/ 20 July 2011

Creative destruction

There’s something special about your favourite book shop. The smell of all those crisp pages, the comfy armchairs, those ranks of beautiful new covers. So I was sad to hear that Borders, a United States book seller, has finally conceded defeat and gone into liquidation.

It’s been a long struggle for the 40-year-old chain. Once the coolest new kid on the block, it signed its own death warrant in 2001 by agreeing to let Amazon.com — the online retailing giant — take over its website. The idea was that people could use Borders stores for browsing as well as picking up (and returning) books after buying them from the co-branded site.

By 2007 it was clear that the deal was lopsided, and Borders ended the relationship. By then Amazon had effectively harvested all of Borders’ online customers and the chain was too far behind to get back into the game.

We see the same pattern in its e-book offering: too little, too late. While it picked a decent device partner — the Canadian-made Kobo reader — it entered the market six months later than Barnes and Noble (its biggest direct competitor) and two-and-a-half years after Amazon.

It’s tempting to jump to conclusions here and assume the death of Borders is an omen for the entire book industry, but that doesn’t appear to be true. The e-book industry is booming. A year ago this week, I wrote that Amazon’s sales of e-books had surpassed its sales of hardcovers. By May 2011 its e-book sales were bigger than both paperback and hardcover combined.

It’s clear that e-books will hurt printers and distributors more than anyone else. Publishers are still needed to recruit, nurture and market new authors, and book sellers have a chance if they embrace the new electronic frontier.

And where printers and shippers have lost, independent authors have gained. John Locke recently became the first self-publishing author to sell one million copies of his book on the Kindle. Another self-publisher, Amanda Hocking, also sold one million copies of her e-books in a single year across multiple platforms, earning about $1.5-million in the process.

Does this suggest that publishers are next on the chopping block? I don’t think so. Self-publishers have more reach and power than ever before, but it takes an unusual hybrid of writer and marketer to hit the big time in that very competitive market. Suggesting otherwise is like assuming that entrepreneurs will eventually destroy all corporations, rather than becoming corporations themselves (which, inevitably, they do).

A near identical drama is playing itself out in the DVD rental market. While major chains like Blockbuster are closing, online based upstarts such as Netflix are flourishing. But it’s not all champagne for Netflix, which recently sprang an unpopular price increase on its legacy DVD rental market. They want to shift those customers to video delivered via the internet, where they make a higher margin, rather than via the post office.

So is this the beginning of the end for physical book and DVD rental shops? Certainly for the ones that add no extra value to their customers, yes. Big chains used to benefit from wide distribution, economies of scale and combined buying power. Now they seem slow and outmoded with cost bases that seem astronomical compared to their online competitors.

But the specialists have a chance, whether they offer hard to find treasures or just a great shopping experience. Browsing coffee table books on the internet is no fun, and nothing beats a coffee at your local book nook. Just as online shopping hasn’t made malls obsolete, e-books and online video won’t automatically kill all book and DVD stores. They need to wake up though — the wave is coming, and it’s not slowing down.

Follow Alistair on Twitter: @afairweather