Amazon buys printer (NYT)

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Amazon Expands Into Book Printing
By BOB TEDESCHI

Published: April 11, 2005
New York Times

SURE, Amazon.com can sell books. But can it make them?

The company itself raised that question, among others, last week when it
purchased BookSurge, a book printing business based in Charleston, S.C.,
that specializes in so-called on-demand printing. BookSurge, which was
privately held, is among a handful of companies spawned during the dot-com
boom that rely on Internet technology to print a few books at a time, or
even one at a time.

The services have been most popular with writers who are unable or
unwilling to strike deals with publishing houses, and who do not want to
spend thousands of dollars to complete a print run of, say, 2,000 books on
a traditional offset press. Publishers, too, have used digital printing
companies to satisfy small orders of obscure titles.

Amazon.com declined to share specific details about the acquisition - its
second in five years. "We feel we can do great things together. We're just
not saying what that might be," said Patty Smith, a company spokeswoman.  
Nonetheless, Amazon appears a good match for BookSurge's would-be authors,
because it attracts perhaps more literary types than any other electronic
commerce site.

The BookSurge deal, for which terms were not announced, may also help
Amazon protect what remains a crucial part of its business, said Mark S.  
Mahaney, an analyst with the investment firm American Technology Research.

"Anything to boost book sales is a good thing for Amazon's business, and
for the stock," Mr. Mahaney said. "This could help."

Sales of books and movies, Mr. Mahaney said, made up the bulk of Amazon's
$2.6 billion in North American media sales last year - revenues that also
included music. In the fourth quarter of 2004, in particular, he said,
Amazon's North America media sales jumped nearly 18 percent from the
year-earlier period.

"That's remarkably robust, given that it's Amazon's oldest, most mature
business," Mr. Mahaney said. That growth is particularly important, he
added, because book sales garner profit margins of between 20 percent and
30 percent, compared to consumer electronics, which generate profits of 10
percent to 15 percent.

Profit margins have been Amazon's Achilles' heel in recent months. In
early February, the company said that its 2004 sales had climbed 31
percent, compared with 2003, but it said that its operating margins had
dropped to 7 percent - well off the company's stated long-term goal of 10
percent. At the same time, Amazon.com's share price slipped from nearly
$42 to about $36.

The stock fell 30 cents to $34.60 a share on the Nasdaq on Friday.

According to Robert Holt, BookSurge's managing director, the company has
created proprietary software programs that automate the printing process
to the point where even single-copy print orders are profitable, even
though the book's final price is comparable to that of books produced
through traditional means.

"For a print run of 10,000 or 50,000 books, the manual costs can be spread
out," Mr. Holt said. But for smaller print runs, he said, labor costs kill
the economics of the operation.

While lean manufacturing technology has existed for years at companies
like BookSurge and Lightning Source, a division of the book distributor
Ingram Industries, other elements have helped bring these services more
squarely into the cross hairs of publishers and authors.

Print quality has improved considerably, said Lorraine Shanley, a
principal at Market Partners International, a publishing industry
consulting firm. "You can now use color in a book, and produce hardcovers
as easily as paperbacks," she said.

And perceptions about on-demand publishing have also changed. Previously,
many writers rejected the notion of so-called vanity publishing - the
province of aspiring authors who spend tens of thousands of dollars to see
their name on books collecting dust in the basement.

With costs down and quality up, though, self-publishing has become more
acceptable. And thanks to the Internet, authors have a greater chance of
actually distributing their books. Susan Driscoll, chief executive of
iUniverse, a service for self-published authors that is based in Lincoln,
Neb., said one of her company's authors, Robert T. Dirgo, has found a
steady market of about 800 copies a year for his book, "How I Reversed My
Hashimoto's Thyroiditis Hypothyroidism."

"With the Internet, these kinds of authors can find and reach their
readers," Ms. Driscoll said.

copyright 2005 The New YOrk Times