Jacob Lewis is the co-founder and CEO of Figment, an online community for teens and young adults to create, discover, and share new reading and writing. Before starting Figment, Jacob was the Managing Editor of The New Yorker magazine, where he worked for more than 12 years, and Conde Nast Portfolio. He lives in Brooklyn, NY.

The Inefficient Market

In the early 1990s, while in the port city of Brindisi, Italy, I came across some people on the street selling pirated versions of English-language books. The books were crudely bound and looked to be photocopied. But they were cheap and plentiful, and since I was getting on a long boat ride, I bought a couple.

On one hand, stolen content that benefits only the seller obviously isn’t good for the book industry. But in their way, those stalls in Brindisi were models of smart publishing. They had created an incredibly efficient market. These sellers knew exactly who would be walking by—American kids backpacking around Europe with little money to spend and even less room in their bags—and they tailored their selection specifically to those customers.

Finding any kind of efficiency in today’s publishing industry is difficult. Unlike the sellers in Brindisi, publishers (and most retailers) don’t know who’s going to walk by on any given day or what they might be interested in reading, let alone purchasing. There is very little information available for each product, including the forecasted market size and a title’s potential for success. Information derived from sales is reactive, not predictive. Publishers play a guessing game with new genres, themes, and voices.

Historically, publishing has not been about data. It is about relationships and subjectivity—the imperious tastes of agents, editors, and buyers. The combination of overconfidence,[1] overreaction, representative bias, information bias,[2] and overreliance on individual taste all equal pretty poor business sense: publishers make their money back on a given book only 30 percent of the time. They begin with supply instead of demand. But understanding demand—whether you’re creating new content, selling content, or even pirating content—is the key to an efficient market.

The problem is that publishers understand very little about their consumers and their consumption. In theory, consumer demand should determine how much of a product to make. But in publishing, every major production decision—cost of content, number of units, marketing spend—is set before a consumer is ever considered. In an industry that wants to sell billions of units every year to an amorphous demographic, issues of volume, price, and distribution are as connected to consumer demand as they are to production.

Content acquisition, editing, processing, and distribution all require capital and work. People are willing to pay for content, but publishers don’t know where the demand is. As old models of pricing atrophy, an inefficient market like this one lacks the information needed to accurately predict demand and price products. The immediacy and transparency of a digital market can be used to determine and facilitate individual sales—if that information makes its way up to the publishers. Owning the consumer, not the content, may become the greatest asset.

Understanding demand and meeting it quickly would allow everyone to make better deals. Direct-to-consumer sales have never been an option for publishers, just as they aren’t for most wholesale producers. It’s not that surprising that a digital retailer—in this case, Amazon—began to see that owning consumer data could make them more than a simple middleman.

Unfortunately, the fight publishers have been waging with Amazon has never been, from the publisher perspective, about the consumer. Rather, they want to control price, and their solution—agency pricing, via Apple and others—has already brought accusations of collusion and price fixing from the Department of Justice.

But whether publishers can recognize and learn from their customers is unclear. The people who make books currently lack any intimacy with their prospective readers, even in a world of social networks. They set up fan pages and websites and wait for people to come to them. Finding consumers for any business is hard, more so when there is little brand identity (few people purchase books based on their respective publisher). Publishers need to discover their readers as much as readers need to discover new authors and books.

More than 300,000 books are put out each year—and more than 2.5 million self-published titles—with few opportunities for consumers to sort through them all, or for publishers to find communities of like-minded readers to sell to. Physical bookstores are dying, taking with them an opportunity to browse. Online retailers are demand-driven businesses. Imagine if they went to where the readers already are and allowed those readers to dictate what they wanted.

The coming transformation in publishing will not be about the move to digital content and distribution. It is about discovery—finding and understanding communities of consumers, increasingly through the use of technology.

A Community of Writers and Readers

I run a website called Figment, an online community that helps teens and young adults create, discover, and share new reading and writing. We enable our users to read amateur and professional stories and create their own unfiltered creative writing to share with their peers on Web and mobile platforms. Figment users can connect with their writing peers, provide feedback on each other’s work, and discuss all things literary, from how to overcome writer’s block to their favorite fictional villains.

In just over a year, we have built a community of more than 220,000 registered users. These community members have posted some 350,000 “books,” from poems to multi-chapter novels. We’re continuing to add 3,000 new people each week as well as about 1,000 new books every single day.

