I’ll Probably Delete This

How do you use a 4x6 sheet of cellulose acetate to dominate book distribution?

Introduction

Hello listeners.

Welcome to Episode 10, Ingram Books and the Microfiche Revolution.

My name is Will Jauquet, and welcome to I'll Probably Delete This, where we learn about book publishing by telling stories from successful authors and other notable people from the history of books, including the continuing story of a family-owned oil company that became really one of the backbones of the business of book publishing in the U.S.

In our last episode, Episode 9, we covered how the start of Ingram Books was based on a commitment that Bronson Ingram made to his friend Jack Stambaugh, and then the partnership that the two of them created to purchase the Tennessee Book Depository.

At the start of that episode, we covered a bit of the importance of Ingram Books to give you context. Now it's called Ingram Content Group, and that context was mostly focused on its revenue.

That discussion, while true, I think failed to give a real sense of the reach and the importance of the company. So to frame the stakes again, I wanted to give a sense of the services that Ingram provides to publishers, to booksellers, and even to the 800-pound gorilla in publishing, which of course is Amazon.

Preface

To give you a sense, then, they are the primary wholesaler for virtually every brick-and-mortar bookstore in the country. They provide print-on-demand services to every major publisher and the majority of independent publishers. So that means if a publisher wants to do a small run of books, say print 10 or 15 or even one, they can go to Ingram and Ingram will print the books for them.

Ingram also provides digital services related to e-books for any e-book platform. This means that they are one of the primary interfaces for publishers to release e-books on any of the platforms, whether that's through Amazon, through Apple, Kubo, Libby, or anywhere else.

Lastly, Ingram provides many of the same services to individual self-published authors, and it's these services that Ingram offers that have dramatically raised the quality of individual self-published books over the last 10 years. And that quality really has approached, at least in terms of feel and format and look and layout, what you can get from a traditionally published book from one of the big five publishers.

Hopefully that list gives you a sense of just how important Ingram is to the book industry. Ingram is specializing in all of the logistics of getting books from publishers to, whether that's Amazon on one end or independent bookstores on another.

Today's episode may be even more of a business story than the last episode. That's because we are going to move from Ingram entering the book business that we talked about last week to their efforts that quickly made them central to the relationship between publishers and booksellers.

Join me now as we cover our second story on the beginning of Ingram Books.

Start of the Story: the Opportunity

To set the stage, last week we focused on Bronson Ingram and Jack Stanbaugh. Where we left off our story, Stanbaugh had to bow-out of running the Tennessee Book Depository, and Harry Hoffman stepped in to run the newly named Ingram Books, and stepped in to run it as CEO. The task he was given in 1969-1970 was to find profitable opportunities that the company could meet with the existing resources. Hoffman is, as we'll see today, was able to do that in part by solving the internal needs of Ingram, and Ingram learned that the solution was also directly translatable into solving
the needs of bookstore customers.

We let off by teasing how Ingram Books used a 4x6 sheet of acetate to revolutionize the industry. But before we get there, we're going to have to cover a little more of Ingram actually entering that industry.

Ingram had a big warehouse that was probably being underused, and the question is, well, why not try to sell to bookstores too? We've got the warehouse, they're selling to schools, why don't we expand our market and provide books to bookstores? Hoffman and Bronson planned to offer these wholesale services to bookstores in the southeast
using their current footprint.

The Market Circa 1970

I wanted to give you a sense of where the market was at the time, in the early 70s, to give you a sense of the problems that they would face and the customers that they were going to be serving.

As a wholesaler, Ingram Books was going to act as the middleman between many dozens of publishers on one side and then hundreds or a thousand different book retailers on another. The publishing market of the 1970s was very different from the Amazon-dominated book market that we have today. What we had then was a thousand or so independent bookstores who sold the majority of the new books that were released.

Large chain stores, whether it's in malls or elsewhere, made up only a very small part of the market, though a fast-growing part of the market.

