Mark Coker has developed a powerful platform and service to deliver digital books to significant sellers such as Borders, Barnes and Noble, and Amazon.com, as well as smaller specialty niche outlets, mobile applications, and a multitude of eReaders. In this interview, SmashWords’ founder provides a great amount of insight into the digital book publishing industry. He also discusses his motivation behind the launching of his company and shares plenty of information about the ins and outs of distributing ebooks utilizing this service.
You started Smashwords because you had a book that you were going to have published the traditional way and I guess you found that there were some significant obstacles with the traditional book publishers?
Yes, definitely. My wife is a former reporter for Soap Opera Weekly magazine. And when I first met her she was telling me about all these crazy stories of what went on behind the scenes of the daytime television soap operas because she used to visit the sets. And I suggested she wrote a book about it and she said, “Well why don’t we write a book together?”
And I thought well that’d be a lot of fun. I’d always wanted to write a book just I never thought it would be about soap operas. But we moved down to Burbank for a couple of months and interviewed – conducted anonymous interviews with about 50 soap opera industry insiders. We gathered all the dirt about the industry and then took that information and fictionalized it as a novel called Boob Tube. So we did everything that authors are trained to do or taught to do.
We did multiple revisions on the book, hired professional editors and proofreaders and copy editors, got the book all ready for sale to a publisher, shopped it around to agents, got represented by one of the top literary agencies in New York City. The same agency that represented Barack Obama’s first book, and they were excited about the book and we were excited that they were excited and so they shopped it around for a couple of years to major commercial women’s fictional publishers in New York and none of them purchased it.
And, you know, at the end of that process it was actually our agent who suggested that we consider self publishing. He told us about a former client of his or actually a current client of his at that time who had another book that he was unable to sell. And so the author self published it and then after a year sold a few thousand copies on her own. Went back to the agent and the agent was able to sell the book in a week because she’d proven that there was a commercial market for it. So that’s what he suggested we do.
I took that suggestion and I thought well that makes sense to do self publishing but, you know, my background here is in Silicon Valley as an entrepreneur and for me this was just a big eye opening experience. It exposed to me what seemed to be a really big problem facing not just my wife and I but potentially millions of authors around the world who had poured their heart and soul into creating a book, you know, and in many cases spent a lifetime creating this book only to have a publisher slam the door in their face and say “Sorry, we’re not going to let you have a chance in reaching your audience.”
I thought, why not create an online publishing platform that would allow any author anywhere in the world to instantly publish their book as an eBook and make it available for sale online at the price that the author decides. And let’s go a step further and let’s take the industry’s current compensation models for authors and let’s turn that model upside down.
Let’s put 85% of the profit into the pocket of the author as opposed to the publisher. And so that was the general idea behind Smashwords and that’s what we launched about a year and a half ago. We first announced the company in February of 2008. We started doing private Beta testing and then in May of 2008 we launched the service to the world, focused on self published authors. Then in -publishers- so now we support both independent authors and larger publishers.
We’re publishing multiple authors. And then the latest development at Smashwords – this has happened just in the last three months we’ve signed distribution agreements with all of the major online eBook retailers. So we have just reached agreements with Barnes and Noble, Sony, Short Covers — now called Kobo and Amazon. Smashwords has really taken on the role of a full service eBook distributor.
You encourage your authors to publish a print version and make it available as well. Today, some of the barriers for print have been brought down due to technology. For those that have taken your advice, do you know what percentage of their books sold have been physical versus digital?
I don’t know the answer to that. Just the anecdotal evidence that I’ve seen is that independent authors who’re selling both a print book and an eBook they’re selling probably at least 20% of their volume as an eBook. And in some cases they’re selling even more as the eBook version than the print version. It really depends on the distribution and retail partners that they’re working with and also how the author promotes the book.
Right. Minus the overhead?
Well yeah, there’s overhead involved in doing some of those different options. You know, there’s some other interesting dynamics at play here, print books tend to be fairly expensive. A self published print book, you know, in a trade paperback format which is that mid-sized paperback size, most self published books of that variety are selling for $16 or more. Most eBooks are priced at under $10. So eBooks are more affordable to the customers.
