Archive for Commentary
The Future of eBooks – The Death of the Online eBook Store
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Independent bookstores are on the ropes and simply cannot compete in today’s marketplace with Kobo, Barnes and Noble, and Amazon. During the last year, Books on Board, The Book Depository, Bookland, Fictionwise, BeWrite Books, jManga, and many more have shut their doors. These stores have mainly closed due to a lack of innovation, poor business sense, and competition from the major stores. In the next few years, we will just have the big players left as the industry continues to consolidate.
The main reason indie bookstores are failing is because of the lack of innovation. If you take a look at the homepages of any of the sites that have went out business during the last few years, you will notice a major trend. Their overall designs have hardly ever changed since they first launched and most have a poor user interface. Searching is woeful and being able to intuitively find what you are looking for is an exercise in futility. These companies have never revised their sites or invested in proper searching algorithms or adopted new technology to appeal to today’s discerning customer. Maintaining an outdated status quo when selling ebooks in 2013 is something that will put you out of business, fast.
Indie bookstore and self-publishing giant Smashwords finds that an older template and design is actually beneficial. The company has thousands of self-published authors hawking their wares and distributing their titles to all of the big bookstores. Instead of relying on your own internal system to exclusively push sales, Smashwords does the smart thing and makes agreements with Apple to have its Indie Breakout Books segment in many international markets. Most of the failed stores only sold books through their HTML websites.
Most Indie Bookstores are dying because they are not bringing their books to the customers. The vast majority of book lovers are no longer buying content through the web and are instead relying on apps for iOS and Android. Investment into dedicated apps imperative, and is something none of these stores attempted. Tablets are outselling PC’s and by the end of this year, digital books will outsell print. There is no shortage of people willing to spend money on ebooks, but if you are not reaching your target audience, you have no one to blame but yourself.
Indie bookseller websites are less about just selling books in the traditional sense, and more about reaching the largest audience you can. There is room in the industry for smaller players, but they have to be savvy. Opening up a Facebook Book Store, developing apps, making a HTML5 reading app to run in parallel with your purchased content, cloud storage, and social media remain viable. A static WEB 1.0 website is not enough to sell books anymore.
It seems that when ebooks got big, it was a gold rush. Many companies like Amazon, Barnes and Noble, and Apple were starting to make a copious amount of money. Hundreds of other sites came along and wanted to capitalize on the hot new trend, while doing very little work. While the big players continued to innovate, the small fish started to find their pond had become an ocean.
Why Kobo and Sony Are Losing the Digital Race
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Sony and Kobo are in big trouble with their current business model of selling hardware and ebooks. The lack of meaningful content and acquisitions are making these two lag behind the competition. It is not enough anymore to merely offer ebooks as a way to gain customer loyalty and trust, these two companies have virtually no community and are trailing off on content discovery. Today, we will look at the reasons why in the next few years these and Barnes and Noble may be fade away into irrelevance.
Last week Amazon acquired the book community site “GoodReads.” Many people in the industry claim that the sale was for $180 million dollars in cash and incentives to meet specific goals. Earlier in the year, Amazon also bought Voice recognition system Ivona. Amazon also purchased AbeBooks, a vendor of rare and used books from independent publishers in 2008. As part of that acquisition Amazon also got a stake in Shelfari’s competitor LibraryThing, which AbeBooks had previously purchased a 40% stake in. Amazon ended up using both of these companies technologies in their X-Ray for ebooks feature that is evident in their entire line of e-readers and tablets. Also, don’t forget Audible.
When Kobo emerged from its previous iteration “Short Covers,” the company has never made any meaningful acquisitions. The only company they ever bought was France based Aquafadas, which the company intends on implementing into Kobo Writing Life, to allow people to self-publish comic books. One of the drawbacks of the Kobo ecosystem is its reliance on other established social networks. It currently has integration with Pinterest, Facebook, and use the GoodReads API to pull book review information. When it first came out, the Kobo Vox used GetJar to allow people to download apps until the company reached an agreement with Google for access to Play. Kobo has an established track record of not really developing its own technologies to aid in proper content discovery, and instead exclusively uses third parties. Now to be fair, Kobo does Pulse and Reading Life as its own technologies, but Pulse remains a barren wasteland of user comments and discussion.
Sony is in a more woeful position and has consistently lost market share in its core markets over the last three years. In 2011, the company accounted for 28% of all e-readers sold in Canada. In 2012, its presence diminished to 18% and in the first quarter of 2013 dropped down to 12%. The main reason Sony has fallen is the lack of new devices and a meaningful user experience. In the past, Sony would always release three new e-readers a year and for the last two years has only issued one. Sony also relies on 3rd parties for content, which often shoots them in the foot. They had an agreement with Google to hustle books directly with their PRS-T1 e-reader, but when Google changed their system and amalgamated everything into Google Play, it disallowed anyone with a Sony to buy books from the Play Store. Imagine having a new Sony e-Reader, using the device for the first time, and clicking on Google Books only to see error messages. The PRS-T2 did a little bit better of a job with Evernote and Overdrive Library lending. Sony has basically divested itself of e-readers and ebooks, but still continues to sell them and innovate its websites.
