Mark Coker and his wife, Lesleyann, a former reporter for Soap Opera Weekly, had spent a year writing Boob Tube, a satirical novel depicting the seedy private lives of Hollywood soap opera actresses. Though lauded by agents at Dystel & Goderich, an agency best known for representing President Obama, publishers fretted over the novel’s salability. Why gamble on a couple of unknown authors? Two years, several revisions and a dozen rejections later Coker and his wife were out of options. “Commercial merit is a dangerous way to judge a book,” he argues. “It means you get more stuff by Kim Kardashian than by undiscovered authors potentially writing future classics.”
Instead of getting mad, Coker got entrepreneurial, launching a printing press in the cloud. As the CEO of Smashwords, a 14-person company in Los Gatos, Calif., Coker gives authors free self-publishing software that converts Word documents into
e-book files—and lets them set the price. Through distribution partnerships those e-books line the shelves of digital bookstores run by Apple, Barnes & Noble, Sony and Kobo. No deal yet with Amazon.
Smashwords publishes 127,000 titles by 44,000 writers, each of whom collects at least 60% of royalties—four times the amount offered by traditional publishers. The company takes a 10% cut of the proceeds from partner sales and 15% (after credit card fees) from books sold through its own website.
Launched in May 2008, Smashwords published 140 books in its first seven months—a number Coker found thrilling, until he looked at sales. On a good day the company was selling $6 worth of books through its website, its own take barely more than a dollar. Coker switched to a distribution model the following year, offering retailers a 30% commission in exchange for digital shelf space. After inking agreements with four major partners in a matter of months, Smashwords debuted in the iBookstore with 2,200 titles when the iPad launched in January 2010.
The company has grown at a steady clip since. Now a top supplier of titles to the iBookstore, Smashwords reached profitability in September 2010. Coker projects $12 million in revenue this year, double last year’s take. With an expected 2012 pretax profit approaching $1 million, the company intentionally keeps margins slim to squeeze out competitors, though Coker expects fatter profits as the company scales. “It costs essentially the same to pump 10,000 new books a month through our network as it will cost to do 100,000 a month,” he reasons.
Coker, 47, is soft-spoken, spending much of his free time in a home library that bulges with thousands of the trade paperbacks he’s helping to push into a diminishing number of used bookstores. He began his entrepreneurial career at the age of 5, selling a pet chicken’s eggs door-to-door in Los Gatos. After graduating with a business degree from UC Berkeley he ran his own p.r. firm, then created BestCalls.com, a directory for public corporate earnings calls, in 1999. He sold the company to Shareholder.com for an undisclosed sum in 2003, profiting again when Nasdaq acquired Shareholder in 2006.
In building Smashwords Coker shunned outside investment, took an $80,000 home equity line of credit and borrowed another $200,000 from his mother. He ran a lean, three-man operation well into 2010, working as his own customer-service rep while nailing down partnerships with corporate giants. He still holds 88% of the company’s equity. “It gives me an incredible amount of freedom,” he gushes.
What’s that freedom worth? That’s an unwritten chapter. Smashwords saw attrition when Barnes & Noble opened its own self-publishing platform in 2010, offering authors an extra 5% of royalties compared with Smashwords’ terms. Apple, Amazon and Kobo have similar options, though Coker argues that none offers sales generation via multiple retailers. Rivals that cater to independent e-book authors—BookBaby of Portland, Ore., Author Solutions in Bloomington, Ind. and Lulu of Raleigh, N.C. among them—match Smashwords’ breadth of distribution. But Coker points out they goose sales by hawking conversion, formatting and other services. Smashwords, he says, prefers to live and die by its authors’ sales.
One other twist in the plot: Smashwords has no formal distribution agreement with Amazon, the current heavyweight of e-reading. “I actually think that’s one of our greatest strengths,” Coker contends. Hmmmmm. Maybe. Smashwords has reached profitability without Amazon, but because Coker refuses to give up control over pricing, the e-commerce behemoth denies his company access to the automated distribution system that supplies the Kindle Store. A compromise has been worked out for Smashwords to publish titles in bulk through Amazon’s self-publishing system, though plans are over a year behind.
Coker & Co. also have some exposure in the feds’ case accusing Apple and several book publishers of colluding to keep e-book prices high. Like the iBookstore, Smashwords’ agency pricing model allows authors to set their own prices. Though he is not a party to the case, Coker himself spent an hour on the phone with DOJ investigators, sharing data that demonstrated the drop of Smashwords’ book pricing over time.
For now, Coker is focused on speed. The lag between the submission of a manuscript or the tweak of a book price and its appearance in retailer bookstores is currently a matter of days. Soon it will be minutes, by dint of code being done in-house. Smashwords is working to offer authors instant, aggregated sales data from its myriad partners, all part of an effort to give ink slingers real-time control over their livelihoods. To cope with the growing volume of books, the company is adding two employees to its three-person vetting team to make sure that each book is formatted correctly and contains original content.
“This is the best time in history to be a writer,” Coker muses. If a Smashwords title doesn’t do well in its debut, it has plenty of time to pick up readers and gain an audience. Once upon a time your words lived forever only if you were Homer or Shakespeare or Dickens. Now, thanks to cloud-based publishers, any book can become “immortal.”
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More stories from the June 25, 2012 issue of FORBES magazine:
How Reddit’s Alexis Ohanian Became The Mayor Of The Internet
Silicon Valley Is Creating Real Jobs By Making Real Things
