Guest Post by Mark Coker, Creator of Smashwords

Are you an author? Have you self-pubbed on Smashwords.com yet?

If not, you're missing out on making money.

In the past year, I've earned over $15,000 on Smashwords. And my numbers are on the rise.

Though I've have many conversations with owner Mark Coker over the years, I never asked him how he got started, and what he hopes to accomplish.

Until now...

Joe: What made you decide to create Smashwords?

Mark: Smashwords is my answer to what’s broken in Big Publishing.

The path to here was unexpected.

My wife (a former reporter for Soap Opera Weekly magazine) and I wrote a novel, Boob Tube, a roman à clef about the daytime television soap opera industry.

The book was repped by Dystel & Goderich, one of the top literary agencies in New York. Despite their great enthusiasm and effort, they were unable to sell the book after two years. Publishers questioned the commercial potential of a novel that targeted soap opera fans. Previous soap-related novels had performed poorly.

As you might imagine, after putting our lives on hold for four years to research, write, revise (and revise and revise and revise) and edit our book, we were disappointed to have publishers deny us a chance to reach readers.

The more I reflected on our predicament, the more I realized we were not alone. I imagined there were millions of other writers around the world much more talented than us who faced the same problem. I imagined the loss of thousands of literary masterpieces – cultural treasures that would never see the light of day. If you love and cherish books as I do, you can’t help but mourn the tragedy of this lost potential.

I decided Big Publishing was broken. Big Publishing is in the business of publishing what it thinks it can sell, not what is good. Big Publishers operate in the rear view mirror. They try to acquire books similar to what was selling yesterday, and then they release the book in 12-18 months.

“Commercial potential” is a myopic, misguided and ultimately destructive prism through which to measure a book’s value. Never mind that publishers, despite their best effort, can’t accurately predict which books will become hits. Readers decide that.

Big Publishing is unable to take a risk on every author, and as a result they say no to books readers would want to buy.

I decided the world needed a new approach to publishing, one that was faster, cheaper and more democratized. I realized there was an opportunity to solve this problem with technology.

My background here in Silicon Valley is in technology marketing. Over my last 20 years, I’ve come to appreciate what happens when technology collides with ossified industries and business models. Technology hits like a wind-driven fire through an overgrown forest. The impact is sudden and traumatic, but from the ashes sprouts healthier and more vibrant ecosystems.

My idea was simple. Wouldn’t it be cool, I imagined, if I could create an online publishing platform that would give any author, anywhere in the world, the freedom to publish what they want? I’d give readers the freedom to curate the books. And I’d turn the compensation model upside down so authors became the primary economic beneficiaries of their work.

This is what we created with Smashwords. We put the printing press online, and made it freely available to anyone as a self-serve tool. Smashwords allows me to take a risk on every author.

Joe: What drives you to stay on this path?

Mark: I’m on a mission to turn publishing upside down. Big Publishing was squandering the future of books. Their practices limited book availability, encouraged high prices to consumers, fostered lower quality celebrity books, reduced diversity, and failed to adequately compensate authors. Most importantly, readers were denied access to the diverse riches of authors’ minds.

I’m also an entrepreneur. I’ve always been drawn to startups that have the power to effect positive social change. With Smashwords, I see an opportunity to create a large, valuable business that generates significant social and economic value for our authors, publishers, readers, and retail partners.

Joe: Are ebooks going to become the dominant format for books? If so, how long will it take until it happens?

Mark: Indie authors are a leading indicator of where publishing is going. Ebooks already outsell print for most indie authors. Brick and mortar bookstores are in decline, and this is both a cause and a result of the move to online book buying, among other factors. When book shelves go virtual, the playing field between big publisher and indie author is leveled. Actually, I’d go one step further and say that the move to indie ebooks actually tilts the playing field to the author’s advantage. Big Publishing can’t compete against indie ebooks because their expenses are too high and production schedules too slow.

To appreciate the dramatic growth of ebooks, the numbers from the Association of American Publishers provide a useful point of reference. According to the AAP, ebooks as a percentage of overall trade book sales in the US reached about 8% in 2010, up from 3% in 2009, 1% in 2008, and ½ of 1% in 2007. Yet these numbers dramatically understate what’s really happening.

The AAP numbers reflect what the 12-14 large publishers who contribute to the data are doing with ebooks, but the data doesn’t capture small presses and indie authors. The numbers also don’t reflect unit volume. Since ebooks are priced less than print, the unit market share for ebooks is greater than the revenue numbers would indicate.

