New Players, New Costs: Why Is Digital Publishing So Expensive?

Back in 2014, I wrote a post on the Scholarly Kitchen about the confounded complexity of digital and its endless upgrade paths. Since then, it's only become clearer that online businesses -- from banking to publishing to shopping -- are more expensive to run, and require new thinking about how to make them succeed.

The expensive nature of digital publishing flies counter to initial expectations which seem to persist despite abundant empirical evidence to the contrary. Users expect that online music, online publishing, online banking, and other online ventures will generate savings through scale or lower technology costs compared to physical goods or via some other means. There's no paper, no vinyl, no tellers, so of course it's much cheaper.

But experience trumps expectations, and the experience of the online world is that the new costs -- of talented programmers, data facilities, firewalls and security, project management, software licenses, e-commerce systems, SEO, SEM, archiving, data revisions, content revisions, and so forth -- are greater than the costs of the past. In addition, these costs are more often fixed costs, compared to the more frequent variable costs of the past production environment. This makes the new costs riskier to adopt and more challenging to manage. Multi-year contracts, high-salary employeees, and other factors limit the nimbleness of management in the digital realm.

Organizations often struggle to come to grips with these realities. Some evangelists and some leftover expectations of technophiles can perpetuate the perception that digital business can be cheaper and easier to run than traditional business lines. These same dreamers can also inflate revenue expectations in their ruminations of what must surely be possible in this brave new world. Yet, without a realistic and actionable path to rationalize expenses and make achievable projections based on actual expenses and revenues, organizations can fall prey to vague strategies that lead to overspending without a rational commercial upside.

An analog worth contemplating is banking. More than 97% of financial transactions occur in the digital world and not through the exchange of physical money -- from swiping debit cards to e-commerce to wire transfers. Yet, interest rates on deposit accounts trend toward 0%, while fees for transactions are rampant. Credit card companies charge high lending rates to cover the risk exposure they face from hackers, defaults, and card thieves. Customer data protections are expensive and vulnerable. ATMs and other customer conveniences have to be maintained in the physical world, to dispense the small amount of physical goods bank customers still rely upon. New entrants -- Apple Pay and Samsung and PayPal and Square -- extract fees themselves for offering customer convenience, putting their fingers in the economic pie.

The scenario of more middlemen, more outlets, and larger players isn't alien to academic and scholarly publishing. And all the players in the digital game require support and management. New business relationships have some new players holding more cards (e.g., Google, advertising agencies, funders), and publishers seem to have fewer or worse cards than before. Different data distribution tasks, management of risk around commerce and customer data, and the lingering desire for print and print analogs in a customer base largely protected from the actual costs of information, all contribute to what is a more complex and expensive publishing environment. Meanwhile, leverage continues to shift to enterprises with network-effect scale.

Having solid strategies and a clear overview of the financial cost and potential upside is critical during this period. Belief in a more efficient digital business isn't enough. You have to build that efficient business. Every blind spot in this realm can be costly. And every organization can benefit from a long-term strategy and a proactive approach to the digital publishing technology and evolving forms of customer engagement.