Bob Young, former CEO of Red Hat — distributor of the open source computer operating system known as Linux — wants to conquer the publishing world, in every language. How? By offering writers — whether they are established bestsellers, newcomers or simply fans — the opportunity to publish their work without cost. Put simply, Young’s goal for his new business, called Lulu.com, is for the site to represent literature the way eBay represents commerce. How realistic a goal is that? And can his business model work?
“Short term, its future is promising,” notes Francisco Sandulli, professor at the Complutense University in Madrid. “Currently, Lulu is focused on growth; the greater its volume on a world scale, the more it can take advantage of economies of scale in its business base. It is a similar model to others on the Internet such as Google, iTunes and eBay, where the goal is to achieve a dominant position. Once Lulu is established as the leader in publish-on-demand and vanity publishing, it will be able to dream up new ways to take better advantage of its greatest assets — its content and its community of global users.”
Enrique Dans, a professor at the Instituto de Empresa Business School, is also confident about Lulu’s prospects. “It seems like a very appealing model to me, based on what classical economists consider the democratization of the means of production. It explores a model that will have overwhelming importance in the future. It is the logical evolution of the classical publishing model, adapted to a world in which anyone can be an author and can have a market, even if that market is sometimes limited to a few friends, family members, and acquaintances.”
Dans notes that Lulu.com offers broad opportunities for awakening the author that we all have within ourselves. Lulu makes available to everyone, free of charge, the entire infrastructure required for uploading a work onto the Net. The author only needs to write an idea in Microsoft Word, then go onto Lulu.com and make it available to the entire world. By clicking the “publish” button, his or her imagination is available to any reader interested in getting to know the author.
To make it easier for readers to find writing that interests them, Lulu.com works in a way similar to eBay. Lulu offers several categories, along with lists of the most popular works and free excerpts that give people an idea of what the complete work is like. Each work is accompanied by a brief recommendation. The author also decides how much to charge for his work. Lulu.com only sets the rules for how much it gets for each copy it sells, usually about 20% of the total price. The author also decides the type of copyright, from a broad range of options offered by Young. The author even has the opportunity to add his or her own conditions to the classical copyright model. That way, the author always owns the rights and can publish it in other media.
“The rights of the author are appropriately protected in this kind of business,” notes Sandulli. Nevertheless, intellectual property is an area where there are legal complexities. Still virgin territory, IP has fallen behind the rapid growth of new technologies. This has opened the door to suspicions that there may be legal obstacles in the future to Lulu’s business model. Most significantly, the major publishing houses realize that businesses such as Lulu.com threaten their future.
“From the very beginning, they could do all these things. But the law is designed with the mindset of a world that provides advantages to existing business models,” warns Dans. “Short term, Lulu must confront the rigidity of certain tax regulations in various countries. However, these obstacles will not be enduring. If a law stands in the way of the progress of this model, the law will ultimately be changed. No law can block the path of progress. It is a lot like music stores that have tried to use their legal resources to impede distribution models based on something as accepted and internalized as peer-to-peer file sharing over the Net. This process can only be delayed; it cannot be stopped.”
Despite bright forecasts by experts, one doubt hangs over the future of this business: If Lulu only earns money from the cut it takes from each sale, what will happen if the public does not buy these kinds of works? These writers are new and unknown, and there are fans who will take to them. “The business will not fail if there are no sales because no costs are involved in producing it. The author incurs practically no costs. The actual publishing only takes place when there is a sale — a process known as “print on demand.” There is no need for inventory or any of the other rigidities imposed by the classical model” [of publishing], notes Dans.
Sandulli has a similar view. “The sales volume of these books is not high. Nevertheless, costs are very low. Technology enables very significant economies of scale. In the future, I assume that Lulu will want to develop other services based on the global community it is creating, and on the content that it is accumulating.” In an interview with Baquia, a site that offers news about the Internet, Young cites promising numbers about the growth of his business: More than 30,000 stories each month; 2,000 new titles published each week; 50,000 daily visits to the Web site; between 50,000 and 75,000 sales each month; and approximately 10,000 products available for sale at any moment.
