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Vol. 24 No. 8 — Sept. 2007

With headquarters in Sebastopol in California’s apple-growing region, O’Reilly is known for its quality technology books with unusual animals on the cover (see the sidebar on page 39); the Hacks, Missing Manual, and In a Nutshell series; and its technology conferences.

From its small beginnings in the early 1970s, the company has grown to 260 employees who are engaged in publishing and a wide range of related technological innovations under the leadership of founder and CEO Tim O’Reilly.

O’Reilly—the CEO and the company—takes a proactive approach to information marketing. The staff members realize that they must work harder to remain relevant to the audience, and that realization has spurred them into some interesting innovations. They follow new technologies closely and develop strategies, products, and business models to address them.

For example, C J Rayhill, O’Reilly’s CIO, noted that one of the company’s strategies is finding people at the leading edge of technology and talking to them. “[O]ne of the best ways we know to do that is to have a conference,” she said. So O’Reilly launched a number of conferences such as the recent Tools of Change (TOC) for Publishing (see the article in last month’s IT) and its Friends of O’Reilly (FOO) Camps, which are informal, free-flowing gatherings of invited technology leaders and experts at O’Reilly head­ quarters. According to Rayhill, “We have had some fascinating things come out of those events. There have even been two or three businesses that have been spun off as a result of these collaborations.”

O’Reilly sees the TOC conference as a “bridge between the technology and publishing worlds.” The conference was designed to “present success stories plus practical techniques that attendees can take back and use in their own businesses,” he said. “We’re hoping that by bringing together people who are fac­ ing the same challenges, the conference
will spur connections, collaboration, and new ideas.”

In fact, Bill Burger, vice president of marketing at the Copyright Clearance Center who attended TOC in June, reported that the “Tools of Change conference was just what you’d expect from Tim O’Reilly: fast-paced, diverse, forward-looking and very much focused on innovation. I think most people were challenged and inspired by what they saw and heard.” Burger expects to attend the next TOC conference, which will be in New York City.

Ahead of the Technology Pack

O’Reilly’s publications have a reputation for quality, not only among publishers, but with technology users as well. When a new technology appears or a new programming language emerges, O’Reilly probably has a book about it in the works. When Apple’s iPhone was released on June 29, 2007, O’Reilly’s Web site offered iPhone: The Missing Manual (billed as “the book that should have been in the box”) by David Pogue within 2 weeks. First, the book was available in PDF, then PDF purchasers also received a copy of the printed book when it was published.

This is typical of O’Reilly’s marketing strategy: Provide the greatest added value to authors, publishers, and consumers by making content available in as many forms as possible. Allen Noren, O’Reilly’s director of online marketing, phrases it another way: “Here’s our content. How do you want it?” This philosophy guides many of the company’s business decisions.

Rayhill explained that although many proposals for new books arrive from potential authors, O’Reilly also searches for technology experts and invites them to write books in their fields of expertise. Rayhill thinks that authors, especially in technology, are not writing books solely for the financial returns anymore. Rather, they want to establish a name for themselves (becoming an O’Reilly author is one way to do that), or they want to leverage the author-publisher relationship to promote their work.

In today’s changing digital world, do authors have any objections to selling their content “by the piece”? According to Rayhill, “I think what you need to do as a publisher is provide the greatest added value to an author, whether that’s notoriety, exposure, PR … or finding every means possible to leverage their content.”

For example, O’Reilly itemizes its royalty statements to show authors ways that their content is being sold. Some authors feel that digital distribution may hurt print sales, but Rayhill noted that the average shelf life of printed books in a bookstore has decreased from 18 to 20 months to a maximum of 5 to 6 months. She pointed out that electronic sales provide increased exposure and added income for authors, and as the shelf life continues to decrease, electronic distribution will become even more important. People’s reading habits are also changing. With electronic distribution, readers can find and buy just the part of the book they need, which is not possible with a printed book.

Get Ready for a Paradigm Shift

Though O’Reilly has a large, successful, and visible printed book publishing business, it is not resting on those laurels. Printed books aren’t disappearing anytime soon, but O’Reilly recognizes that bookselling is currently undergoing radical changes and a major paradigm shift is leading to changes in business models.

“Just as in the old days, it was very important for our books to be in brick-and-mortar stores,” said Noren. “Now, it is just as important for our books to be online at the point where someone is making an information acquisition decision.” He also said that the barriers to acquiring information are substantial, even with highly developed ecommerce systems such as with Amazon. Users must find the Web page for the desired book, navigate the system, enter credit card or other data to purchase it, and then wait for it to be delivered.

The alternative is to buy the book at a bookstore, if it’s in stock. And with the demise of many independent bookstores, O’Reilly and other publishers depend more on large booksellers such as Borders or Barnes & Noble, where the competition for shelf space is intense. In today’s rapidly changing markets, publishers are facing the fact that many of their books are not visible to potential buyers.

O’Reilly’s solution is to make its books available online, not only as discrete books, but a la carte by the chapter and in PDF. Noren compared this approach to the iTunes model where users can buy a single song from an album. He also noted that Google, Microsoft, and Amazon (which he referred to as the “new retailers”) are expected to launch book access programs soon.

“It’s all about getting the customers exactly what they want,” he said. “Why should a Web site be different than a book? Nobody goes to a Web site and reads the whole thing; they find exactly what they want, take what they need, and move on.”