In the music industry, one of the biggest criticisms, at least from the industry standpoint, that iTunes has received is that, they may have devalued music by setting, for the most part, standard .99 cent pricing. Do you think that Amazon kind of did that with the Kindle books?
Not really. From my perspective what Apple did is they recognize that customers wanted the freedom to purchase individual songs as opposed to be forced to purchase an entire album. And so they set that price, I don’t know how they arrived at it of .99 cents each. Which is not a bad price if you consider the average album has what 10, 12, 14 songs on it?
If you were to multiply that price per song by the number of songs on your average LP, it probably worked out to about the same. With Amazon, I think what they’re doing is they’re responding to what customers want. Amazon is brilliant at serving their customers.
Amazon knows that their customers want books that’re priced under $10. And so Amazon’s been providing that to them even though they’re selling many of these books at a loss. Large New York publishers are by and large very upset about what Amazon is doing because they are concerned that Amazon is devaluing their books and also creating a potential cannibalistic situation where the eBook is so cheap that people aren’t going to buy print books anymore.
I tend to side with Amazon not the big publishers because if you look at what’s happening in the retail channel already with print books, there’s massive discounting going on with print books. There was just this major price war…with first run print books, hard covers selling for $7.99 and $8.99 at Target and Wal-mart. The other big concern that publishers have is they’re worried that Amazon is going to force the price of eBooks down, and then Amazon will go back to the publishers and demand that the publishers give them a better discount on the books.
So that may or may not happen, but I think one thing is certain that customers don’t want to pay $25 or $30 for an eBook. They know that it doesn’t cost that to manufacture the book. They expect that a digitally delivered book is going to cost less. So it’ll be interesting to see how things play out here in the next couple of years. You know, publishers will argue that they have invested a lot of money in this book.
That the cost of producing an eBook is not just the cost of duplicating the digital file, there’s the cost of acquiring the title from the author. There’s the cost of doing the editing and the production. And the publisher’s right there is a lot of cost that go into developing a book. But what I try to encourage publishers to recognize is that they’re going to produce this book for print regardless. The incremental cost to produce an eBook is relatively small. And that’s what they need to focus on.
It’s interesting that you said that because I have bought books on eBooks.com for example that I’ve paid $30 -$35 for and I always wonder how this was justified.
You know, it really depends on the book. One of our better selling authors is a nationally known high school football coaching expert and he sells his books on Smashwords for $25 apiece and we’ve never received a single complaint about that price because this guy is the expert. For the value that you get out of that book, $25 is like pennies. And it really depends on the target market for the author.
If you’re writing a book where your potential target market is only 500 people or 1,000 which may be the case for this football coach, you know, maybe his target market is 2,000 or 3,000 high school football coaches it wouldn’t make sense for him to sell his book for $1.99. He’s got a smaller, limited, specialized market. He should command a higher price for that book to make it worth his effort.
Right. Makes sense.
But if you’re writing a novel like my wife and I wrote with a large potential market and it’s fiction and you’re facing a lot of competition from other fiction titles, you know, $9.99 or less is a fair price. You’ve got to get out there and compete against all that other content.
There are plenty of examples online of bloggers that’re selling their “information” products, their eBooks for $100.
Yeah, I think from an author perspective if you’re selling nonfiction content it’s easier to command a higher price because there’s value in knowledge. It’s pretty simple for a customer to do a quick return on investment calculation in their brain. You know, if I invest $20, $100 in this eBook this is the benefit I’m going to receive. And if the perceived benefit is greater than the price of the product then it’s a good deal.
In regards to Amazon, do you feel that it’s limiting that they are selling the Kindle version eBooks, and that locks out a lot of people that don’t have that reader?
I think they’re pursuing a strategy to make it really easy and convenient for their customers to purchase eBooks and to read those eBooks on the Kindle platform. And so delivering the books in the AZW format which is what is supported by the Kindle. I think PDF is unofficially supported. I’m not entirely sure about that.
But they are potentially limiting their total business potential by selling books only for the Kindle. If you look at what Sony is doing, they’re taking a more open approach. The books that you purchase from the Sony eBooks store are portable and can be read on other eReading devices other than the Sony reader.
