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Mark Coker’s ‘Crazy Idea’ (aka The History of Smashwords)

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interview by Alexa Schlosser, Managing Editor, IBPA Independent magazine —

Alexa Schlosser

The history of Smashwords—the world’s largest distributor of indie e-books—as told by the founder, as well as his thoughts on the future of e-book publishing.

Mark Coker didn’t mean to get into e-book publishing. Prior to the founding of Smashwords in 2008, he ran a technology PR firm, generating positive press coverage for various companies, products, and executives. The story of his foray into digital publishing includes soap operas, a cabin in Vermont, and, most importantly, a desire to give writers who couldn’t find success in traditional publishing a platform. But the story is best told in Coker’s own words.

Why did you decide to move into e-book publishing?

Mark Coker

In late 2000, my PR agency went on a hiring spree to staff up for one of our large clients at the time, Sun Microsystems. One of those hires was a former reporter from Soap Opera Weekly magazine, Lesleyann Medeiros. As our friendship—and later a romantic relationship—developed, she shared stories about how the soap stars she interviewed were more over-the-top nuts in real life than their crazy soap opera storylines. I eventually suggested she should write a book about her experiences. She answered by suggesting we should write that book together. I had always dreamed about writing a book someday, but a novel about soap operas? I jumped at the opportunity and took a partial sabbatical from my work.

We moved to Burbank for a couple months and interviewed nearly 50 soap opera industry insiders, and then we moved to a cabin in Vermont for four months and wove the stories into a novel. Somewhere during this process of writing the book, we also decided to get married!

We were lucky enough to gain representation from a top New York literary agency, Dystel & Goderich. Once we landed our awesome agent, we were certain that our dreams of authorship would be realized. The sole extent of our dream was to see our book on the shelf at our local Barnes & Noble where we went for date night each Friday.

That dream was not to happen. Over a two-year time frame, our agent pitched our novel twice to all the major publishers of commercial women’s fiction. We learned publishers were reluctant to take a chance on a novel targeting soap opera fans because previous novels targeting the same market had performed poorly.

Our agent suggested we consider self-publishing. He told us a story of another client of his who wrote a book he was unable to sell, so she self-published it. She sold about 2,000 print copies within a year, then went back to our agent who was able to turn around and sell the book to a publisher within a week. The difference? The author proved there was a commercial market for her book.

By the time of our agent’s suggestion, I was already considering self-publishing after having picked up a copy of Dan Poynter’s Self-Publishing Manual. Yet the idea of filling our garage with thousands of print copies of our novel didn’t appeal to me. I realized that without the support of a traditional publisher, it would be nearly impossible for us to get our book into bookstores.

Our conundrum also got me thinking about the plight of fellow writers. It struck me as absolutely crazy that at a time when writers were reaching massive audiences self-publishing online with blogs, and self-publishing their videos on YouTube, why couldn’t writers self-publish an e-book?

It bugged me that a handful of publishers had the power to decide which writers could become published authors and decide which books readers could read. I also came to the epiphany that a publisher’s interests are not always aligned with the interests of writers and readers.

Publishers are in the business of selling books. The publishing part is the means to the ends. This explains why publishers try to select books they believe have the greatest commercial potential and why there’s such a focus on publishing big hits. Traditional publishers were unable to say yes to every author. After all, print books are expensive to acquire, edit, produce, distribute, market, and sell, not to mention the expense of managing returns.

Yet writers write for myriad reasons beyond the desire to make money.

Faced with this conundrum, I imagined how transformative it would be if the printing press could be free and available to all. What if there was a publisher or publishing service that could publish every writer so that readers could decide which books were worth reading? And, what if, like a traditional publisher, this utopian publisher I imagined could offer these publishing services at no cost to the writer, earning income on sales commissions only?

I decided to tackle this challenge. I realized that digital books could help democratize the printing press. After all, e-books are comprised of digital bits and bytes. They have no weight, they cost nothing to “print” a new sellable copy for each customer, and the incremental expense to deliver an ebook to any internet-connected reader around the globe is practically nil.

In 2005, I began drafting the Smashwords business plan. My crazy idea was to publish writers no publisher wanted to publish, in a format (e-books) that readers weren’t yet reading, and do it at no cost to the writer.
In early 2008, we launched Smashwords.

What was the publishing atmosphere like in 2008? Specifically, tell me about the e-book market.

According the Association of American Publishers, which had some of the best data at the time, I recall e-books accounted for about 1% of the overall trade book market in 2008. Yet that 1% was almost double what the market was in 2007, when e-books represented 0.5% of 1% of the trade book market, and quadruple the market in 2006 when e-books accounted for only about 0.25% of 1% of the market. The market was growing, even though it wasn’t on anyone’s radar yet.

