Pub Res Q (2017) 33:1–9

DOI 10.1007/s12109-017-9500-0

Startups Within the U.S. Book Publishing Industry

Thad McIlroy1

Published online: 15 February 2017

 Springer Science+Business Media New York 2017

Abstract This article is based on a study of approximately 900 new businesses in

the book publishing sector, most created since 2007. It seeks to gain a quantitative
view of these startups, their business mission, funding and outcome. It discusses the
forces that created an opportunity for these businesses.

Keywords Book publishing
Book publishing startups
Business startups

ebooks
Amazon Kindle

Introduction

The collapse of the first dotcom boom in the spring of 2000 put a quick stop to the
formation of new technology startups [1]. The technological developments
characterized as Web 2.0 [2] led to a second round of businesses that take
advantage of the scale inherent to the Internet. Facebook, launched in 2004, became
the emblem for the enormous opportunities in startups as the company was soon
valued in excess of $1 billion dollars [3].
Amazon began business in 1995 as an Internet-based book reseller. The Amazon
Kindle, introduced in 2007 with a retail price of $400, was an immediate success.
By 2011 the retail price had been reduced to nearly $100 and the product reached a
mass market of book readers [4].
Apple introduced the first iPhone in 2007. The subsequent growth of smartphones
means that as of the end of 2016 some 2.5 billion people owned a device reasonably
well-suited to ebook reading [5].

& Thad McIlroy

thad@thefutureofpublishing.com
1
The Future of Publishing, 2443 Fillmore St., #299, San Francisco, CA 94115, USA

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Apple’s iPhone evolved to the iPad which led to a host of other tablet computers.
With their larger high-resolution screens, tablets are better suited to ereading than
smartphones, though smartphones win for portability.

Business Disruption

The concept of ‘‘disruptive technologies’’ was first discussed in a 2005 article by

Bower and Christensen [6]. It has now central to understanding the value of Internet
startups—that a new company can propose to disrupt existing business practices
using the low-cost scale inherent in the Internet worldwide network.

The Book Business in the United States

The business practices of the book publishing have been little changed since the
Second World War. While the U.S. book publishing industry is not ‘‘collapsing’’ or
‘‘dying’’, revenue and profits have held more or less steady over the past decade [7].
There is no growth, and no obvious prospect for growth. As a result entrepreneurs
can easily justify an argument that book publishing is ripe for disruption. This was
the fertile ground that led to the creation of many of the hundreds of book
publishing startups described in this article.

The Book Publishing Startup Study

I began compiling a startup listing in early 2012 after a presentation I made at the
Tools of Change conference [8] on the topic of startups.
At the time I learned that Michael Bashkar was maintaining a list of startups [9].
His list however included just the company name and URL, had only 325 names and
was not regularly maintained. I began work on my list, apprising Bashkar of my
efforts.
In January 2014 I published a first version of the list. It included 600 names. This
is the ‘‘second edition’’ with 900, and with much more data about each company
[10]. The list could be called authoritative—based on the time I’ve devoted and
number of sources referenced I don’t think I’m missing more than a couple of dozen
companies, at most.
The study is an overview of the book publishing startup scene in the United
States. The core of the report is the detailed spreadsheet. What makes the
spreadsheet1 particularly valuable is that it lists more than just the company name.
For each company it also provides:
• A brief mission statement
• The type of product or service provided
1
Available for download at www.thefutureofpublishing.com/new/wp-content/uploads/2017/02/Book_
Publishing_Startups_latest_spreadsheet.zip.

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• Company funding
• Current operating status, i.e. whether the company is still in business

Just as importantly the report includes summary data that defines the scope of the
book startup industry, including:
• Total funds raised by all startups
• Average per funded company
• Median per funded company
• % of startups with declared funding
• % of startups no longer in business
• % of exits: acquisitions and mergers
• Number of IPOs

This offers, for the first time, a measurement of how significant startup activity is
to the larger book publishing industry.

Definitions

I define the list as ‘‘book publishing startups’’. In the same way that book publishing
is diverse so are these companies. For the most part I’ve looked toward general trade
publishing, including kids books.
The startups mostly target independent authors, not publishing companies. Book
publishing has never been a technology-adept industry; indeed it is historically
technology-averse. Other than ebooks there has been little technological innovation
in the modern era. As a result a minority of startups target existing publishing
companies or the structural publishing industry as a whole.
What is a startup? In theory it’s a new business of any sort. But I also recognize a
kind of existential notion of a ‘‘startup’’ versus just a new business. For example 61
new indie bookstores opened in 2015 [11], but they’re not included on this list.
Startups tend to see themselves as a new type of business, enabled by the Internet.
It’s a loose definition.
This is a study of the U.S. book startup phenomena and most of the startups are
based there. I include a range of non-U.S. startups, primarily from the UK, Europe
and Canada, where the company’s mission statement includes a U.S. focus.
I had to make many judgment calls about which companies to include on the list.
I was not certain whether to include the big players in high tech—such as Adobe,
Microsoft, Sony—who have played in this arena and have provided impetus and/or
enabling technologies. But they don’t seem to fit beside small independent startups
and they’re not represented here. The Penguin/Random House merger is not
included, although HarperCollins’ BookGig subsidiary is.
Educational publishing posed a dilemma. Most of the startups in the field of
education are not ‘‘publishing startups’’ per se. Rather than bringing new types of
electronic books to education they mostly are devoted to moving well beyond the
book container, toward instructional opportunities that effectively replace or at least

