Thursday, February 15, 2018

Is Barnes & Noble the New Borders Books + More?

B&N Union Square building before conversion 1970  Michael Cairns
There has been some distressing news over the past two weeks concerning the bookseller Barnes & Noble.  Admittedly, this news comes on the heels of a cycle of less than encouraging news from the bookseller over the past year.  As noted in Publishers Lunch, Abrams Capital, a large investor in the company, has thrown in the towel and sold up.  And across the business, both at the executive and store level, staff are being culled in what can only be viewed as a broad effort to decrease operating expenses.  Regrettably, the company appears to be trading long-term staff knowledge and expertise for the short term benefit of variable hour workers.

B&N has been a very well run company and benefits from a strong balance sheet.  Oddly, this specific strength means the company can maintain a long glide path to the negative in terms of decreased revenues, locations, profit and pretty much everything else.  They don't have to service any significant debt and can still pay a dividend without any problem.  That's not near good enough for investors like Abrams Capital.  Their exit can only be interpreted as a recognition that they don't see any significant changes in the way the business will be operated strategically nor do they see any ability for them - as a large investor - to influence the operations of the business.  On this basis, why would anyone invest in B&N as a shareholder?  Over the past year, the S&P retail price index hasn't been that awesome (up 4.5%) but that's a lot better than this:



It's all very sad.  The leadership of the business under the Riggio's may not have been universally liked but they were very good, respected retailers through the early 2000s.  It now appears the same family isn't that bothered about the circumstances that Barnes & Noble finds itself.

I was reminded of this situation in the slow (and then rapid) demise of Borders.  During one iteration of new management there I "rewrote" a letter to shareholders which the then CEO George Jones had penned (See "What Borders could have said".  I thought his effort pretty dire.  At its essence Jones seemed to be doing everything possible to avoid addressing their primary threats.  My summary read in part:
These are not issues that Borders faces exclusively, but over the past three years, the company has failed to proactively address these marketplace changes. While our in-store experience has grown confused and directionless, miss-steps in our internal operations now limit our ability to support an effective platform for growth. We have to admit that continued investment in our store management and merchandising technology will not produce or enable the rapid changes in operating efficiency that is required to effectively implement our strategic goals.

Now, similarities abound.

In contrast, there is innovation going on in retail.  B&N with their brand, reputation, store locations and infrastructure retain significant power and advantage against competitors but these diminish at the hands of mediocre and disinterested management.

This is how the recent National Retail Foundation meeting was described in Forbes:
Retailers are not simply retailers anymore. In fact, they are becoming innovators and the think tanks behind new products. 2017 was a huge year for retailers like Amazon and Wal-Mart. Both made huge strides in automation, virtual reality, robotics, and using the IoT. They've clearly embrace the digital transformation and NRF showed that other retailers are ready to embrace it too.

Amazon finally opened the much anticipated AmazonGo in January, where customers just walk in and get what they want and walk out without having to stop and pay a cashier. I, for one, can't wait till this technology reaches other retailers. Imagine how much faster a trip to the grocery store would be.
Wal-Mart is expanding their e-commerce footprint and continually using their “Store No 8” or their technology incubation center to test out new tech that could be scalable in the next five years. With their recent acquisition of e-commerce store Jet.com, Wal-Mart is innovating day and night to change the customer experience for the better. “Whether it’s using VR and AR for associate training, automating the supply chain or using robotics in-store, Walmart and Jet.com continually work to save customers time and money.”
Do you see B&N taking on these opportunities in the same way?  Like I said, SAD.

Friday, February 09, 2018

The Value of Local Independent Bookstores


From Harvard Business School (Nov 2017);

Professor Ryan Raffaelli teams up with Porter Square Books in Cambridge, MA – one of the hundreds of bookstores he’s studied – to explore industries facing shifts in their business models and how they adapt. Independent bookstores provide a story of hope by focusing on core values that include community, curation, and convening.



Wednesday, February 07, 2018

Predictions Coming True: Media Services Group Acquired by Newscycle

Among the trends noted in the predictions post this week, I touched on the expectation of some consolidation in the applications software market.  Earlier this week, Media Services Group (MSG) announced that they were being acquired by NewsCycle.

