Is There an ePublishing “Bubble”?

Last week, Nathan Bransford wondered if there is an “ePublishing bubble.” In his post, he links back to an article in UK’s The Guardian which argues “yes,” based on Hyman Minsky’s Financial Instability Hypothesis.

Great idea. Unfortunately, he only gets to the second of seven linear steps before making an argument that’s tragically flawed:

Following the disturbance, prices in that sector start to rise. Initially, the increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, more people start to notice. Speculation thrives.

On first inspection, epublishing doesn’t appear to fit the model here, as it’s clear that the prices of ebooks are falling drastically (in the week of Jan 1, 28% of the top 100 ebooks on Amazon were 99p or under, and 48% were under £2.99). But that’s because we’re looking at this the wrong way round – from the perspective of the consumer. The ebook explosion is coupled with the rise of the e-reader, and the profits there are in the hands of the manufacturers. There has also been a fast turn around in these new technologies from Kindle to Kindle Fire, from iPad to iPad 2; and a brand new market of consumers for these products has appeared from nowhere. The change to cheap ebooks and self-published ebooks is a “change in underlying fundamentals”.

Um. No. By this logic, you can manipulate any profit-making enterprise to fit your hypothesis. The iPhone is a bubble! Poker and Riverdance were both bubbles! Except these weren’t bubbles, these are trends - things whose popularity gradually expanded, and just as gradually receded to levels that were more sustainable in the long term. Yes, as with the Gold Rush, most of the profits are made by the people selling the products and services telling you “how to do it.” Just as most of the profits were made in poker, and in Riverdance. In all cases, though, the post-recession levels of participation were still much higher than they were before the expansion.

A “bubble,” by contrast, requires unsustainable overvaluation that will be corrected suddenly and massively (a “burst”). Like what happened in housing last decade, or with the dot-com before before that, or the stock market in the 1920s. In all of these cases consumers were paying the higher prices. When consumers are shelling out for concrete products that makes their lives easier, that’s the opposite of speculation; it’s commerce.

Many people are arguing that the next bubble will be in education. Although there is some dissent with that argument, I find that one much more likely to stick. But self-publishing, though it may reach a peak in popularity, will not collapse in the same way the housing market did. It will simply reach a healthy long-term equilibrium, where some people succeed and others fail.

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