E-books had been the subject of a lot of hype in the late ’90s, with some early adopters predicting they’d replace print books. But e-books failed to live up to their hype back then, largely due to limited selection, high e-book prices, and expensive first-generation e-reading devices that weren’t yet mature or easy to use. This failure caused many in the industry to write them off as a pipe dream.

Yet many of those early adopters stuck with their e-books, and were ready to embrace e-books to an even greater degree by 2008 and 2009 thanks to a proliferation of high-quality, low-cost e-reading devices; a dramatic increase in titles available in the e-book format; major retailers embracing e-books; and lower e-book prices driven largely by indie authors.

Tell me about some challenges you faced in the early years of Smashwords. Did you have to pivot from any original plans?

We faced myriad challenges. Back in 2008, there was a tremendous stigma against self-publishing, and the stigma emanated not just from traditional publishers but from aspiring authors, as well. There was this mistaken notion at the time that only traditional publishers possessed the divine wisdom necessary to determine when a writer was worthy to become a published author.

Self-published authors were known as “vanity” authors, an incredibly unfair characterization. Let’s be honest: All publishing is vanity. Contributing to this stigma was the fact that most self-published authors failed to achieve commercial success. Their failure further reinforced the belief that self-publishing was a fool’s errand for low-quality writers. Yet few critics took the time to understand that the primary reason these self-published authors were failing was due to their inability to gain retail distribution for their books at a time when bookselling was all about print. Without retail distribution, it’s nearly impossible to reach readers.

Many industry watchers were suspicious of Smashwords when we first launched. Prior self-publishing services had exploited authors by offering overpriced, low-quality publishing services. Their businesses made money selling stuff to authors, rather than helping authors sell books to consumers. In those early days, I received many angry emails from authors who were upset that we failed to list the upfront publishing costs on our website. It’s because our service was truly free! We only make money if the author makes money.

Our business model from the beginning had an important similarity to the best traditional publishers. We’ve never charged for our publishing services. We earn income on book sales to readers only, just like a traditional publisher.

We launched Smashwords in early 2008 as an e-book publishing platform. We made it possible for a writer to upload their manuscript as a Microsoft Word file along with the cover image and book details, and we’d automatically convert these files into multiple e-book file types that customers could purchase in our e-book store at Smashwords.com.

By the end of 2008, we were publishing about 140 e-books from 90 authors. I was thrilled that so many writers were entrusting Smashwords as the publishing platform for their precious e-books, but I was not thrilled that, on a good day, we were only selling about $10 worth of e-books (yes, that’s T-E-N!), for which our earned commission was about $1. Because I funded Smashwords out of my own pocket, this crazy business was burning a $10,000/month hole in my personal savings each month.

Thankfully, my decision to forgo venture capital funding was a blessing in disguise. Faced with such horrible sales traction by the end of that first year, VCs would have either pulled the plug on Smashwords or forced us to change the business model to something less friendly to authors. Yet I was stubborn in my belief that the world needed something like Smashwords.

By early 2009, the path forward became clear. I realized that the vast majority of readers hadn’t heard of Smashwords or our tiny e-book store at Smashwords.com. They were going to bookstores to buy books. So, we got the idea to become the Ingram of self-published e-book distribution. At the time, e-book distributors only worked with established publishers. We reached out to the major e-book retailers and offered to open their stores up to our self-published e-books. Within a short period of time, we had distribution deals in place with Barnes & Noble, Sony, Kobo, and Amazon, and, by early 2010, Apple named us one of their first global aggregators for what’s now known as Apple Books. By the end of 2010, we were the first to secure our self-published authors and small indie presses agency terms for their e-books, which gave our authors and publishers the ability to control their own retail prices and earn more than was possible under the prior wholesale terms that paid authors and publishers only 35-50% of the list price.

Once our books hit the virtual shelves of retailers, they started selling, and that changed everything for us and the industry. The economies of digital e-book retailing made it possible for retailers to stock every self-published e-book on their virtual shelves. Once the books became discoverable to consumers, they began selling.

The first authors to find self-publishing success were professional romance authors. These authors were sitting on a goldmine of professionally edited reverted-rights works. Romance authors began reissuing their reverted-rights books as low-cost e-books, and many found that within a month or two they had earned more self-publishing than they had earned during their entire publishing contract with the publisher.

These authors began hitting the USA Today and New York Times bestseller lists with increasing frequency, and each time a book hit one of these lists, it communicated to the entire industry that, yes, self-published e-book authors can publish with pride, professionalism, and commercial success. You can’t argue with commercial success.