Large independent publishers like Sourcebooks that have embraced ebooks are already seeing 1/3 of their revenues coming from ebooks. I wouldn’t be surprised if Sourcebooks begins deriving over 50% of their unit volume from ebooks with the next nine months.

Joe: Whenever I upload a new title to Smashwords, I'm put in a queue that is often several hundred titles long. How many ebooks does Smashwords now publish, and how many do you think it will have published five years from now based on current trends?

Mark: We reached a new milestone last week: We now publish over 40,000 books, and we released 5,300 of them in the last 30 days. In 2008, our first year in business, we published 140 books. By 2009, we reached 6,000. By the end of 2010, we were at 28,500. We’re on track to reach 75,000 books by the end of this year, which means we’ll almost double in nine months what took us three years. Within five years, who knows. 250,000? 500,000? I’m hesitant to guess. We’ve been doing this for three years now and I feel like we’ve only scratched the surface of the possible.

Our Meatgrinder conversion engine burns red hot 24 hours a day. Not only are we converting these 5,000+ new titles a month into nine different ebook formats, we’re also converting a multiple of that for our 16,000+ authors who are constantly upgrading their existing Smashwords books with better formatting, better book cover images and other tweaks. A couple years ago, most Smashwords authors would get full multi-format conversions in 5-10 minutes from upload. Today, the queue is running 5-7 hours.

It’s ironic how author expectations have changed with the advent of ebooks. We’ve gone from a world where authors were previously content waiting years for their book to appear in print to today where a 5 hour wait is unacceptable. And I agree! We have a plan to scale our conversions systems so we can get back under 10 minutes.

Joe: Can the Big 6 save themselves?

Mark: The era of Big Publishing is over. I wrote the other week at the Smashwords blog about the imminent author uprising against Big Publishing. Some authors are beginning to realize that much of what they were taught about the path to authorship is a myth. The rules have changed.

Many writers today still cling to this old idea that they’re not a real author until they’ve been blessed by the Holy Father of Big Publishing. Screw that. Why should authors subject themselves to this false religion of Big Publishing? Big Publishing as we know it is dead.

Sure, some of the Big 6 will survive, but they’ll do it by getting smaller or consolidating. Their expense structures are unsustainably high. Manhattan sky rise rents add absolutely no value to a book, only expense.

Ebooks, led by indie authors and mainstream author defections to indie, will accelerate the demise of Big Publishing. Authors are already asking, “what can a publisher do for me that I can’t do for myself.” The next big questions is, “Will a big publisher limit my success as an author?” You’ve answered that question for months here on your blog. It’s a question Big Publishers don’t want their authors asking, because the answer reveals the mirage of Big Publishing.

Big Publishing was built on a model of scarcity. They controlled the printing press, they controlled access to distribution, and they limited supply. In the old print world, if a writer wanted to reach a lot of readers, they had to bow subservient upon the altar of Big Publishing.

What a difference a few years make. Thanks to the Internet, self-publishing and ebooks, the tools to publish and distribute have become fully democratized.

Authors can publish directly to their readers with self-published ebooks. Every major ebook retailer wants to carry self-published ebooks, and Smashwords is a primary enabler of this. The retailers are smart. They realize their customers don’t care what publisher name is in on the virtual spine. It’s all about the quality of the book.

The future of publishing belongs to authors, though I still see great opportunity for agents and publishers.

The opportunity for agents is to help the most commercially successful authors – traditional and indie– become even more successful. Agents will help the biggest authors navigate these dual worlds of traditional and indie – worlds that can coexist.

The opportunity for publishers is to more cost effectively do for authors what authors cannot or will not do for themselves. Just because an author has the power to be their own editor, book doctor, cover designer, production department, printer, distributor, sales force, marketer and accounting department, doesn’t mean they should assume all these roles. We’re already seeing the emergence of publishing service providers who specialize in these tasks above. Smashwords is obviously an example on the distribution side.

So in other words, the publishing professionals now working at the Big 6 still have a very bright future. There will be more authors and books published than ever before, and these authors will partner with professionals who can assist their success.

Joe: I talk numbers all the time. I regularly give complete strangers access to my personal finances. I never expect the same from anyone else, but I gotta ask: has Smashwords begun turning a profit for you?

Mark: Smashwords turned modestly profitable six months ago, and we’ve been running profitable ever since. This was a big milestone for us because it means we’ve created a sustainable company with lasting value.

We did this without taking outside investment and without charging upfront fees for services. We’re reinvesting the profits back into the business by adding staff and scaling our technical infrastructure so we can better serve our authors, publishers and retailer partners. For 2011, we’ll run it at just above break-even. I don’t earn a salary yet. Maybe next year.

