Freedom of the Press
Lulu.com founder Bob Young wants to liberate authors from the tyranny of the book-publishing industry.
By John Heilemann

(Business 2.0) – ASK BOB YOUNG HOW HE CAME TO ACQUIRE the URL Lulu.com and he'll tell you a shaggy dog story about his daughters, Rudyard Kipling, and a woman named Luanne. (Never mind.) But ask him why he named his new company Lulu and he'll cite the Dictionary.com definition: "n. Slang. A remarkable person, object, or idea." Every startup CEO, of course, believes that his outfit is remarkable--revolutionary, even. Young's track record, however, gives him ample credibility on the topic.

A 51-year-old native of Hamilton, Ontario, who sounds like a Canuck version of Mr. Rogers, Young co-founded the open-source pioneer Red Hat in the 1990s--shaking up the software establishment and making a pile in the process. Now Young and his team in Mooresville, N.C., are trying to similarly transform the world of publishing. And Lulu's effort holds lessons that extend beyond the narrow realm of books--to where all content industries are headed in the age of the digital amateur.

Like many an entrepreneurial spark, Young's was born of personal disgruntlement. In 1999 he wrote a book about Red Hat titled Under the Radar. The book sold 20,000 copies, but Young was irritated by the sloppiness of its editing and the 7,500 copies that would have been pulped if he hadn't reclaimed them. He also wasn't happy with the piddling sum that ended up in his pocket. "The list price was $27.50, so there was roughly $550,000 in sales, and my return was $2,752," he says. "You just looked at it and said, 'That's nuts.'"

The experience got Young thinking. "Why do we need gatekeepers for content?" he wondered. "Why can't authors go directly to the market?"

Young saw no earthly reason. "Publishers are only looking for books that sell 10,000 copies or more," he says. "So the vast majority of authors never get published--instead they get rejections." To Young this reflected the irrationality (and premodernity) of the book business. "The industry was set up when all the costs were associated with moving dead trees around," he says. "But today, with these big Xerox print-on-demand machines, you don't have to print a single copy until your first customer wants to buy it. By using on-demand technology and the Internet, we can help the author to be successful in a way that the publishing industry's economic model simply doesn't allow."

Thus does Lulu offer authors a one-stop do-it-yourself publishing shop. You upload your opus and pick a design template. Lulu then lets you sell your book through Amazon.com, Barnes & Noble, Borders, or Lulu.com itself. Your book only exists digitally until someone places an order. Then Lulu handles the printing, shipping, and order tracking.

In none of this is Lulu unique. Since the late 1990s, two on-demand outfits--Xlibris, backed by Random House, and iUniverse, backed by Barnes & Noble--have been doing something similar. And Amazon has its own program, BookSurge. The difference, Young says, is that these endeavors "don't get that it's about empowering the authors; they're basically vanity presses."

What Young's talking about is a divergence in business models. At BookSurge, iUniverse, and Xlibris, authors pay an up-front fee of $300 to $1,600, book prices are set by the services, and royalties range from 10 to 25 percent. At Lulu, by contrast, no money changes hands until a book is purchased; design and layout are free. Authors set the prices for books. And the royalty rate is 80 percent, excluding Lulu's charge for production.

Judging by Lulu's growth, Young's strategy seems to be working. Last year Lulu rang up revenue of a couple million bucks; today it's doing $1 million every month. Since August, book sales have almost tripled, from 36,000 to 91,000 a month. A thousand books are added every week; the site now has 40,000 titles available and 160,000 "creator accounts."

The reaction of the publishing industry to Lulu has been entirely predictable. "They want me to sell them software," Young says. "They want to have a website, BigPublisher.com, so that they can do this for their customers themselves."

This observation gives the lie to one of Young's most cherished analogies: that Lulu is to publishing as iTunes is to music. While Young is right that both the recording and the book businesses have lived in fear of the Internet, he's wrong to suggest that he and Steve Jobs are after the same thing. Where Young wants to smash the gatekeepers, Jobs wants to be the ultimate gatekeeper. Or, as Young puts it when I press him, "Steve is trying to provide a service to the major labels, to solve their business model problem. We're trying to empower this exchange of content between creators and consumers, so we think of ourselves more like being the eBay of digital content."

At first the analogy might sound strained, but I don't think it is. The story of eBay is about how a market populated by amateurs trading trivial goods (Pez dispensers, Beanie Babies), propelled by incredibly efficient technology that created a form of friction-free capitalism, grew into a juggernaut--one that serious players could no longer afford to ignore.

Now consider the rise of the blogosphere, another market dominated by amateurs, which has in short order grown into a ravening beast--one that rivals mainstream journalism in terms of its reach and influence.

And so when book publishers roll their eyes and declare that most of what Lulu publishes is crap, the only sensible reply I can muster is this: Yes? And your point is? If Young builds a marketplace of, say, a million authors and consumers, everything will change. And then the publishers--forever desultory, forever in crisis, forever scraping by on meager profits, forever behind the tech eight ball--will have no choice but to capitulate.

What would that entail? Unbundling the entire publishing endeavor, abandoning the fiction that book editors do much editing, freeing publishers from guessing at print runs in advance and letting them focus instead on marketing and promotion, shifting away from blockbusters and toward filling a multiplicity of niches, and creating an array of new royalty arrangements with authors, many of them amateurs.

All of which is to say that, for now, this vision is the essence of luluhood. Here's hoping, though, that Young's business, and not just the ideas behind it, is what ultimately proves to be remarkable.

A Lulu of a Book Deal

Red Hat founder Bob Young says the publishing industry doesn't serve authors well. Here's how he plans to turn the page to an entirely new business model.

WHERE THE MONEY GOES ON A $25 HARDCOVER

TRADITIONAL PUBLISHING

$13 Retail markup and discounting

$3.13 Printing, paper, and binding

$7.53 Publisher's gross profit

$1.34 Author's royalty

25% UNSOLD

LULU.COM

$20 Lulu's production charge

$1 Lulu's commission

$4 Author's royalty

0% UNSOLD

Notes: Traditional publishing figures assume a print run of 10,000 books, of which 7,500 are sold. Lulu.com figures are per book sold.

Sources: Lulu.com; Royalty Review; Business 2.0 analysis

John Heilemann wrote "Pride Before the Fall." His next book is "The Valley." He lives in Brooklyn.

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.