Here is what we know about publishing. It is going digital, and that means traditional publishers have to switch their complementors — the term we use to describe firms that do essential things but are not strictly suppliers. Traditional publishers’ complementors were printers and distributors. Their new complementors will be whoever can get their digital editions to consumers most effectively.
The problem they face is this: printers and distributors were a dime a dozen (well, in most places and even in the UK after Rupert Murdoch broke union power in the 1980s). That means that what publishers paid for those services was as low as possible. Now we know that relative to what can be done digitally, that amount was too much.
That said, for a while the digital revolution looked like extremely good news for publishers because the technology for delivering content to consumer — the web browser — was freely available. To be sure, consumers had to pay for Internet access, but delivering words (in contrast to rich media, like videos) was still pretty cheap. To publishers, the revolution looked open for the taking, without any significant players in the way.
It turns out that consumers had more to say. They wanted to read and read comfortably. To be sure, getting snippets of news was possible on a computer but what you lost was “reading position” — comfy chair, cup of tea, reading lamp, what-have-you. Consumers would pay to get that back, so they purchased eReaders and, more recently, tablets to do just that. Moreover, it turns out that consumers wanted more flexibility than reading through a web browser provided. Many wanted their content to be accessible online and in formats that are challenging for web browsers to provide.
Thus, just as publishers saw costs being shattered and power moving back their way, a new roadblock complementor stood in their path: the owner and controller of the software powering eReaders and tablets. Of course, here Apple’s iOS is currently the market leader, but Google’s Android and HP’s WebOS are waiting in the wings. As is well known, Apple maintains tight control of its iOS and imposes various rules on content and also how content is paid for. Google takes an opposite approach, seemingly on a strategy not to earn money in that market at all — at least not directly. In either case, publishers will be at the mercy of whoever controls the operating system of tablets users have purchased.
At the heart of the issue for publishers is not tablet design and rules, but how to get users to pay for digital content. These functions can be built into the operating system — desirably so for security purposes. But salvation for the publishing industry may lie in making purchasing easy, just as Apple did for digital music and Amazon did for eBooks.
For devices connected to cell phone networks, the Verizons and AT&Ts of the world represent organizations that could collect fees. But others have popped up to simplify the process. Journalism Online’s PressPlus is one, and last week Google announced OnePass. Both represent a way for publishers to offer users a payment mechanism and then a simple way to collect those payments. Google’s offer is interesting because it charges publishers just 10% of revenues for the service. (Of course, Apple with its 160 million iTunes accounts already banked is waiting to get its piece of the action, but that is a story for another post.)
For small publishers, joining up with a payments platform is an easy choice (see the equation at the end of the last paragraph). But for larger publishers, it’s more complicated because the system may result in entering a more competitive market for consumer attention. And if all of the large publishers stay out, then no amount of transaction cost reduction will get consumers hooked. But if Google can attract significant publishers, like large department stores in a shopping mall, the game will change.
Put simply, publishers must choose their complementors carefully.
One problem is that Google’s transparency and, at as least stated, sense of fairness prevents them from doing what mall owners do: dropping the rent for anchor tenants. That suggests that while OnePass is a good idea, some restrictions on its business model open up the market for others to supply the service in a more discriminatory manner. It will be interesting to watch as these moves evolve.