And it is going to get bigger.
Conquering the New World
The birth of a Spanish-language Lulu.com is the first step toward conquering the Latin America market, which resembles Spain when it comes to language. Young’s strong commitment to this language convinced him to open a printing center in Madrid. For the moment, Lulu.com has offices only in the United States and the United Kingdom, its principal markets. However, the company’s strong growth will force it to open operational centers in every country that it finds appealing. Among these, Spain stands out, along with the broader terrain of Latin America.
Young’s interest in conquering the Spanish-speaking world is doubly important considering that his business model is not limited exclusively to the publishing world. It also extends to any product created by the human mind, such as music, videos, photos and art. This broad spectrum provides the opportunity to convert Lulu.com into the great online market for intellectual property. This is where Young is really making a commitment.
“The key is that, just as we can search for anything on the Internet using Google and we can sell old records using eBay, we will direct ourselves toward Lulu.com whenever we want to satisfy our creative vanity by writing a book. Lulu.com will take the place of BookSurge, iUniversity and Xlibris, even when one of those sites might be more convenient for authors,” notes Sandulli.
Although Lulu can dream about becoming the eBay of intellectual capital, it will be very hard for it to establish a monopoly. The growing role of the Net and e-commerce in the future will mean that traditional businesses have to adapt to the new technological environment. Just as many companies compete in sectors of classical markets, the same sort of competition will exist on the universe of the Internet.
“This is not a model where we can expect a single provider to be very dominant,” says Dans. “The hyper-atomized structure of the market will lead to the appearance of other sustainable competitors who have identical or similar models, which are sustained by various kinds of niches that are specialized by topic, format, language, and so forth.”
Nevertheless, experts have gained confidence in Lulu because of the fact that Bob Young is its head. “Young is a person widely recognized as a technological entrepreneur, and his business model is extremely clear. What he is doing can be publicized through open source circles as well as through the blogosphere and the so-called nano-media, where free viral distribution is a very appealing concept. But the earnings of the company must become tangible if the distribution process is to become more lasting and prolonged over time,” warns Dans. “Bob knows the way this world works, and he knows that it is not only about waiting for authors to come to you. You can go to them and participate in the development of talent by using equally simply means, unlike the abusive contracts of conventional publishers. That way, you can guarantee sustained attention over time, and sustained penetration of the model.”
Attracting Major Authors
It’s clear that Lulu.com has become a hit among new writers and their fans. But the company will need to deal with writers who author bestsellers. There is a lot of skepticism about the ability of this new company to attract major authors. Sandulli, for example, discounts the possibility that Lulu can become a threat for big publishing companies because, he says, major publishers can continue to get support from star writers. “These are two different business models,” says Sandulli. “Lulu focuses on the long tail of the demand curve. In other words, on the demand for books, music and videos which are not star products. On the contrary, the major publishers focus on making money from the stars, and on creating stars.”
Dans agrees, noting that “fundamentally, Lulu and the major publishing houses are not focused on the same market. Lulu uses an economically efficient approach to exploit markets that are smaller than those that the big publishers are in – for example, markets created by authors of blogs. Occasionally, what these authors write is high-quality content, and they can create audiences of hundreds or thousands of readers who are closely tied to one another and who might want to see in book form the content of an author they already read everyday [on the Web]. It’s also important to mention that part of this content is photography, audio and/or audio-visual products.”
For all that, the day will probably come when some of these authors achieve a certain degree of fame. “At that time, Lulu.com will probably be able to profit from distributing their work, using reasonable commissions that the authors will not view as abusive but as a reasonable expense. Over time, Lulu will become more and more attractive for established authors, and it will begin to threaten conventional publishing houses when competing for [writing] talent.”