Joe: You have competitors. Scribd. Overdrive. Google Books. Nook and Kindle take a portion of your potential sales. What are you doing to make Smashwords a Brand, rather than a Distributor? And what do you think of your competition?

Mark: Smashwords is an ebook distributor, so I want Smashwords to become the largest, best and most trusted brand in ebook distribution. I recognize there’s a knee-jerk inclination among some authors who are inclined to disintermediate the distributor. I believe in distribution.

I wake up every morning asking myself how I’d compete against Smashwords, and then I go to work to turn Smashwords into that business. There’s no room for complacency. I’m seeing more and more competitors coming on the scene. Like a poorly plotted book, most will fade away before you ever hear about them because they fail to appreciate the expense, technical complexity, and secret sauce that goes into creating what we’ve created. It’s not easy to make money in this business. The margins are slim.

Our most formidable competitors are the direct publishing platforms operated by the retailers such as Amazon’s KDP, B&N’s Pubit and Apple’s iTunes Connect.

Our opportunity, and our challenge, boils down to a simple question: Are we adding value by serving the interests of authors, publishers, readers and retailers?

For readers, our opportunity is to make books they want to read available and discoverable.

For authors and publishers, our opportunity is to help them maximize their distribution reach while minimizing the time, effort and expense of achieving that distribution. At Smashwords, you format a file once, upload it, then we distribute it the major retailers. We offer centralized control over metadata and pricing, and we aggregate sales reporting and payments from one centralized console. For this distribution service, our commission is only 10% of the retail sales price. I think over the long term, more self-published authors and publishers will realize it’s smarter to outsource distribution than build and manage their own distribution infrastructure.

For retailers, our opportunity is make Smashwords-sourced ebooks higher quality, better-vetted and more profitable for them than ebooks sourced from their own publishing platforms. Take Apple for example. Apple earns a 30% commission on every sale, whether that book comes from their own platform or from one of their authorized aggregators like Smashwords. Although Apple operates their own platform, they actively encourage authors and publishers to work with aggregators because we add value for both the author/publisher and Apple. Same thing with our retail partners Sony and Diesel (where we help power their publishing platforms) and Kobo. A Smashwords book is more profitable to a retailer than one sourced from their own platform.

If we can make ebooks more profitable for authors and retailers, we have a place in the future ebook ecosystem.

I don’t view Scribd as a competitor. I view them as a great potential partner for us. They’ve created a very cool social reading platform, and someday you might see us distributing our books to them.

Overdrive is not yet a big player in our niche of serving indie authors and small presses. They might become more of a competitor in the future. I’ll do my best to make this an unprofitable niche for them or any other potential competitor. Have I mentioned I’m competitive?

Google: I’m perplexed by them. I’d love to support them and distribute to them, but to date they’ve refused to treat indie authors with the same respect as does Apple, B&N, Sony and Kobo. Unlike their competitors, Google is reluctant to give Smashwords authors and publishers agency or agency-like terms. That’s a deal-breaker for us. We’ve got over 30,000 books ready to ship to Google the moment they give us a green light. Same thing with Amazon.

Joe: I think you’re one of the coolest, most dynamic personalities in the current publishing climate, and I’m regularly impressed with all you continue to accomplish. What continues to motivate you?

Mark: Wow, Joe, I think the same of you. The revolution motivates me. 16,000 authors and publishers have entrusted their precious babies to Smashwords, so I don’t want to let them down. I’m committed to accomplishing good things for our authors, publishers, readers and retail partners.

The Smashwords people see today is the not the Smashwords they’ll see next month or next year. We’re constantly evolving. We have a very aggressive roadmap. Our mission will remain the same, but our ability to accomplish the mission and serve our authors, publishers and partners will only increase.

Joe: You (tragically) die tomorrow, and are tasked with writing your own epitaph. What do you say?

Mark: Thank you for that “(tragically)” part. Leave it to the mind of a horror writer. Next thing I know, you’ll start imagining my mangled body pulled from the gears of a Big 6 printing press. In a true soap opera twist, however, at the end of the story the mangled meat is revealed to be that of someone (or something?) else.

How about, “Dang it, I wasn’t done yet! To Lesleyann, my wife, I love you more than I’ve ever loved another person. To my family and many friends, thank you for believing in me. Your love, trust and confidence helped me achieve my wildest dreams. I hope I helped you realize some of your dreams as well. Sorry about my tragic unexpected departure. It was not part of my plan. Dream on.”