Been reading about the publishing industry lately, and how radically it’s changed.
If you wanted your book published previously you had to go through a publishing house. Publishers came in all sizes, big ones, medium ones and smaller niche, specialist ones. Not anymore.
By 2008, niche books accounted for 36.7% of Amazon’s sales.* By 2006 the traditional Pereto model of 80/20 had already been adjusted to 72/38 for online sales**, as the traditional constraints of finite storage space, manufacturing costs and ability to search were removed. This trend preceded the move to digital (Kindle, iTunes) which has accelerated this further.
Chris Anderson first coined the phrase ‘long tail’ in 2004 to describe the gradual shift away from the traditional Pareto model of distribution, to the new longer tail of distribution triggered by the digital revolution.
It isn’t all good news to aspiring authors. Quoting a report by The Times, ‘Get Publishing’ from Infinite Ideas quotes some sobering statistics from 2007 when there were approximately 200, 000 books for sale in the UK, of which 190, 000 sold fewer than 3, 500 copies. Of 85, 933 new books published that year, 58, 325 of them sold an average of 18 copies. The top 5% represented 60% of book sales.
So, a long tail no doubt, but not a particularly fat one yet, although many would argue the trend is that it’s getting fatter. What is unarguable is that a very small number of huge publishers thrive, and a very large number of niche, specialist publishers are enjoying a new found ability to distribute their books without the usual constraints of dealing with a shop which can only afford to stock bestsellers. It’s the mid sized houses who have suffered. The internet creates no real limit to the length of the tail, it goes on for ever. It’s never been easier to get published, although its debatable whether its much easier to get read. Certainly it isn’t easy making money from writing, the Society of Authors estimate the average author earns less than £7000 per annum.
Most product manufacturers base their distribution models on traditional 80/20 Pareto assumptions, expecting constant consolidation in the IFA sector. I’m not so sure that’s going to happen. It’s really difficult to grow an advisory business to significant scale. Nobody has done it successfully and sustainably despite throwing hundreds of millions at it. The few notable exceptions are not IFA models. Providing advice ultimately requires experienced people and ongoing expenditure, capital only goes so far. Regulatory costs will continue to squeeze the very small firms but I doubt we will see much of a shift at this end of the spectrum beyond a gradual increase in multi-adviser businesses. Conversely, some networks and nationals will collapse or merge. The tail gets fatter.
It’s all guesswork but it isn’t unthinkable that 80/20 could be 50/50 in a few years time. That upsets a lot of manufacturer distribution models which are shrinking sales teams and focussing in on a core number of relationships. If they have to go hunting for business again they won’t have the sales staff, the relationships, or the available margins to pick this up quickly. It’s one of the reasons why I commented on the importance of usability in a previous blog on the platform market. It’s the key to scale growth under margin pressure. Remove constraints in the way Amazon did, and you can service everyone.
The Great British Public is a very long thin tail of financial services customers, and a dwindling number of people prepared to service it. Online execution only servicing is seen as the saviour but I see a real analogy with the publishing industry here. It’s never been easier to publish a book but no easier to get anyone to read it. IFAs have had commoditised insurance products on their websites for years but only a small number of true specialists have ever cracked this market. I’ll bet the average IFA has sold less policies online than the 18 books that most authors sell. We might see some growth in the number of execution only brokerages but I don’t see much to worry Hargreaves Lansdown, not from providers, fund managers or advisers. I do see a lot of money being wasted.
Nobody has a clue what the world will look like in 5 years time. All I know is every day distribution strategies (for advice and products) seem to get narrower and retail demand gets bigger, broader and more diverse. Demand will find a way to be satisfied, maybe outside financial services. Something’s going to change.
*Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers by Erik Brynjolfsson, Yu (Jeffrey) Hu, and Michael D. Smith
**Goodbye Pareto Principle, Hello Long Tail: Erik Brynjolfsson, Yu (Jeffrey) Hu, and Duncan Simester