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Give The People What They Want – Reverse Crowdfunding

While researching alternatives to the “traditional” model of publishing I came across a slew of “how to get your book published” listicles and negative articles about how the book industry is doomed. Refining my queries, I was presented with positive articles all seemingly focused on the wonders of crowdfunding. There was one article by Gartland (n.d.) that stood out from the mass as it presented a new idea: reverse crowdfunding. Although it wasn’t elaborated on in too much detail, this idea deserves more exploring.

But before going into this idea, let’s briefly go over how crowdfunding itself works. Bearmean (n.d) quotes Techopedia, which accurately sums up the concept stating that it’s “… a method of raising capital in small amounts from a large group of people using the Internet and social media”. In the case of crowdfunding a book, a writer presents the idea for the book, maybe supplying a sample chapter, and then relies on the pockets of the Internet to supply the necessary funds. There are a plethora of platforms to choose from, most notably Kickstarter and book specific sites Unbound and Pubslush. Not without it’s challenges, this model can completely avoid the traditional publishing formula in a very 21st century manor.

One of it’s downfalls however is that it relies on the public to 1) take interest in the book, 2) trust the author to actually write the book, and most importantly, 3) the author needs to get enough attention for the campaign. If all of these requirements are met then crowdfunding can be a great choice for an author. Morkes looks at the benefits of this model, stating that crowdfunding:

  1. Lets you activate your audience and catalyze a movement
  2. Validates your book before you write it
  3. Creates eager anticipation
  4. Legitimizes your self-published book

With that explained, let’s look at the model in reverse order. When Gartland proposed the idea, he broke traditional crowdfunding down into three parts: “(1) author has book concept -> (2) author pitches book concept -> (3) readers fund book concept (if they like it)”. Gartland then reversed the model:“(1) readers want book concept -> (2) readers commission book concept -> (3) author writes book (in exchange for the gross commission)”.

Gartland elaborates, proposing the creation of a platform where someone can suggest an idea for a book. They can choose to put some funds down to entice authors, other readers may see the idea and choose to contribute financially, and then authors can be suggested to write the book for commission, where they will either accept or decline. Something similar to this model, but done out of interest rather than economic incentive, is Reddit’s Writing Prompts. Here, a user publishes an idea, and the community writes stories around it, with the most popular being “upvoted” to the top.

This model takes the proverb “give the people what they want” quite literally. If not enough people like the book idea then it will flop before a single word has even been written. Giving the people what they want is something the traditional publishing industry has been criticized for in the past. They publish what they assume will sell (taking a financial risk in that assumption), rather than publishing what they deem to be good literature.

I would argue that the traditional publishing industry has typically been using what Chesbrough (2003) has called “closed innovation”, whereas this new model would be closer to “open innovation”. This business term plays on the idea of using more external sources rather than one’s own research and development. Although the traditional publishing industry has always relied on external authors with whom they work with to create a product that will sell, this new idea follows the concept of open innovation more closely. Chesbrough describes open innovation stating “firms commercialize external (as well as internal) ideas by deploying outside (as well as in-house) pathways to the market” (2003, p.36-37). An example of this could be Hey Lululemon where users can suggest ideas to the brand, which can then be voted on by the community. The company has essentially externalized their research and development by becoming open to ideas from the public. This concept of reverse crowdfunding has been done in a general sense (i.e. not book publishing specific) before, with companies such as Quirky.

