Some Soft Nooky

I don’t get the strategy: Sure, I understand that Barnes & Noble wanted to extract the considerable hidden value from their digital (Nook) operations and were seeking a way to do that but, what is the Microsoft play here and should publishers’ be more worried than excited? 

The Nook business is growing at 30+% while physical store sales grew around 2% - which wouldn’t seem so bad if not for the fact that Borders shut for business, and it has long been reported that B&N wanted to carve out the digital business.  Along comes Microsoft and, in a somewhat opaque deal, we now have a “New Co” business worth almost $2bill and in which Microsoft will invest $300+ million.  That amount seems relatively small to a company with the resources of Microsoft and yet this deal is being lauded as Microsoft’s big play into the content business.  Competing with iTunes (mentioned by Forester) seems a big ask given Amazon’s head start although some suggest the Nook is a good example of how to come from nowhere to compete with a bigger player (Kindle).

The nature of the cooperation between B&N/Nook and Microsoft will be borne out over the coming years.  Some investors in “New CO” might be hoping Microsoft stays in Seattle and away from the Nook business since Microsoft’s experience in media content hasn’t been so stellar.  Examples such as their digitization efforts launched to chase Google might have been technically superior but the effort never seemed to get out of second gear.   Each successive time they were lapped by Google their commitment waned until they finally pulled the plug.  Zune was a similar experience: Some people loved the iPod-like device but a thirteen year old girl once summed up the Zune by saying ‘everyone knows when you have to advertise something it’s no good’.

Looking further back, a greater danger to publishers might exist in the example of Encarta, the encyclopedia Microsoft bundled with millions of PCs and in the process effectively destroyed the traditional encyclopedia business.  The traditional publishing business in its’ transition from print to electronic distribution has already witnessed significant price deflation and Microsoft in an effort to sell more hardware (X-Box) and software licenses is likely to jump on the price deflation bandwagon established by Amazon. 

Will Microsoft show impunity to traditional models as they did in the Encarta years?  Perhaps, but their objectives might be simpler: Gaining an anchor tenant to support their mobile strategy.  To me, books are long since a killer application (when was the last time you heard that phrase) moreover, I just don’t see how the relationship with Microsoft benefits Barnes & Noble/Nook other than giving the company a huge valuation on a business that was buried under the vestiges of the physical store model.  I guess you have to start somewhere but will Microsoft and their $300mm influence the trajectory that Nook would have achieved anyway?  I just don’t see it.

Encarta Dies

Earlier this week Microsoft announced that they were closing the Encarta encyclopedia operation. There is a write up on this news on the NYTimes Bits blog but I thought more interesting that that post was comment by Tom Corddry who worked on the Encarta team from the beginning. His self described 'grave side toast' is as follows:

I ran the team that created Encarta, so I’m standing up to say a few awkward words at its graveside memorial service. Encarta, may it rest in peace, deserves to be remembered more for its quality than you suggest. Your sources repeat several notions that were never true of Encarta-first, that the content from Funk and Wagnall’s was “low quality” compared to Britannica, and second that the value added by Microsoft was primarily “graphics and sound.” The text from Funk and Wagnall’s was far superior to Britannica’s as a starting point for a digital encyclopedia, because it was much more nearly “structured data,” meaning that the architecture of the text was very consistent from one article to the next. This allowed us to add a lot of “contextual” value–to compute the relatedness of every article to every other article, and build what was at the time a uniquely useful set of links and navigational tools across the entire content. Britannica, by contrast, was a bloated mishmash, a consequence of its long tradition of having articles written by many different celebrity authors. (I ghost-wrote one myself, in fact). By the standards of the print encyclopedia world, Microsoft invested heavily in expanding and updating the content of Encarta right from the beginning. We consciously invested in the contextual value just described, in expanding the core content, in creating the world’s first truly global encyclopedia, and in an efficient update cycle. We had enough “multimedia” in the original product to keep the reviewers happy, but focused on the overall usefulness of the whole product much more than on the relative handful of video clips, etc. I’d argue that within its first five years, Encarta became the best encyclopedia in history: it had tremendously consistent quality and usefulness across a very broad range of topics, and added a great deal of value by the relationships it illuminated between topics. All of that has been rendered a bit quaint now, but in it’s day it was an accomplishment worthy of a graveside toast. Encarta had more than “the potential” to unsettle the print encyclopedia business–it pretty much destroyed it. Print encyclopedias were dead, thanks to Encarta, before Wikipedia existed. We expected from the beginning that Encarta would eventually be superceded by online information-seeking. As brilliant as Wikipedia is, I don’t think that Wikipedia by itself killed Encarta. I think the Web as a whole made Encarta obsolete. I hope treasured old copies of Encarta will live on for a while in remote corners of the world, where people have scattered access to computers but little or no connection to the Web–school libraries in Africa, for example. In those places, even out-of-date copies of African Encarta, the only Encyclopedia of Africa ever published, will live on, and Joe Biden will forever be newly-elected. I’ll drink to that.

—Tom Corddry

In answer to several comments in reaction to this statement he has some further comments as well.