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augment the traditional textbook. And so the educational companies listed have a
more traditional view of educational publishing. (I was surprised to find 18
companies just targeting textbook rental/resale/price searches.)
Scholarly publishing was also a challenge. Scholarly journal publishing is being
disrupted by Open Access and other developments (though the largest players are
more than holding their own). Scholarly book publishing remains largely in place.
Most of the startups in that space are providing new tools and services that go
beyond book publishing, rather than replacing the existing publishing piece. Very
few companies on the list have a scholarly publishing focus.
‘‘Children’s’’ was a relatively easy category: included are only those companies
that are explicit about rethinking children’s print books and of providing book-like
entertainment to children in digital formats.
‘‘Apps’’ make occasional appearances but after an initial flurry of interest a few
years ago the activity in this sector died down rapidly. (Except for ereader apps on
mobile devices.)

Self-Publishing Expands

The big shift in publishing is the growth of self-publishing. The self-publishing

business now represents some $500 million in consumer spending, the vast majority
of that fiction ebooks [12]. With U.S. trade book sales at roughly $16.8 billion in
2015 (net to publishers) [13], and assuming authors receiving on average 60% of
retail sales,2 self-publishing has a 1.8% market share. I estimate that there are
upward of 500,000 active self-published authors in the U.S. (many earning just a
few dollars a year). This is the market that the majority of the startups are chasing. It
would certainly be interesting to work back from those numbers to try and
understand the revenue opportunity based on an estimated annual spend by self-
published authors for products and services.

Categories

This is how the companies break down by categories:

Classification #
Tools & services 260
Original content 131
Retail 94
Social 73
Discovery 70
Education 49
Marketing 49
2
The economics of self publishing revenue is complicated by different revenue sharing based on retail
price and whether the author uses a third-party intermediary to distribute their books to the major ebook
online retailers.

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eReader 43
Children’s 34
Free 28
Subscription 19
Textbooks 18
Audio 12
Unknown-N/A 7
Investment (i.e. Ingram) 1
I decided to describe about a dozen categories once I learned that if I became
more precise I would have over a hundred categories, many with just a few entrants.
For example, companies classified as ‘‘Tools & Services’’ include everything from a
‘‘PDF to EPUB converter’’ to ‘‘Cloud-hosted publishing tools: all you need to
produce an app.’’ ‘‘Retail’’ is any service that brings books from distributors to
retailers or retailers to readers.
There are about 70 companies each for ‘‘Social’’ and ‘‘Discovery’’—based
mostly on whether one of those terms appears in the short description of the
company. The terms are inherently vague. ‘‘Social’’ defines a website that provides
a mechanism for multiple writers or readers to connect with other writers, readers or
both. ‘‘Discovery’’ mostly offers readers an enhanced or personalized method of
discovering books and authors with which they are unfamiliar. The sites use
different methods but in some way are personalized toward each reader.

The Economics of Book Publishing Startups

The total funds raised by all 889 startups is only $925 million, not even a billion.
And a large portion of that investment has gone to just a handful of companies.
Wattpad received $67 million, Scribd $48 million. If counting just the investments
at $10 million or less only $220 million has been committed. That indicates a
median investment of $1.77 million for those that have been funded at all.3
Putting that in some perspective, the National Venture Capital Association
recorded $58.8 billion in venture capital invested across the U.S. in 2015 [14], while
the investments recorded in this study are an accumulation of roughly 10 years of
investing.
Only 15% of the companies have received any funding (some as little as
$10,000–$42,000). Many of these publishing startups operate at a small scale. Some
are bootstrapped, with funds from the founders and their families and friends. In
many cases there is no startup, per se; just a website and some good intentions. The
marketing and promotion is minimal.
Nearly a third of the companies on the list (31.1%) are no longer in business.4
3
CrunchBase.com, CB Insights and AngelList provided much of the background information for funds
raised.
4
When companies go out of business they rarely make an announcement. My assessment of which
companies are no longer operating is based mostly on the status of their web site. In some cases the site
has disappeared. In other cases there’s been no blog post for one or two years. Often the Twitter feed has
dried up or the Facebook posts.

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Six percent of the companies have managed an exit of some sort: merged or
acquired. Rakuten, based in Japan, has invested the most on acquisitions: $330
million on Kobo and $410 million on Overdrive (and more recently an undisclosed
amount to become the ‘‘technology partner’’ for the German Tolino ebook platform
bought from Deutsche Telekom). There have been 2 IPOs, Chegg and Digimarc
(IPOs are the initial public offering of the stock of a private company on a stock
exchange).

