The timing of this is uncanny. After hearing from Snowflakes United that books are not like razors, and then blogging about how they used to be very much like razors, we have a story in the New York Times today about razors that could just as easily be about the publishing industry.
From the story (which you should go read), in which direct-to-consumer razor start-ups are taking millions of customers away from the multi-national conglomerates:
[the razor companies] are also part of a bigger push among e-commerce companies that see opportunities in selling products as varied as mattresses and eyeglasses, where the established companies are accustomed to plump profit margins.
“There’s kind of a game going on, where there’s way too much margin,” said David Pakman, a partner at Venrock, a venture capital firm that is an investor in Dollar Shave Club. “The big guys are overcharging you, while smaller companies like ours can give you the best products in the world for a fraction of the price.”
In 2004 Gillette reported a 60 percent gross margin before being bought by Procter & Gamble. Gillette’s blades now often cost $10 to $40, depending on the number of razor cartridges purchased.
This is where Michael Dubin, co-founder of Dollar Shave Club, saw opportunity. Mr. Dubin offered a subscription service online, shipping razors for $1 to $9.
The company said it expected to generate $60 million in revenue this year, triple its revenue for 2013. One million people receive the company’s products in the mail monthly or every other month through its subscription service.
Where the men’s grooming industry is different than the publishing industry is the reaction to sudden competition. Publishers responded to the rise of self-publishing by aligning themselves with the scam factory that is Authors Solutions (which David Gaughran covers brilliantly and damningly here), while the men’s grooming industry is choosing to mimic these upstarts and even embrace the challenge:
To defeat the new competition, some of the giants are trying to mimic some of their smaller rivals’ tactics. Procter & Gamble, for instance, now offers an online subscription service for ordering its Gillette razors.
“New entrants to our category stimulate more conversation about shaving, which is positive for us as the market leader,” Procter & Gamble said in a statement.
But here’s where it gets really interesting. One observer thinks these corporations will have a hard time competing directly. Why? Out of fear of upsetting established retail partners.
“The incumbents are kind of trapped,” Mr. Pakman said, partly because of marketing costs. For one new product, the ProGlide with FlexBall razor, Procter & Gamble reportedly set aside $200 million for marketing. “Gillette really can’t sell directly to customers because they can’t tick off the retailers. And they can’t cut their prices by two-thirds, because their whole business model would break.”
This is the exact same predicament the Big 5 publishers find themselves in. One of my foreign publishers lamented to me at not being able to lower the price of my ebook because of the threat from bookstores to not stock the physical title in retaliation. And one of the deals I did with a major publisher was on condition that I didn’t do a digital-only deal with an online company out of fear of being blacklisted by the largest brick and mortar chain in that country. The established players are entrenching themselves against these pesky upstarts. It puts the Hachette / Amazon dispute into perspective, doesn’t it? Now you see why the one-percenters are siding with the legacy industry. It’s their razor blade sales that are being cut into. What I don’t get is the Authors’ Guild taking the wrong side in all of this. Is it because the Guild is run by one-percenters? Have they so clearly lost their mission?
The AG siding with Hachette and against Amazon would be precisely like an auto workers’ union siding with General Motors in a dispute with the largest chain of automobile dealers in the country. Digest that for a minute. You’ve got a chain of dealerships selling more cars than anyone else in the country, and when General Motors threatens that relationship by refusing to negotiate with them at all, the auto workers union goes after the dealers. Now imagine the same auto workers union taking GM’s side as they collude with Ford, Dodge, Toyota, and Honda to fix higher prices on the customer while moving from 50% margins to 30% margins and making less money for the workers. Yeah, that’s what the AG has done and continues to do.
(If you want to see more parallels between publishing and the car industry, check out how dealerships are waging a legal war to prevent Tesla from being able to sell cars direct-to-consumer. Corporations are getting away with stomping on small companies, upstarts, and consumers by winning PR battles and winning in the courts. We can’t let that happen to the book trade, people!)
What also fascinates me about this story is the steady flow of articles in the New York Times on how technology is disrupting industries around the globe. These stories are like clockwork. They have to do with the sharing economy, the success of videogame indies, the rise of online music stars, the inroads being made by Netflix, Twitch.tv, and deals being done by comedian Louis CK and musicians Macklemore and Ryan. But on the topic of the publishing industry, they have instead taken the side of multi-national conglomerates and against the indies and upstarts. A glaring difference. Would their coverage of the music industry be just as archaic if they had a New York Times Music Review supplemental in the Sunday edition? Or is it the fact that their reporters are by definition writers, and perhaps aspiring novelists as well? Or is it the $104,000 ads taken out by the one-percenter authors?
Marx would surely note the irony here that the means of production have finally fallen into the hands of the people, and that this trend is being derided by his otherwise ardent supporters. He might, of course, bemoan the fact that it was through capitalism that his dream came to fruition.