Tim O’Reilly, the founder and C.E.O. of O’Reilly Media, which publishes about two hundred e-books per year, thinks that the old publishers’ model is fundamentally flawed. “They think their customer is the bookstore,” he says. “Publishers never built the infrastructure to respond to customers.” Without bookstores, it would take years for publishers to learn how to sell books directly to consumers. They do no market research, have little data on their customers, and have no experience in direct retailing. With the possible exception of Harlequin Romance and Penguin paperbacks, readers have no particular association with any given publisher; in books, the author is the brand name. To attract consumers, publishers would have to build a single, collaborative Web site to sell e-books, an idea that Jason Epstein, the former editorial director of Random House, pushed for years without success. But, even setting aside the difficulties of learning how to run a retail business, such a site would face problems of protocol worthy of the U.N. Security Council—if Amazon didn’t accuse publishers of price-fixing first.
Doesn't sound a great place to be - sitting in the middle and being eaten alive. On the one side are Amazon, Apple and Google, who are dealing the whole bookselling business a double whammy: the low price, high volume, direct route to the consumer is undercutting bookshops; their market power and the rapidly growing ebook format are also driving down publishing margins potentially making big, traditional publishing totally unprofitable. On the other side are authors, from established to fledgling, who are increasingly likely to sell direct to their readers usually through one of the new players. The biggest question posed by the article it seems to me is who is going to gobble up most of the publishers' pie?
More generically, the catastrophe that's looming for traditional publishing fits well with this analysis of why complex business models collapse (it's by web guru Clay Shirky).
By the way, the author of the article is Ken Auletta, who about twenty-five years ago wrote 'Greed and Glory on Wall Street: The Fall of the House of Lehman'. I recently re-read it as I wanted to be reminded of the last time Lehman had 'fallen', in the early '80s (that time the firm had survived, it just lost its independence). It had also nearly gone bust in the early '70s and a number of times before that.
Securities businesses - that is ones that broke and trade shares, bonds and nowadays derivatives - have a tendency to do this once in a while. Like sheep they can sometimes suddenly and without much warning go tits up. They trade over-aggressively and get stuck with unmanageable losses when the market changes. That this happens to one or two every few years is really unavoidable. Unfortunately for us, nearly all banks today incorporate a large securities business.
Few in the UK appear to be taking financial reform very seriously despite it being, after the deficit, the most important issue the country faces. There's only one real long-term solution to the risk presented by the City's unprecedentedly large securities operations and that's to shrink them. They need to be made less important, more manageable, more easily killed or rescued. To get from here to there you could make the business less profitable by hugely increasing capital requirements, or you could reimpose a split between commercial and investment banking, or both; and I'm sure there are other solutions.
Unless we do this, when the next securities business goes bust we won't be able to let it fail without the rest coming down; but we won't have the resources to do so, it will be too big. As a consequence, the whole lot will come tumbling down after all, the financial system will collapse and the country will go bust too. Global depression will ensue.
Not that anyone cares. I'm not optimistic anything substantive is going to happen (cf. Shirky above). Anyway, what was that about +/-1% on employers' national insurance?