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INNOVATION
& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | DECEMBER 26, 2000 COMPANY CLOSEUP By Kevin Ferguson For Softlock, the Rights Stuff Wasn't Good Enough After disappointing e-book sales, the Web publisher is turning away from digital-rights management to create demand for content instead
Readers swarmed to Barnesandnoble.com and Amazon.com but were unwilling to pay. In the end, the sites gave away most of the electronic copies of the novella. "Probably under 10% [of 500,000 downloaded copies] were sold, and we sold the majority of those," says Griffith. Make that well under 10%, say publishing-industry insiders. The problem? Readers, writers, and publishers aren't on the same page. Despite the availability of literature in digital form, few consumers have shown an eagerness to curl up with a juicy electronic book. Jupiter Research estimates that only $13 million worth of electronic books -- in a $7 billion annual market for adult and children's titles -- will have been sold this year, most of them nonfiction professional and college texts. "There really isn't a big opportunity for general-interest fiction," says Jupiter Research analyst Robert Hertzberg. RED HOT CHILI PEPPER. SoftLock's tale of woe is a long one. The company has been trying for eight years to create a business around "digital-rights management" technology, first in the CD-ROM business and now on the Internet. DRM software creates a digital lock and key, protecting copyrighted material by requiring readers to type in a credit-card number before they can download published works. A code attached to the text ensures that it can be opened only on the machine to which it was downloaded. Even if the text is put on a floppy, it still can't be opened on another machine. But so far, SoftLock has had little luck with DRM. For the third quarter ended Sept. 30, the publicly held, 75-person company generated only $27,875 in revenue from its lock-and-key business. Most of its $339,926 quarterly revenue came from advertising revenue, thanks to its May acquisition of Chili Pepper Inc., a Boston-based marketing company. For the nine months ended Sept. 30, SoftLock lost $10.5 million on revenue of $443,472. With Chili Pepper, SoftLock is writing a new chapter. In early December, the company secured $7 million from original investors, including Boston's Ascent Venture Partners and Chicago's Apex Investment Fund and began operating as Digital Goods. Griffith says the move reflects the company's new direction -- to help publishers generate sales through "contextual marketing." PASS IT ON. That means it will hawk digital content where buyers congregate. For example, online news junkies who followed the endless U.S. Presidential election might find a pop-up window on the news site suggesting a biography on George W. Bush. "What's been missing is some sort of demand-creation system that puts this content in front of the right customers," says Griffith. "None of that was available when we did the King book." Readers themselves are expected to help market electronic books by using Digital Goods' "pass-along" system, which allows someone who has downloaded a title to forward a preview. The recipient can read the preview and then choose to download and pay for the complete title. Since SoftLock introduced the technology in October, 1999, pass-along purchases generated as much as 8% of some titles' online sales. More than 20% of Riding the Bullet's sales were pass-along purchases, says Griffith. Of course, if no one reads an electronic book, no one will pass it along. So, Digital Goods has inked technology and marketing deals with Be Free Inc., an online marketer in Marlborough, Mass.; search-engine developer Inceptor Inc. in Maynard, Mass.; and YellowBrix Inc., an Alexandria (Va.) developer of Internet marketing technology. Together, the high-tech companies can help publishers literally get in readers' faces by linking books to related sites, says Griffith. DIGITAL FIRST. There's no shortage of reading material to recommend. The major publishing houses have turned about 400 popular titles into digital format. An electronic version of Frank McCourt's autobiography Angela's Ashes can be had for $25. Many publishers, including Riding the Bullet's Simon & Schuster Online, are even offering digital versions of novels before the hardcover is available, says Kate Tentler, vice-president for Simon & Schuster Online. But the consensus of publishing-industry experts is the combined professional and college textbook markets will continue to outstrip the consumer one for at least five years. Much of that has to do with the devices on which text is read. Professional and college texts are likely to be read on desktop or notebook computers, while novels are expected to be read on special handheld readers that cost $300 to $700. "Yes, they're too pricey and too heavy," concedes a spokesman for Thomson Multimedia, which makes two of the newest electronic readers. "But right now we're going after a particular audience: voracious readers who read three or more hours a day. Of those, two out of three say they have to have it." Where does that leave Digital Goods? "For quarters to come, Chili Pepper will be the majority of our revenue," admits Griffith, adding that the company will focus most of its efforts on marketing professional texts, rather than novels. Beyond that, it will consider marketing music, training videos, and games over the Internet. But Griffith isn't giving up. And that might explain the one title he keeps on his notebook's hard drive for occasional inspiration: Sun Tzu's The Art of War.  Kevin Ferguson is a freelance writer based in Boston  | | |
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