Working in the Global Marketplace

Noren feels that printing, warehousing, and then shipping books are antiquated ways of running a business. The world is rapidly moving toward online access and a la carte purchasing models. He said that people in Asia are far ahead of the U.S. in many ways in their information-acquisition methods: “If we want to participate in this global economy, the answer is not to make your content available in print form and then [ship] that document all over the world.” In Asia, users get more of their information via cell phones or PDA devices, and publishers must be willing to accommodate them if they want their business. “We are all trying to live off the cash cow of printed books,” said Rayhill. “I think print books will always have a role of some kind, but, at least in our genre, not to the extent they do today.”

Electronic information also lets producers enter the global market immediately. For example, Noren said that an O’Reilly customer in Norway wanted a book, but the cost of purchasing it locally was more than the customer was willing to pay. The book could have been ordered directly from the O’Reilly Web site for less, but the shipping costs and the lengthy delivery time would have negated the savings of buying online. And there was always the risk of the book getting lost in transit. When O’Reilly introduced the book-buying option in PDF, the customer was delighted because the book was available immediately at an affordable price. And pricing is also an important factor in making content available online or in print.

Weighing In on DRM

But what about piracy? O’Reilly isn’t adding any digital rights management (DRM) protection to its electronic book chapters, according to Noren. He said the company is relying on customers to do the right thing. For example, it’s legal for someone who bought a print book to give it away or to sell it to a used bookstore when he or she is finished with it. O’Reilly adheres to this same principle with its PDF book chapters. (Of course, if someone put an O’Reilly book chapter on a file-sharing Web site and let thousands of users access it freely, then O’Reilly has measures in place to detect such actions and take legal action.)

As with the iTunes model, Noren noted that Apple has developed an excellent user interface and fair pricing without experiencing significant piracy problems, unlike the movie and music industries that have alienated many of their customers. Noren said the fear of piracy is not a reason for publishers to opt out of making their content available digitally.

Returns are one of the biggest problems that publishers face. According to this practice in book publishing, a retailer can return a book that has been on sale for some time to the publisher for credit. Frequently, a book can then go out of print because the publisher destroys the returned copies to make room for new releases. Ebooks are a plus because the book will never go out of print since the file is always available and can be used to produce a copy when a customer requests one, a process called print on demand (POD).

A Change in Publishing Formats

Even the book production technology, including POD, is changing. Rayhill identified three levels of production:

1. Offset Print. This traditional print method lets the publisher estimate the number of copies that will sell and the number that is printed.

2. Print to Demand. Once book stocks are exhausted, a certain number of back orders are accepted and then a small offset press run is done.

3. Print on Demand (POD). As the most costly production method, copies are produced when book orders are received.

O’Reilly sells books directly to customers, through traditional bookstores and other online booksellers such as Amazon, but it only sells POD copies by direct sale, which gives better control of its margins. According to Rayhill, print-to-demand costs per copy are about double those of offset printing for O’Reilly, and POD costs are about three times as much as offset. However, costs are dropping and may soon be cost-effective enough to make new business models practical. Rayhill is certain that the former warehouse model will eventually disappear because it probably won’t be economically viable, except in special circumstances such as best-sellers or in genres different from those where O’Reilly operates.

Learning From Experimentation

O’Reilly is constantly experimenting and has taken the lead in applying new innovations in publishing as a result. O’Reilly’s Web site recently let users listen to the content. Working with a company that produces synthetic voice technology, O’Reilly added audio files to the site. On many of its Web pages and blogs, the “listen” link will bring up the audio. The quality of the synthetic voice is outstanding, and the system can even detect when an image is present and even read the caption.

Other experiments underway at O’Reilly include letting users buy pieces of books for cell phones and augmenting content with screen tips or video to show the user what to do. In a pilot program with The Open University in the U.K., O’Reilly is producing interactive books that are accessed with an offline viewer. The students or the teacher can take notes or highlight passages and then share them with each other. If students have a problem, they can also ask for help from the teacher or their classmates. Particularly for a distance learning organization such as The Open University with more than 150,000 undergraduate and 30,000 graduate students (25,000 of which are outside the U.K.), this technology opens new avenues in education.

And with all of these discussions about digital books, what are the chances of the ebook reader returning as a viable device? When ebooks were first developed, reading devices also appeared in the marketplace. Virtually all of these readers aren’t around today, and it seemed that ebooks might meet the same demise.

Another problem was the paucity of content available electronically at the time. However, with the advent of widespread broadband connections, cheaper storage, faster servers, other new technologies, and a growing volume of content, ebooks have made a comeback. Both Noren and Rayhill feel that ebook readers will play a critical role in the future, especially when some of the large market players begin to participate. Microsoft and Amazon are reportedly working on hand-held ebook readers, and Apple’s new iPhone could also function as one.

Clearly this market is fluid at present, and it is too soon to compare these devices. But the activity shows that ebooks have returned and are successful in some markets. And when a device appears with all the functionality that people want, it will succeed. “With the early ebook devices, publishers were not on board, and digitization had not reached a tipping point yet,” Rayhill said. “All these things are now in the past. When the next wave of devices appears with appropriate features and wireless capability, they will be adopted.”

For Noren, history moves in interesting and unpredictable ways. “I don’t think the thing that will make ebooks successful is a new reader or a new push by Amazon,” he said. “It will be something unexpected like oil prices going through the roof, which will make it unfeasible to do all that shipping any more and still keep a magazine affordable. When things like that happen, people will have to make a shift, and the devices will be good enough for them to do it.”

O’Reilly continues to add innovations to the marketplace, especially with its conferences. “When you bring together an interesting mix of people that you never thought would be in the same room together, interesting things happen,” Rayhill said.