There were three other channels that were bigger and more significant, (1) so independent bookstores are the biggest, and then after them, you have (2) supermarkets, department stores, and (3) mail order, and sort of think about mail order as like the book of the month club. Each of those three were more significant than bookstore chains. That's going to change over the next 10 years and 20 years.

In 1970, Walden was the biggest chain, and it had a few more than 50 stores across the country. They expand dramatically over the next decade, and by 1983, they would have more than 830 stores, showing obviously massive growth.

In terms of the market, we're still decades away from Amazon being a significant part
of the market.

If you were a bookstore in 1970, you were likely a single location. Bookstores would send you traveling sales representatives, and their job was to, among other things, talk about upcoming book releases, to discuss what to order from the spring or the fall seasonal catalogs, to take any reorders. If you needed to reorder, you would probably do it on paper. Fax machines weren't all that widespread, and around this time, they were just starting to do toll-free numbers.

Let's imagine a scenario where you're running a bookstore. On a day you've got a couple families come in, one of them buys your last copy of The Great Gatsby, and also several books from The Little House series, taking your last
copy of a couple of those.

You could send a paper form to reorder, but at this time, you're probably going to pick up the phone. To reorder, you're going to pick up the phone and you're going to call Scribner to order the copies of The Great Gatsby from their New York warehouse, and then you would separately have to call Harper and Row's Warehouse just outside of Scranton in order to order new copies of The Little House books.

The books would ship via the U.S. Postal Service. You as the store owner would pay for the shipping. Depending on distance, it might take a week or more for you to get your books. Now, let's hope you're not on the West Coast, it's going to take quite a while.

You would also be responsible for tracking each of the orders you make and confirming that you got the order in and you got the right books. You might have to do this many times a month, calling dozens of different publishers in order to stock and restock your store. Hopefully nothing gets lost in translation between you and the publisher's warehouse and that your order arrives on time and without mistake.

On the publisher's side, they were both sending out book representatives to talk about books and to take orders, to do some promotion and marketing, and to do reorders, and they were processing individual orders that came in and processing returns. So if a book doesn't sell within a certain window, bookstores are allowed to send them back for a refund.

You can see, thinking about both the bookstore and the publisher, how this gets to be a very logistics-heavy and complicated business. It's into the middle of this relationship as wholesaler that Ingram is trying to step, hoping to simplify things for both sides of that relationship.

Back to Ingram's Start and Expansion

Let's do a quick reminder to where Ingram Books is in late 1960s, early 1970s. Ingram was initially just a school book depository. You should have a sense by now of just how different the trade book depository business is from being a wholesaler for trade books. And remember that Jack Stanbaugh and Ingram, Bronson Ingram, liked the book depository business because it was simple. It was steady, it was predictable, it was profitable, and it was low-risk.

Unlike supplying schools, demand from bookstores is much harder to predict. The most popular books change every week. New books are constantly being published, while old books may fade, others may continue to sell, some may sell only on a seasonal basis, maybe people buy them at Christmas or around Father's Day.

Also the number of books a bookshop has to carry is much greater than the number of schoolbooks. The logistics for being a wholesaler for bookstores is just much more difficult than they are for providing those same services as a book depository.

It isn't totally clear how much of this Hoffman and Bronson understood when they started to expand. Because of that, Hoffman started slow.

Back now to our problem for just a minute. Both sides of the market, the retailer bookstores on one hand and then the producer publishers on the other, stood to benefit from a central party who would handle the logistics of holding, ordering, shipping, and invoicing the tens of thousands of different titles that are sold every year. Publishers would love to ship just to a few warehouses instead of hundreds of different bookstores. Bookstores would love to order from just one business, as long as that business, as long as Ingram, carried the books that they wanted.

Now I mentioned that Hoffman had to start slow. Initially Bronson allowed him to add 500 titles to the warehouse for wholesaling. Hoffman then constantly had to go back and push to expand the number of books, the number of wholesale offerings that they had for bookstores. So he went back and said, can we do a thousand? And then can we do 1500? And this was pretty constant.

