02/23/2012 05:06 pm ET Updated Apr 22, 2012

The eBook Publishing Revolution Has Just Begun

In 2009, when Kevin Gao left the consulting firm, McKinsey, he decided to share some of his knowledge about the world of consulting in the form of an eBook. Soon he was a self-published author ... a very special kind of published author -- one who was actually making money, raking in well over $200,000 from that one book alone.

Gao, wasn't exactly a newbie in the world of business. His stint at McKinsey, his Stanford education, and experience as co-founder of startup, Shopkick, brought him a world of contacts, but he still had to hustle to sell his eBook. He explains, "I was all over the Internet, partnering with other bloggers, answering questions in forums, and generally being a resource for people. But I didn't find social networks especially good ways to promote books. I had a presence on on Facebook, LinkedIn and Twitter, but they never seemed like the best avenues for what I was doing ... which was much more search driven. Google and Yahoo! are much better for selling books than the less targeted tools of the social media."

Whether his success with that first eBook was luck or pluck, it was his realization about the changing processes of publishing that was the real prize. The proverbial light bulb had gone on for the Stanford grad and he could see that there was a startup in his future. He realized there was something big happening here -- a sea change for the publishing business. Says Gao, "My commercial success with that eBook was a really eye opening process for me. There are millions of other people like me who have knowledge or expertise about all sorts of topics ... topics that are often underserved by traditional publishers. The availability of free, high quality, engaging and interesting content suddenly opened up a unique opportunity anyone who wanted to both create content and market it without going through a traditional publisher."

Sensing big potential in eBooks, Gao and his co-founder, Matt Lee, enrolled in a well known incubator in Silicon Valley called Y Combinator. According to Gao, "Y Combinator was fundamental in terms of just about everything we did ... learning how to raise money ... how to build a team ... and all the other things just came along after that."

And so Hyperink was born -- a 21st century publisher whose mission was to connect experts with consumers through eBooks on topics that are not well covered by traditional publishers. Gao sums up his mission succinctly, "We're after the non fiction long tail-selling hyper-specific books to target audiences." Hyperink raised serious capital from an A-List of Silicon Valley investors including Andreessen Horowitz, SV Angel, Lerer Ventures (founding investors in Huffington Post) and others. Hyperink's mission is to mass produce books, marrying experts with paid staffers to produce short non-fiction subjects that can be download on e-readers, tablets, mobile devices and computers. So far they've published 300 books. For the author it's a sweet deal ... no upfront cost and the potentially to earn up to half of the profits from the book -- much higher than the 15-20% royalties paid by most traditional publishers.

The question remains, "What books are most likely to sell?" To find out Gao, scours the Internet for clues. He confides, "Search is a really important data point for us. It's a reflection of the types of interest that people have ... and the sort of knowledge they want." Hyperink's staff keeps a close eye on what other books are selling, how well they're selling and what's trending in the news, then integrates all these data points with sales figures and their own interests. It's data driven publishing versus the intuitive approach taken by most traditional publishing houses.

The new breed of publisher tends to move swiftly once they've identified a hot topic. Says Gao, "We can get an eBook to market faster. People can discover it faster and they can share it more quickly." In other words, the new publisher is more nimble and experimental than the old publisher. According to Gao, "We've experimented by creating a lot of weapons. We've been building a marketing playbook, but there's so much more that we need to learn."

Ebook publishers don't have to rely just on digital formats either. Hyperink has experimented with print on demand ... using Amazon's Createspace service. Says Gao, "We've been pleasantly surprised by the percentage of revenues that are coming from Createspace. We think there's a lot of potential with print on demand, and there is no risk of unsold inventory of books, because a book is only printed when an order comes in. There is still a market for hard copy and there will be for a long time." But Gao believes that publishing is changing at its core. "The very nature of a book is changing ... a print book will become shorter. The market for books is becoming more bifurcated ... and simultaneously more topical."

Not that everything is coming easily for the new wave of digital publishers. Competing formats in eBooks create huge frustrations for publishers. Multiple devices, all changing on a rapid basis, have yet to yield to a universal consensus on format of eBooks. ePub competes with Mobi ... which competes with iPad formats. Hyperink has responded by developing technology internally to handle the different formats, but the solution is still far from ideal. Says Gao, "We've certainly made mistakes. Even having developed the technology we're still not good with complicated images or diagrams. We're not pleased yet. There're a lot more that need to be done."

So for a next generation publisher, huge challenges remain. The game is just starting. Strategic questions need to be answered. Does a eBook publisher focus on marketing, or content creation, or formatting? Do they expand vertically and become end to end publishers or focus their resources on one aspect of the challenge? And what are the best ways to get word out about their books?

In some ways, eBook publishers face essentially the same challenge as traditional publishers -- finding the right audience for their books, and then finding the sweet spot in their pocketbook. Pricing has become a lightening rod for controversy. Traditional publishers were outraged when eBook publishers started charging more than print for some books ... even with dramatically lower costs. Gao sees a bifurcation in prices coming, "Some people will pay a lot of money to get great relevant targeted information. If you're looking to get into a great school or get a top job and someone has the right answers for your situation, you'll be willing to pay a lot more. At the same time, with books that are more entertainment based or topical, the price will go down. There will be a separation." Hyperink has experimented with prices of ten to fifty dollars for their "how-to" books, while charging five dollars or less for shorter, entertainment books.

Where does interactivity fit into this new world of publishing? Several big publishers saw interactivity as the ticket to higher profit margins, but the market hasn't bought into their thinking yet. Perhaps technology will advance to a point where their strategy is validated. Author Seth Godin sums the new world of digital publishing simply, "People are looking for books that are first, curated or customized." Gao is placing his bets with Seth Godin and the long tail of non fiction, but he concedes, "We're only on step number 2 on a stairway of 100 steps. In some ways we're not sure what the next steps are, but it's an exciting time and there's a tremendous opportunity out there for those willing to take the risks."