Do you think it’s confusion or freedom for the consumer, being that there are so many different options as far as file formats are concerned?
I think Amazon’s approach currently just makes it simple for the customer. And simple is really important. The Amazon customer doesn’t need to know anything about eBook formats. You know, that’s all complicated goobly gook. And the customer shouldn’t have to think about, you know, what’s the difference between a PDF and a PDB and a Mobi and a LRF?
A customer should just be able to purchase a book for their device and have it work. You know, you shouldn’t have to – you shouldn’t require your customers to be computer programmers to enjoy your product. So Amazon’s done a wonderfully elegant job there of making it really easy. Their customers buy a book, they download it, and they don’t know what format it is.
For the short run that works really well. For the long run if Amazon’s customers decide that they want greater portability for their books, like, you know, if an Amazon customer two years from now wants to move their books to a different eBook reading device, that’s when they’re going to run into some difficulty with, you know, the closed proprietary format. But by the time that becomes, you know, a big problem for Amazon’s customers I’m sure Amazon will open it up. They’re very good at listening to their customers.
Which would you say is the biggest retailer that you’ve worked with so far, as far as the greatest amount of books sold through that store so far?
I expect that Amazon is going to be the largest of all the ones we work with. Because they’ve got hundreds of millions of visitors to their Web site every month. Their Kindle device has more users than Sony or the upcoming Barnes and Noble Nook. So they just command a larger presence in the market than anybody else.
The iPhone changed the business. Obviously they have their own readers as well.
Yeah, the mobile phones are kind of the dark horse of the eBook market and I don’t think most people recognize how important mobile phones are to the future of eBook reading. If you look at the iPhone one of the most popular eBook reading apps on the iPhone is an application called Stanza. They’ve got close to 3 million users, 3 million copies downloaded of the Stanza application.
That’s probably more copies of that, more users of that than actual customers of Kindle. And Amazon doesn’t break out their sales numbers. So reading on mobile phones is very popular and it’s more popular than most people realize. And it’s one of the primary mechanisms by which many customers first discover the joys of eBooks. Because with an application such as Stanza for example you can download tens of thousands of free books, you know, public domain books.
Now would Stanza read certain formats?
Stanza reads EPUB primarily. We have a distribution deal with them…so our books are available in the native Stanza catalog.
Stanza is also a bookseller as well as an app can you buy books through?
Yes, kind of indirectly. Like they list out catalog and they list the catalogs of other retailers and publishers but the actual purchase transaction takes place outside of the application.
So they make money I guess through referrals and then the sale of the apps?
Yeah referral fees, affiliate fees. That’s how some of the other eBook app providers are structured.
I didn’t mention that of course Smashwords itself is an eBook seller.
Yes we have our own little eBook retailing arm at Smashwords.com. And many of our authors encourage their customers to purchase from Smashwords.com because the author gets the highest royalty that way.
That would be what 85%?
85% of the net. And the net is defined as the sales price minus the Pay Pal fee multiplied by 85%.
What is the Pay Pal fee by the way?
It varies based on the price of the book. It can be 35 cents, 40 cents.
So is it a percentage?
It depends on the price. It’s usually a minimum. Pay Pal charges a minimum fee and then a percentage of the sale.
Do you feel that a strategy today for a self published author is to go the eBook route to publish maybe using print on demand technology, however focus more on selling the traditional book because there’s more margin there?
I would encourage any independent author to do both, you know, from the get go. So do print on demand self publishing and there are a lot of great services, you know, there’s Word Clay who’s a partner of ours. There’s Create Space. So these services, you know, for essential for free will allow you to publish a print on demand book and then have that book listed in the major online retailers. Of course your print book and your eBook will be priced differently. It’s important that you offer your book in as many different formats as possible so that you can reach the widest potential range of customers. So some of your customers will prefer purchasing in print, some will prefer in purchasing in eBook only and some will want to purchase both. So sell everything to the customer that you can.
Revenue from eBooks is a small piece of the pie. I think I had read on your article in the Huffington Post that it’s somewhere around 1%. Would you project that to grow significantly in the next – as digital music has pretty much grown almost to not quite 50% but somewhere around 35% in a very short amount of time? Would you pretty much say that that’s in the cards for the eBook?
