CHALLENGE

In the spring of 2000 brothers Steve and Scott Pendergrast started kicking around the idea of launching a Web site to sell eBooks. Neither came from a publishing background -- Steve was a Distinguished Member of the Technical Staff at Bell Labs and Scott was a Web development consultant.

Steve says, "I had been researching the publishing business and came to the conclusion that there's a large amount of wonderful published material out there where the rights have reverted back to the author. The average book goes out of print and the rights revert back in 2-3 years if you're not one of maybe 10 big name authors. That includes mid-list authors with multi-hundred thousands of fans."

Starting with the "vague idea" that there must be a market for electronic copies of out-of-print short stories by name brand authors, the brothers began combing the Web searching for author email addresses. Since they had nothing to show to prove their legitimacy (not even a Web site), they offered to pay a few famous science fiction writers the same amount as they would receive for print reprints. Damon Knight, co-founder of the SF Writers of America, was one of the very first authors to take the bait, agreeing to sell the Pendergrasts electronic rights to 23 of his out-of-print short stories.

The brothers happily cut him a check immediately. Scott says, "Authors called us saying, 'Why did you pay me right away? Don't you know you're supposed to wait for three months and then not pay me and then not return my phone calls? They were thrilled, they started referring all their friends to us."

In a few short weeks, the Pendergrasts had plenty of high quality inventory. Now all they had to do was sell it.

CAMPAIGN

First the brothers carefully made six system decisions that would be critical to the estore's success --

1. Only high quality editorial: Fictionwise only sells work that was previously published, and/or written by a fairly well known author such as Robert Silverberg, Nancy Kress or Mike Resnick. Every item is quality-checked before acceptance, even if it comes from someone famous.

2. Support all formats: Unlike Amazon and BN.com, Fictionwise sells eBooks for every electronic format that's not easy to print out (the Predergrasts do not have printing rights to their stock) including Palm, Win CE, Pocket PC, Rocket, eBookMan and some PC-based formats.

3. No Download restrictions: Again, unlike many other eBook sellers, Fictionwise does not restrict the number of times a buyer can download the item they've purchased. In fact, Fictionwise keeps a personal "bookshelf" for each buyer to make additional downloads easier. Scott says, "What if your computer crashes and you have to wipe your hard drive? That shouldn't mean you've lost all your eBooks and have to rebuy them."

4. No encryption: Since there is no perfect, very-easy-to-use encryption format now, and several famous authors including Dilbert's Scott Adams have encountered significant backlash from Mac users (which most systems don't work on) and PC users who found de-encryption difficult, the brothers decided to spare themselves the extra customer service problems encryption would cause.

Steve says, "People have trouble remembering their password and logging in. If we encrypted, our customer support team would have ten times the work load."

5. Micropayments: Because Fictionwise's short story prices start at amounts under a dollar, it made sense to add a micropayments system to the site. Users can start an account with just $5 and then have all purchases debited from their account as time goes by. They can top up the account with any amount, anytime they like.

Despite Amazon's "one click" order-process success, Scott and Steve were so appalled at the security risk that holding customers' credit cards on file would entail that they decided against it. Steve says, "Ten million card numbers were stolen from CDNOW. We knew we could not survive a black eye like that." The micropayments system allows Fictionwise to offer the convenience of one-click without the attendant security risk.

6. HTML pages with a unique stable URL for each product: Most e-retailer product pages are dynamically generated by a database. This results in those huge, long URLs you see when you shop, and/or URLs with question marks in them. Unfortunately search engines generally completely ignore pages with URLs of this nature. Scott and Steve knew their store's success would hinge on being high in lots of search rankings, so search engine-friendly URLS were critical.

As a side benefit, these HTML pages also load a bit faster than dynamically generated ones. And loading speed can mean more sales.

The Fictionwise site officially launched in early June 2000, less than two months after the brothers starting thinking about the idea. Initially it just carried science fiction short stories and novellas. After receiving an enormous amount of buyer demand, the brothers added entire novels to the stock in November 2000. Then they added romance, mystery and horror. And now they are beginning to test-market non-fiction.

Aside from search engine optimization, the brothers have tested a wide variety of tactics to drive new traffic to the store, including:

- Space ads in genre magazines such as Asimov's Science Fiction featuring discount coupons for products by famous authors in the store.

- Broadcast email campaigns to rented opt-in lists, such as lists of people who own Palms.

- Banner ads on Palm-related and genre sites.

- An elaborate affiliate program which thousands of authors, Palm Pilot-news sites and reader fan sites have joined. Scott says, "Affiliates have been burned by a lot of other sites. Amazon pays so little that it's rare for people to actually get money. We decided to do it differently. That customer has value forever, so we'll share value forever."

Each visitor coming from an affiliate's site or link is tagged in Fictionwise's system "forever" with that affiliate's special ID when they initially register as a member. Then, that affiliate gets 15% of whatever that customer buys for the lifetime of their account.

