An exercise for the reader in integration and modularity

I’ve long been a huge fan of Ben Thompson’s writing over at Stratechery.

His two latest posts are of a particular interest to those of us in the web media industry.

Note the common element to all three of these companies: all have managed to modularize the production/delivery of their service which has allowed them to move closer to the customer. To put it another way, all of this new value is being created by specialized CRM companies: Airbnb for travelers, Uber for commuters, and Netflix for the bored.

Netflix and the Conservation of Attractive Profits by Ben Thompson (1879 words).

Here’s the simple truth: if you’re competing in a modular market, as today’s publishers are, profits are slim at best, and you generally take what you can get from a revenue perspective. To put it another way, publishers today have about as much bargaining power as do Uber drivers, and we’ve seen how that has gone.

Why Web Pages Suck by Ben Thompson (1594 words).

Now, since I’ve re-launched this blog I’ve had as a hard and fast rule that I won’t comment on book publishing (at least not directly).

(Say it with me in your best Basil Fawlty voice. “Do not mention publishing!")

But it strikes me that Ben’s two posts are especially relevant to the trade publishing crowd and so for them, I’m going to break that rule, and assign the following exercise.

(I am almost certainly going to regret this.)

1. Read Ben Thompson’s two posts

Pay attention to all the talk about modularisation and integration. Bonus points for going out and reading additional material on Clayton Christensen’s Law of Conservation of Attractive Profits.

2. Think about publishing 25 years ago

Consider how integration and modularisation worked in trade publishing before the rise of the big bookstore chains (well before Amazon).

1. Publishers were integrated. They were a single, unified organisation in charge of everything about the book except for sales and distribution. This is why getting published was such a big deal. Once you were in, you could expect to benefit.
2. Retail and distribution were modular.

I.e. the trade publishing industry looked something like this:

3. Consider how that has all changed

1. The publisher has been almost completely deintegrated—modular to a fault. The primary difference between a publisher and a successful self-publisher is in who cuts the cheques to the freelancers. Authors, editors, designers, cover illustrators, PR, and marketing are largely freelancers who often alternate between working in self-publishing and publishing proper. ‘Getting published’ has little to no benefit on its own, merely one possible move out of many in the career of a writer.
2. The right-hand side is almost completely integrated by Amazon. They (and their competitors) have integrated distribution and sales (i.e. the entire customer relationship). And when it comes to ebooks they’ve also completely integrated the entire design aspect of the book. Even when they don’t subject ebooks to extensive style overrides that shift them closer to the retailer house style, they remain in charge of the entire reading experience and limit the scope of what design can do. This is intentional. This kind of code doesn’t happen by accident or nor is it a side effect of normal software development.
3. The modularisation of production has enabled retailers (Amazon especially) to extend their reach further into the publishing side of the equation. Small publishers are under pressure to shift their printing (at least of out of print titles) to Createspace. A self-publisher who publishes exclusively to the Kindle is essentially opting into Amazon’s own production workflow. And Amazon Publishing skims the cream of self-publishing off the top.

4. Consider the potential consequences of this change

Think about what this means for the profit margins of both publishers and authors. How will this affect the ebook pricing dynamic? What does this mean for larger organisations in the industry? What sort of organisations are likely to fair well under this new world order? How likely is a push for standardisation to result in an improvement in the circumstances of the modularised players?

(Two hints on that last question: 1. standardisation of components makes modularisation easier 2. web standards haven’t helped websites fight crap ads or the dominance of ad networks.)

Basically, if you work for a traditionally structured trade publisher, I’d start preparing for a new career. And if your primary customers are traditional trade publishers, for God’s sake diversify!