Sony and Kobo might very well disappear in the next few years and see their market share in the US, Canada, and the UK decline. The reason? It’s not ebook prices or the availability of a new title, or even a free Harry Potter Book. Users tend to gravitate towards ecosystems with a meaningful experience and have software features not found anywhere else. Amazon has X-Ray, Ivona, audio dictionaries, free ebooks every month with Prime, a massive book discovery network, its own publishing company, and curated app store. Amazon is also the only company to really push audiobooks. There is a reason customers gravitate towards Amazon’s line of e-readers and tablets, because it is distinctive.
I fear for the future of e-readers from companies that both manufacture their own hardware and sell the digital content. They rely too much on 3rd parties to offer an engaging social experience, without developing their own technologies or buying out established niche companies that they could incorporate into their own ecosystem. I fear the day when e-reader companies end up trying to license their technology out due to declining sales. Remember when low power display screens were the next big thing? Remember Bridgestone, Plastic Logic, Pixel QI, LG Flexible e-Paper, or Liquavista? All of these companies tries to make their own devices and ended up trying to license their technology to other companies and all failed. I fear this is the future of non-Amazon e-reader companies.
What can Kobo do to remain relevant going forward in the future? I recommend buying a minority stake in Overdrive, and incorporating all of their developer SDK tools into their entire line of e-readers. This would allow anyone in Ireland, US, Canada, Australia, and other markets to borrow library ebooks for free without having to jump through a ton of hoops. I would also recommend the company buy Autography. These guys have developed a unique system that allows authors to autograph ebooks, and if paired with Writing Life,would be excellent for book tours and being able to really make their self-publishing program stand out in a crowded market. I would also recommend that Kobo bite the bullet and give Apple a percentage of every sale through its iOS apps. Apple customers tend to spend the most money on content out of any mobile operating system in the world. Amazon, Kobo, Barnes and Noble, Sony, and other major companies have pulled the ability to buy books within their apps, resisting the commission Apple earns on every in-app purchase. Baseline, Kobo needs to sell more books and selling them within iOS and not the Cloud Reader is the right play. I would also recommend the company invest in Vook, and use its enhanced ebooks on the ARC and future line of tablets. It is only a matter of of time before Amazon does this. Finally, Kobo needs to develop their own social community. I mean, they don’t even have their own forums. Instead, their admin team visits popular websites like MobileRead to get feedback and interact with users.
Sony, on the other hand, is in dire straights. The company’s number one priority should be hiring a proper PR agency to get the word out. Sony recently introduced a new EPUB 3 kids section to the main bookstore. It also revised its Android app to support EPUB 3. Do you think Sony informed the media about this? Nope, it did everything in stealth fashion, leaving it up to journalists to dig up the news themselves. Sony also has a monthly book club, but doesn’t promote this AT ALL! On a hardware level, Sony needs to catch up to the competition and issue an e-Ink Pearl HD display with frontlight. It also needs to BUY Evernote to streamline the software into the entire line of tablets and e-readers. I don’t think Sony realizes how committed a strong segment of people who are loyal to their e-reader brand can be. I know people that would never consider buying another device, because they love the build quality and design. Finally, Sony has no self-publishing program at all, and no way to buy indie titles. The company needs to consider buying Smashwords as their provider for these sorts of titles.
The future of Sony and Kobo looks bleak unless they make moves to differentiate themselves and revitalize their product lines. The only way to do this is to buy established companies that have the technology they need to change their future. Doing everything in-house will not cut it in this day and age, it is nearly impossible to develop unique systems, when it is easier to buy an established one.
German Digital Publishing Industry in a State of Flux Due to Amazon
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The digital adoption rate in Germany two years ago was a paltry 4%. Today, close to 11% of consumers are satiating their literary thirst with ebooks, e-textbooks, and digital magazines. The iPad and Amazon Kindle e-Reader have been facilitating this growth due to their expansive ecosystems, and by stimulating publishers to jump into the fray. The German publishing sector was woefully unprepared for the jump to digital and the entire industry is transforming itself to deal with the new paradigm.
In the last few hundred year, publishers like Suhrkamp, Hanser, Ullstein, Fischer and Rowohlt led the charge in producing some of the most compelling books. The bookstores are losing ground, and some of these publishers are feeling the pinch, as more customers gravitate towards the digital platform. “The golden era of publishing, that is, of reading, contemplation and literary education, has somehow come to an end,” says Michael Krüger, the outgoing head of the Munich-based Hanser publishing house, who has the reputation of being one of Germany’s last great publishing figures.
