It's a gloomy time in the e-publishing business. DRM firms such as Digital Goods and now Reciprocal have folded; Netlibrary, a major e-book reseller, is out of money and desperate to find a buyer; even Adobe, an e-industry leader, is laying off workers.
But despite the economic downturn, there are a number of enterprising e-publishers and digital vendors that, by their own account, are flourishing. E-publishing service providers such as BookZone, Texterity and OverDrive report impressive growth and, yes, profits. In separate conversations with PW, the heads of these firms claim to have clients who both make and save money by offering and using digital content. Other firms involved in e-publishing, such as Fictionwise.com, an indie e-book publisher and distributor, and Books24x7.com, an online information resource, are startlingly optimistic at time when a sober pessimism might appear more appropriate..
In discussions with PW, the heads of these businesses cited experience, sensible economic assumptions, and still more new and flexible technology (including new handheld devices) as keys to their success.
BookZone, a privately held, Arizona firm originally launched in 1994 as a Web retailer. BookZone now offers publishers a wide variety of services that include Web hosting, e-publishing, POD, online retailing and consulting. "When the economy softened, we were worried that publishers would give up on digital strategies," said Mary Westheimer, CEO of BookZone, who reports a 21% growth in BookZone's overall revenues this year. "But most of our publishers are leaning on the Web more than ever." Westheimer noted, "The Web is cost effective."
OverDrive CEO Steve Potash and Texterity CEO Martin Hensel agree. "We've been in business for 15 years," said Potash. His Cleveland, Ohio—based company (www.overdrive.com) has gone from "diskette to CD-ROM to online publishing."
He said the firm has four revenue streams: software for easily building e-books; a service for conversion to new e-book formats; a "robust" business launching online bookshops for print titles; and e-book wholesaling and distribution through its Content Reserve unit. And the company is about to launch OverDrive Kiosk, a "virtual vendor" service through which any Web site can quickly "add a button that allows the purchase of popular titles. Other firms have tried it, but we have the relationships to get the inventory," said Potash.
Based in Southborough, Mass., Texterity (www.texterity.com) has been creating digital editorial systems for publishers since 1991. The company offers TextCafe, an automated technology that converts PDF files into repurposable files for the various e-book formats. Hensel dismisses the gloomy outlook on e-books: "E-books are growing 15% a quarter, based on royalty reports from resellers. It's a small base, but that's not bad." Hensel said that e-books are a great way to market print books, but they also represent "an additive market, a growing market of young men, new male readers and new customers" interested in science fiction, history, biography and action genres. "No one doubts the future will be about handheld devices, and e-books are a big part of that," Hensel said. "Publishers used to think audiobooks would displace print book sales, but now we know they're a distinct, lucrative market. E-books are on their way to doing the same thing."
David Parkinson is CEO of Books24x7, a online information source that offers corporations online access to a library of licensed IT and business information. Based in Norwood, Mass., Books24x7 provides its clients with the ability to offer their employees customized online accounts that allow them access to texts they need for their jobs. Launched in 1994, Books24x7 has "tripled sales" in the last two years, said Parkinson, and the company is "profitable".
Parkinson said the business is based on "easy and direct access to great content." The site has doubled its content providers (from 35 to 65 publishers) and provides content to more than 800 companies with over 300,000 individual accounts. "We saw a soft economy and built an aggressive corporate sales plan without adding employees."
When you ask brothers Scott and Stephen Pendergast, founders of Fictionwise.com, about business, they almost shout, "We're doing great." Launched 17 months ago, Fictionwise offers downloadable content in virtually every e-book format known. The brothers, who both have tech backgrounds, claim 300% growth in revenues over last year. "We'll hit breakeven in December. With a little luck, by the first quarter of '02, we should be profitable," said Stephen. The site is now adding more titles (1,000 now, up from the 400 it began with) and genres (the site offered mostly science fiction) as well as nonfiction. "We've gone from 9,000 members to 30,000 members, and two-thirds of our sales are repeat buyers," Scott said.
How do they do it? An efficient and "fun" Web site with lots of membership promotions, they explained.
Fictionwise customers get an account and perpetual access to the e-books they buy. "If a format becomes obsolete, they can get the book in another format, anytime," Scott said. And an aggressive affiliate program gives referring Web sites a 20% fee (B&N offers a one-time 5%—10% referral fee)—forever. Referral customers are "tagged," and the referring site gets a cut of purchases in perpetuity. And most important—Fictionwise doesn't encrypt its titles ("and never plan to"). "We don't believe in handcuffing our customers," Scott added.
"Other publishers don't believe our sales. But we're seeing a larger market because we hit all the different pockets," said Stephen. He elaborated, "The e-book market is a hundred times more fragmented than the print market, and the big Web retailers are better at selling print books than e-books—it's a day and night difference. We have an advantage. We sell to the whole e-book market."
