Brave E World?: Pixel Power
Steven M. Zeitchik -- 12/20/99
As reader devices gather press attention, a slew of companies looks to deliver

The town of Maynard, Mass., is an unassuming place; you've probably seen it a thousand times in a postcard or on TV. A New England hamlet 15 miles west of Boston, it features a patrician town square, a main street that can only be described as quaint and, as you move away from the commercial area, Colonial homes that sit on considerable acres of property. Even its largest office complex is unimposing, from the outside, anyway: a low, sprawl of buildings that was once a wool mill complex snakes its way through a parking lot, with activity in and out rather subdued. An improbable choice for a revolution, really.

But walk its corridors and you™ll see that it's one of the nerve centers of the New Economy. The signs above the office doors read like a who's who of startups -- Monster.com, Computer.com, Quack.com. In fact, as the former headquarters for the Digital Equipment Corporation, it was one of the first buildings in the country to be wired for the Net.

So when it came time for Peanut Press, the publisher that sells digital books for reading on palmtop computers, to move out of its virtual offices in living rooms and basements, it made perfect sense to come here. Indeed, in pockets across the country, near Boston, Seattle, San Francisco and elsewhere, the coup is quietly plotted. Loosely grouped under the rubric "electronic publishers," these companies have as their collective mission a better way of distributing books. Some fancy themselves software companies, others prefer to be called content-managers, still others like to be known as digital distributors. If their means are different, their ends are, at heart, unified: to fundamentally disrupt the business of book publishing and bookselling -- not the writing or editing of books, but everything that happens afterward, or, in New Media- speak, the way it is distributed to, and consumed by, the end-user.

Until recently, the media has focused on companies producing dedicated reader devices (as opposed to e-books, the content that is disseminated electronically). This happened in part because these companies, Softbook and NuvoMedia, were the first out of the gate, and in part because they offered the most tangible product, an attractive portable device with the ability to hold multiple titles. But several factors have combined to give these devices a mixed reception. The devices have not met sales hopes, according to many. With a customer base that's never given a thought to "platform," the hurdle of convincing a substantial group to spend hundreds of dollars before they even buy a book has loomed large. "The people who should be worried are the Rocket eBook types, which pains me, because I hate to see innovators getting hurt," says Byron Preiss, founder of digital and print publisher iBooks."

Instead, Peanut Press, along with Fatbrain, netLibrary, Glassbook, iBooks, Microsoft and others, have bypassed this obstacle by concentrating on other parts of the business. They've created software, coaxed publishers to part with content and, with this material in hand, set out to distribute books to the myriad digital devices already in circulation. For most, capital has been forthcoming; Fatbrain, already a public company, recently locked up $20 million from Paul Allen. Yet for all the similarities, each company has a distinct identity. To confuse Peanut Press with Fatbrain would be akin to lumping together, say, HarperCollins and the New Press. That's not to say many of these companies can't, or won't, co-exist with another, just as books from both Harper and the New Press flourish. But a nuance here, a slightly different focus there -- all help set off one startup from another and spell the distinctions that could make the difference between billions and bankruptcy.

A Platform of Their Own

Before a company even sends out its first solicitation for venture capital funds, it has to grapple with the question of format. Who is it targeting? How d s it want this audience to read these books? For Peanut, the answer came with the boom in Personal Digital Assistants. These PalmPilot, Handspring Visor and Windows CE machines have an installed base of millions who use them for e-mail, Rolodex functions and appointment reminders. These are people accustomed to reading on small screens. Peanut simply asked the question: "Why not make them book readers, too?" Meanwhile, the company can package, say, a travel guide with a road map and other value-adds.

Net Library believes not merely in keeping it digital, but keeping it online. Modeled more like a library than any of its competitors (to the absurd point that when one user has a book "out" at a given library, another customer can't read it at the same time), the company began by courting libraries, which pay a licensing fee for a set amount of content and then make that available to their patrons as HTML files on the Web. This content is not downloadable. At the same time, the company has undertaken a push into the consumer market. Radio and magazine ads appeal to students who need a title on a moment's notice. NetLibrary allows them to log on and obtain access in minutes. With more than 100 publishers aboard, the Denver-based outfit seems primed for several markets.

