NetLibrary adding digital textbooks, plans to reach profitability this year

EDITOR’S NOTE: A continuing series of exclusive Business Report question-and-answer interviews with top management of leading e-business companies in the Boulder Valley.

By Elizabeth Gold

Business Report Correspondent

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BOULDER — For students backed up to the night before a paper is due, an hour after the library has closed, the option of checking out an electronic book from their personal computer could turn disaster into triumph.

Combining traditionally published book layouts with Internet speed and search mobility, e-books serve up information in a format that fits the 24/7 lifestyle of today’s data collectors.

With an e-book collection that includes subjects like United States history, economics, consumer law and travel, netLibrary plays a major role in the business of providing e-books and Internet-based content management services. The company creates electronic versions of print books in-house and targets public, corporate, university and K-12 libraries as customers for its finished products. The e-books reside on netLibrary’s servers, where circulation is maintained and managed, allowing libraries to offer the service to patrons without monitoring the service.

Since netLibrary’s March 1999 launch, it’s titles have grown to more than 34,000 with 5,500 libraries accessing its e-books. According to Chief Executive Officer Rob Kaufman, netLibrary expects to begin turning a profit in the next 12 months.

The Business Report: How do you choose the titles you produce?

Kaufman: The same way our customers do. We have a group of librarians in-house that survey lists from publishers. We also work with hard-copy distributors that dominate the markets to see what they’re seeing in the hard-copy world. There are about 100,000 books published every year, excluding a fair number of self-published titles. We’re creating about 10,000 to 15,000 each year.

Half of the publishing industry consists of trade or pleasure-reading books. The other half focuses on two categories. The first is reference, professional and scholarly, and the second is textbooks. Our focus is on reference, professional and scholarly titles, and we plan to begin in earnest in the second half of this year in the textbook market.

BCBR: What technology do you have in development now?

Kaufman: We’re working on the infrastructure to extend our solutions. Textbooks are an $8 billion market in the United States, and MetaText is our platform for delivering digital textbooks. The technology we’re building is one of the largest database initiatives ever created. We’re now looking to nail down the functionality and make sure it’s as efficient as it needs to be. Professors will be able to add notes into margins, and students can answer questions. This is a quantum leap of what you can do in e-books.

BCBR: Do you license your current software or plan to do so in the future?

Kaufman: We’re open to it, but it’s not our focus right now. Our focus is on satisfying the content requirements of our customers.

BCBR: How many employees do you have?

Kaufman: We have a little over 400 now.

BCBR: That’s down from the 500 of a few years ago.

Kaufman: The attrition is over a two-year period and is part of our business development and our move to more front list titles. We’ve been focusing on rationing the number of titles we sell. Eighty percent of what we’ve been selling are back list titles that are 3-5 years old. We’re trying to change that to be 20 percent of what we sell. Front list titles are the life and blood of publishers, and their interest in experimenting with them is low. We’ve proven ourselves now, though, and written some big royalty checks to publishers, so we’ve shown them that we can make it work. What that means is that we now have fewer in the number of titles but a greater amount of salability. Producing that number requires a lower head count.

BCBR: What’s netLibrary’s current financial status?

Kaufman: One of the benefits of being a private company is not having to reveal that, but I can tell you that we have tens of millions of dollars left — enough to last us through this next year. And we have a budget that shows us being profitable in the next 12 months.

The company raised its first round in Boulder — more than $140 million in capital. We raised a lot of money from some well-funded people. Our investors have $5 billion in cash sitting in their portfolio, and they’ve indicated to me that if we need it, it’s there.

BCBR: How do you think things are different in the financial realm of technology companies these days?

Kaufman: Ten and 20 years ago, it was normal for technology companies to run at a loss for some time before turning a profit. Given the difficulty of the stock market recently, people have become intolerable of that now.

BCBR: What process or formula do you rely on to keep netLibrary on-track?

Kaufman: Our customers are the most intellectual, honest, under-recognized, hard-working people without ego that you’ll ever meet. It’s difficult to reach them and more difficult to convince them of something, but when you do, they’re the most loyal group you can imagine.

The Internet technology mania of the late ’90s rewarded companies for click-throughs and portal deals — the big bangs that are the antithesis of what our customers stand for. These exacting and demanding folks are satisfied with high quality. So what we’ve done is packaged content into a collection and sold it the way they buy. We’ve focused on satisfying our customer audience, our publisher audience, our investor audience and our market audience.

Libraries are a bit under siege these days. People go to that little white box on Yahoo! for information — something librarians always thought of as their role. What we’re doing is making the expertise of libraries as ubiquitous as the Internet. Our success began when we stopped being a dot-com and started being a friend of the library.