The idea for Figment came from a New Yorker magazine article written by my partner in the business, Dana Goodyear. Dana had gone to Japan to report on a phenomenon that exemplified both the collision of social networks and the digital transformation of books: the cellphone novel. Adolescent girls in Japan were writing, sharing, and reading full-length novels on their mobile phones. They had invented the first literary genre of the cellular age.

Japanese cellphone novels began organically. Cellphone screens were like blank sheets of paper, on which teens produced complex melodramas. Take this typical plot: Sixteen year-old May is in love with Yuya, who is in love with May’s sister. May then falls in love with Taka. Her best friend also loves Taka and throws herself off a building. She recovers but without her memory, so May is free to love Taka, except that he turns abusive.

This may sound like a crude telenovela to you, just as it did to the Japanese literary establishment. But this story, published as a book after earning a massive digital audience, earned a spot on the bestseller list. The impulse to prejudge an idea or a plot is overtaken by the power of the community. The story may have been trite, but the storyline is not the point: it’s about the power of a community of readers engaging with a story. It’s about that story becoming a part of those readers’ everyday lives through technology.

Publishers put out this book because a network of fans drove its success through fan communities. In Japan, fans of cellphone fiction see themselves as peers of the writers they admire, and they follow those authors and their works as if they were friends. There is an immediacy to the relationship between reader and writer. Delivered to a cellphone, a story is like a private email or text message: implicitly intimate by virtue of the distribution mechanism alone.

This kind of system—online communities of readers and writers sharing free content across multiple platforms—actually saved the Japanese publishing industry. In 2007, four of the top five books on the Japanese bestseller list originated as cellphone novels, all of which were available online for free. The things American publishers have been looking for—data about consumer preference and an understanding of the demand for their products—can both be found through Figment’s community.

Contrary to conventional wisdom, today’s young people are voracious readers: average book-reading times for American teens have actually increased over the past decade, from 21 minutes a day to 25 minutes a day. A group of kids eager to participate in the publishing process represents the future direct-to-consumer model. They will tell us all what they want to read, when, and how. The question is, will we give them what they want?

On Figment, we know who are our users are. We know how old they are, where they live, what they’re reading, and who their favorite authors, books, series, and genres are. We know whether they abandon a book after a chapter or two, if there is seasonality to their reading habits, or if they’re prejudiced toward particular authors, themes, or even character traits. We know how many of them hate Twilight, how many times they’ve read Harry Potter, and if steampunk is the coming wave.

But online communities of readers and writers, like Figment, allow authors, readers, and publishers to interact in the same space, strengthening and streamlining marketing efforts and book sales. The users of Figment write, comment, review, engage, follow along, play in the forums, and read. They are willing to test out new material and tell us if it’s good. They read excerpts and proclaim if they’re worthy of purchase. We can see if a story does well territorially, or if its reception depends on demographics or gender.

Long before we all discovered the distributive power of Facebook and Twitter, teens were creating viral networks to share what they liked, by whatever technological means were available. These networks have, at times, driven certain books’ success. But those networks have typically been diffuse and impossible to capture.

By curating a community of readers, Figment has begun to capture those organic networks, benefiting both kids looking for new books as well as authors and publishers looking for a new crop of readers. By centralizing all of an author’s books and social media feeds, Figment gives authors new ways to brand and promote themselves.  It also allows each author to create his or her own network. Figment users can follow authors on our platform and stay updated on what they do. The more authors and publishers engage with content and readers and writers, the better served Figment users are.

Figment users read and write on computers and mobile phones. These teens, like much of the content they consume, are “born digital,” and they expect to be able to connect to stimulating material whenever they want, wherever they happen to be.  Global teenagers increasingly choose to access the Internet and all of its reading, shopping, gaming, and socializing opportunities through cellphones, iPod touches, smartphones, laptops, PCs, TVs, tablets—any device that can connect to the Internet. They type, chat, and even think in a digital way. This is our future generation of content consumers. And the Internet, for all of its destructive capabilities, gives creators and distributors tremendous power in finding their audience.

