DBW Day Two: an appearance from 'Data Guy'

Understanding industry data, and more on the “Four Horsemen” tech companies, headlined the second day of Digital Book World.

The numbers session began with one of DBW’s conveners, Michael Cader, taking pains to explain what we already know: that data-gathering in the book business is full of annoying and alarming holes, thanks to the collection methods and incomplete spread of the Association of American Publishers (AAP), Nielsen et al, and the practices of players like Amazon, who never learned how to share.

We all do agree on two things: that colouring books have been good for adult trade print sales, and that digital audio is booming. Cader wondered whether some customers are moving from e-books to audio, an interesting question.

Then it was the “Ta-Da!” moment, trumpeted for days in advance, when “Data Guy” made his appearance. Data Guy is the analyst behind the Author Earnings website that independent author Hugh Howey has made famous. DG admits to having self-published two books, but wants to remain anonymous because of the position he occupies in whatever industry it is where he has his day job.  

The AAP reports digital sales shrinking among the 1,200 largest publishers; Amazon counters that e-book sales are growing in units and dollars. Posits DG: maybe it’s just those same secretive retailers forcing publishers to hand over larger commissions, i.e., publishers’ margins, rather than sales, disappearing.

There is also the tricky business of how to count the horde of self-published e-books that arrive on the scene bearing no ISBN. “Do we care as an industry about small and non-traditional publishers?” he asked.

“We run the risk of leaving money on the table, or not seeing competitive threats,” if what we’re working with is an incomplete picture, he answered.

The videogame business – in which DG was involved - made a similar transition to books, he noted. Now, he’s applying what he learned there to the book business, by collecting vast amounts of data (think Amazon rankings) and processing it “to create an X-ray of the entire e-book market, with an immediacy that shows today’s sales tomorrow.” It is complicated, of course: Amazon sales rank “is recency-weighted,” as he put it, to show cumulative daily sales; Amazon factors in pre-orders at the time of order, not the time of sale. 

According to DG, 10% of sales of the Big Five publishers come from pre-orders. And as discounts given to certain retailers “rose abruptly by 2-3%,” the e-book prices of the Big Five also “jumped up.” How, he wondered, does e-book pricing impact discoverability? DG suggested giving the books of debut authors a different pricing structure, “so they can find an audience,” akin to starting to publish a genre author in mass market paperback.

Scott Galloway, a professor at New York University’s Stern School of Business, took on the "Four Horsemen" of Amazon, Apple, Facebook and Google, at a bracing gallop. The combined market capitalization of the Four was $1.3 trillion last year, and is expected to rise to $1.8 trillion this year; if you add Alibaba to the others, they would be worth more than the GDP of Russia.

While the South failed 150 years ago, Galloway noted, the Four have managed to secede from the Union: “They no longer pay taxes. They are not subject to the same standards.” Indeed, “Apple is raising the finger at the U.S. government” on the matter of not providing a way to override the encryption on the San Bernadino bomber’s mobile, thereby ensuring that Chinese customers will continue to buy iPhones.

Galloway spoke of the “dramatic brain drain” that has seen extremely talented individuals moving from top-tier brand companies like Proctor & Gamble, L’Oreal, Unilever, Estee Lauder, etc., to work at the Four.

Facebook, he predicted, will soon become “the most valuable company in the world". It spends 40 cents of every dollar on research and development - $6 billion alone this year. It is “starting to eat” some of Google’s market share. And it controls Instagram, which is “the most powerful platform in the world.”

Amazon, as we know, has managed to replace profit with vision and growth, thereby changing the game. In the words of Mickey Drexler, c.e.o. of J Crew, former c.e.o. of The Gap, and former board member of Apple: “How do we compete with a company that doesn’t need or want to be profitable?”

Galloway said that in the next few years, Amazon won’t open hundreds of stores; it will open “thousands.” It will also profoundly disrupt the businesses of UPS, FedEx, and DHL, with its plans for establishing a distribution company of its own.

Google will not only disrupt cable TV; it or another of the Four will get into education.

What he conveyed very convincingly – and frighteningly – is how very big big really is.

A final note on DBW: with all the talk about how the industry has changed since DBW’s inception, the obvious question begging to be answered was, how has the conference changed?

Once upon a time, there were enough takers for two dueling winter digital extravaganzas – remember Tools of Change? They seemed to be so essential. Even some Big Five c.e.o.s milled about, listening, at the early meetings. Now, although the timing turned out not to be ideal – many sales conferences were scheduled this week - it’s highly doubtful that all the empty seats in the Hilton ballroom could be ascribed entirely to them. No statistics were forthcoming from the organizers, but attendance was clearly down.  We’ll have to wait to see what 2017 will bring on the conference schedule.