What makes Smashwords different than other e-book publishing platforms?

Our DNA. Our business was founded by a writer (me) with an activist spirit to democratize publishing. We believe every writer has a right to publish a book. Every writer deserves access to the market. This doesn’t mean that every writer has a right to be read. That’s a decision for readers. Our job is to empower writers with professional-grade publishing tools and distribution services so their books can be discovered, considered, and purchased by readers.

The year after our launch (2009), our mission broadened to support small independent publishers as well. As we discovered soon after our launch, independent presses face many of the same professional publishing and distribution challenges as indie authors.

Back in 2008 and 2009, we were first-to-market with an e-book publishing and distribution platform for independent authors and small publishers. We were the first to open key retailers to self-published e-books, and, in the years that followed, we were the first to open public libraries to indie e-books.

In the decade-plus since our launch, Smashwords has continued to innovate by developing robust publishing, promotion, and metatadata management tools to help authors and publishers publish with greater success.
Although there are dozens of Smashwords clones on the market today, many of our most innovative inventions remain Smashwords-exclusive.

Our Smashwords Coupons feature, for example, was an industry-first a decade ago, and we’ve continually enhanced it with new industry-first capabilities. Today, no other distributor or retailer offers the same depth or breadth of promotional flexibility. On a fully self-serve basis, our authors and publishers can configure virtually any type of coupon, such as percentage-off, fixed price, and reader-sets-the-price; can designate coupon promotions as public or private; can control and extend expiration dates; and can also optionally limit coupon redemptions in the case of our metered coupons.

In the coming weeks, in another industry first, we’ll introduce a new book launch tool in the Smashwords Dashboard that utilizes patent-pending technology and methods. This free tool will help authors and publishers generate greater excitement for upcoming book launches, turbocharge platform-building, and build greater reader loyalty. We filed the patent application in October. It will be our most consequential innovation since the launch of Smashwords 11 years ago.

We’re the only leading e-book distributor that has also always operated its own store, and I’m pleased to report that sales through our store have been growing the last few years at a time when most retailers are seeing e-book sales decline.

Among some of the other popular and unique features of Smashwords are Global Pricing Control (allows authors and publishers to set custom pricing in 246 different countries and 152 different currencies, including different prices in different countries that use the same currency), Pricing Manager (enables rapid price changes for authors and publishers that manage dozens, hundreds, or thousands of titles), Smashwords Interviews (self-serve interviews tell the story behind the writer), and self-serve home page merchandising opportunities via our Special Deals feature.

How has Smashwords evolved with the changing desires of consumers and self-publishers over the years?

At Smashwords, we’ve never lost our startup mentality. Every day, we fight for the privilege to continue serving our authors and publishers. The prime directive at Smashwords is always to create better and better tools to help authors and publishers reach more readers with their books.

We listen carefully to our authors, publishers, and readers and use this feedback to guide our development. Each week, we’re releasing new features and enhancements to our platform. Some of these improvements are minor, iterative, or behind the scenes, and others, such as the new patent-pending book launch tool, are major initiatives that open up exciting opportunities for Smashwords authors and publishers to grow their publishing businesses.

Where do you see e-books in five years? Ten years? Is the market pretty much the same? If not, how will it be different?

I was browsing at a bookstore recently and reached to purchase a hardcover of a new release but had to put it down when I saw the price: $28.50. As an author who understands the work effort required to professionally write and produce a book, I can respect and justify the high price. As the operator of a small e-book retailer, I appreciate the public service provided by booksellers, and I want them to earn a profit margin on what I purchase. But, as a consumer, I’m torn. $28.50 is a lot to pay for a book when there are literally millions of lower-cost alternatives available for entertainment and knowledge building.

For this reason, I think the economics of e-books will continue to drive greater e-book adoption in the years ahead, but I see the adoption growing slowly. Print is still a great format. Print books aren’t going away. They will always remain a viable, albeit more expensive, format for consuming and collecting books. At a time when print books are facing upward pricing pressures, e-books are facing devaluation pressure.

In the age of digital books and online retailing, e-books never need to go out of stock. Retailers will want to stock all books, even books that sell poorly. This means that every day from this day forward, the virtual shelves of retailers will become ever-more glutted with immortal e-books that will never go out of print. This creates a market that’s ripe for commoditization, and such commoditization will not work to the author or publisher’s advantage.