Digital distribution d sn't necessarily presuppose a paperless world. While Fatbrain is one of those companies that d sn't seem to know whether its mission is born of convenience or ideology, what it d s know, at least for the moment, is that it d s not operate in a paperless vacuum. The technical bookseller formerly known as Computer Literacy announced the creation of eMatter at Seybold this past fall, with the stated goal of allowing authors to publish work longer than a magazine article but shorter than a book, all in PDF format that's distributed via the Web. The rationale? Readers would prefer to print out text rather than read onscreen, and longer work would be too unwieldy to print. (Shorter work, of course, is already covered by magazines.) Conveniently enough, this new genre allows Fatbrain to get around the question of whether or not it competes with publishers.

So what happens when people are comfortable reading onscreen or can print out longer work? "Our customer research is really clear -- none of them are going down to the electronic store and saying, ˜I want to read a Stephen King novel in another format.' That's why we're not going after content that's in book form," says Fatbrain CEO and founder Chris MacAskill.

But perhaps the biggest example of convergence between paper and electronic publishing comes from Byron Preiss, the book producer who has decided to make every one of his print titles (more than 30 per year) available as electronic editions in PDF, HTML and other formats. One book will be given away per month, and the rest will be sold. He's not worried about cannibalization; he feels, like many who give away content on the Web, that print sales can only benefit from the digital exposure.

The Content Is the Message

Preiss's status as a publisher gives him ready-made content and eliminates the need for entanglements with other houses. It also makes him less ambitious, but he maintains that such aspirations don't really make sense anyway. "Are we going to repeat the mistakes of a superstore and be a huge warehouse of electronic data? Or are we gong to try and reach those people who want these books more, because the Web allows us to reach these smaller markets?" he asks. These comments only begin to hint at the momentousness of the content question. How much? Where from? And what do the boasts of title totals (see chart) really mean?

Peanut Press looks to circumvent some of these questions by acting as much like a traditional publisher as possible. It resists New Media platitudes about democratizing publishing. No vanity material is sought, and the house is so steeped in traditional publishing that it says it will seek co-op. But this poses a different issue: the more a New Media company walks and talks like a traditional publisher, the more it threatens the very partners it presently seeks.

But if Peanut is hewing closely to a traditional model, other companies are pursuing the more-is-better approach. 1stBooks.com offers downloadable e-books in PDF format. The site claims to offer 2000 titles that are divided among vanity, out-of-print and traditional works. NuvoMedia has also offered its site as a publishing platform. NetBooks.com offers downloadable e-books in an unusual proprietary format that allows for the inclusion of illustrations and photographs. The site offers a little over 300 books and once again offers a mix of subsidized publishing and OOP titles. Some of these presses, like Publishing Online, have gone considerably out of their way to get their hands on quality material. (The Seattle vanity e-press held a contest for best original work, with $50,000 going to the winners.) Companies with more rigorous editorial screening, such as Hard Shell Word Factory, make their books available online as well, as do unusual candidates for e-publishing like agent Richard Curtis. For many of these houses, out-of-print and self-published work provides a sufficient economic backbone, if insufficient to attract large amounts of traffic.

But a problem arises when this out-of-print or self-published work also becomes desirable to traditional houses.

Consider the case of Wendy Goldman Rohm. When the author of Times Books' controversial The Microsoft Files gleaned new information on the company from the Justice Department hearings, she didn't go to her publisher; she went to Fatbrain and began selling it as eMatter -- for $4.95 a pop. That's one less value-add Times could have used in future editions. Royalties on sales of the 17-page document are split evenly between Fatbrain and the author. In a situation like this, everyone wins -- except the print publisher. "It's just a mess," concedes an executive at another house. And it's likely to get messier, as houses rethink frontlist marketing plans. This also leaves companies like Fatbrain caught between Scylla and Charybdis. At the moment, many of its titles are vanity, which leaves it open to criticisms that it is not a serious publisher. On the other hand, when it takes content from traditional publishers, it has to be careful not to step too hard on anybody's t s.