He is not alone, the book pundits in Germany have also mentioned “For decades, the publishing business was pretty much the same. It is now entering a crisis for the first time, and everything will look different after that.”
The bookselling industry in Germany is much akin to the same sort of experience customers see at Indigo or Barnes and Noble. Book sales are drying up and instead of exclusively selling literature, these companies are all starting to sell stuffed animals, candy, candles, and seasonal accessories. The German bookstores, like Thalia, are all trying new models to sustain the lower cost of books and compete with the digital space.
How can Germany compete against Apple and Amazon, two worldwide juggernauts? Weltbild, Hugendubel, Bertelsmann Club, and Deutsche Telekom have banded together to offer a compelling reason with the advent of the Tolino Shine e-Reader and accompanied ebookstore. This is really the first time all of these companies have ever banded together to offer an alternative to Amazon and sell the hardware throughout their vast network of shops. Over 300,000 ebooks will be available to purchase, with a heavy emphasis on domestic bestsellers and local authors.
These companies did not just band together to launch a new e-reader that limits the distractions of email and social media and puts the priority on reading a book. They did it to get access to customers’ data, something Amazon and Apple do not share with publishers. In order to understand and do well in the digital space, you have to know who your customers are, what they are doing, and what they are buying. This was the real reason why this new ebook store formed and why the major bookstores are all involved in the logistics.
When it comes to the tangible and intangible, there is a huge shift going on in Germany. There are established prices of books across the board, which helps small shops compete with the big chains, but also allows overseas competitors to flood the market with cheap digital alternatives to the higher priced printed variants. A new campaign right now launched in conjunction with the Leipzig Book Fair to put the emphasis back on the printed edition. They are producing a very slick series of commercials and newspaper articles to put the sexy back in reading. This may be too little, too late, and might not even work as damage control.
Publishing companies and bookstores were unprepared for the elevated growth of digital books in the last few years. There are hardly any avenues to self-publish exclusively in Germany, and aspiring authors instead have to deal with overseas companies. Textbook companies have not made the move to digital and magazine companies are equally not up to the task. Things need to change in a big way, or you will start to see the traditional bookstore start to collapse by 2015.
Is Social Reading the Future of eBooks? I Hope Not!
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In the past, if you wanted to read socially, you had to find someone in your area. With the advent of the internet, it doesn’t take much to find people who share the same taste in books as you do. When it comes to digital books and e-readers in general, companies have been developing new technologies that take a normally solitary experience and make it social. Amazon and Kobo e-readers both offer ways to participate in community discussion and websites like Goodreads foster a greater community. Is the future of ebooks a pure social experience?
A few years ago Kobo debuted a program entitled Reading Life and Pulse. These apps allow users to share rewards and achievements they earned from reading books with their friends. Pulse is a way that you can see how many people are in the process of reading, or have completed a book you own. You can then leave comments and chat with people who love the book. One of the coolest features about this would be the spoiler function. You can disable comments from people who are further ahead in the book than you are. Both of these programs are now bundled in every single e-reader and tablet the company offers. This company is basically the most progressive with social reading and even organized a few author chats with Pulse when the program first launched, but since then has been doing nothing with it.
Most e-reader companies like Barnes and Noble, Amazon, and Sony all offer social elements to the reading experience. They may lack the punch of Pulse, but it is quite easy to share notes, highlights, and quotes via Facebook, Twitter, and Evernote. Amazon recently introduced new features for the Kindle that will automatically let all of your friends know when you have completed a book. Reading has really gotten social in the last few years, and you would be hard pressed to find a dedicated reader with no social functions at all.
Social communities like GoodReads allow people to share their reading lists with each other, comment on books they want to read and develop a public board with all the books they have read or are in the process of reading. There is a fairly solid community of authors and book lovers to write reviews and follow kindred spirits. Scribd has also developed new social features when you are logged into Facebook, you will see personalized reading recommendations based on what your friends are sharing and on your Facebook likes and interests. And when you find something that you enjoy, with a simple click of the Like button you can quickly and easily share it with your friends. Honestly, however, it seems like all of these reading communities often just boil down to indie authors hawking their self-published books. Is this really what social reading is all about? Apparently so.
Social Reading is just basically a buzzword these days, instead of a practical solution to form meaningful relationships with other readers. Social Reading is often distilled down to center around sharing highlighting and note taking features with Facebook and Twitter. Many book lovers are introverts, who often have no idea they can employ social activities. It is often the narcissists that have to brag to everyone how many books they have read or how much they love a particular book.
Local bookclubs are almost all but dead, due to the rise in e-readers and ebooks. Major e-reading companies have done nothing at all to form a proper virtual bookclub and likely never will. The social communities are more about shameless advertising than they are about discussing the love of a book. Sharing ebook reading habits often boils down to spamming your Facebook wall with updates on the book you are reading or sharing book covers on Pinterest. If this is the future of social reading, I elect not to take part in it at all.
