Thursday, February 18, 2010

A Knowledge Based Business that might go away?

Ken Cooper, Founder of portfolio company EJ4 sent me a link to news about MacMillan (the publisher) and Amazon's deal to sell MacMillan titles on line. It seems Macmillan is using the power derived from owning popular content titles to capture the lion's share of the value, despite the fact that Amazon created the business in the first place.

It seems to me that despite MacMillan's short term power, they are the ones not long for this world. You see the reason that Publishers have historically had market power is because there has been a minimum necessary scale for book publishing. The costs in capital and distribution prowess were such that publishers could choose between a wide variety of content providers and select a small subset of their products to list. With the advent of online publishing and readers like Kindle and Ipad, the economics of publishing are radically changed. No longer is there a minimum scale necessary to bring a title to market, no longer can a publisher earn economic rents by being a branded gate-keeper. The true value creators - the authors - are now able to go around the publisher and deal directly with the e book sellers. Think about it as a shift from three tier to two tier distribution, with the publisher role parceled out among the e book seller and various niche service providers.

The result, no room at the Inn for the Macmillans of this world. And velvet for customers.

If you'd like further explanation of this content phenomenon, I recommend you read Chris Anderson's The Long Tail - using a Kindle, of course.

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