms-length. They relegated the dirty work of customer relationship management to the retailers. While this offered publishers the benefit of not dealing with pesky customers and the hassles of ebook customer support, it also caused publishers to lose touch with their customer.

This, by the way, was one of my big takeaways from the also-excellent Digital Book World conference a few weeks ago. The always-insightful Richard Nash of Cursor captured my sentiment when in a Q&A at DBW he challenged publishers on an ebook pricing panel to price books based on what customers want to pay, not on a cost-plus basis (where, for example, a publisher might add the cost of their Manhattan high rise office into the calculation of what an ebook should cost).

Whereas TOC generally focuses on helping publishers prepare for the future, Digital Book World was squarely focused on the practical here-and-now. Both perspectives are critical and equally important.

But back to the theme of publishers getting closer to customers. "Getting closer to customers," can mean many things, though it primarily means selling direct. One advantage of selling direct is that the publisher has an opportunity to own the customer relationship, capture the customer's contact information for later communication/email marketing, build its own community around the books and authors, and cut out middlemen like distributors and retailers.

Publisher-Direct Sales to Customers will Accelerate Demise of DRM
(A.K.A.: EEK, a Customer!)

I predict publisher-direct sales, if the practice catches on among publishers, will accelerate the demise of DRM'd ebooks. Why? If publishers become retailers and are forced to communicate with their customers, publishers will quickly realize what a hassle DRM is for their customers. Every time a customer emails the newly minted publisher/retailer with a support question like "the code I'm entering to activate my book isn't working), the publisher loses money just opening the email.

When publishers become retailers, they will suddenly further appreciate the valuable audience aggregation and customer service role played by retailers.

Stats Stats Stats

I love data. The Book Industry Study Group (BISG) presented new data on ebook adoption trends based on a survey of 44,000 consumers (of which, only about 3% were ebook customers), and the results were interesting.

Key takeaways:

• Despite all the hype about rich media interactive ebooks, consumers appear to prefer, at least for now, just words on screens, like words on paper. Ebook affordability (lower prices) is much more important to consumers.
• Ebook customers would be willing to pay more for ebooks if they come with social-media-enabled tools that help them discuss and share the books with others.
  
• Men are bigger consumers of ebooks than woman by a narrow 51%/49% margin. Not a huge difference, but a reverse of print books, where women dominate.
• BISG answered a BIG question haunting large publishers. Will ebooks cannibalize print books? Publishers care, because consumers, on average, pay $6.25 less for an ebook edition they they pay for a hardcover, according to BISG. BISG's conclusion: YES, the 3 percent of people who have moved to ebooks buy fewer print books than before. Publishers aren't yet feeling the impact of this since ebooks represent such a small percentage of the overall book market.
  
• Most popular devices for reading ebooks: This is interesting. You might guess, as I did, the Amazon Kindle. Wrong. The most popular device for 47% of customers is their computer screen. Kindle comes in at a close and impressive second place at 32%, followed by 11% for the iPhone, 10% for iPod Touch (note this adds up to 22%, pre-iPad), 9% each for the Blackberry and netbooks, and 8% each for the Barnes & Noble nook and the Sony Reader. The nook percentage is actually quite impressive because the survey data was taken in November before the nook was even shipping. I'm not sure how they arrived at that number.
  
• BISG looked at whether or not ebook customers know about or care about DRM. The general conclusion, if I interpreted it correctly, is that most consumers don't know what it is, if you look at the trending data between their November and January surveys, it looks like it's becoming a more important issue for consumers as they learn about it.
• 28% of consumers say DRM will affect their purchase decision, 34% say doesn't matter, 38% say maybe.
  
• Men are more anti-DRM than women (interesting, I'm not sure why this is so).
• Most popular ebook genres: 31% general fiction, 28% mystery/detective, 25% how-to guides, 21% sci fi, romance 14%.
• BISG cautioned publishers that their data is dynamic, and suggested they not rush to automatically adjust their strategies to cater to views and opinions of the early adopters, because as ebooks go mainstream the mainstream might have different needs and wants. In my mind, the dynamic nature of the data was fascinating, because consumer expectations are evolving rapidly. You can count on much of this data to be out of date in two months, if it's not already. Fun stuff.
  

Arianna Huffington: We are in the Golden Age of Books

Another major theme of the conference was the importance of books and community. Although reading is primarily a solitary experience, readers have always enjoyed talking about books.

In at TOC keynote, Arianna Huffington, the co-founder and CEO of The Huffington Post, told publishers we are in the midst of the Golden Age of Publishing. Books don't end with the printed page, she said. "We need to leave behind this idea that old ideas are not worth talking about," she said. "Books are conversation starters and that’s what publishers have the opportunity to facilitate on line better than anyone."


The Best Presentation at TOC

My favorite presentation of the conference was from Bob Pritchett of Logos Bible Software, in a session titled, Network Effects Support Premium Pricing. I remember attending his presentation four years ago at the first TOC in San Jose, so I knew I didn't want to miss his presentation this time. They're doing amazing stuff at Logos.