Imagining this platform for solely book publishing, one could speculate that both independent writers and publishers could possibly benefit. However, that depends on the way the rights are set up. This divides the concepts into what I will call model A and model B. In model A, once a book is funded, the author writes it, takes the money donated by backers, and the book is released online for free. In model B, the person who came up with the idea, the writer, and possibly the other backers, will be entitled to royalties, and the book will be sold. A writer benefits in both of these models as they are able find a well-funded idea and, with the backers’ approval, be able to write the novel. Depending on their ability to write and how much each book is funded, it could be a very economical. Some may argue that the idea would stifle creativity; however, the act of creating an idea people like could be creative, as well as the writer’s ability to add their own flair to it. A study on open innovation found “empirical evidence that the impact of open innovation is not limited to a particular aspect of innovation performance, but that it positively influences a broad range of innovation performance indicators” (Cheng & Huizingh, 2014, p.1247). This was done in a business setting, but one can assume it would apply to the field of publishing as well. Not every book would be successful, but the writer would get paid and the audience would get the book they wanted (whether they are happy with the results would likely be a case by case basis). In model B, one could argue that publishers too could benefit. Rather than gambling on every book they publish, they will have the base knowledge that there is a community that wants a certain book. They will also not have to front as much of the costs as they would in the traditional model. Although the reward if a book is successful won’t be as high, considering the amount of people with some royalties, but it could save various costs making it a worthwhile endeavor. Model B would also be more of an incentive for backers to help fund a book.

Looking at this open innovation, or reverse crowdsourcing model, from strictly a book publishing perspective, what could be some of the downfalls? The model of open innovation is a starting point, as there have been a number of critiques that we can relate here. Rigby and Zook (2002, p.84-85) have suggested two that can relate to this scenario:

  1. Innovation transfers take time
  2. Managers tend to underestimate the strengths of suitable substitutes.

Although these are proposed as strictly technology and business related, we can adapt them to publishing. The first critique touches on the idea that this model (both A and B) could take a significant amount of time, from coming up with a suggestion to finding backers, to finding a suitable author, to the time is takes to actually write the book. Of course, the last point could build anticipation, but all that leads up to it could act as a deterrent. Next, we will replace managers with authors, suggesting that they would assume their ideas for novels are superior to the suggestions by an audience. From the perspective of what good literature is, this may be true, but perhaps writers may see the benefit of taking an idea from an audience willing to fund it.

Another possible downfall to this idea comes from an online commenter, Maxim Price on Quora (2014), who mentions non-disclosure agreements. Although again, brought up in the context of product and technology ideas, it can be related here. In model B, how would the individual who submits the idea, the writer, possible publishers, and perhaps backers, organize the copyright and who gets how much of the royalties? The complexity of this scenario pushes me to only support model A, where the author receives the money from the backers and the book is released online for free. In this scenario, the publishing industry would have difficulties getting involved, possibly offering their services as graphic designers or editors for a fee.

Although this model has complexities, I believe it has the possibility of being successful. By following an open innovation model, other businesses have had huge success (Chesbrough (2004) gives he examples of “Intel, Microsoft, Sun, Oracle, Cisco, Genentech, Amgen, Genzy”(p.23)). The reverse crowdfunding model essentially eliminates the middleman and turns authors into a for hire position. It would make the audience happy, as they are seeing the books they want written come to fruition, it could ensure profitability for authors for whenever they need money they can go online and see what ideas are out there, but it would likely affect the publishers negatively. Looking at this model it is unlikely to ever become the be-all end-all for book publishing. Many people with great ideas would still likely want to write and publish their own books, whether they choose to attempt the traditional route, the self-published route, or even the standard crowd funding route we have today. However, this model could stand as an option for many aspiring writers and an incentive for authors with previous success to write more novels for a series.

References

Bausells, M. (n.d.). Kickstarting a books revolution: The literary crowdfunding boom. Retrieved November 6, 2015.

Bearman, S. (n.d.). Crowdfunding for Authors: Is it right and is it right for you? Retrieved November 6, 2015.

Galley, B. (2014, September 14). Top Tips on Crowdfunding for Authors. Retrieved November 6, 2015.

Chesbrough, H. W. (2003). The Era of Open Innovation. MIT Sloan Management Review, 44(3), 35-41.

Chesbrough, H. W. (2004) Managing Open Innovation, Research-Technology Management, 47(1), 23-26.

Cheng, C. C. J. and Huizingh, E. K. R. E. (2014), When Is Open Innovation Beneficial? The Role of Strategic Orientation. Journal of Product Innovation Management, 31: 1235–1253. doi: 10.1111/jpim.12148

Crowdfunding. (n.d.). Retrieved November 6, 2015.

