Fool.com: <I>War and Peace</I> On a PalmPilot? (News) August 31, 1999

War and Peace On a PalmPilot?

By Dave Marino-Nachison (TMF Braden)
August 31, 1999

Online professional bookstore Fatbrain.com (Nasdaq: FATB) thinks it has the answer, taking a cue from virtual auctioneer eBay (Nasdaq: EBAY) with today's launch of its eMatter secure digital publishing system.

At a time when the music industry has been the recipient of considerable media attention as it grapples with the growth of MP3 and other digital download formats, Fatbrain.com has hoped to sway some of the fanfare over to its operation.

Its shares rose more than 30% today on news of eMatter, which allows people and companies to post documents online for shoppers to select and purchase for delivery either in downloadable format, in printed format by mail, or bound (for an extra charge). Would-be publishers would pay a $1 per month listing fee and receive a 50% royalty as well as a nifty monthly activity report for their properties. (The company is running a 100% royalty promotion until January 1.)

Fatbrain.com isn't alone in this marketplace, although its focus on professional books and manuals distinguishes it. At 1stBooks.com, according to The Wall Street Journal, authors pay a $159 upfront fee and get 40% of the royalties. Elsewhere around the Web, an Australian company has set up a site promising "published books in digital form that you can download to your desktop" beginning in February.

Anyone, theoretically, can list a document on eMatter -- from a research paper to a short story to the next great American novel -- and shoppers would simply browse as they do on eBay, a comparison Fatbrain.com CEO Chris MacAskill welcomed in a Bloomberg Forum interview.

The comparison appears to have some validity as, writes the Journal's Don Clark, the "breakthroughs are leading authors to bypass publishers, retailers to become publishers, and publishers to become bookstores," much in the same way thousands of grassroots retail businesses have sprung out of the Internet's most-famous garage sale.

Predictably, press releases out of Fatbrain.com today were a roll call of various publishing and technology bigwigs essentially calling eMatter the biggest thing to hit publishing since Gutenberg (no, not Steve).

And while they may have allowed themselves to get a bit carried away, what is notable about this publishing and distribution method is that it clearly constitutes an advance in a field that has been slow to accept technology; when was the last time you or anyone you know read an "eBook"?

So paper isn't eliminated from the equation in one ungainly swoop, and the efficiencies of the electronic marketplace still find themselves a home -- not a bad compromise. Also aiding the growth of electronic publishing will be partnerships like the one announced today by Adobe Systems (Nasdaq: ADBE) and Xerox (NYSE: XRX) to develop a secure version of the PDF file format for written material.

MacAskill is extremely optimistic about his market opportunity, sizing it in the billions of dollars and calling it considerably bigger than the music or antiques/collectibles markets. He didn't give even general financial guidance in his Forum interview, but at least three brokerages nevertheless upgraded or reiterated upbeat ratings on the stock today.

What kind of advantage Fatbrain.com has over would-be competitors besides that of first mover is an important question. The technology involved isn't really unique to the company, so where it stands to benefit the most is from its associations with publishers and, potentially, its current user base.

As such, the approval of companies like Macmillan USA, McGraw-Hill (NYSE: MHP), O'Reilly and Associates, Salon.com (Nasdaq: SALN), and the Coriolis Group -- all of which signed on to distribute new and existing content via eMatter, according to the company's press release -- is welcome news, but those agreements seem unlikely to be exclusive.

Fatbrain.com sold nearly $20 million in technical and professional books, technology-based training solutions, product manuals, and research reports for the fiscal year ended Jan. 31. eMatter, if accepted by the market, stands not only to boost that figure but also the company's 27% gross margins.

Fatbrain.com's professional focus, however, may eventually hurt its growth potential should publishers or other, more broadly focused retailers like what they see and decide to set up shop themselves. 1stbooks.com, for its part, makes a market in a wide variety of titles from authors known and unknown, running the gamut of subject matter.

But with a strong and growing niche in the professional books and documents business, there is still plenty of opportunity for eMatter-powered growth should Fatbrain.com market it effectively to both consumers and potential suppliers.

Related Links:
Fatbrain.com
Fatbrain.com Message Board 1stbooks.com

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