Many bookstore chains in Canada and the US do not actively promote digital content in their stores. They bet on people coming in and spending more on the tangible versions of the books, but then customers end up buying the digital editions. Bookstores belonging to ABA or the UK Booksellers Association often get a cut out of each digital sale, but are doing little to gain that revenue other than pushing Kobo e-readers. Indie bookstores should be promoting digital discovery in their shops with QR codes and Kobo should be assisting them.
We have all seen QR codes in advertising across a wide spectrum. If you live in a major urban center you will undoubtedly see band posters and adverts on polls carry QR. The code easily allows people to scan it with their smartphone and be redirected to a specific website or an e-commerce store to buy some products. It is easy to setup and most people are familiar with what they have to do. It is more mainstream then NFC, which actually allows for greater flexibility in a retail setting.
Barnes and Noble is famous in the USA for its “More in Store” program. Basically, if you bring your Nook device into a retail outlet, you can connect up to free WIFI and read the full version of any ebooks as long as you remain in the store, and only for an hour a day.
Indie bookstores are filling the void with the recent Borders collapse and other chains scaling back and closing stores in unprofitable markets. The indie store, more than ever, is becoming the destination of choice to buy new books. Thousands of indies are operating in the US and UK and seldom do they employ a unified digital strategy.
Kobo is the company of choice that both country’s bookselling associations have established a partnership with. Both organizations used to do business with Google until the beginning of 2013, but found that the hardware margins were slim and many people did not have access to Google Play. Kobo should be promoting digital discovery with indie bookstores by developing QR codes and free wireless internet to all participating ABA and UK bookshops. This would allow patrons to scan a book with their phone and automatically be able to purchase the digital edition. The store benefits because they get a commission on every digital sale and would also appeal to the people who often visit physical locations just to find out what’s new so they can buy it online. It would also be interesting to see perks for bringing your Kobo device or Kobo app in the store, like getting coupon codes for non-agency books. The real benefit with Kobo is that you don’t necessary need an e-reader or tablet from the company, but you can download the free app to Android, iOS, Blackberry, or Windows.
Digital ebooks is one of the fastest growing segments and Penguin recently announced that 30% of its entire US revenue stems from them. There is a definitive shift to buying the electronic version, often to save money. The average hardcover is $30, while the ebook is often $9.99. Building more synergy between the physical bookstore and the digital realm is necessary to preserve the brick and motor retail scene. It is essential that retail stores adapt a stronger digital strategy instead of just hustling e-readers for a small hardware margin and digital books for longer term revenue. Indie stores should be appealing to people who have shifted to digital and encourage them to visit the store to get more benefits. After all, once you’re in a store, you might want a coffee, spot a magazine, or get some other little impulse buy.
Currently very few bookshops have free WIFI available for their patrons to use. Most indies do not use NFC or QR codes to aid in digital content discovery and this must change. You would be hard-pressed to go a week without hearing about another small store that has closed. Most lament that the shift to digital has killed their profit margins and longtime customers are no longer coming in. Kobo should be doing more for the various indie bookstores by rolling out a more comprehensive digital strategy and developing proper infrastructure. Right now they just give stores a discount on the hardware, and provide marketing materials and support. If they provided all participating stores with QR Code materials, WIFI, and NFC, it would unify the tangible and intangible in one location.
Why the Penguin Merger with Random House Will Kill Overdrive
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Most libraries in North American tend to do business with Overdrive to facilitate their content distribution system for ebooks, audiobooks, and video. The 3M Cloud Library system is the new kid on the block and has been around for only three years, though it tends to exclusively focus on the US market. Pearson owned Penguin used to do business with Overdrive and then severed ties with the program last February. It seems Penguin had to reevaluate its business model for libraries and got back into the game, but this time with 3M. Why did Penguin go with a minor player and not with Overdrive? The answer is Amazon.
Amazon is the largest ebook seller in the world and is thought to control over 45% of the global market. Overdrive makes all of its digital library books available in the Kindle format, something 3M does not.
Penguin started a pilot program last October at the Queens and New York library. After the success it has garnered, the company expanded its relationship with 3M and did a broad American roll out. You can find hundreds of Penguin titles at most libraries participating in the 3M Cloud Library System, but what about Overdrive?
Penguin really doesn’t like Amazon and doesn’t want to give the company any more business than it absolutely has to. Recently, “Penguin accused Amazon of being ‘predatory’ and a ‘monopolist,’ saying the online retailer’s anti-competitive behavior was poised to damage the bookselling industry. Penguin added the company was ‘concerned that Amazon’s below-cost pricing strategy for certain new release titles would be detrimental to the long term health of the book industry.’”