Gartland, M. (n.d.). Will Crowdfunding Books Replace Author Advances and Further Empower Readers? Retrieved November 6, 2015.

Morkes, T. (n.d.). The Complete Guide to Crowdfunding Your Book. Retrieved November 6, 2015.

Price, M. (2014, October 6). What’s wrong with the idea of a ‘reverse Kickstarter’? Retrieved November 6, 2015.

Rigby, D., & Zook, C. (2002). Open-Market Innovation. Harvard Business Review, 80(10), 80-89.

Comparing Changes within the Publishing and Travel Industries

During the 1990s, massive challenges to the traditional structure of both the Publishing Industry and the Travel Industry started to emerge due to the prevalence of the Internet. Granados et. al (2008) state that the Internet “offered a low-cost distribution channel for new entrants who could make a lot of profit, as incumbent firms chose not to explore the new channels initially” (p. 76), which as will be demonstrated, both industries did not. Although both industries have not been affected directly the same, parallels will be drawn between the two, and their differences highlighted.

Both the Travel Industry and the Publishing Industry involve intermediaries, or more colloquially “middlemen”, which both traditionally took form in brick and mortar shops. In the case of the former, that would be travel agents, whereas in the latter, bookstores, and increasingly more common with the rise in eBooks, both distribution companies (warehouses, shipping, etc.) and printers. Two arguments have been made, both proving to be true in either case. With the prevalence of the Internet, it is said that it will skip intermediaries, bringing customers directly to suppliers; conversely “[i]t has also been argued that electronic markets do not become “disintermediated” but are rather facilitated by IT, with new intermediaries emerging in an electronic environment” (Lewis et. al, 1998, p. 21). We see this within both industries in different ways. In regards to the former argument, there has been a push from airlines, hotels, car rentals, etc., in offering their services online (Laverty & Media, n.d.). However, technology has allowed for competing services to traditional brick and mortar travel agencies, such as Travelocity and Expedia (Granados et. al, 2008). We see both these arguments demonstrated again within the Publishing Industry. Starting with the latter argument, there has been a decline in bookstores, most notably with the bankruptcy of Borders in 2011, which is often accredited to Amazon (Nisen, 2013). Although this has been a huge shift, with other notable ecommerce platforms usually specializing in eBooks (ex. Apple) (AppleInsider Staff, 2010), there has more recently been a push from publishers to cut out the middleman, and move towards their own ecommerce sites, most notably publishers such as Harper-Collins (Greenfield, 2014).

The digital intermediaries and the cutting out of the brick and mortar stores is only a surface similarity between the two and to best understand the change it should be asked why these industries are being replaced. One of the main similarities between the two industries is that the Internet made it easier for competitors to enter the once previous difficult markets (Granados et. al, 2008, p.74). Since the 1970s, the Travel Industry was based around Computer Reservation Systems (CRSs) which airlines would be used to “lock in travel agencies through long-term contractual agreements “(Granados et. al, 2008, p.74). This ensured the market was set up in a certain way that was expensive to enter. Online Travel Agencies joined the market and using the technology held by traditional travel agencies, they made it easier to navigate for average users. What this does is replaces the position of the travel agent with an online interface. By 2007, online bookings surpassed offline bookings (Granados et. al, 2008, p.82).

On the Publishing side, independent bookstores were threatened with the rise of the book superstore in the 1990s. This made the barrier to entry into the business increasingly more difficult for smaller stores and many shops were unable to stay in business (Cowen, 2006). Now, with the rise of ecommerce, both independent bookstores and the chain stores, as previously demonstrated with the closing of Borders, are being challenged. There are numerous reasons why people have turned to ecommerce when looking to buy books and I will use Amazon as an example for it has been frontrunner, by selling two-thirds of all online print books, which makes it the largest seller of books (Gessen, 2014). The company has the ability to offer better prices, often being accused of taking a loss in order to establish itself within the industry (Gessen, 2014). The company has numerous warehouses giving them what seems to be endless amounts of space for storage, which in turn allows them to offer a large range of books (Roberge, 2014). Another strength they possess is something shared with online travel agencies: the ability to run algorithms to suggest things to users which was once done by a sales associate, whether it’s a book to buy or different dates for different prices (Roberge, 2014; Hobica, 2011). The two also share a convenience factor; one can order a plane ticket from home and having it immediately printable, buy a book or delivered to them, or instantly downloadable as an eBook. These factors, along with the comment section and easily searchable reviews (Cowen, 2006), have replaced the sales associate and the travel agent.