Live Academic: Crank Up The Volume

Few publishers would limit themselves to selling or distributing through one outlet when there were multiple routes to customers on offer at zero incremental cost. Microsoft, as the second guest to the party, recognizes this and is at pains to present that they will accept digital files from publishers or scan titles in a manner that creates no additional costs to publishers.

With their nascent book program, Microsoft – the big bully of yore - is defined relative to the incumbent but doesn’t court that comparison to their advantage. Microsoft has attempted a stealth approach in gaining publishers’ attention and cooperation via direct communication and visits and presentations rather than a more aggressive marketing and public relations program. At least that’s my explanation for their rather meek entrée into the digital book space. It will be interesting to see the level of interest in their presentations at BookExpo later this month. If the meeting I attended at London Bookfair is any indication where there were less than 30 people in attendance this could be another missed opportunity for Microsoft.

Microsoft need to court some controversy in order to draw attention to themselves. They also need to exhibit deeper knowledge and understanding of the publishing industry: Both the simple mechanics of the industry and the quixotic issues such as the inter-house struggles over international rights which are particularly relevant with respect to electronic content.

The Microsoft personnel involved in the Live Academic program all need to understand this material rather than just the front man. Google also took a long time to learn this lesson believing that their people were so smart they could fake it but this attitude was taken for arrogance and things got off to a bad start. The improvement was evident at London where the 60 min overview presentation of Google Book placed the program in the context of the industry and with the issues the industry faces. A second panel discussion leaned heavily on publisher experiences and Google barely needed to speak to get the positive point across. In contrast, the Microsoft presentation seemed to run out of gas after 15mins or so. The features are impressive but the delivery isn’t emphatic. In answer to a question about upcoming features, Microsoft diverged into a 10min presentation of the NYT e-reader product – interesting - but not on point.

Microsoft Live Search has over 30,000 titles available (once it officially launches) and the titles are displayed in a two pane system. The page layout is functionally more appealing than GBS. Moreover the user is easily able to export segments of highlighted text, link to abstracting and index products and citation services such as bibtext.

Microsoft is also emphasizing that the program is conducted with the full cooperation with publishers: Meaning they are not scanning books where the copyright is ‘in transition’ (in the words of Google). To support this emphasis on the publisher, the company designed what amounts to a publisher platform to manage the content in the Live product. Via this ‘platform’ publishers can set the level of preview rights in three ways: 1) percent viewable, 2) pages forward and back, or 3) contextual snippets. The publisher can also set territorial rights as well – geographic locations – all of which are assignable on a per-book basis. Not foregoing my earlier comment about understanding the industry, Microsoft seems to have recognized that the book is a unit of component parts and have made the permissions process so flexible that the publisher can even set rights for an image or table in a specific book.

The publisher also gets marketing and promotional options that enable branding (logos), promotional programs (links, coupons), commerce applications for ‘buy the book’ activities and links to online retailers. An appreciation of the importance of metadata to discovery also percolates and the company decided to license bibliographic data from a leading source and also capture the book text in multiple ways to ensure the rendition of the book was accurate and that the text was indexed appropriately. Scans are held in hi and low res images and the text is fully indexed and sits ‘behind’ the image. Current OCR technology is not sophisticated enough to replicate complicated page layouts that incorporate call outs, high lighted text, block quotes and the like. All of this gets scrambled via OCR. (The text of the title is captured in reflowable xml).

Microsoft suggest they want consumers to find books in places they wouldn’t ordinarily find them which is in search results and have made the point to publishers that the Microsoft program is another outlet for promotion and perhaps sale of their content. Regardless of the sound of this pleasant and appealing message it is far too quiet and what Microsoft should do is raise the volume. Google is bound to release a version 2.0(beta) of GBS shortly and would look to incorporate some of the best features of Live Academic. What will the message from Microsoft be then? My suggestion is to open up the content and allow web service and api access to the book content (with publisher approval of course). After all, who really wants a second closed content platform comprising similar if not duplicative stuff? Courting ‘controversy’ may be another way of gaining attention but I think that’s what Microsoft Live needs.

Google Book vs Microsoft Live Search

I will post more on this next week but the differences between the two presentations was considerable. Regrettably, Microsoft may have the better product. Regrettable, because on the basis of attendees at the respective presentations, few publishers will know it is better because few publishers bothered to show up at the presentation. This may have been partially due to the difficult to find conference room in which the presentation was made; however, MS only had about 20 attendees versus two Google presentations in front of over 125 in each case.

Microsoft have definitely learned from Google in the way Google approached the presentation and the management of the publishers' content. The display is visually more appealing in the Live case and they have incorporated a number of widgets that allow outbound linking which will be very useful to users and publishers. It is the publisher 'work-bench' that I identified as a key differentiator. In Live, the access for a publisher to manage the content - particularly content access, pricing and rights information - is especially functional versus the Google model. I will look into and describe the benefits to Live next week.

No publisher should market and promote their books exclusively through the Google Book program. Intuitively, most publishers would understand this, but why there were so few people willing to spend the time with Microsoft is shocking. Microsoft Live for Books is the new kid on the block and it would seem more likely that having heard the Google spiel numerous times, publishers would be very interested in hearing from someone else. Especially when that someone else has gone out of their way to support publishers copyright.