They both, however, quickly learned that the number of titles the warehouse carried was part of the value that they offered to the bookstores. By the early 1970s, they would carry around 20,000 different book titles.

One of the things that Ingram tried to improve on was order fillment. Fillment meaning the percent of an order from a bookstore that Ingram could fill. Early on it was 10%, but that steadily rose as they carried more and more titles and eventually got it up to 90%. And this meant that they could provide 90% of the books that a typical bookstore would order or carry.

Over the course of their expansion, Ingram found that the more titles they carried, the more business that they would get, because that's what a store cared about. That obviously and price. They cared about whether they could get from Ingram the books that customers wanted.

The book, The Family Business, talks about the problems this way, quote, "connecting publishers and their products with retail booksellers and their customers, required the rapid but careful management of a vast volume of data and the development of new tools and procedures that did not yet exist."

Problem of Logistics for the Book Logistics Company

One of the things that Ingram found is that as a book logistics company, they were having trouble tracking their own inventory as that inventory grew. As I said, in 1970, Ingram had around 20,000 different book titles. To track that inventory, Ingram was using paper catalogs, and paper catalogs present obvious problems, or they should be obvious.

Catalogs were bulky, they're difficult to update, they're costly to reprint, but nonetheless they needed to be reprinted regularly because of the changes in the demand for books and the changes in the makeup of the inventory in the warehouse.

Two things to address this happened around the same time.

One, on a trip visiting publishers in New York, Harry Hoffman learned that Random House was using microfiche to organize its own books. Random House had problems similar to Ingram in managing their inventory of books that they were shipping to booksellers. Ingram thought that using microfiche may be a tool that they could use to track their own inventory.

The second thing, at around kind of the same time, Ingram learned from a Bell and Howell salesman. So Bell and Howell is the company that manufactured microfiche machines, and they learned from a salesman that pharmaceutical companies were beginning to use microfiche readers as a way to get pharmacies to order from them. They sent microfiche readers to pharmacies and tried to get the pharmacies, the drug stores, to order off of the microfiche drug catalogs that they sent. What it meant was that if the drug store was using the catalog that the pharma company sent, they were reading off the same sheet, they were using the same codes, and this would cut down on ordering mistakes. Something obviously that was pretty high stakes when you're talking about prescription drugs.

And maybe you already know this, but to explain what the microfiche system was, is you could print many thousands of records onto a single relatively inexpensive sheet of translucent material and then use a machine reader to read it. A single sheet could hold more than 90 pages worth of material, which meant that Ingram could put probably its entire catalog of books onto a single sheet.

After hearing this, a light bulb goes off at Ingram. Two Ingram managers realized that what pharmaceutical companies were doing with drug stores, Ingram could do the same thing for bookstores. Bookstores would find it really helpful to know ahead of time what titles Ingram had in stock, what they carried, and if they used Ingram's own codes to order the books, then there would be much less chance of making an ordering or a shipping mistake. And in books then as now, there were lots of books with the same or very similar titles, but that were in fact different, they're different books.

Ingram had been working hard at trying to reduce the number of shipping errors. At one point had gotten that down to a 99% success rate. But given the volume of book orders that they had then and were hoping to increase in the future, that type of error rate was still much too high. With the microfiche readers, stores would order the names and using the codes that Ingram was using and thereby reduce mistakes. Ingram could also send new sheets covering the whole catalogue of in-stock books and ship those new sheets out weekly, something that they couldn't do with paper catalogues.

Stores then would know ahead of time what Ingram had in stock and what they didn't. Ingram thought that using microfiche was a way to address both how to track and catalogue was in their warehouse, so for internal purposes, and as a way to cheaply send bookstores up-to-date and accurate information on what book titles were available.

Microfiche Cold Start Problem

So this is great. There's a problem. Ingram has a solution and a solution that should really help the customer. But there's still a problem.

