WEbook, others barging into the book club

It happened to music, movies, television and newspapers. And now it’s happening to books.

The Internet and digital technologies are threatening to bring the book publishing industry to its knees.

Book publishing is an insular business that hasn’t changed much over the past 100 years. Today, it is coming under siege by a number of outside forces. Whether it’s e-books and e-readers, such as the Kindle, Internet-based self-publishing, or the rise of new digital publishing platforms, the industry is clearly ripe for major disruption.

“There are a very few industries that haven’t been seriously challenged by the Net economy,” says Moshe Mor, a partner at Greylock Partners. “Now it is book publishing’s turn.”

Over the past year, VCs have pumped more than $55 million into at least a half dozen book-related startups, according to Thomson Reuters (publisher of PE Week). Investors see an industry on the ropes and the opportunity to wrest power away from the traditional players.

A host of venture-backed startups are looking to capitalize, while thrusting the publishing industry firmly into the 21st century. One of those disruptive startups is WEbook, which recently raised $5 million from Greylock and Vertex Venture Capital.

WEbook bills itself as an online book publishing company that does for aspiring writers what “American Idol” did for singers. Writers upload their work to the WEbook platform, and then a community of readers votes on the best contributions. Writers can also use the platform to collaborate with other people on writing projects. Contributions that receive the most reader votes are then published by WEbook in print, e-book and audiobook formats.

“In the classical publishing route, only one in 10,000 submissions ever see the light of day, and it’s a very small group of editors and agents making those decisions,” Mor says. “We think it could be more effective to democratize the process and let the community decide what is worth publishing, rather than just a few editors.”

Mor admits that the WEbook model will still have to be proven over time. But given that the U.S. book publishing market stands at $25 billion annually, it’s a gamble he’s willing to take.

For at least one new book publishing startup, the bet is already paying off. Blurb, an Internet-enabled service that allows anybody to create and publish bookstore-quality books, recently reported that it has reached profitability. The company experienced 200% annual growth in 2008 and has reported revenue approaching $30 million.

That’s still a drop in the bucket compared to the overall publishing industry. But it’s a noteworthy accomplishment, especially considering that ultra-hyped venture-backed companies such as Facebook and Twitter are nowhere near profitability.

“We are thrilled with the progress Blurb has made,” says Brian Mesic, a partner at Anthem Venture Partners, which seeded the company and participated in a $5 million Series C round with Canaan Partners last November. “Blurb is a real business with people giving them money in exchange for a real product.”

Mesic says he’s used the service to create a biography of his 90-year-old grandmother, replete with photos spanning her entire life. The service is targeted at individual creators who, in the past, would never think of creating a book on their own. But with the rise of digital media, publishing a professional-quality coffee-table book is suddenly within their reach: Prices start as low as $12.95 per copy for a softcover book of up to 40 pages.

Increasingly, the service is also making inroads into the traditional book publishing market. Blurb now enables authors to use the platform to make money from their work. Blurb lets authors set their own pricing for their books, and then handles all billing and logistics.

The self-publishing, print-on-demand industry led by such startups as Blurb, Lulu.com and Author Solutions is becoming a force in its own right. Since its inception in 2002, Lulu has digitally published more than 820,000 titles, with 5,000 new titles added each week. These self-publishing sites do for books what YouTube did for home videos. And they are even creating their own superstars.

Take the novel “Still Alice,” written by Lisa Genova. The story of an aging Alzheimer’s victim, the book was turned down by almost every publisher because the subject matter didn’t seem like the kind of thing people wanted to read about. The frustrated author finally published the book herself on Author Solutions’ iUniverse site. It was quickly noticed by readers and even received rave reviews in a local newspaper. Ultimately, the book was picked up Simon & Schuster, and is currently the 11th most popular work of fiction on Amazon.com, just one spot behind “Atlas Shrugged.”

Mor says the success of any online publishing site will ultimately depend on its ability to produce quality works. But he is quick to add that publishing is a hits business, which makes it a dangerous game for investors. That’s why he’s pleased that WEbooks is starting to experiment with other revenue models, such as offering a marketplace of editing services and writing workshops to aspiring writers.

“Finding the right business model for online publishers is a continuing challenge, but we are starting to figure it out,” he says.

Another online book site is BookGlutton, which is looking to raise about $1 million in first round funding. It offers a twist to the standard uploading and sharing of books, with an elegantly designed interface that allows users to read, annotate and discuss books with other users while immersed in the text.

BookGlutton features a selection of nearly 2,000 books, but it hopes to strike deals with major publishers to add many more. “Everyone likes to talk about what they are reading,” says Alber. “We realized this was a big need that wasn’t being fulfilled on the Web.”

Though digital book publishing is still in the first chapter, venture capitalists are increasingly confident that this story will have a happy ending.

A longer version of this story previously appeared in Venture Capital Journal, an affiliated publication of PE Week.