Obviously this is very telling on how the entire company views Amazon and by proxy Overdrive. One of the big proponents to Overdrive’s continued growth in Canada, the US, the UK, Ireland, and Australia is because they do support the Kindle. I don’t know if Penguin titles are essential to the current business model, but I can see something big happening soon.
Penguin and Random House are going to merge companies sometime in 2013 and I can see the Penguin influence resulting in pulling even more titles from Overdrive. This will account for 1/4 of all books published in the world, and would be a massive blow to the continued growth of Overdrive that may give 3M an advantage.
Hey, I’m Back, Please Take My Money
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This morning, I ran across a mention of an e-book about comics that I thought looked interesting. I went to the vendor’s site and was pleased to see that I could pay with PayPal. Everything went swimmingly—I chose my book, entered my PayPal e-mail, and, since I had no memory of ever using this site before, created a new account (username, password) when prompted.
And then everything ground to a halt. I got a red message saying that a duplicate e-mail had been detected.
How many times has this happened to you? You go to a site that requires you to set up an account, do some sort of business with them, then forget all about it, and years later, when you go back and try to buy something from them again, you can’t create a new account (because you already have one) and you can’t log in with your old account because 1. It was five years ago and you lost the login info; or 2. You have the login info but for some reason it doesn’t work.
Most e-commerce sites are fairly helpful when option 1 happens; you can do the “lost password” thing and life is good. In this case, because I never delete an e-mail, and because this particular site sends your password in a plain-text e-mail rather than directing you to a link (which doesn’t seem very safe, frankly), I had the login info. It just didn’t work.
OK, they have a support page. Oh, wait—the support page is filled with FAQs and links to forum discussions, none of which deal with my particular problem. (Digression: Has anyone, ever, found the answer to their question among the FAQs on a support page?)
Finally, I find a link to e-mail their support staff directly. I click the link. Aaaaand…
I have to log in to send them an e-mail.
Really? Really, obscure e-book site that probably should have gone out of business years ago? Is there some problem with random strangers asking you questions about your terrible interface that causes you to put your support behind a security wall?
All I wanted to do was buy a $2.49 PDF of a book that looked interesting. What I got instead was 20 minutes of frustration and no e-book. The technical problem involved is common, and I have run into it before: Yeah, I created an account years ago, and now I’m back. Most e-commerce sites can handle it, but the handful that can’t just drive me nuts. Punishing someone for being a returning customer seems like a poor business strategy, and in this time of long tails and short memories, every online retailer should be able to deal with this simple issue.
Why Was Agency Pricing Established? To Save Our Bookstores
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Over the course of the last five years, e-commerce giant Amazon has definitively captured the vast majority of the ebook market. When Apple decided to launch its iBooks digital storefront in 2010, the company needed an edge to be competitive. Steve Jobs met with executives from Hachette, Macmillan, Penguin, Harper Collins, Random House, and Simon and Shuster. They ironed out a scheme that would level the playing field and establish ebook pricing that all resellers had to abide by. This allowed Apple to gain traction with its new digital bookstore and allowed smaller retailers to offer the same pricing as Amazon. The US Justice Department took exception to this collusion and a lengthy court battle has ensued. One by one, every single publisher has settled out of court and only Apple remains in a proxy battle against Amazon.
Amazon has long controlled the ebook market and stiffed competitors by offering electronic books cheaper than the competition. The company would buy digital books in bulk and sell it below cost, which ruffled the feathers of all the major publishers. The public started to ask “Why should I pay $30 for a hardcover, when I can buy the ebook for $9.99?”
What new company on the market could afford to sell books at a loss, in order to compete against Amazon? There is no way a small start-up could have the deep pockets to buy enough ebooks in bulk and not go out of business. Apple is playing the hero, saying it has no intention with settling with the court and reserves the rights to conduct its business the way it sees fit.
The EU and US Justice Department both stated that the agency model as a whole is not the problem, it’s how the process was established. Joaquín Almunia, Vice-President in charge of competition policy at the European Commission, said “While each separate publisher and each retailer of ebooks are free to choose the type of business relationship they prefer, any form of collusion to restrict or eliminate competition is simply unacceptable.” You can think of what Apple did as establishing a “price fixing cartel,” which is illegal in the EU and mostly in the US, too.
In 2013, the Agency pricing model is all but dead. The vast majority of the big six publishers have all re-negotiated contracts with Amazon, Barnes and Noble, Apple and Kobo. eBooks can be discounted once again by 15% of the cover price, but you won’t see the large gulf in prices as before. This is partly because the entire digital industry has really grown up in a short period of time. The entire global industry was said to have garnered over $854 million dollars in 2012, and many publishers now see 21% of their revenue stem from online books.
Do you know the real reason the agency model was implemented in the first place? Sure, Apple played a small role in putting all the major players in one room, but all of those companies were not doing it to help Apple or stop Amazon. The real reason, that no one talks about, is that drastically slashed ebooks were destroying public perception of the cost of digital vs. the cost of print.