Ingram bought the microfiche machines for its warehouse and bought machines that could print and print the microfiche sheets that they could send out to customers. The challenge was getting bookstores to buy the microfiche readers.

And think about it. They're going to buy these readers just so they could get access to a weekly catalogue of Ingram's inventory that they're printing on these sheets of acetate. That isn't a super appealing offer to the bookstores. Ingram independently couldn't afford to buy these machines for the hundreds of bookstores. For context, the machines cost more than $150 in 1973, and translating that into $2025, this was more than $1000, so more than $1,100. And spending that much was a really big ask for small independent bookstores that had very thin profit margins.

At the same time, in 1973, the opportunity and the problems they were trying to address was really big and really significant. Stores wanted to submit an order form where they were sure to get the books that they ordered and where they could get all the books they wanted from one place. And the weekly microfiche sheets could really help do that.

The way Ingram addressed this problem is really pretty interesting.

Ingram negotiates with the manufacturer Bell & Howell to bulk purchase readers at a discount. And then they offered bookstores to provide them with these readers in exchange for a monthly rental fee. So the bookstore wouldn't have to pay for it upfront, they could do it over time. Interestingly, Ingram also managed to get the publishers to defray much of the cost that they had in printing these weekly sheets. And they did that by charging publishers a dollar per title that Ingram was going to list. Now I don't know if this is just a dollar per title that showed up or if it was a dollar per title that showed up in certain featured lists.

The idea was that once stores understood the benefit of these weekly updates, they were going to be enthusiastic about the machines and the improved ordering that it would provide. Ingram does a big push at an industry conference in 1973, and it really does catch on.

Ingram's thesis was right, that bookstores really liked the features and the information and the ease of use that it provided.

The book The Family Business recounts one story that I think is instructive, where in 1973 Hoffman is meeting with a manager, a store manager. This is a woman who was the head of the book section in a large department store. He discusses it with her and her initial reaction was essentially, you're telling me you want me to pay you for the right to order from you? No way. Not going to do it.

But this is a meeting over lunch.

Over the course of the lunch, Hoffman explained the machines and how they worked and importantly the benefits that they were going to provide her as the bookstore, the bookseller. After the lunch, she had done a 180 degree turn and said, I'd pay anything for that machine.

This program ends up supercharging Ingram's growth as a book wholesaler. It allows them to provide better service, better information flow to the bookstore customers. It made Ingram more attractive to additional stores and as more stores came on board, it became even more important for other publishers to use Ingram as their wholesaler.

One way you can tell that this was successful is that in just a couple of years, every other competing wholesaler followed Ingram. They did the same thing. They did microfiche and were sending out regular catalogs that way.

Other Ingram Innovations

This may be kind of the biggest reason that they were able to get a foothold and then dramatically expand in the wholesaling business. But along the way, they continued to make a number of improvements, some of which are touched on in the book that I've mentioned, The Family Business. And I'll recount just a couple of them.

So one of the things that they did in their weekly distribution is they added a listing of the 50 most popular books or most sold books of the prior week. They added in the book listing a space for media and promotion. So a publisher could include the author is going to be on The Tonight Show or Good Morning America next week, or the author will be doing a book tour, book promotion tour in Boston in October. And adding those types of things would allow booksellers to better anticipate demand.

One of the things that they talk about is bookstores calling up and saying, hey, I need that book that was on TV on this program discussed last week. And Ingram would have to sort of scramble and try to figure out what that book was, which was not easy. And this helped address that problem.

Another small thing is that they were early in using shrink wrap in shipping books, which helped prevent damage in shipping and protect the books.

And then the last development I'll mention is that they developed a package where a new bookstore could get a ready list of books suggesting how to open and what books to carry so that they weren't starting from zero when they were trying to figure out what types of books did they need to have and who they were targeting.