Media Services Group was established in 1972 and their application software (elan) is used by book publishers, magazines and newsletter publishers and events and conference providers.  By their count they have hundreds of customers located in North America and Europe.  These customers include AARP, Hearst Business Media, Penton and other similar companies.  Increasingly, their solutions are provided to their customers as cloud based services.  Their customer base has been large enough for them to hold a well attended annual user conference in Florida each year.

Press release here.

Newscycle was not one of the companies I covered in my technology report because they primarily serve the global newspaper marketplace.  With the acquisition of MSG that profile changes but most importantly the heft and scale of Newscycle will provide MGS with more capability to expand and compete.

In their words, Newscycle systems power more than 8,000 media sites and publications around world, including 92 of the top 100 U.S. newspaper publishers. More than 70 percent of the world’s largest news media companies use Newscycle software.  For Newscycle, the addition of MSG market knowledge and software capability will allow the company to broaden the marketplace in which they compete.

Trend implications:

In the mid-market segment of the publishing solutions market there exists 10-12 software providers which are all in the $10mm to $20 in revenue range.  At that level, it can be difficult to achieve business scale, maintain consistent software development and support even modest ROI.  This is why consolidation and/or recapitalization in this space is likely since that is more likely to enable a succeeding business to expand, take market share from others and (importantly) compete more aggressively to gain customers.  Additionally, the ability to accelerate development will widen the technology gap between themselves and others in the space and allow the software company to add features and solutions that will appeal to ancillary media markets (like newspapers for example) to broaden their competitive market.

This Newscycle acquisition may change the dynamic in the mid-market for publishing technology.

Monday, February 05, 2018

Predictions 2018: Somewhere Else

Somewhere Else, Michael Cairns



Publishing gets more focused, builds community and seeks new technology experiments.  These are some of the themes I contemplate in this year’s predictions post.

Slimming:

More and more publishers will narrow their focus both in terms of their product lines and their operations.  In education, publishers with broad-based publishing programs will be at a disadvantage to those who go deep within select disciplines.   Look for more consolidation which ties product directed at particular subject areas and disciplines.   This concentration will create the scale publishers need in order to invest in and deliver additional services, content and other products to particularly interested communities.  For example, a company’s corporate strategy will be directed at becoming the only provider of business management, accounting and financial management textbooks and materials for the higher-ed market.  To a large degree, the health education market is already structured this way.

In back-office operations, publishers will seek to farm out non-core operations to third-party providers.  Likely candidates for outsourcing will be IT infrastructure, accounting and finance, and warehouse operations.  Core activities remaining in house will include editorial, production and content management.   These functions will become increasingly dominated by a “product management” philosophy similar to the way packaged software products are managed.  As a result, the definition of ‘product’ will be expanded beyond the delivery of a single textbook title to one which encompasses community development, gaming, life-long learning and other potential new products and services. 

Community:

LinkedIn is the ultimate business community.  Or is it?   For the development of expert communities and market places of interest, LinkedIn is a very poor solutions.  Increasingly content owners, educational and academic publishers and corporations are recognizing that the development and nurturing of communities of interest facilitates deep relationships with the content owner and the promulgation of new membership-driven revenue models.   Interestingly, some membership associations which historically relied on revenue from journal sales are facing declines in that source of revenue.  As a result, they have been forced to reevaluate the way they engage with membership in order to boost and/or expand their revenue base.  Zapnito is one solution which enables the establishment of expert communities centered around a core set of interests or subject areas.  Similar solutions enable and facilitate new models for engagement and revenue growth.

“Legacy” publishers with strong branded content “franchises” will also seek to build services, credentialing, community engagement and other similar products defined by their deep content inventories.  Think about the For Dummies Expert Knowledge Market where the platform enables credentialed practitioners to offer services and expertise across the spectrum of Dummies content.  For Dummies becomes a marketplace of products and services. The same model may apply for more ‘traditional’ educational content such as test prep (Kaplan) and business and accounting management.

Just do it myself:

We’ve all been aware of the maker culture where people use new technology to expand their DIY capabilities.  Within the science and academic communities, we are starting to see the publication of not only data and result sets associated with experiments but also the research models themselves, which encourages scientists and lay people to conduct their own experimentation(s).  How this trend will impact publishers is difficult to discern at this point; but publishers which encourage and facilitate this deeper interaction with the method behind and results of research content will have an advantage in building relationships with their target markets.