As authors start going directly to electronic houses, the potential for lost sales increases. That puts a lot of pressure on publishers to get involved, which in turn raises the stakes even further. Said one official at a large trade publisher: "There's a lot of goodwill that gets used up. If you tell the agent you're going to sell it electronically and then you come back with only 13 copies sold, then they're going to look elsewhere." And so the houses also find themselves in a catch-22: if they hope to convince agents to give up electronic rights, then they need to raise expectations. But the higher the expectations, the more likely the agents will be disappointed and take their business elsewhere.

Original work that edges into publisher territory isn't the only dilemma faced by electronic publishers. Fatbrain is a textbook example of a publisher that's moving from a professional to trade market, jerkily, and often with confusion on the part of the very people who set the change in motion. "We don't know what's going to happen," MacAskill says. "We've let the genie out of the bottle, and once you do that, you'd better support it. We definitely want to keep Fatbrain moving forward as a professional site. But we may start a separate site." Companies like Books 24x7 are staying focused on the professional markets, an area they think offers more short-term potential than the general trade. Many other companies look to find existing markets to sell books. NetLibrary's David Melancon, for instance, says his company has little interest in selling fiction or any other books that are "immersive"; instead, it hopes that students will look up a chapter online and keep the printed chapter on their shelf.

That Company in Redmond

Dick Brass is a confident man. At publishing conferences, the man charged with bringing Microsoft into the digital publishing era is known to show a slide presentation in which he takes out his figurative crystal ball and makes some bold predictions -- that one day, maybe even in the aughts, the New York Times will cease paper publication, or that we might buy books not as discrete units, "the way we buy meat," but rather as a subscription, or as part of an e-book club, or by the word.

Brass has more than just his own reputation on the line. The company that employs him has shown a fervor for electronic books that at once encourages and depresses potential competitors. With its most recent move -- the inking of a partnership with Donnelley -- the company has shown a willingness to grease the market for everyone else. Microsoft's crown jewel is something called Clear Type, so-called subpixel technology that some users rave brings a screen closer to the look and feel of paper than anything that has come before, which it use in its e-reader. By employing this technology, Microsoft hopes to create a standard product for digital reading on any device, which it will in turn license to anyone -- content packager, large publisher, e-commerce site -- who wants it. Microsoft's considerable money and cachet makes it one of the few companies that can compensate for a lack of first-mover advantage. This has propelled fears that Microsoft is signing exclusive deals and making the world unsafe for competitors even as it makes it safe for its own brand of e-books. Brass, of course, believes this to be alarmist hogwash.

"Think of us as making the printing presses and the binding machines and, to some extent, the electronic

paper, and then making it available to publishers, Web stores, booksellers," he says. "We're not going to compete with anyone in the content creation and distribution business." He adds, "There are guys who are in the business of selling content. The format is a plumbing issue. We happen to be really good plumbers."

That should make a different Roto-Rooter man a little nervous. Len Kawell, founder of Glassbook, based in Waltham, Mass., looks to concentrate exclusively on reader software using PDF technology -- a format that can display the original look of a printed book. The entry of Microsoft would essentially compete with Glassbook and Glassbook's partner, Adobe Acrobat, head-on. Kawell, who recently unveiled the beta model for his device, says he's not concerned, but one wonders.

Eventually, Microsoft, or Glassbook, or any other company that produces reader software (such as Peanut) embraced by readers will become the Donnelley of its day. But it will also do more. By signing partnerships with publishers, it will set the tone for specialized bookstores on the Web. Brass talks of a day when Microsoft e-stores abound on the Web -- little cyberplaces where you can read anything you want in as clear and flexible a format as you would like, while Microsoft profits like any company with an affiliate program.