The major publishers had all agreed that if the public perception was that ebooks were dramatically cheaper than their printed counterparts, then people wouldn’t buy them. Establishing a common ground for digital pricing meant that they could control the pricing for both the tangible and intangible and make sure the physical bookstore would continue to survive. Regrettably, this decision came too late to save the stores they were trying to protect.
The Death of the Modern Bookstore
Borders bookstore started its first location forty years ago in Ann Arbor, Michigan. The world of book selling and publishing was a very different place, and is a case study on what the entire industry was doing wrong. In the 1990′s, the chain was facing declining revenues and decided to spice things up by selling CD’s. This was around the same time the Apple iPod first came out and customers were gravitating towards the digital space. Borders was stuck with storefronts that were expanded to sell media that was not profitable and put a hefty financial burden on the company.
Borders heard about the whole ebook revolution that was occurring and decided to get in bed with Amazon to turn its fortunes around. When you visited the Borders eBook page you were re-directed to the Kindle Bookstore. This encouraged people to buy all of their content from Amazon, Borders would not really see any cumulative digital revenue from digital purchases. Next, they turned to Kobo, who was all to happy to give Borders commission for every digital copy sold. This put Kobo in bed with Borders and the two sides signed off on an exclusive distribution agreement for the US.
By 2011, Borders was on the verge of collapse and its attempts to turn its prospects around were futile. The company ended up filing for bankruptcy in late 2011, shuttering 300 stores and putting 11,000 employees out of work. The main contributing factors that destroyed the company were not developing its own e-reader (like rival Barnes and Noble did), and not developing its own ebook ecosystem. Borders instead relied on selling low-margin hardware and made next to nothing on ebook sales. The day Borders assets were auctioned off, news broke that ebooks have outsold print for the first time.
When Borders was going through liquidation, the exclusive contract it established with Kobo hung in limbo for almost a year and a half. This was the main reason the USA market never really opened up for the company. It simply could not legally do business with any other major retailers to put the Kobo WIFI and Kobo Vox on the shelves. This was the only confirmed occurrence of a bookstore going under and taking a digital company along with it.
The United States is not the only market that has felt the effects of the burgeoning ebook industry. All around the world, major bookstore chains have been going out of business. Whitcoulls, Angus & Robertson, and parent company REDgroup all closed up shop in 2011. Senator Sherry in Australia said at the time, “the dramatic growth of internet book sales had reached a tipping point that would soon leave just a few specialty bookstores operating in capital cities.” She also predicted that “Bookshops will be wiped off the map inside five years.”
Europe Largely Immune to eBooks Cannibalizing Tangible Book Sales
As much as people talk about the “death of the bookstore,” the problem is mainly contained to North America, Australia, and New Zealand.
In France, there are only 1.4 million tablets being used and most are used to consume media and not read books. The e-reader population is generally paltry with only 145,000 registered devices. Kindle and Kobo currently dominate the landscape and it is much easier to procure the Kobo Touch, which is distributed by Fnac. In 2010, e-readers never really gained much traction due to an influx of substandard ones from Cool-ER, Bookeen, and Cybook. Major publishers such as Hachette have claimed that only 2% of their digital sales stem from France. Bookstores, such as Fnac, Gibert Joseph, and Flammarion, do quite well and have over 400 stores combined.
The German market is facing a lot of the same issues as France. e-Reader and digital publishing companies are finding it hard to get one of the largest markets in Europe to adopt ebooks. This is not from a lack of trying, both tablets and e-readers first hit Germany in 2009, but they have remained a fringe niche. The biggest challenge is that 78% of the population claim not to want to read from a screen, while 85% say they love printed books too much. The entire country has a very established publishing industry, and the second largest book market in the world. It was estimated that in 2011 that the entire book industry was worth 9.73bn Euros. Chains like Thalia, Verlagsgruppe Weltbild, and Hugendubel account for over 700 physical stores.
Spain is seeing a wider adoption of digital publishing and over 75% of all publishers are employing an ebook strategy. There are an estimated one million tablets and e-readers currently being used in Spain, with over 285k e-readers sold in 2011. Libranda is one of the largest ebook distribution platforms that was founded by the big three publishers in Spain: Grupo Planeta, Random House Mondadori, and Santillana. One of the largest concerns in Spain right now is the price of ebooks in general. If you look at the VAT prices on printed books it currently sits at 4% while ebooks are much more expensive at 17%. The high taxes have been a large barrier in mainstream adoption of digital content. The entire Spanish bookstore scene is as vibrant as ever.
The ebook market was worth about 18m Euro in 2010 (0.6% of the industry), with no more than 90,000 ebooks in various formats – many PDFs included. Max 8% of printed books are available as ebooks, though many of the main European publishers have built content distribution platforms like Numilog (Hachette), ePlatforme (Editis), and Eden (Gallimard/Flammarion/La Martiniere).