The Power of Digital Content

But right now the industry doesn’t give them what they want online. We don’t go out of our way to put a wide variety of digital content in the hands of teens, on their devices. Very few young adult books are available as ebooks because very few young adults currently own dedicated ereaders. But that’s bound to change as more content is delivered to a variety of devices, including the phones most kids currently own. In Europe, 41 percent of teenagers have used computers to read books. And in Japan, 86 percent of high school girls read novels on their phones. Over 75 percent of American teens own a cellphone or Internet-enabled mobile device, and 65 percent of American young adults access the Internet through their phones. They communicate, shop, watch movies, and create content on their devices, and they will learn to read on them as well. A recent Scholastic study showed that 60 percent of U.S. teens are eager to read ebooks.

Publishers have yet to really insert themselves into this market. Instead, publishers, like music companies before them, see digital production and distribution as a threat to their revenue and as a gateway to piracy and abuse. In order to retain control over distribution of their content, they often attempt to restrict legal digital access. Consider the failed attempt in 2009 to stagger the release of ebooks four months after the hardcover was out, or HarperCollins’s astounding decision to restrict library ebook lending  to 26 total views on any given purchase. To this day, Macmillan and Simon & Schuster refuse to sell ebooks to libraries at all.

Finding consumers who will pay for a product is difficult. But if the market is defined by sharing information, then allowing for some free distribution, especially through library systems, may be the best kind of loss leader.

There are plenty of lessons to be learned from the film and music industries, which have gone through cyclical attempts to restrict access to their material, whether to prevent sharing or stealing. Their efforts show us that if we don’t give our consumers access to our content, then we facilitate a class of people willing to steal it and sell it as their own.

Piracy will always exist. But piracy doesn’t occur just because books are digital. As the Brindisi sellers showed, it doesn’t take much more than a Xerox machine to copy a book, and if someone were really inclined, it would be easy to enter the text into a word processor, just as it’s easy to take a camcorder into a movie theater and copy a movie. Piracy doesn’t occur because the process is easy—it occurs because there’s an available and exploitable market. And it’s more likely to occur if pirates are serving a market that has restricted access to the content it wants. The more we restrict access—whether by territory, by price, or by format—the more likely it is that we’ll find our content in the wrong hands.

When I was traveling around Europe, I didn’t know where I would find my reading material from country to country. The Brindisi sellers solved that problem. Today, in theory, there is no limitation to access or space. Kids want to find and read good books. And they want iTunes-like instant gratification, a download with the tap of the finger. They want to sink into a good story, but they don’t want to wait around for it.

Look at Harry Potter. Translators weren’t given access to the English text before its release date, so there was a lag of several months before some translations hit the market. In France, the English edition reached the bestseller list—a first for an English-language book in France—before the French version was even out. There are unsanctioned editions in Sinhala and Tamil, in Sri Lanka, and as many as 16 different Persian translations.

The more we continue to try to restrict access to information and content, the more the market will demand it. In the US, publishers are frustrated and exasperated with Amazon for using a proprietary format for its ebooks. But when publishers limit access to their content by not making their content available in all formats or through library programs, is it really any different? Instead of being obsessed with retailers, distribution, and security, publishers would be better off getting obsessed with their readers, wherever they are.

The Promise of Digital Publishing

Publishing over digital platforms can increase readership, visibility, and marketability. It can also give content creators insight into what does and doesn’t work. Digital distribution will allow for a more agile approach to publishing. But restricting content while other industries adapt to a global, online model is a sure way to do the unthinkable: block sales and stall growth.

There is a lot of content flooding the world today. Hundreds of thousands of titles are published every year, along with millions of self-published ones. Suddenly, everyone is both a producer and a consumer. If communities didn’t exist for authors and publishers to engage with readers, it would be utterly confusing. Figment doesn’t just facilitate this interaction, it encourages it. Already, we’re seeing that readers are finding books not through editorial reviews or physical bookstores; they’re finding that information online, in communities of other readers.

Figment works because reading is not necessarily a passive exercise. It is a surprisingly social one. The kids on Figment tell each other every day what they want to write and read. Imagine if those same readers were telling publishers what they were willing to buy, and then had the ability to easily buy that book. That’s a model of efficiency.

Gathering better information about reading habits, patterns, and preferences can drive the market for books—rights, translations, prices—to a place where guesswork can be eliminated. Online communities of readers engaging with stories and their authors, enabled by technology and emboldened by the participation of every member: these are good things for publishers. Readers, writers, and publishers would all benefit from meeting each other, and this congress will ultimately make the market more efficient. Just like those pirate sellers in Brindisi.

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