This post is a response to a blog written by the folks over at The Idea Logical consulting company. The blog lays out Mike Shatzkin’s predictions for the ebook market, dividing its future into four stages: vision, establishment, transition, and the new marketplace. In the transition stage, which will occur in one to three years, Shatzkin predicts:
Large horizontal aggregators (Amazon, B&N, and the full-line bookstores that build their offerings from wholesalers) will struggle to hold onto a large and loyal customer base as the vertical web increasingly takes hold. Almost all publishers will be among the zillions of sites offering direct downloads to consumers, many through explicit verticals that sell the books of their competitors (as Macmillan’s tor.com sci-fi site, presciently, is doing today.)
Much of the logic underlying this prediction can be found in another of Shatzkin’s posts, in which he discusses horizontal versus vertical markets. In this post, Shatzkin states that on the Internet, content is no longer scarce because any individual can write something and put it on a website. The issue for publishing companies, therefore, is no longer content creation but marketing. And, according to Shatzkin, Internet marketing can only be done cost effectively inside a vertical market because the Internet is organized by niche. Thus, vertical wins; horizontal loses.
The first part of this argument deals with the relevancy of publishing companies and is outside the realm of this response. The second piece of the argument, however, deserves a closer look. After all, there are a significant number of non-vertical, non-niche platforms of the web -- e.g. Facebook, Twitter, Amazon, Craigslist, etc. And, these platforms are highly successful in terms of users, (and with the exception of Twitter, all are successful financially).
While the benefits of vertical marketing are clear, Shatzkin assumes that you cannot market to specific niches using the existing, horizontal infrastructure. Google, among others, has proven this wrong. The context in which each user accesses these horizontal platforms and the user’s ability to search through content provides a pseudo-vertical environment in which companies can market cost effectively. As others have noted, advertisers can reach customers across the entire horizontal network or can focus on any combination of highly specific vertical networks contained within the overall platform. The horizontal web platform combines content breadth with marketing focus, resulting in a superior customer experience.
This customer experience, in fact, is what Shatzkin seems to ignore in his four-stage post. The Internet has changed quite a bit -- but it has not changed the consumer’s desire to minimize search and transaction costs. These are the non-monetary costs associated with using a service and purchasing a product.
Horizontal aggregators, like Amazon, Barnes & Noble, etc., minimize these costs for users by giving them a single place to search, browse, and buy. With a horizontal aggregator, users do not need to visit multiple websites with different content in order to make a final purchasing decision (as individuals do not exist in a single, exclusive vertical) and they do not need to create and maintain separate accounts at multiple sites. Disaggregating content would create real costs for users and would correspondingly lead to a decrease in overall demand. These horizontal networks have value, and that value is tied to the number of users and the amount of content offered.
In the case of Amazon, this value manifests itself most clearly in the relationships it is able to create and maintain with consumers. Horizontal networks can provide superior relationships because the availability of more products provides additional data points with which companies can better understand the needs of an individual consumer.
The introduction and subsequent growth of ebooks has changed much in the publishing business. However, these changes have been and will continue to be guided by consumer behavior and network economics.