Yeah, the eBook market is on a rapid growth trajectory right now. So yeah in the Huffington Post I talked about how I think it was the month of July or August eBooks accounted for about 1% of overall book industry sales. The latest data I’ve seen though and I just got an email last week from the Association of American Publishers if you look at trade books and so these are books which you buy through retail — the books that’re sold at retailers, if you look on at that comp on the book, so you’re taking out that comp under the market so you’re not looking at, you know, text book sales for example.
So you’re just looking at books sold through book stores, in…September (2009)…eBooks accounted for about 3% of the trade book market. And this is up about 150% over (2008). If you look at the data over the last eight years, the market’s been growing between 50 and 100% on average every single year. So it’s growing very quickly.
We’re – the market has definitely reached a tipping point where eBooks are starting to go mainstream. When eBooks first came on the scene in a big way about 10 years ago, you know, a lot of people talked about how eBooks were going to replace print books and they were the next big thing since sliced bread. And eBooks essentially flopped then. They’ve failed to live up to the expectations. The market wasn’t ready for eBooks, the technology wasn’t ready, the screens weren’t ready, customers weren’t ready, and there wasn’t enough supply, enough selection.
So eBooks essentially failed 10 years ago and a lot of people wrote off eBooks at that point. But even after people wrote off eBooks, eBooks continued to grow, you know, as a percentage of the market, obviously starting at a fraction of a percent. And now they’re getting to the point where they’re starting to get on people’s radar screens. So I think it’s not at all inconceivable that within 5 years we’ll see eBooks accounting for somewhere between 30 and 50% of the market. Possibly even more. You know, these switch overs tend to happen faster than any of us anticipate. I know nobody in the industry expected eBooks to grow as quickly this year as they did.
Would you say the biggest obstacle is people being tied to the physical book, or was it the technology and making it convenient to read the ebook?
Well there are multiple obstacles that needed to be overcome. One is just inertia. Customers like print books. There are many reasons to like print books and so customers are hesitant to try anything different. And if you can convince them to try something different then that different book needs to have some strong compelling advantages over the traditional format of print. And so 10 years ago when book lovers tried eBooks they didn’t see those – most customers did not see those advantages because the technology wasn’t ready.
The screen technology wasn’t ready. The reading experience was generally poor. The books were overpriced at that point. I mean all the publishers were trying to sell eBooks at the same price as print. The selection wasn’t there. The publishers were using very complicated digital rights management technology to protect those books from piracy that made it very difficult for the customers to enjoy their books. And so if you fast forward to what’s happening today, the screen technology is dramatically improved.
The software technology is dramatically improved. So now when people try an eBook for the first time on a screen whether that screen is their iPhone or the Kindle, it’s a wow experience. You know, people can see that they click a button and the type gets larger. Larger type on screen is one of the killer applications for eBooks. It’s something that print can never match.
You mentioned DRM; one of the biggest issues initially in the music industry was a failed strategy. Because of their lack of response or slowness to respond they pretty much lost a lot of potential customers to piracy. What do you think it is that’s going to save or going to stop people from pirating and just copying?
Well it’s a few things. Number one I don’t think DRM is the answer and I think it’s only a matter of time before publishers abandon DRM. And I think that time will come once customers realize the evils of DRM. And, you know, the biggest evil of DRM is that it’s like – it treats law abiding customers as criminals. It limits their ability to enjoy the book the way they want to.
It limits the portability of that book. You know, if you purchase a book you should be able to read it on any device you want. It shouldn’t just be tied to a single device. If you buy a book it should be your book to enjoy. I think the solution to the piracy problem; I think there are a couple of simple solutions that the publishing industry’s not even looking at right now. One is offer a lower cost book. Make your book affordable so that people can buy it so they don’t have to pirate it. I think most customers are law abiding and honest and if you offer them a book at a fair price they’re going to purchase the book.