The United Kingdom is one of the only European countries to see a profound change in the bookstore landscape because of digital sales. The main victims are small and medium sized stores, while the chains continue to do well. There are only 2,178 high street bookshops in Britain as of July 2011. Back in 2005 there were 4,000, and this has left almost 580 towns without a single bookstore. There were two major contributing factors, one was the shift to digital and the other was super market chains getting into the book business.
The major bookstore chains, such as Waterstone’s, Blackwell’s, WH Smith, and Foyles have largely been immune to the e-reader and ebook revolution. All of these companies started offering e-readers and ebooks when they first started getting popular in 2009. In recent years all of these shops have inked deals with Kobo, Amazon, and Barnes and Noble to sell devices and get a cut out of each digital sale. This has allowed continued digital revenue to be generated, rather then just the initial sale of the hardware.
Nielsen BookScan shows physical book sales in the UK have declined every year since hitting a peak of £1.8bn in 2007 – the year the final Harry Potter installment landed in bookshops. In the first 10 months of 2012, printed book sales were down 3.5% year on year in volume terms and 5.5% by value. Overall digital sales of general consumer titles increased from £30m to £84m between January-June 2011 and 2012. These increases reflect overall growth of 89.1% in digital sales (from £77m to £145m.)
Agency Is Dead, Now What?
There is no denying that ebook sales in most developed countries are consistently rising and some markets are enjoying robust sales. Now that major online retailers can once again establish discounts on new and backlist titles, bookstores will have to struggle even more. It is very hard for a mom and pop shop to have to sell a book at the listed cover price, while a competitor lists it online for 1/3 of the cost. Still, indie bookstores do have alternatives than just offering price.
The American Booksellers Association and UK Booksellers Association have all inked deals with Google, which never really worked out. In 2012, they started to do business with Rakuten owned Kobo. The essence of this program is that it allows small shop owners to sell e-readers, ebooks, and have access to marketing materials. Small bookstores have seen a rise in business with the sale of hardware and the commutative digital commissions they receive when a customer purchases a digital book.
If indie stores belong to each booksellers association, they can opt into this new program and it is in Kobo’s best interest to keep the bookstores alive, whether small or large. The company has quickly grown in market stature, partly due to all of the agreements they made with stores all over the world. Kobo’s success has been partnering with as many bookseller associations and getting hardware into as many stores as possible. This is the only company that has a vested interest in the survival of the bookstores, if they sink, so does Kobo.
Small stores all over Canada, US, and the UK are going out of business. You would be hard-pressed to go a few weeks, without one closing in your town. The trend I have noticed is all the stores that close resisted digital to their dying breath, or just wonder where all the people have gone. Small and medium sized bookstores HAVE to embrace digital if they hope to survive at all.
Wrap Up
Digital Retailers are seeing record levels of business! Kobo reported 4 million new customers within the last six months to bring its total to more than 12 million. On the worldwide stage, Kobo now controls around 20% of the entire e-reader market and is poised to continue its accelerated growth patterns in 2013. Amazon sold $383 million worth of ebooks in 2012 and controls 45% of the global market. Barnes and Noble is thought to control 25% of the US market and generated over 3 billion dollars with Nook hardware and ebooks in 2012. B&N announced yesterday that the store sales were down 10% in the December quarter from the same quarter a year ago—driven in part by an 8.2% drop in store sales—and the company plans to shutter 30% of its retail stores in the next decade.
Industry Specialists agree that e-reader sales are on the downward trend, as the public is gravitating towards tablets. Research firm iSupply notes that e-reader sales hit their peak and are being outpaced by iOS and Android powered tablets. The hardware is changing from dedicated e-ink readers to multipurpose tablets. Aside from the shift in technology, the one consistent fact is that ebooks, digital magazines, and digital newspapers are seeing increasing profits, and will continue to do so.
There is no denying that the agency model is dead and online resellers can price war with each other in a bid for your digital dollars. The brick and motor stores in the US, Australia, UK, and New Zealand are all seeing declining print sales across the board. The bookstore, as we know it, is on the ropes and will see a dramatic scaling back in new stores opening. People are gravitating towards digital and the abolishment of the agency model effectively put another nail in the coffin.
Could Bookstores Start Charging People to Read?
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If you walk into any major Barnes and Noble or Chapters bookstores, you will notice a slew of people reading. All of these book chains provide couches, desks, and plenty of chairs to chill out and check out some books. Often, people sit for hours, plowing through the majority of the book, and then leaving. Could bookstores get away with charging people to read for hours?
HarperCollins CEO Victoria Barnsley doesn’t think the idea of bookstores charging users to read is “not that insane.” In a recent radio interview in the UK, she talked about how bookstores are facing some downward trends. She predicted that in the next few years, the ebook and traditional book industry will level off, to a 50/50 split. Many stores are facing increased pressure to compete against .99 ebooks from Amazon, and have to look at alternative revenue models.