Logos faces an interesting challenge, one that every author and publisher faces: How do you compete against free? In their case, they sell about 10,000 bible study ebooks. How much has the bible changed over the last two hundred years? Not much. But what Logos excels at is making this information more accessible than ever before. They take a database-centric view of their vast and ever-growing library of content.

When you purchase a book from them, you're not just getting a static ebook, you're buying into a dynamic, integrated online application environment that becomes richer with each new publication, and with each new member to their community. Even if Bible study isn't your thing, check them out for future-of-publishing inspiration. I can't do them justice here.

The Future of Digital Textbooks

John Warren of the Rand Corporation moderated an interesting panel on the future of digital textbooks. As a preview to the panel, Andrew Savikas and John published an excellent Q&A interview with John's panelists over at the TOC Blog. Access it here.

My praise for John's panel, I admit, is not completely impartial. John's a great friend to those of us lucky enough to know him, and the panel included Eric Frank, the co-founder of Flat World Knowledge. Flat World is near and dear to my heart and wallet - I'm connected to them as an investor and advisor.

The challenges educational publishers face when transitioning to digital represent a hyper-exaggerated version of the same challenges trade publishers (those who sell through bookstores to consumers) face.

Why hyper-exaggerated? Because textbook publishers sell very expensive content, often $100 to $200 per book. The content is expensive for the publisher to develop. The high cost of college textbooks has caused a crisis in higher education because textbook costs now render college education unaffordable to many deserving students, especially at the community college level.

Whenever publishers create content for which there is great demand (such as textbooks), yet they make that content prohibitively expensive and inaccessible (textbooks), it causes customers to seek out alternative content options (piracy, used textbooks, etc.), all of which provide the publisher and their authors no economic benefit. Sound familiar to what trade publishers face?

Digital textbooks offer potential relief to students and their parents. The challenge for college textbook publishers is to make the transition to lower cost digital products without putting themselves out of business. I think Flat World is well-positioned for the future of textbook publishing, and I last blogged about them here in August if you're interested to learn more.

Educational materials is a content category I want to bolster at Smashwords. At Smashwords, any college instructor anywhere in the world can publish sellable class content. A professor of English literature in India, for example, can publish their book at Smashwords and sell it to students in the U.K. or Australia the next day. How cool is that?

There's a Big Market for Books outside the U.S.

Speaking of the world, in my extensive one-third decade experience in the book publishing industry (yes, I still consider myself a newbie), it's apparent to me that most American publishers and authors take a U.S.-centric view of the world. Among print publishers and their agents, their focus is to carve up and sell the rights to overseas partners and let them worry about the rest of the world.

Yes, the U.S. represents the largest single market for books, but this will change, especially for ebooks. Authors and publishers would be smart to retain global language rights to their books because the Internet moves the world closer to becoming one single market.

Billions of knowledge-and-entertainment-hungry consumers are coming online in fast-growing countries like India, China and Brazil. Hundreds of millions of readers outside the U.S. speak and read English. What's my point, and what does it have to do with TOC?

Ramy Habeeb, of Arabic publisher Kotobarabia, gave a great keynote explaining both the challenges and the opportunities for publishers looking to tap into the huge market for Arabic-speaking and reading consumers. He spoke about the impact of censorship in large Arabic-speaking countries such as Egypt and Saudi Arabia. Self-censorship among authors, he said, is also a problem, because few authors wake up in the morning thinking, "I wonder how I can get arrested today." Habeeb, himself based in London, sees censorship declining once free market mechanisms enable each country to realize the economic benefits of a thriving book publishing community. Kudos to O'Reilly for providing attendees this other-world view of publishing.

Prepare for Exponential Growth in Ebooks

A final highlight was Tim O'Reilly's interview with uber-inventor and master futurist, Raymond Kurzweil, the man behind the new Blio ebook platform. He spoke about how most forward-thinking people consider technology progression as linear (steady predictable progress), when in fact some of the most important technical progressions are exponential (progress accelerates over time, catching everyone by surprise). Ebooks are likely an exponential phenomena. They're not a fad, and they may reshape the book market faster than any of us believe.

Striking the Right Balance with Sponsors

Overall, the conference content was excellent. The biggest gripe I heard was that the conference content had too many paid commercial keynotes. Two publishers from outside the US mentioned this to me as a big disappointment. They paid $1,000+ for admission plus the travel and other expenses, they told me, to access knowledge, not to be forced to endure a commercial announcement. When a stuffed suit gets on stage with a PowerPoint written by some junior PR person, it doesn't go over well. Several attendees vented their frustration on Twitter.

O'Reilly isn't the only offender out there. This was also the biggest complaint I heard about the otherwise solid Digital Book World conference I attended last month. One especially egregious vendor keynote was a sales pitch for a company that ships print books on container ships from China (what that has to do with digital books, I don't know). At least O'Reilly's paid advertisements contained better content.

You can access the entire Twitterstream from the conference here, while it lasts: http://twitter.com/#search?q=%23toccon

Feb 27 update: I cross-posted an updated version of this over at the Huffington Post.

Click here for my conference notes for last year's 2009 Tools of Change.