Increasingly, lay researchers have access to powerful tools and techniques for building their own models and conducting their own research.  As a result, non-academic researchers have discovered new planets and conducted their own local environmental research projects thanks to technology and tools formally available only to better-funded ‘experts’.  It is possible there will arise from this an explosion of new and well-conducted research, the distribution of which could be facilitated by publisher platforms.  Obviously, the idea of research conducted by lay practitioners will alarm many but, perhaps, we are on the cusp of a revolution in academic research which could mirror the demise of Encyclopedia Britannica vis-à-vis Wikipedia. 

I hear voices:

Siri scares me and my Echo is usually turned off.  Sometimes Alexa will say something apropos of nothing.   Who’s listening?   It’s not for me (yet), but voice-activated applications and products are the fastest growing segment of the consumer technology market.  They were all the rage at CES this year; so much so that a voice-activated toilet gained Kanye-like PR exposure.  At $5,000, flushing was never so expensive.

Voice activation is the front-end of an artificial intelligence revolution and these smart voice-activated devices will increasingly dominate our homes and work environments.   Serving up our favorite content may become one of the primary functions of these devices and any publishing company lacking an Alexa development team building ‘skills’ into their products may be missing the boat.  (See the above section on Dummies ‘how to’ guides).

Audio delivery of content must be optimized within editorial production workflows.  Think how much fun it’s been to do this for eBook formats!  Not only that, we can only guess at the manner in which users will seek material when they do it verbally versus ‘manually’.  This is going to require some amount of experimentation and research.  For example, when we search for things currently we often receive visual clues during the process.  Think about searching the TV listings on your television or scanning a list of search results on Google.  In a verbal-oriented world, we will miss these clues so what will replace them?

An AI bot could have written this:

Several high-profile content producers are using artificial intelligence to create content at a sophisticated level.  For example, Sports Illustrated has a tool named Arkadium which can create infographics from scratch and the Associated Press has used “Automated Insights” to create stories from the results of games.  As these types of tools are fine-tuned and improved, they will also mimic the editorial ‘voice’ of the publications in question.

It is only a matter of time before publishers implement AI bots and tools to create content typically produced by authors and editors (if they aren’t already).

However, across all industries, AI is likely to have a material impact on back-office, repetitive and non-value-added tasks.  Tasks like file formatting, data clean-up, document mark-ups and accounting functions like cash application and royalties audits will be taken over by AI bots in the short term.  These bots mimic employees’ activities and execute tasks more quickly and with more accuracy.  Staff are freed up to conduct more value-added activities.  AI is already being built into many application software products.   For example, publishers are looking for CMS products to offer/enable intelligent content optimization and repackaging which uses user analytics to make recommendations on content selection and delivery.

Some other thoughts on trends for the coming year:
  • Wired magazine profiled an augmented reality app developed by IKEA. (Ikea’s AR kit)  Their objective is to sell more furniture and what better way to do that than to be able to see the furniture in your own home? And the NY Times is experimenting. There should be many similar AR experiments going on in publishing.
  • Podcasting is still growing and growing.  Pod listeners have doubled over the last two years and publishers are getting into the act.   Macmillan is launching its “Case Closed” mystery Podcast.  And, of note, this format has successfully thrown up a whole new range of Pod casting personalities and stars looking for book deals.
  •  I think quiz books will be the next coloring book craze.
  •  Mergers & Acquisitions:  We’ve already started to see M&A activity heat up in the past 3-4 months and I see that continuing.   There will be further consolidation in educational publishing, a shake out in EdTech and perhaps some consolidation in the publisher software market.
  • Germany will win the World Cup (again).
Enjoy that?  Here are my predictions from past years:

2017: Predictions 2017: Subscribe To Me
2016: Predictions 2016: Education, China, Platforms and Blockchain.
2013: Predictions 2013: The Death of the Middle Man
2012: Predictions 2012: The Search for Attention
2011: Predictions 2011: The Growth of Intimacy
2010: Predictions 2010: Cloudy With A Chance of Alarm
2009: Predictions 2009: Death and Resurrection:
2008: Predictions 2008
2007: Predictions 2007

2007-2013: My Big Book of Posts & Predictions on Slideshare