Random House CEO: Book Publishers Are Living in the Past

Last Updated Apr 7, 2010 12:51 PM EDT

Peter Olson, former CEO of the world's largest book publisher, Random House, is not afraid to point out that the book business model is teetering on the edge of severe cratering. Olson, now teaching at Harvard Business School, describes an industry that in many ways is showing signs of being subsumed by e-books and e-readers along the lines predicted by Clay Christensen's disruptive innovation theory.

In an interview with HBS Working Knowledge, Olson sees an industry that:

  • Refuses to change business models to face new challenges. Publishers are attempting to prop up the print book business by charging more for e-books. Says Olson: "I don't know of many successful examples of pricing a product based not on what it costs or what people want to pay for it, but based on another format that is completely different, just because you want to keep that format alive."
  • Unwilling to innovate. Instead of using technology to make books more accessible and attractive, publishers are sticking to their paper product.
  • Losing sight of your customer. "The odd thing is that no one is really focusing on the reader. A disproportionate amount of publishers' resources are dedicated to the manufacturing and physical distribution when in fact their key function is editorial in nature. In a sense, many book publishers are trying to buy time, to postpone a reckoning with reality."
  • Biting the hand that could feed them. Instead of partnering with e-book distributors such as Amazon, companies are fighting with them.
What could publishers be doing? One idea that Olson's students have mentioned is bundling the e-book and print book together. "After all," Olson adds, "why should they be viewed as adversaries? Why not offer both and see if you can make the market more attractive, with additional features like a video interview with the author? An e-book can be a much richer and deeper experience than anything we've seen before."

Let's pretend that you are Olson's successor at Random House, or any publishing house. Will you remake your business model in baby steps or big giant leaps? What's your next move?

E-reading image by goXunuReviews, CC 3.0

  • Sean Silverthorne

    Sean Silverthorne is the editor of HBS Working Knowledge, which provides a first look at the research and ideas of Harvard Business School faculty. Working Knowledge, which won a Webby award in 2007, currently records 4 million unique visitors a year. He has been with HBS since 2001.

    Silverthorne has 28 years experience in print and online journalism. Before arriving at HBS, he was a senior editor at CNET and executive editor of ZDNET News. While at At Ziff-Davis, Silverthorne also worked on the daily technology TV show The Site, and was a senior editor at PC Week Inside, which chronicled the business of the technology industry. He has held several reporting and editing roles on a variety of newspapers, and was Investor Business Daily's first journalist based in Silicon Valley.