Picking up on the innovation theme: I write occasionally about disruptive innovation, which Clay Christensen distinguishes from "sustaining innovation". In a 2010 post, I noted:
"Christensen’s work describes two types of technologies: sustaining, and disruptive… Disruptive technologies start by addressing smaller markets that are either over-served or not served at all by existing products. Those opportunities are typically unattractive to firms serving market leaders. Over time, the small firms that embrace disruptive technologies grow larger by serving niche or previously unattended customers. Robustness of the new technology improves quickly, often at lower margins than the traditional businesses. In time, these technologies don’t necessarily replace the standard model, but they do replace the traditional market leaders in the new models."
Wattpad's recent cash infusion could well be an example of disruptive innovation in publishing. The company serves authors directly, providing a platform that connects readers with submitted stories. As reported by Mathew Ingram at GigaOm, "Khosla partner Andrew Chung said he believes that Wattpad can transform the world of writing and publishing in the same way that YouTube has transformed the world of video."
Traditional publishers can (and likely do) look at Wattpad as a kind of farm system, churning through many authors and manuscripts they would never touch to surface a handful of promising options. That approach yields near-term profits and exposes longer-term vulnerabilities.
The new model probably won't rely on selling large volumes of hardcover books with a $28 list price. The farm system can grow with a cost structure and a discovery paradigm that traditional publishers won't be able to match.