In terms of our business story, that kind of wraps up what I wanted to cover with the exception of the postscript, which I'll cover in a minute, and then obviously the bibliography. But one of the things which I'll touch on in the postscript is just how reminiscent the discussion should be of what Amazon is. If you're familiar with Amazon's business and how they started, a lot of the problems they were trying to address are ones that Ingram was addressing and learned to address really well kind of two decades before.

Postscript: The Earlier Amazon and Aggregation Theory

Now on to our postscript. In a digital environment with no transaction costs, companies that collect or aggregate demand and then focus on the customer experience will come to dominate. They dominate because they've aggregated the customers and they're focused on the customers and the customer experience. And because they have the customers, this attracts the suppliers. And the more suppliers they get, it will further improve the customer experience.

Ben Thompson, who is central to these ideas, calls this the demand-driven multisided network. And I'll say that again slowly. The demand-driven multisided network. Companies like Google and Facebook and Uber and Airbnb, all of them are playing in this space and are acting as aggregators.

Now Aggregation Theory was coined by and expanded on by Ben Thompson and his Stratechery blog and media company. He's got podcasts and newsletter and all sorts of stuff. And Aggregation Theory is a very sophisticated way to look at digital businesses and it helps explain a good deal about business concentration, particularly in the internet age. It also requires that marginal costs for providing the products, that that marginal cost is zero.

Marginal cost meaning the cost or the expense of providing one additional thing, whether that's a car or a newspaper or a movie subscription, whatever it is, or additional movie. This means that digital products, Netflix with movies, Google with websites and news and ads, Uber with booking and paying for transportation, those are all zero marginal cost products.

The theory is a theory for the internet age.

As I've been thinking about Ingram's move into books and its growth as a wholesaler and book distributor, I kept thinking that it acted as a kind of proto-aggregator. Thompson will probably rightly roll his eyes about this because it clearly fails his definition because the marginal cost of shipping a book is not zero and never will be. Physical products never have a zero marginal cost. But many of the same dynamics for pure aggregators seem to apply to Ingram's wholesale business.

Ingram aggregated the attention of bookstores by providing a superior customer experience. Better information, better service. This improved experience meant that distribution through Ingram became necessary for book publishers As more publishers used Ingram for distribution, Ingram continued to become more attractive to their bookstore customers. Using another business term, this created a positive flywheel.

Ingram was able to start this cycle not by distributing books at zero marginal cost, as we've talked about, in the same way that it costs Netflix nothing to give you a movie to stream, but instead by lowering the cost of inventory management and to improve the
ease of ordering.

Ingram was, in a way, becoming Amazon before Amazon existed, and as you know, Amazon entered the same business.

As our last note in this postscript, interestingly enough, Ingram's existence was really necessary for Amazon to start, or at least for them to start in books. Jeff Bezos founded Amazon in Seattle in 1995, in part because Seattle was close to Ingram's warehouse in Eugene, Oregon, and it gave Amazon access to all of Ingram's catalog. At that time, the catalog had expanded to 400,000 titles. Amazon's location next to Ingram meant that they could receive books from Ingram and then ship those out very quickly. That's how Amazon started its online book business, was by using and being dependent
on Ingram.

Bibliography

For the bibliography, I'm not going to re-cover the family business telling the story of Ingram's entry into the book business. Instead, I'll mention a different book.

This one's called Big Fiction, How Conglomeration Changes the Publishing Industry.

It was written by Dan Sinykin, published in 2023 by Columbia Press.

It does recount a few Ingram stories during the course of the book. It really does talk about changes in publishing and how that affected the types of books that get written.

I will say that it does read a lot like a PhD dissertation, more than a popular non-fiction book. There are parts of it, if you like literary theory and are interested in the history of books in the US, you'll love it. If you don't love literary theory, parts of it are going to be a tough slog.

Closing

Join us next time for another episode of I'll Probably Delete This, where we explore more stories of authors, publishers, storytellers, great books, and publishing.

Happy reading.

Thanks, everybody.