Substitute products or services

This one, on the other hand, is a monster force. One side of the issue is the decline in
reading in general. People have less free time and books have to compete for it
against television, games, podcasts and hobbies. The other side of the issue is that many
book buyers don’t just want one specific book or a specific author’s books. They often want
to buy a book that has certain features – such as genre, length, setting or that it has won an
award – ie, they’re open to considering substitute products.
The power of suppliers
Publishers’ suppliers are printers, typesetters, freelancers (such as proofreaders and
illustrators), and in a sense, authors. With the exception of authors, I wouldn’t say any of
these suppliers are particularly powerful. There are plenty of options on each in the market.
As for authors, well, only some of them are powerful. For many practical non-fiction titles,
for example, you could find a few potential experts to write a book, whereas many fiction
books’ sales depend on the name of the author on the cover. For the purposes of this post, I
don’t think it makes sense to consider such a varied group as powerful suppliers.
The power of customers
This is another big one for publishing. Publishers have intermediate customers in
bookshops and other retailers, and also end customers in readers. Both types are
exceedingly powerful. Publishers must sell their wares through retailers (apparently…
attempts to sell direct have hitherto always flopped), and preferably through all of them.
Most companies’ main customer is Amazon, who leverage their power without a second
thought, keeping back a large share of the sales. Brick-and-mortar shops know how to play,
too. It’s not hard to get one copy of a book into Waterstones, for example, but to get multiple
copies onto a table near the entrance is very, very costly.
On the other hand, publishers can sometimes turn this around when they have a highly
anticipated book on their frontlist.
Powerful customers is what you get when there are many alternatives to your product
from other companies. This tends to mean that prices are driven down, and margins are
small too. Think about advertisers and newspapers. Newspapers are now increasingly
relying on advertising income, but advertisers are not restricted to advertising in
newspapers – they can do it anywhere: online, on the street, etc. Back when papers where
more widely read, they may have been the most attractive place to advertise, but now that
there are many more effective ways, the power of advertisers in relation to newspapers has
shot up. That’s why it’s not a great leap of faith to think that newspapers’ revenue streams
from advertising have shrunk massively.