Fictionwise supports affiliates' sales efforts by sending them news releases on every new eBook of note. Affiliates can add their special link to the release and put it in their own site's (or ezine's) news section. Plus Fictionwise features free downloads of Hugo nominated science fiction for a few weeks every year. Scott says, "A lot of sites point membership to these free stories. It's a land grab -- they are trying to get as many people registered with their affiliate tags as they can!"

Scott and Steve spend a great deal of time, evaluating sales and traffic reports and tweaking the site to make sure more visitors convert to buyers. For example, they spent hours considering the navigation bar, then redesigned, spent hours again, then tweaked again, and so on. The buyer ratings system, whereby visitors can see how actual buyers rate each eBook, was also tweaked until it is much more useful to buyers than Amazon's star system.

In order to get repeat visitors, the Pendergrasts have turned product updates into a weekly event. Every Monday morning at 10:05 Eastern Time, that week's new 15-20 titles appear on the site's prominent "New This Week: 15% Off" listing while the previous week's new titles go up to full price.

Fictionwise also encourages repeat buyers through its permission-based email relationship campaigns. Everyone who registers at the site is offered their choice of:

- No email notices whatsoever, beyond purchase receipts.

- Emailed alerts when new work by their favorite authors comes in.

- A monthly emailed newsletter that includes a monthly drawing for $100 worth of credit in their micropay account.

- Twice monthly emailed recommendations briefly reviewing the very best of Fictionwise's new eBooks.

Steve says, "If you opt-in for everything you'll only get about seven emails a month, not including purchase receipts. Unless you've opted-in, we don't send you email. We respect your privacy."



RESULTS

Fictionwise is currently the world's top eBook seller. The Pendergrasts note that they're also offering several of their all-time best-sellers through Amazon.com and BN.com; and, Scott says, "These titles are also among the top-sellers there although they don't have nearly the same number of sales that we do."

Fictionwise made its first sale by mistake before the site was officially launched. Steve says, "We took the password off the site to run a live test and two hours later our first sale came in for 17 eBooks." The happy buyer told his favorite newsgroup about the site and Fictionwise was off and running.

Without any other publicity and without being listed in search engines yet, Fictionwise went on to sell more than 3,000 eBooks in June 2000. Since then the growth has continued unabated. Fictionwise saw 45% sales gains in each of the first two quarters of 2001.

Although most first-time buyers test the waters by purchasing a short story, generally at least half of the site's best-sellers are consistently full-sized novels. Romance titles have also proven far more popular than the Pendergrasts expected. (Ok, we're gonna toss in a quick "Duh!") Steve says, "These people are fanatics, they come back and buy every single one we put up."

Scott and Steve credit much of their success to those six critical decisions they made at the very beginning -- especially selling on Palms. In fact Palm format eBooks (which Amazon and BN.com don't carry) are by far the leading format, while the other formats are "creeping up." Scott says, "People are missing that market. Palms are perfect for fiction and many users LOVE their Palms." The micropayment system has also been a huge success, plus it's been "wonderful for cash flow." Buyers actually prefer the convenience of paying with the micro system even though their average purchase is now $11-12.

The affiliate program has been so effective that it's been voted by affiliates themselves at AssociatePrograms.com as one of the top 10 programs online today. Out of all the other estores selling books and/or eBooks, only aLibris is in the top 20. The affiliate program launched in October 2000, by February 2001 it accounted for 11% of the site's sales, by June it accounted for 17% ... and growing.

On the other hand, banners were abject failures even though the brothers experimented with a variety of creatives and media buys. They enjoyed moderate success with broadcast email (especially to Palm user lists) but really hit their stride when it came to print ads in the genre magazines. Scott notes that sales from print ads are initially slow to come in, but once they get started they continue over four or more months. "Those pubs have a very long shelf life and they get passed around a lot."

The various relationship email programs have proven their merit. The monthly program is the most popular with about 70% of all registered members opting-in. The site's Monday morning updates have also been an effective strategy. Steve says, "Sales start coming in within minutes. There must be a group of people who habitually sit waiting for the new titles to come online. One or two times we've been late and by 10:30 people started emailing, 'Where are the new books????'" The site also sees a flurry of sales just minutes before the new titles go up each week as regular visitors snap up last week's new titles at 15% off just before they're marked up to regular price.

On a last note, we asked the Pendergrasts how eBooks could be so successful when most people dislike lengthy on-screen reading. Scott replied, "I'm not saying it's their favorite reading experience but it's an acceptable reading experience. It's not about the screen, it's about the quality of the work. If it's good work it will draw them in, immerse them in what they're reading until they don't notice what they're reading it on."

Steve added, "We invariably find that the people who complain loudest about eBooks, have never tried them."

Useful links related to the article:

FictionWise:
http://www.fictionwise.com

AssociatePrograms.com
http://www.associateprograms.com