We’re already seeing this commoditization play out in the case of Amazon’s Kindle Unlimited subscription service where readers have over 1 million reasons to never purchase another single-copy e-book again. With Kindle Unlimited, the world’s largest e-book retailer is training the world’s largest community of e-book buyers to essentially borrow e-books rather than purchase them, and when Kindle Unlimited subscribers read these books, the author or publisher is compensated less than one-half penny per page, regardless of the suggested list price of the book. The e-books that power the Kindle Unlimited catalogue are almost entirely supplied by self-published authors and small indie presses who’ve willingly surrendered their publishing and pricing independence to Amazon in exchange for the promise of greater visibility and sales at Amazon.

Today, it’s not uncommon for an author or publisher to be earning 80% or more of their sales from Amazon. These authors and publishers should be terrified. These authors and publishers are no longer independent. They’re one algorithm tweak from oblivion, as so many authors and publishers have learned the hard way. They’re dependent on a single sales channel that views the author’s or publisher’s profit margins as Amazon’s opportunity. Jeff Bezos was famously quoted once as saying that publishers’ margins were Amazon’s opportunity.

So in answer to your question of where the e-book market will be in five or 10 years, if things continue as they have, the future is looking pretty bleak for authors and publishers.

We have a situation here where e-books will continue to take market share from print books, and indie authors will continue to take e-book market share from traditional publishers, yet these e-books are taking share at lower and lower unit costs, and lower and lower per-unit or per-read profitability.

At the same time, we see the dominant retailer of e-books is becoming pay to play, where the “pay” involves authors and publishers making various concessions to Amazon in exchange for the promise of greater visibility in an already-glutted store. When an author or publisher feels forced to make their product exclusive just to tread water, that’s a concession that leads down a one way slippery slope to dependence. Or consider Amazon Ads, which utilize a pay-per-click model to auction off visibility to the highest bidders. Amazon Ads are simply another toll or tax designed to steal profit margin from authors and publishers. The downside of such an ad auction model is that top visibility spots get bid up to the point where there’s zero profit after the cost of the click. This means that visibility is up for sale at Amazon, and those who are unwilling to pay will see their readers sold off to the next highest bidder.

Let’s be clear. Amazon is engaged in the systematic theft of author platforms. Here’s an experiment that’s easily reproducible by any author or publisher: Click over to Amazon, and enter an author name in the search bar. It can be your own name or the name of a high-profile bestseller. Note how 20% or more of the search results on author name searches are for other authors. Often, Amazon sells off the first four or five search results to some other author or publisher, and often an Amazon-exclusive author, which, in effect, means they’re selling your brand and your platform to someone else.

The end result of Amazon’s policies over the next five to 10 years will be serious dislocation and disruption in publishing. As Amazon sucks the profitability out of publishing for authors and publishers alike, we’ll see more publishers go out of business. More authors will quit writing.

More authors who’d prefer to partner with a traditional publisher will be forced to self-publish. These self-published authors—stripped of the collective bargaining power of publishers and lacking any cohesive organization to advocate for them—will be forced to make ever-greater concessions to Amazon.
At the same time, we’ll see the failures of several Amazon retail competitors, especially among pure-play booksellers, because companies that rely upon book profits to survive cannot survive. As Amazon’s competitors fall by the wayside, authors and publishers can expect to see further erosion of e-book royalties, not just at Amazon but at surviving retailers as well.

I’m painting a bleak picture, but this future can be changed if enough authors and publishers stand up, say no, and fight to take back their independence.

What do you wish was possible in publishing that isn’t yet?

I have many wishes. I wish industry participants would adopt a longer-term focus. All too often, short-term thinking trumps long-term thinking in this industry. Authors and publishers spend so much energy chasing the quick fixes and latest Amazon algorithms that they can fall short on the basic blocking and tackling of professional publishing best practices.

I wish it was possible to achieve a vibrant ecosystem of multiple profitable and successful online booksellers, all working to connect the books from authors and publishers with readers. The opportunity for authors and publishers is greatest when there are more booksellers. Sadly, what we’ve witnessed over the last decade is that the entire industry—from traditional publishers to indie authors to small independent presses—has capitulated to a single online bookseller that controls the fate of all market participants. This retailer exercises outsize power and influence over which books are made discoverable and desirable to readers.

I wish it were possible for authors and publishers to break the yoke of dependence to retake their independence. I know it is possible, but only if authors and publishers start operating their businesses for the long term, and only if they make a concerted effort to reassert their independence. Author and publisher independence is something we’ll continue fighting for at Smashwords on behalf of all authors and publishers. It’s core to our development roadmap. But we can’t wage this battle alone.

Alexa Schlosser is the managing editor of IBPA Independent magazine. Do you have a story that might be good for the magazine, or do you have interest in contributing? Contact her at alexa@ibpa-online.org.

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