Our Platform Wars Problem

by Joseph Esposito

During the Internet Bubble era, some digital wag linked Bill Gates’s holdings in Microsoft to a real-time stock ticker and posted the figures on a Web page. Thus, you could see Gates’s fortune rise and fall in real time: up $10 million, down $5 million, up $5 million, down $1 million, up $15 million—and up and up and up.

Besides the bizarre and even masochistic pleasure in watching the numbers, there was a lesson in this: There is great economic value in owning a software platform, a suite of tools and services upon which third parties write applications. Get enough popular applications and everybody, and that means everybody, has to purchase your platform. As the Microsoft vision states, a computer in every home, a computer in every office—all of them running Microsoft software.

This lesson has not been lost on the bright fellows in Silicon Valley and its outposts around the world. It’s a new idea for the book business, however. Books have proprietary content (a book under copyright is a monopoly), but not proprietary platforms. Anyone can get a book printed somewhere or build a Web site for it; anyone can offer books for sale.

For book people, the word platform has usually been used metaphorically—as in “marketing platform”—to mean the sum of all the potentially publicizable connections surrounding a book or author that may enable a particular title to find a large, remunerative audience.

Not so today, however, now that three technology giants—Amazon, Apple, and Google—are implicating the book business in their attempts to establish a technical platform. These are big players—and, more important, smart players—for whom books are the equivalent of software applications.

Sunk by Side Effects

The idea is simple: get enough books running on your platform, and everyone will want to have access to that platform.

The risk for publishers, if not the likelihood, is that we will become collateral damage. Amazon is primarily an e-commerce business (and not just for books), Apple primarily a hardware company, and Google primarily a media company, and the fate of books for the coming years is likely to be subordinated to the strategic impulses of e-commerce, hardware, and media.

I have been drawn against my will into platform wars in the past, and I can tell any publisher that it ain’t no picnic. In the 1990s, I went to work for Encyclopaedia Britannica, one of whose divisions, Compton’s Multimedia Publishing, had developed one of the world’s first multimedia CD-ROM encyclopedias.

In the print era, Compton’s had been Britannica’s junior brand, used to help sell the senior product (“Buy Britannica for yourselves, and we will throw in Compton’s for your kids for free”). With the advent of CD-ROM, Compton’s came into its own. Priced at $800, half the price of the print Britannica, Compton’s multimedia product got rave reviews.

But it didn’t sell well. So it was reduced to $600. It still didn’t sell well. And that’s when the platform wars broke out.

Microsoft had perceived at that time that it was strategically necessary for people to view the operation of CD-ROM-based content as an aspect of Microsoft DOS, the predecessor to Windows. Thus, it was essential to get some applications for DOS-based CD-ROMs.. Hence the beginnings of Microsoft Encarta, a multimedia encyclopedia, sold directly to computer companies, using a method known as OEM (original equipment manufacturer) sales or bundling

Now you could buy a personal computer for the kids that came with an electronic encyclopedia. Note the pricing: a print set of Britannica averaged about $1,600; a personal computer with a “free” digital encyclopedia thrown in went for about the same price. Parents made the obvious choice: buy the kids a personal computer.

Compton’s responded by getting into the OEM game itself. I recall the first deals were for $25 per unit, sold directly to computer companies. Then when Grolier entered the OEM market with a competing product, the price began to drop. There were sales in the $15 range, then $10. A colleague of mine told the Britannica executive committee that he thought he could hold the line at $5 per copy, but soon the price of a CD-ROM encyclopedia had dropped to 50 cents.

Not long after that, I was approached by a computer marketer who wanted to know how much I would pay him to bundle Britannica with his computers. The benefit to Britannica? The exposure of the brand.

Books in a Supporting Role

I encourage all publishers who believe that aggressive e-book pricing by Amazon is a good thing to think again. And don’t stop thinking when presented with an opportunity (I almost put quote marks around the word) to price books for Apple’s iBookstore at $15.

If Apple could have gotten publishers to price the books lower, it would have. Indeed, how about free? Free is a good price. It will expose the brand, and don’t you want to participate in the future of the digital world?

Amazon’s strategy is to lock consumers into its e-commerce platform, for which the Kindle (both the hardware and the software versions) is the net. Indeed, there is now speculation that Amazon may start giving the Kindle away for free to its best customers as a way to monopolize their online book purchases.

Apple, on the other hand, is in the business of selling iPod Touches and iPads. The more books in the Apple bookstore, the better.

And if aggressive pricing means that the entire bricks-and-mortar supply chain goes up in smoke, who cares about all that old-paradigm stuff?

Book publishers have lost control over their own industry, and not because consumers have won. They haven’t—they will be no better off with de facto platform dominance than anyone else except the company that controls that platform.

Although the next year or so could still be a good time for consumers to stock up on e-books, it will not be as good a time to publish them. For the immediate future, there will be such a thing as an e-book, but there is no such thing as an e-book marketplace. The marketplace is for technical platforms in which books are premiums whose role is to support the marketplace for platforms.

Assessing Google’s Approach

It’s good to look at how Google is playing this game. Google does not control a proprietary platform; rather, for Google the platform is the Web itself, a point made brilliantly by Tim O’Reilly in his “What Is Web 2.0” article.

How can this be? No one owns the Web. But Google, as the index to the Web, occupies a privileged position. As more content comes online, the need to look things up in that index grows. This means more advertising to be sold on the many Google services. The Web is a rising tide lifting the fleet of Google’s many boats.

Google has arranged to display its new Google Editions through a Web browser, not through the proprietary formats used by Amazon and Apple. You can run a browser on virtually any computing device—including the iPad.

Google is also creating incentives for others to sell Google Editions, a kind of move that we have not seen from either Amazon or Apple. It seems highly probable that Google will make a fair amount of money from the sale of Google Editions. I personally plan to switch to a Google Android phone the moment Google Editions launches, and I imagine the bulk of my e-book purchases will be for that venue.

But Google wins twice—from the sale of Google Editions and also from the sale of marketing services that publishers will invest in to drive Web traffic to the various sites, including the publishers’ own, that sell Google Editions. This is the incentive Google has in promoting the Web as a platform.

Thus, the more e-books that are displayed through a Web browser, the better it is for Google. This does not mean that Google Editions are not in publishers’ interest. Indeed, I think quite the opposite. What is not in publishers’ interest is being in a situation where there is no escape from the platform wars fought by others.

What to Do Today

The good news about these platform wars is that no one has yet won. For publishers, the best strategy is to be present on all the competing platforms while exercising judgment as to timing and pricing. This is also the time to explore other venues.

And perhaps it is the time to wonder why it is that people outside the book industry developed the first major online bookstore, the first sexy e-reading device, and the premier search index to books.

With all the knowledge to be found in books, one might have hoped that publishers and not technologists would have carved out the path to the industry’s future.

Joseph J. Esposito is CEO of GiantChair (giantchair.com), which provides direct marketing services to the publishing industry on the Internet. Previously the head of his own consultancy, The Portable CEO, specializing in all aspects and segments of publishing digital media, he has been an executive at Simon & Schuster, Random House, and Merriam-Webster as well as at Encyclopaedia Britannica. To reach him, email espositoj@giantchair.com.