It’s been shown how the loss of the brick and mortar intermediary affects the customer; however, it is necessary to compare how it affects both the publishing houses and the airlines to further analyze why these industries have changed.

Going back to the Travel Industry, one of the main factors with cutting out and changing the intermediary to an online format has been price savings for the airlines. Travel agencies have typically received most of their revenue through commissions (Lee, 2012). Airlines placed commission caps that inhibited the ability of agents to price discriminate without sacrificing these commissions (Granados et. al, 2008). These commission caps, which eventually lead to cuts (Lee, 2012) changed the industry in how they would have to change the way their business is structured to avoid bankruptcy, which will be elaborated on later. With the exception of the possible negative effects the social media can have on airlines (Carmichael, 2009), the Internet has had a positive impact. By offering tickets directly to customers, they cut out the need for middleman services both online and offline. There has even been a push to avoid customers using online services by putting penalties on customers who buy tickets through those services, such as no seat assignment till check in and half their frequent flyer miles (Mayerowitz, 2012).

In regards to the Publishing Industry, Roberge (2014) asked why a publisher would want to maintain relationships with thousands of stores when they only make up 3-5% of their sales? With this question, Roberge is referencing Amazon as it is the largest name in online bookstores. When it first appeared, it changed the industry for the better for Publishers, who were now no longer at the mercy of large chain bookstores who had the ability to buy however many copies, and have the ability to return the unsold books, which could put the Publisher at a loss (Gessen, 2014). Like the airlines, publishers were also able to save money cutting out brick and mortar stores.

This financial benefit changed when the eBook became more prevalent, much to the credit of Amazon. However, they managed to control the eBook market at the expense of the publishing houses by pricing out competitors, taking a loss in book sales, while still making profit in other areas (Gessen, 2014). This caused much turmoil for the industry and, along with the rise of the eBook, created speculation that the tradition format of the Publishing Industry was a dying one (Levin, 2012). This has created “animosity toward Amazon, which holds the majority market share of online book sales and eBook sales” (Belz, 2014), which has created a desire for bookstores to succeed.

The advent of the eBook is most similar to that of performing bookings online, rather than ordering a physical copy to be delivered, as both avoid the use of paper, brick and mortar shops, and human interaction. Although the turmoil that the Internet created for both industries affected them both in very similar ways, how both industries have adapted to the changing marketplace is quite different.

In regards to leisure travelers, it has become commonplace to plan your trip online, using it for reviews, buying tickets, and even sending out itinerary information (Vandersteen, n.d.). As been described, this has been one of the main ways the airlines have tried to cut out intermediary position, and although the battle between the airlines and online intermediaries continues, traditional brick and mortar agencies have learned to adapt, although the industry has shrunk considerably (Lee, 2012). As described by Lee (2012), many agencies focus on corporate travel, where they charge service fees. This line of work is convenient for businesses, as everything will be planned on their behalf, not having to stress over flight, rides, and hotels. Lee explains that although travel agencies no longer receive commission on flights, they still do on vacation packages and cruises, while still charging service fees on top. There has been an increased focus within the industry to provide good customer service and availability, should a problem arise.

Whereas travel agencies have seemed to find niches and new business plans, the future of the bookstore is still up in the air. Most of it depends on the future of the book itself and customers’ buying habits. Regarding the book itself, it depends on the whether physical copies will remain in demand or if eBooks are the future. Sales have shown that the buying of eBooks has slowed down (Shatzkin, 2014); however, that could just be a generational trend. If they do remain relevant, then the buying habits of consumers comes into question of whether they would rather order from an online store like Amazon, or if they would prefer to buy from stores. Some have claimed that independent bookstores will remain in business (Hawkins, 2015), some have claimed that specialty stores may have a future, but the future of chain stores is bleak (Nisen, 2013), and many others possibilities all around the spectrum.