The next thing that needs to be done is education. Like something we do at Smashwords. We encourage all of our authors to add a license statement at the top of their book that reminds customers that this book is licensed for your personal enjoyment only. You are not allowed to make copies of it to share with your friends. You’re not allowed to redistribute it to others. It’s for your personal enjoyment only. If you’re reading this book and you didn’t purchase it yourself or it wasn’t expressly purchased for your own use then please go to Smashwords.com and purchase your own copy.
And thank you for supporting the hard work of this author. And our authors and publishers really like that license statement because it’s a low key nonintrusive way of reminding the customer of their obligation to support the author who brought them this book for their enjoyment. Another interesting thing about piracy is that if you look at the demographics of book buyers today they tend to be people who are over 40 years old. Older people buy more books and these older people are not the ones that’re going to be spending their time on illegal underground file trading sites.
These people will happily pay a few dollars to get a book from a trusted source that’s purchased legally.
The other thing that’s really important for publishers to understand is that the person who goes out of their way to pirate a book is probably never going to purchase your book anyway. So it’s not like you really lost a sale.
I know if I woke up tomorrow and discovered that my book had been illegally downloaded a million times by a million readers I think I’d jump up and down and celebrate because some small percentage of them, you know, if it’s just 1% sees that license statement and says oh I need to go support the author here, I just sold 10,000 books at zero marketing cost.
So, you know, I’m not advocating piracy. We’re very much against it. But a lot of progressive, smart publishers mostly the smaller independent publishers looking at their own studies have found that piracy isn’t that big of a deal. And the steps that publishers take to prevent piracy are counterproductive.
True. In regards to advice for the authors that utilize your service, regarding marketing, obviously making something available doesn’t necessarily mean people are going to buy it. What kind of advice do you give them? Also, do you offer them any resources or tools through your service to help them in promoting and building awareness for their books?
Sure. I wrote an eBook called the Smashwords Book Marketing Guide and you can find that at Smashwords.com. It’s a free guide on – it’s offers about 25 to 26 marketing tips for authors. So I would encourage anyone to download it even if you don’t plan on publishing with Smashwords any author could benefit from these tips. And 95% of the advice in there is stuff that authors that do at no cost to themselves.
So obviously, that would be valuable information. Does Smashwords actually have anything in place as far as any tools, electronic tools or anything otherwise to help them promote?
Yeah we do. Well first of all, the entire site is SEO optimized. So within seconds or minutes within an author publishing at Smashwords it’s indexed to Google and very discoverable by all the keywords and tags that we allow the author to put around their book. So that’s one thing that we do and it’s completely hands off from the author perspective. And then we’ve created some tools.
Of course we have simple social media enabled tools like your customer can click on a button and share the hyperlink to this book with their friends on Twitter or Facebook or LinkedIn. Obviously that’s not rocket science but it’s an incredibly powerful tool. Most of our traffic is generated by authors and readers sharing hyperlinks to these books with their friends.
And, you know, book marketing has always been about word of mouth and when you provide some of these simple tools that allow your customers to serve as your personal sales force for your book it’s word of mouth marketing on steroids. But we’ve got those things in place. And then we have some interesting tools that we’ve created that’re really unique to Smashwords. Like there’s a tool called the Smashwords Coupon Generator.
So any author can go in there and click a button and generate a custom coupon code for their book. And you can do cents off, dollars off, percentage off, whatever the author wants to do. They can even do a coupon that makes their book for free. And so if you go to Twitter and you do a search on Smashwords you’ll see authors on Twitter promoting the coupon codes to their followers on Twitter. And you know, customers love getting a deal. So the coupon codes are really powerful marketing tool.
Are you currently offering widgets for authors to use on their blogs?
In the works, in the plans. We don’t offer widgets yet. But that’s like probably one of the most important marketing tools that we’re sorely lacking at the moment.
Do you consider Scribd a competitor?
They are… they started selling books on their site. So they were about a year behind us in doing that but they obviously have a large audience that they’re marketing to. They supposedly get millions of visitors a month. In that respect they’re a competitor. But they also represent a potential partner. So, I would not be surprised if someday in the future we also distribute our books on Scribd, just like another retailer.
