I'm about to engage with Ewan Morrison again--rest assured, I realize that he's either 1. a complete idiot, or 2. pretending to be a complete idiot because it gets him press coverage. But I think it's worth doing, because once again he's expressing a more-extreme version of what a lot of less-obviously-insane people seem to think.
Case in point: He wrote, "I’m convinced that epublishing is another tech bubble, and that it will burst within the next 18 months."
This whole concept that self-publishing or e-publishing is some kind of bubble that will burst (you know, when readers get tired of the poor quality...yadda...yadda...yadda...any minute now, it's a-gonna go) is something you see a lot. It's usually coming from people in traditional publishing who have a vested interest in the status quo, and they tend to sound like someone who is convinced that, any day now, their ex--who left the state, married someone else, and now has five kids--will come back to them.
But putting aside the agendas, how do you tell the difference between a tech bubble and something like the Internet or cell phones--a new technology that alters the way people do things in the long term?
Well, for starters, let's discuss what a bubble actually is. Remember the Internet bubble of the late 1990s? (No? Shut up.) Remember how people thought the Internet would completely change the way we communicated and did business?
Remember how they were right?
It wasn't really an Internet bubble or even "another tech bubble." It was an investment bubble. People were throwing money at Internet companies like there was no tomorrow.
Let's look at another investment bubble that is usually easier for people to grasp--the recent real-estate bubble. You buy an OK home in an OK neighborhood for $200,000. Three years later, it's worth $500,000.
Is your home suddenly bigger and nicer? No. Has your neighborhood drastically changed? No. Has the value of a dollar drastically declined overall? No. Has the price of your home changed a lot? Yes.
A bubble is when people start throwing money at something with no regard to the underlying value of the asset. Your house's inherent value as a place to live didn't change during the real-estate bubble. Its price really, really did.
A similar thing happened during the Internet bubble. There was this new industry happening. It was clearly worth...something. People threw money at every company in the neighborhood of that new industry with no regard to their actual value.
People threw money at companies that were losing money and had no real prospects of ever making any. People threw money at companies that were making very little money and had no real prospects of ever making more. I remember reading an article about an Internet company whose stock had a price/earning ratio of 2,000 (P/E ratios are more normally in the teens)--and the article suggested that the reader run out and buy as many shares as they could. I'm sure many did.
Did that investment bubble mean that the Internet wasn't a real thing? No.
How is e-publishing a bubble? Well, I'm sure someone like Morrison would point to the rapid increase in people e-publishing and making money e-publishing as a sign that it's a bubble. But people flocking to adopt a new technology, like cell phones, or a company selling lots of a hot new technology, like cell phones, isn't the same as investors throwing wads of money at cell-phone companies. When someone buys a cell phone, they're switching over to a new technology--they're going to use that cell phone, at least until something better comes along. They've changed their habits and behavior, and it's going to take some pushing to get them to change again, much less change back. Investment money is a completely different animal--the habit is throwing money at a hot trend, so the money will jump from investment to investment much more easily.
There is money being invested here, to be sure. But it's not being invested by some fund manager who doesn't care what they put the money into, as long as the company's stock price is going up. It's being invested by consumers who buy e-readers, tablet computers, and smart phones. It's being invested by writers who are effectively starting their own businesses. It's sticky money--the vast majority of the people investing in self-publishing aren't going to suddenly decide to throw all their assets into shares of Australian gold mines instead (which is the kind of thing fund managers do when they need to meet their quarterly numbers).
And of course, if self-publishing is a bubble, the question is raised, how is this bubble going to pop? What happens with true investment bubbles is that prices suddenly (and savagely) fall to something more in line with the actual value of the underlying asset.
So, what is the actual value of a book? By Morrison's logic, the actual value of a book is where traditional publishers price it--somewhere in the neighborhood of $15-$20. So when this bubble pops, the prices of books will increase by $10-$15.
That will be amazing to watch. Millions of consumers will say, "I'm tired of paying $3 for a book! I want to pay $20! That is the true value of a book!" It will completely upend a central tenant of classic economic theory. It will make history.
OK, fine--it's not going to happen. (It would be pretty awesome, though.) Morrison is either 1. a complete idiot, or 2. pretending to be a complete idiot because it gets him press coverage. Possibly, he's 3. so painfully ignorant he doesn't realize that authors make as much money off a self-published $3 book as they make off a traditionally-published $20 book, so supply isn't going to be affected by these low prices, or of course, 4. pretending to be so painfully ignorant because it gets him press coverage.
Actually, I do think there's something of a bubble here, just not where Morrison thinks it is. I think there's a bubble in the price for publishing services, which will deflate as writers learn more about self-publishing.