 

Works Cited

AppleInsider Staff. (2010, January 27). Apple introduces iBooks store for iPad. Retrieved October 4, 2015, from http://appleinsider.com/articles/10/01/27/apple_introduces_ibooks_store_for_ipad

Belz, E. (2014, June 2). Are bookstores really dying out? Retrieved September 29, 2015, from http://www.worldmag.com/2014/06/are_bookstores_really_dying_out

Carmichael, S. (2009, July 29). The Internet – an airline’s best friend, and their biggest enemy. Retrieved September 29, 2015, from http://gadling.com/2009/07/29/the-internet-an-airlines-best-friend-and-their-biggest-enemy/

Cowen, T. (2006, May 15). What Are Independent Bookstores Really Good For? Retrieved September 29, 2015, from http://www.slate.com/articles/arts/culturebox/2006/05/what_are_independent_bookstores_really_good_for.html

Gessen, K. (2014, December 1). The War of the Words. Retrieved September 29, 2015, from http://www.vanityfair.com/news/business/2014/12/amazon-hachette-ebook-publishing

Granados, N., Kauffman, R., & King, B. (2008). How Has Electronic Travel Distribution Been Transformed? A Test of the Theory of Newly Vulnerable Markets. Journal of Management Information Systems, 25(2), 73-95.

Greenfield, J. (2014, July 8). HarperCollins Pivots to Sell Print and Ebooks Directly to Readers Through Main Website. Retrieved September 29, 2015, from http://www.digitalbookworld.com/2014/harpercollins-pivots-to-sell-print-and-ebooks-directly-to-readers-through-main-website/

Hawkins, J. (2015, June 19). Bookstores Won’t Go the Way of Video Stores. Retrieved September 29, 2015, from http://electricliterature.com/bookstores-wont-go-the-way-of-video-stores/

Hobica, G. (2011, January 2). Six reasons why we need online travel agencies. Retrieved October 5, 2015, from http://www.airfarewatchdog.com/blog/6530176/six-reasons-why-we-need-online-travel-agencies/

Laverty, S., & Media, D. (n.d.). Impact of Technology on the Travel Agency Business. Retrieved September 29, 2015, from http://smallbusiness.chron.com/impact-technology-travel-agency-business-57750.html

Lee, S. (2012, July 23). How Do Travel Agents Make Money? Retrieved September 29, 2015, from http://hostagencyreviews.com/how-do-travel-agents-make-money/

Levin, M. (2012, June 29). The Incredible Resilience of Publishing Fantasy. Retrieved October 4, 2015, from http://www.huffingtonpost.com/michaellevin/publishing-fiction_b_1637384.html

Lewis, I., Semeijn, J., & Talalayevsky, A. (1998). The Impact of Information Technology on Travel Agents. Transportation Journal, 37(4), 20-25.

Mayerowitz, S. (2012, December 9). Airlines Offer Cheaper Airfare Directly To Customers, Penalizing Online Travel Agencies. Retrieved September 29, 2015, from http://www.huffingtonpost.com/2012/09/12/cheap-airfare-airlines_n_1876588.html

Nisen, M. (2013, October 15). These Charts Show Just How Bad Things Are For Bookstores. Retrieved September 29, 2015, from http://www.businessinsider.com/why-bookstores-are-doomed-2013-10

Roberge, T. (2014, August 18). Why We Need Independent Bookstores More Than Ever. Retrieved September 29, 2015, from http://publishingperspectives.com/2014/08/why-we-need-independent-bookstores-more-than-ever/

Shatzkin, M. (2014, January 23). The future of bookstores is the key to understanding the future of publishing. Retrieved September 29, 2015, from http://www.idealog.com/blog/future-bookstores-key-understanding-future-publishing/

Vandersteen, J. (n.d.). How Has the Internet Changed the Airline Industry? Retrieved September 29, 2015, from http://science.opposingviews.com/internet-changed-airline-industry-1742.html

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