One thing I like about the Smashwords site, in comparison to let’s say to other self-publishing tools, for example Lulu, is that you go there and it immediately hits you as a place to buy a book versus. You go to Lulu and although you can sell a book, it doesn’t appear to be a marketplace for books to be bought. Is that something you focus on, making sure that when people visit Smashwords it resembles a bookstore and not just a service for self-publishing?
Definitely, it was important to us from the beginning to make our books, you know, discoverable to consumers and to offer a bookstore experience so that you can purchase a book and you can put it in your personal library and that book is always available to you when you want to download it. And you can download it in multiple formats. If you read a book that you really like you can see what books other customers purchased who purchased the same book as you. Or if you want to see what other customers are looking at, you know, if they’re looking at one of these books you can do that.
Do you have any stats in regards to what the average book sells through your service?
I do have some stats but we don’t disclose them. But what I can tell you is that there are books on our site that never sell and then we have some books that sell quite well. It’s fair to say that none of our authors are yet on the road to retirement based on the books. And there is a direct correlation between the marketing activity of the author and the number of books they can sell.
Of course.
You know I should also point out that Smashwords.com has a retail destination. It is still a very small retailer. We get a fraction of a fraction of a percent of Amazon’s traffic. Yet we still hear from authors occasionally who will tell me they are selling more books on Smashwords than they are on these other retailers. Which is surprising to me but I think – I mean maybe it’s not a surprise maybe that’s more of a reflection of where they’re sending their customers since the authors are orchestrating most of the marketing for the books.
All of these stores have a different percentage taken.
I can tell you is that most of the major eBook retailers are taking somewhere around 50%.
Right. In regards to your publishers, you mentioned that you’re signing on publishers. What services do you offer publishers that they can’t provide for themselves?
Well, that’s a great question. We were initially a little bit surprised that all these major retailers were so interested to work with us because if they wanted they could work directly with all these small publishers and small authors. But what became quickly apparent is that these large book stores appreciate the value that’s provided by working with an aggregator, you know, a distributor.
Because if they don’t work with a distributor they have to enter into individual contractual relationships with all these small authors and all these small publishers and even the largest retailers don’t have the bandwidth to do that. I mean that’s why a traditional brick and mortar retailer will work only through distributors. Same thing is happening with eBooks and there are a lot of other benefits to them as well.
You know, it’s a single throat to choke. If something’s wrong they can have it fixed by talking with the distributor, with Smashwords as opposed to having to deal with all these different people. They write, you know, they get a single feed of books from us so we’re providing them thousands of books coming all at once that we manage and they write us a single check rather than writing thousands of checks. So from an economic perspective it’s quite advantageous for the retailers to work with aggregators.
And then from the publisher’s perspective we are providing retail distribution opportunities that they wouldn’t be able to get on their own. You know, for the same reason it’s difficult for these retailers to form individual relationships with every single publisher is the reason so many small publishers can get their books into these book stores. So by putting their books with us they get access to channels that they wouldn’t have otherwise.
Are the terms different for selling directly on the Smashwords’ site versus one of your third party seller’s site?
Well I think we make it easier for the authors because they can use Smashwords as their single command and control. They can upload one file to Smashwords, we automatically convert it for them at no cost and we distribute it to all the different retail partners. And then we aggregate the funds from the retail partners and write the author or publisher a single check. And, you know, all the data that we get from the retail partners is fed into the dashboard so the authors will have aggregated data on what’s selling where.
Let’s say you sell an eBook on Smashwords, would you get paid in 30 days, versus let’s say if you sold an eBook on Amazon through Smashwords would you get paid later?
We pay quarterly. So every 90 days we pay. So I don’t know what each individual retailer pays.
So regardless of where the book is sold it’s still a quarterly statement.
It’s quarter, but of course we can’t pay the author until we get a report back from the retailer. I think that’s still a value that we’re providing is aggregating all that data in a single place.
Thanks, you’ve provided great insight. I might look at a Smashwords as a possible publishing platform.
Yeah, well definitely there’s no reason not to, it’s free. We make it very clear to our authors that they should remove all those bells and cherries from their eyes. That it’s very difficult to sell any book whether it’s print or eBook.
Of course. It’s all about what you put in it, in regards to marketing.
Yeah and creating a great product.
Article and interview by Israel Vasquetelle.
