Pearson gets smart and cuts out the middleman

6 July 2011

This week came some news that got the Australian Twitterverse buzzing - Pearson has bought the online assets of REDGroup - that is, the and sales portals and associated backend warehouse operations.

This was interesting news for three reasons.  Firstly, it showed that whilst there are no buyers for physical bookstore chains, their online portals are still considered valuable, even though they will still be competing against overseas online book retailers.  The second reason is that the agreement includes continuing service and sales for Kobo ebook readers, meaning all those people getting a free Kobo with every insurance contract or magazine subscription might actually be able to use it for something.  The third and most interesting reason is that Pearson isn't a retailer - they're a publisher.

Online retail is the only retail

The traditional bookshop is fast becoming an endangered species, as we've discussed earlier.  Whilst the reduction in online competition now that Amazon has bought Book Depository may mean the super bargains (including free shipping) may be reduced somewhat in the short term, there is little doubt that readers are very willing to buy online.  It's not that everyone is going to stop reading, or even reading on paper, it's just that they don't see a need to buy from an actual shop when they can get it faster and more reliably online.  One factor that doesn't seem to have been considered (unless, as is highly likely, it's simply not been drawn to my attention) is why book buyers are so much more comfortable buying online.  Of course, there is the nature of the book itself - a book is not a dress, after all - but I suspect it also has something to do with the sort of people who buy books.  To put it bluntly and stereotypically, book buyers are, on the whole, wealthier and more highly educated than the average.  These characteristics are also a major predictor of computer ownership and internet connectedness - and thus, being online and book reading are connected.

Kobo lives on

Before this news I was reading ads for products and services that included an offer of 'a free Kobo' with wry amusement - would people taking up the offer realise it was like an offer of a free Betamax player?  However, now I'm back in my box as Kobo has been saved at the last.  It will be interesting to see whether Pearson uses their ownership of the Kobo brand and infrastructure to offer device-specific titles in future, as well as how and whether through their the online retail arms they move more robustly towards publishing ebooks.

Vertical Integration

You might know Pearson from their text books, but they are way bigger than you might think: Pearson Group also owns the Prentice Hall and Longman imprints, as well as the entire Penguin Group (including Penguin, Hamish Hamilton, Viking, Doring Kindersley, Puffin and Ladybird imprints) and also the Financial Times Group, which publishes the Financial Times (obviously) as well as and has a 50% stake in The Economist.

Why would Pearson want to buy the online business of REDGroup?  It's called vertical integration, and it's bad news for bookstores.  I'm actually surprised it has taken this long for a major publisher to realise that they can bypass the middle-man and offer their books direct to readers.  Traditionally bookstores take around 40% of the jacket price of a book, so that's either a very nice increase in publisher profit, or a sudden ability to offer locally published and retailed books at a competitive rate.

Yes, it's been a big week in Australian book retailing.  I'll be watching Pearson's next move with interest.