Why are so Many Startups Failing?

We can try to evaluate the data in this report against broader success and failure
rates across all startups in the U.S. But finding comparable data is tough. There’s a
problem in defining ‘‘success’’, ‘‘failure’’, ‘‘no longer in business’’ and so on. Should
we look just at tech startups? At what point does ‘‘just an idea’’ become a
‘‘business’’? Is it when the company initially registers to do business in its state? Is
there a nominal amount of funding required to qualify? The bare qualification to
appear on my list was just a website, a declared publishing focus, and some sort of
announcement that alerted me to them in the first place.
CB Insights has paid close attention to these issues and notes that ‘‘startup death
is surprisingly hard to identify. Many startups are essentially dead but limp along for
years in zombie-like fashion’’ [15]. They found that 55% of failed startups raised
$1 million or less. Seventy-one percent of the failed companies lasted less than two
years after their last round of funding.
Analyzing reports of failed startups CB Insights found that the number one
reason for failure was the lack of a market need for their product (42% reported)
followed by running out of cash (29%) [16]. More generally U.S. Bureau of Labor
Statistics show that most businesses that fail do so within the first two years (34%).
After 4 years 56% have failed [17].
‘‘Room for innovation’’ is quite different from ‘‘ripe for disruption’’. It’s not that
many of the startups think that they’re disrupting the whole publishing business. But
several make claims of disrupting the reader’s role, the agent’s role or the balance of
power between writers and retailers. As Elizabeth Spiers describes the situation, too
many startups ‘‘think incumbent companies are using broken models because
they’re idiots and not because the problems are not easily solved’’ [18].
Many of these startups are trying to fix a problem that doesn’t in fact exist. The
disruption motif seems unlikely to get a footing in book publishing, or at least in
trade book publishing. Books in their current physical form work well for readers.
Novels are well-received as a cultural pursuit. A dozen or so startups take on the
challenge of reinventing the narrative book form, with little success.
Self-published authors arguably have access to all the services they need between
Amazon’s Kindle programs and a few of the larger self-publishing service firms like
Smashwords and Draft2Digital.

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What are the Startup Opportunities in the Book Publishing Industry?

The report does not clearly identify any one type of startup as inherently more likely
to succeed than another. There have been notable successes. One of those are
services that market and distribute free or low-cost ebooks to eager readers. But
copy cats quickly follow and Amazon, by far the largest online book retailer, often
copies the most successful startup ideas.
Wattpad is the company that has been the poster child for book publishing
startups [19]. And yet 10 years after its launch there’s little discernible change that
can be attributed to its influence (there are a handful of other startups that encourage
writers to post short snippets of fiction daily/frequently).
So what of this disruption we call self-publishing? According to Data Guy it turns
out that it’s about a $500 million business [20], not a large sum. Simon & Schuster
alone has sales of nearly $800 million per year [21].
As distributors Amazon and its competitors retain about a third of this $500
million in revenue. Publishing services like Smashwords and Draft2Digital can
claim about 10%. So startups with a focus on self-published authors are trying for a
cut of $300 million in net revenue. Authors Earnings slices and dices in some
interesting cross sections.
• Just under 10,000 authors (9900) earn $10,000 or more per year from
Amazon.com.
• Half of those earn $25,000? per year.
• 1000 indie authors who debuted in the last 3 years earn $25,000? per year [22].

If we use $10,000 in earnings as a threshold for an indie author to be interested in

the services of these startups, the target market is pitifully small. But aspirations
being what they are, certainly many authors of more modest earnings will still pay
cash to try to raise their standing. How many and how much is the question.
A ‘‘good little business’’ can be something quite different than a VC opportunity.
It’s another pitfall of the startup mentality. If more of these companies saw
themselves as businesses committed to the long-term rather than disruptors, they
might be able to stay in business a little longer.
When I think about disruption, competition and opportunity I often return to
Netflix CEO Reed Hastings description of his business:
If you think about your last 30 days, and analyze the evenings you did not
watch Netflix, you can understand how broad our competition really is.
Whether you played video games, surfed the web, watched a DVD, TVOD, or
linear TV, wandered through YouTube, read a book, streamed Hulu or
Amazon, or pirated content (hopefully not), you can see the market for
relaxation time and disposable income is huge, and we are but a little boat in a
vast sea [23].

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Futures

This article provides a profile of the book publishing startup scene in the U.S. at the
beginning of 2017. I have not noticed any change in the pace of startup creation. But
nor have I seen many investment ‘‘events’’—there is no evidence that the financial
condition of the book publishing startup industry is changing.
There are some technology innovations within book publishing that may
accelerate startup creation. The merger of the IDPF with the W3C [24] and the
introduction of AI-related technologies [25] appear to provide opportunity.
I plan to continue to update the spreadsheet and to publish analyses of the results
on an irregular basis. A Spanish edition of the report is in preparation.

Disclosures

I have no investments or current consulting relationships with the companies on this list.

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