All of which raises the question: What will serve as the consumer interface? Peanut has a bookstore, but how many people do you know who've visited it? NetLibrary has a high consumer profile, but it still d sn't have the budget, nor it seems, the ambition, to become another Amazon. Most large online booksellers have stayed away, with the glaring exception of B&N/ Nuvo, a partnership not likely to win any other bookselling supporters. (Note to indie booksellers: this is a chance to get in ahead of the big guys.) And for companies with complex systems, like Fatbrain, there are no easy solutions. "We would like a model where we can sell eMatter on other people's Web sites," MacAskill says. "But it's not a simple thing to administer." In the meantime, publishers wait for a clearinghouse, even if they're not building it themselves. Says Peanut's Segroves, "When we get into the third and fourth phase of this, one of the things that's going to have to happen is an e-Books R Us." Specialization also seems essential. As Preiss says, "Anybody with monetary resources can scoop up 10,000 books, convert them to HTML and put them on Web. The greater challenge is reaching the smaller markets."

For now, however, publishing has its hands full simply trying to handle the shifting distribution systems. And despite the seeming democracy, even chaos, of electronic publishing, the histories of both the Net and book publishing suggest a different future. "What we're seeing right now is not what you will see. There's going to be consolidation and shakeout," proclaims Peanut Press chief information technology officer Dave Pasc , before adding wistfully, "Hopefully we'll be one of the bigger guys."

Versaware: Tomorrow's E-Publisher Today?
As traditional book publishers adapt to the new digital realities, electronically enabled texts of all kinds are poised to transform not only how the book of the future will look, but how the publishing company of the future will operate. New print-on-demand ventures, such as Barnes & Noble's new e-publishing pact with iUniverse.com; a similar alliance between POD publishers Xlibris.com and Replica Books; or even e-matter, Web retailer Fatbrain.com's new foray into Web-based e-publishing, all suggest a possible business model. But Versaware, a software development company focused on content and publishing, may have a leg up on them all, offering consumers and businesses everything from digits to paper to a virtual publishing and e-book community online.
Founded in 1997 in Israel and New York City by Harry Fox and Sol Rosenberg, Versaware is based on the potential of digital technology to transform the publishing industry. "We're a technology company," says Rosenberg, "that delivers branded content and added value on the Net with the greatest flexibility." This flexibility is built on the company's proprietary Versabook technology. Introduced at the 1998 London Book Fair, Versaware converts print reference content quickly and economically into digital text with full multimedia capability -- CD-ROM, DVD, downloadable text or Web pages -- enhanced by the ability to update easily and arrange the texts in searchable, customizable databases. Versaware's newest venture, eBookCity.com, will offer thousands of e-books for sale and for free, in addition to print-on-demand and a full range of digital and subsidized publishing services to individuals and businesses.
From the beginning, Versaware also presented itself as a digital content broker, partnering with authors, publishers and portals to deliver texts in all formats via the Web. "We've made a couple adjustments along the way," Rosenberg tells PW, "but this has been our plan: to develop the ability to assemble libraries, to work with portals to market content and to build a digital business model one step at a time and then show publishers how it can be done."
Tina Ravitz, Versaware's chief operating officer, outlines the company's three revenue sources: electronic publishing services; royalties from leveraging content through deals with portal sites such as Lycos.com; and e-commerce from ebookcity.com and revenues from downloadable titles sold through Versaware's own online stores and through barnesandnoble.com. In late 1998 Versaware launched a multimedia Web portal (www.funkandwagnalls.com), reference center and online bookstore constructed around free access to an online, multimedia-enhanced edition of the 29-volume Funk & Wagnalls Encyclopedia. Versaware has textbook and reference conversion agreements with Pearson Education and has formed alliances with SuperKids.com, the children's educational software site and consumer entertainment portal XOOM.com.
But it's Versaware's eBookCity venture that looks to complete its corporate strategy. The site will offer access to thousands of Versaware titles and Ravitz tells PW the site will also support e-publishing's newest preoccupation, self-publishing services to individuals and businesses. The site also offers an unusual new feature, virtual office space, which Ravitz describes as a online office environment utilizing homepages, message boards and real-time chat.
It's tempting to speculate whether the firm might adopt a more traditional frontlist-oriented publishing program as well. "It's a possibility," Ravitz says. "We don't want to scare our partners or cannibalize the print industry. But the industry is changing. People will be compelled by the advantages of digital texts and that will provide opportunities for us."
--Calvin Reid