Wednesday, July 31, 2013

Goodreads, After the Buyout

For those not already familiar with them, Goodreads is an online community for readers to keep track of books they want to read, are reading, or have read. It also allows them to interact with other readers and authors. Authors can also use Goodreads to promote their own personal brand and books while interacting with readers.

To the best of my knowledge, Goodreads was built as an independent entity using venture capital funds (and not a subsidiary or affiliate of Barnes & Noble NYSE:BKS). The entire business may originally have been “built to flip” given its rather thin monetization on a sketchy business model up to its acquisition in March this year by (NASDAQ:AMZN).

I have three Goodreads accounts serving different purposes, including an author's account. It’s handy for keeping track of my books, but its user interface could use a lot of improvement; I hope Amazon will spend the money to do so. I don’t use it for community interaction about books. but a number of acquaintances use it extensively for tracking their reading, interacting with other readers interested in the same books, and for promoting their own works.

[Hereafter follows lengthy business discussion, skip as desired.]

With regard to its acquisition by Amazon, Goodreads poses these major challenges to member readers:

— As an Amazon subsidiary, Goodreads now exists to encourage book sales through Amazon. Folks who don’t like Amazon may take issue with this.

— Goodreads’ book reviews and communities can be gamed, just as reviews on Amazon and other online outlets have been manipulated. Caveat lector, caveat emptor.

— If Amazon had already been hurting small booksellers, Goodreads as a subsidiary won’t reverse this trend.

Amazon's acquisition of Goodreads in March 2013 parallels Amazon's purchase of Zappo's — they bought something better than what they struggled to do themselves.

Amazon couldn't sell shoes; they were competing head-to-head with Zappo's in online sales, and getting their butt kicked.  The mega-retailer didn't have the culture necessary to provide appropriate the level of customer service necessary to sell rather personal items like shoes, in contrast to Zappo's whose core competency was customer service. Like Zappo’s, Goodreads did one thing very well: it built a community around books. Amazon has never been able to develop successful community around its primary product, and Goodreads had a successful community already in place.

A key advantage Amazon has over all other retailers is economies of scale with regard to distribution. I can't understand why small, indie booksellers haven't done something like grocery stores did decades ago and create a co-operative distribution center to take advantage of scale. It's also more green, a promotional advantage.

Given the economics, it’s not clear why another outlet snap up Goodreads first, like a publishing consortium, or Barnes & Noble (which really needed a community, too). Cost appears to be the primary barrier; guesstimates on the deal were all over the map; some guesstimates ran to $1 billion. Some estimated the cost was $10 per registered user, and Goodreads had 16 million users at the time of the sale.

The Atlantic had a write up about the deal in which it noted that a very small number of Amazon customers bought the most books. Thinking in terms of dollar cost per community member and dollar sales per community member — Amazon’s cost to advertise per book-buying customer could have exceeded the cost to simply buy Goodreads.

Businessweek (BW) also had an article about the deal. BW lamely used business-oriented social media network LinkedIn (LI) as a benchmark against which to measure the Amazon-Goodreads deal. LI doesn't have a single product to promote. The Goodreads acquisition much easier to estimate price because of income stream matching a core Amazon product.

Publishers are still unable to leave traditional brick-and-mortar marketing in order to grok the value of a business model like Goodreads. Amazon is eating their lunch because they've never thought that way. Think about it: Amazon’s “Little a” imprint now has its own Goodreads home before it really gets off the ground.

I'm betting a more fully integrated Goodreads/Kindle application has been under development already. The timing of the Amazon-Goodreads deal and the recent “Send to My Kindle integration with Readability app” was awfully coincidental. I’m tempted to take bets on when Readability is bought by Amazon.

I’ve wondered if Goodreads might spawn a new community site named Goodviews, next, though, based on Amazon's streaming video-on-demand content.

Netflix (NASDAQ:NFLX) has had same problem as Amazon — their culture didn't have the infrastructure and culture necessary to support social media and customer service. They'd have to do the same as Amazon to pull it off successfully, buy an established, seasoned community site with existing monetization.

There’s been a market for a community integrated with social media serving film and TV for more than a decade. I remember co-watching movies with friends back in 2002-2003, using a blogpost and comment threads to discuss the film, for lack of any other venue. A publishing consortium tight with book-to-film production should take note of this opportunity and seize it.

The occasional harassment/trolling within Goodreads’s community will be Amazon's real challenge. It's a substantive reason why other businesses haven't simply bought/tacked on communities integrated with social media — it takes sizable investment and commitment to develop and enforce policies that are effective but don't thwart community interaction.

My question is forward-looking: how do Google and Apple respond? They are the next closest competitors, though their core products are different. Both are currently wrapped up in other battles; Google is pushing Chromecast to compete against Apple TV, while Apple is duking it out in a court case about price fixing on e-books. Which of these two will decide they need to develop a community to promote their own content in Google Play or Apple iTunes-eBooks?

I think Google already started, letting community members build a preliminary effort in Google+ where users can discuss books. It just won’t be Goodreads as it does not have the other infrastructure, i.e. personalized lists of books.

[Postscript: You can find me at Goodreads at this link.]

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