August 3, 2010

Nothing is more difficult than turning a plunder economy into one based on a more sustainable model. It also depends on one's perspective.

Every French my age learnt in school how Charles the Simple ended the Vikings' raids in France by giving them to rule what became Normandy. A true success if you discount the later fate of the Saxons of England and the Saracens of Sicily. A pirate would fain switch targets than alter his ways. For one accustomed to a life of pillage, the idea of earning one's bread on an honest market holds no appeal.

As the financial crisis has taught us however, the issue lies not so much with individuals as with the web of their relationships. A plunder economy can become too interconnected to be allowed to fail.

Take modern advertising for instance. Forget its limitless accumulation of private data. Forget the convenient fiction that anonymization brings safety. Focus instead on the complex environment described by Joseph Menn (*). "Dozens of companies [...] can be involved in analysing one person's visit to a single page includ[ing] sellers of data such as websites and advertising networks, and buyers such as advertisers and advertising agencies".

Interconnectedness cuts both way though. What is gained in strength can be lost in adaptability in the face of a catastrophic event. Cut sea links and the economy of Roman Britain falls apart, a prey ripe for raiding till the Normans took the whole lot. Joseph Menn ends his analysis with an ominous warning. "A continuation of a setup in which internet companies have wide discretion over how they use personal data is far from assured".

Little can be expected from toothless bodies in charge of consumer protection in the US and the EU. A working pronaocracy makes sure regulators are all bark and no bite. Remember ID theft? For the credit card companies, it is just a cost of doing business. For the credit report bureaus, it is a source of revenues. Who cares about you and me? Revolutions however do happen from time to time.

For the publishing industry, the revolution has come courtesy of digital readers. Lowering the price of the Kindle to $139, as Claire Cain Miller reports (**), "Amazon hopes [to have] broken the psychological price barrier for even occasional readers or a family wanting multiple [ones]".

Wait a second. Calling Eric Schmidt a rogue is fair. Hasn't Google casually engaged in what Peter Eckersley, of the Electronic Frontier Foundation", describes as "surveillance that is often covert, creepy and non-consensual"? But publishers are highly respectable representatives of the Industrial Age. Am I insinuating they too live out of plunder? The marginal cost of reproducing and distributing a book over the Internet being essentially zero, the truth is their old business model increasingly looks to the consumer like a formula for plunder. Wouldn't Yochai Benkler agree?

When John Gapper writes "[the publishers] cannot just rely on their old ways, either on the business or creative sides, if they are to strive" (***), he seems to echo Joseph Menn's warning to the advertising industry but with a slight difference. For the publishers, the catastrophe is happening now.

To these honest men who discover themselves plunderers, John Gapper throws this lifeline. "[Your] skills in choosing, editing and marketing authors remain valuable", adding "[you] rely on editors' taste and judgment rather than data to find new writers". Publishers would do well to meditate on this definition of their added-value. But look up Motoko Rich's lesson on the "math of publishing" (****). It computes the profit before overhead of a hardcover book priced at $26 as "$4.05, out of which [one] must pay overhead for editors, cover art designers, office space and electricity".

No doubt this reflects what her sources told Motoko Rich. But when an industry lumps the costs of its core competence together with utilities, any consultant worth his or her salt knows how improbable a thriving future quickly becomes. As shareholders demand it cuts its overhead, how can it maintain, let alone develop its added-value?

Meanwhile count on the other interconnected parties to raid what remains of the spoils left unattended by the enfeebled plunderer. According to Kenneth Li and John Gapper (*****), the literary agent Andrew Wylie set up his own "digital publishing business" and "struck a deal with Amazon" for twenty classics whose authors he represents and whose publishing contracts are old enough to predate explicit sales of digital rights.

Andrew Wylie roils the waters but so far his Odyssey Editions is a free rider which assumes the middleman it bypasses has already added its value. The revolution is the shift in control over the reader. Remember the Kindle and the iPad are both tethered devices according to Jonathan Zittrain's memorable label. Consumers do not buy electronic books from Amazon. They pay it for reading what is for all intent and purposes erasable at will. When they discover the difference, sure they may sue but, meanwhile, can they read?

Were this the sole control Amazon and Apple acquire over their customers! Read again Peter Eckersley's words. It may or may not be the case yet. But nothing prevents Jeff Bezos and Steve Jobs to record every page turn on their devices, no more than every mouse click on their websites.

Did I linger on my iPad over the story of Napoleon, the truffle hunting dog (1)? French restaurants near where I live and tourist companies covering Provence and Perigord will be glad to bid for me on iAd! Did I bookmark the page on my Kindle as did a thousand other readers? At Jeff Bezos' whistle, Demand Media will quickly bring back truffled cookbooks to add to our Amazon's suggested reading lists. Creepy.

Publishers are not blind to their fate. Kenneth Li has already told us magazine publishers have fought Apple over "[its] pratice of sharing with its partners little consumer data beyond sales volume" (******). But they must first clearly understand the nature of their business. Forget printing, it is to recommend books to readers. But in the Information Age, Apple, Amazon, Google, everyone turns out to make recommendations, a favorite topic of these fillips (2). And so publishers need to realize how they differ from this new competition as recommenders.

Living contradiction, publishers enjoy their editors' expertise but rest their business model on selling best sellers. Remove however the monopoly built around book printing and truth generating popularity is seen to belong to successful authors and their agents to whom it is assigned, large scale distributors by whom it is measured and popular recommenders like Oprah by whom it is manufactured. To remix John Gapper, publishers literally ask to "being squeezed from [three] sides".

Establishing a business model on expert-based recommendations is not an easy task. Retaining profitability while changing models is hard enough. Finding how to earn an honest living on recommendations is even harder. I do have a recommendation to make, however self-interested it may be. Why not evolve from being the authors' advocate, a role Andrew Wylie is keen to assume, to becoming a consensual recommender?

True, Apple, Amazon and Google compete as neutral, algorithm-driven recommenders. But their model suffer from two structural flaws. First, above a certain scale, there is an inherent conflict between transparency and protection from abuse, a bad smell now dogging Google. Second electronic reader distributors seem intent to build a wall between consumers and content providers. It may make billing efficient but the more their wall looks like the Berlin Wall and their data aggregation like the Stasi, the more consumers will want to escape to the West.

It is said the Vikings went as far West as to land in America. Forced to settle in Vineland, they failed to endure. Will publishers prove more wily?

Philippe Coueignoux

• (*) ........... Virtually insecure , by Joseph Menn (Financial Times) - July 29, 2010
• (**) ......... In Price War, New Kindle Sells for $139, by Claire Cain Miller (New York Times) - July 29, 2010
• (***) ....... Publishers need to be more creative, by John Gapper (Financial Times) - July 29, 2010
• (****) ..... Math of Publishing Meets the E-Book, by Motoko Rich (New York Times) - March 1, 2010
• (*****) ... Wylie eyes broad digital expansion, by Kenneth Li and John Gapper (Financial Times) - February 16, 2010
• (******) . Publishers warn of hurdles to iPad deal, by Kenneth Li (Financial Times) - July 23, 2010
• (1) to savor this tall tale, read Toujours Provence by Peter Mayle
• (2) for a detailed list, see "recommendation mechanisms" in the Major Themes index