Friday, February 17, 2012

Inkling and Vook: Is B-to-C to B-to-B really B-to D(isaster)?

Let me explain that title: If a company moves from selling to consumers (B-to-C) to selling to businesses (B-to-B), are they setting themselves up for failure? Recently, a couple of well-known electronic publishing names have changed their focuses from selling eBooks to consumers to selling eBook creation tools to writers and publishers. Vook had a highly-publicized launch in 2009 as a publisher of enhanced eBooks, which included audio and video along with text. In the second half of last year, the company changed direction ("pivoted", in the current vernacular), and focused on selling its enhanced eBook production tools to other publishers. Vook's toolset remains in beta, but the company is hinting about "major announcements soon", suggesting that they're getting close to general availability for their software.

Earlier this week, Inkling, an eTextbook publisher focusing on the iPad, announced a similar shift in strategy. Even though Inkling has been in business for about 18 months and has deals to reformat textbooks from a number of major publishers, it's only released about 200 titles so far, just a tiny fraction of the number needed to be truly competitive in the eTextbook market. In order to stimulate production of additional titles, Inkling announced that it would 1) Deliver its eTextbooks in HTML5 format that will work in many browsers, and 2) Release an eBook authoring and production service called Habitat. Habitat, which is in an early closed beta, will be licensed to publishers at no cost.

Like Apple's iBooks Author application for OS X, eBooks created with Habitat can be distributed anywhere for free. However, eBooks created with Habitat for sale must be offered through Inkling's own website and iPad app. In the case of sales through the website, Inkling takes a 30% commission. They also take a 30% commission from sales through their iPad app, but Apple takes another 30%, leaving only 40% for the publisher. Unlike Apple, which limits sales of titles created with iBooks Author to its own iBookstore, Inkling allows Habitat-based eBooks to be sold through other outlets. However, publishers have to plan for the probability that most of the sales will go through Inkling's own channel, with as little as 40% of the sales price coming back to the publisher.

Both Vook and Inkling are moving from B-to-C to B-to-B. In Inkling's case, it's using Habitat in part to increase the number of titles available in its format, but Vook is now out of the B-to-C business. Both companies are hoping to find a successful business model, but history suggests that this kind of pivot is rarely successful. In the early days of online video, many companies launched advertising-supported streaming video sites. Other than YouTube, only a handful of those sites have been successful, and a good number of the unsuccessful ones pivoted to sell the technology they had developed for running their sites to other businesses. In some cases, they sold what's now termed  "white-label online video platforms" for uploading, compressing, storing and displaying video content, while other startups sold technology for video ads. Most of the companies that pivoted to B-to-B were no more successful than they were when they were focusing on consumers. One of the few that pivoted successfully was Brightcove, which just went public today. However, even though they launched in 2004, the company has never been profitable.

Selling to businesses is very different than selling to consumers:
  • You actually have to collect revenue from your customers when you sell to businesses, which means that your product or service has to have real value and be positively differentiated from competitors.
  • You need a sales force, whether in-house or reps, to call on potential customers.
  • The sales cycle (the amount of time needed to close a sale) can be very long, and many people are likely to have input into the purchasing decision. It may take six months or more for the customer to evaluate your solution and decide whether or not to purchase.
  • Business customers demand a high level of customer and technical support. You may need to have support engineers available on call 24/7.
I've seen startups use this pivot enough times that it often seems more like a desperation move than a successful strategy. If a company wasn't successful using its tools, why is it likely that anyone else is going to be more successful using those same tools? The tools might solve a problem that doesn't exist, or provide features that the vast majority of customers don't want or need. They might be too difficult to use or too slow, which will lead businesses to try and then abandon them. Or, they might not be differentiated from other products and services already in the market.

I'm not saying that Vook's or Inkling's tools are bad, or that the companies' efforts to pivot will fail. (I've not been able to test either Vook's or Inkling's software.) However, both companies have a steep uphill climb, as does any company that tries a B-to-C to B-to-B pivot.
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