It is alternative models that have really changed the chain bookstore, all over the world. In Canada, and the US, you now have Starbucks cafes in almost every Indigo, Chapters, and Barnes and Noble store. In the UK, Waterstone’s added a ton of different cafes to most of their larger locations. All of these stores have also added stuffed animals, holiday themed accessories, e-readers, plates, cups, and lots of other stuff. Bookstores these days rely on high margin items to offset the decreased sales.
Chapters has reported a 4.9% decrease in revenue in Q3 2012, according to recently released financial numbers. They cited a lackluster demand for Kobo e-Readers, as the market has reached a saturation point. Barnes and Noble actually reported a very small profit of 2% in the entire 2012 year. Most of this success was pinned on their ebook and e-reader division, which saw a 45% increase for ebooks and 119% for readers. Most stores are not in a position to sell ebooks and readers directly and must do business with Amazon and Kobo, which undermine’s their long-term revenue potential.
Every store you walk into has people chilling out and reading books for free. If you hit the bookstore on your work break, you can often complete a novel in a few days. I know this because I used to do it. Could bookstores charge these regulars that sit for hours reading and never buying anything? How could they police this? Would they issue special cards or incentives with their loyalty program to buy into this? There is many questions up in the air, and suffice it to say, we have it on good authority that many large bookstores are evaluating programs like this.
Why eBook Companies in Canada Are Nonexistent
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Electronic Books have been around for well over a decade, with PDF files being the primitive format that is still used today. The Canadian ebook market is severely underdeveloped compared to the US and UK, where even Supermarket chains such as Sainsbury’s own an ebook store. The largest ebook store by market value, Amazon, only recently opened in Canada last month. The only other companies to actively sell digital books would be Sony and Kobo. Libraries have a bit better of a time offering digital content, but this is mainly thanks to Overdrive, which dominates the Canadian market. With the USA and UK having so many start-up companies and major players, why does Canada lag behind?
The electronic book market is booming right now, with Penguin, Harper Collins, Hachette, and other major publisher stating that digital revenue is up 25% from 2011. The entire US ebook industry in 2012 was valued at over 954 million dollars, according to the companies that actually report their financial data. In 2010, Amazon’s Kindle department said that Kindle eBooks are outselling printed ones, and this helped the company achieve 10 billion dollars in a single quarter. Parents and kids alike are turning to ebooks with revenue jumping up 233% in the first quarter of 2012 with over 64 million in sales. Over 25 million digital Young Adult Fiction books were sold in January of 2013. You could say that there is a growing digital economy. Amazon, Barnes and Noble, Smashwords, and Apple iBooks may be household names, but they are all American companies. The only Canadian companies in existence that actually make a bit of money are Kobo and Newspaper Direct. Kobo, was recently bought out by Japanese e-Commerce giant Rakuten.
Surging ebook sales now represent an estimated 16.3 per cent of the overall book market in Canada, a figure that caught even some industry watchers by surprise. Some people say this is because of Kindle and Barnes and Noble dominating the market. The USA went digital first and Canada was under-prepared for the innovation. The majority of Canadian digital book sales go to USA based companies.
Compared to Silicon Valley and untold billions of dollars in Incubators that foster small companies, Canada is in trouble. Y Combinator is a well known American company that puts 18k into small start-ups and gets them to move to the Valley for 3 months. The company provides an extensive mentoring program and helps companies refine their pitches and then invite true venture capitalists to their demo day to check out the best projects. Y Combinator has been responsible for incubating Reddit, Disqus, Dropbox, Hipmunk, and Scribd. Can anyone think of any Canadian company like this that has an extensive portfolio of success stories? Most VC companies in Vancouver and Toronto have nothing to do with digital ebooks and most don’t understand it. Canada tends to only invest in bio-tech, education, mining, and oil. We have spoke with over 50 VC companies in Canada, and not a single one said they would ever invest in ebooks. The only reason Kobo Books ever amounted to anything was because of an early investor from Chapters/Indigo.
The finance and growth of start-up culture has been one of the largest barriers for fostering new companies. In the ebook industry, the US has the largest concentration of digital companies, but also the most financed. If you look at the educational sector, Kno, Chegg, and many eTextbook companies, they have garned close to 50 million a year in sales. Canada has an expansive student population and none of these companies do business here. There are zero home-grown Canadian companies distributing ebooks to students, even if the market is growing. The BC Minster of Education announced a few months ago that students in BC will have the digital editions of all first year ebooks available free of charge. Distribution? So far nothing has been announced and that problem warrants its own debate.
Many Canadian companies have written to me over the years lamenting the fact there are so many barriers to getting funding in Canada that most end up relocating to the USA. From the Small Business Development Bank of Canada to the major banks, no one invests in digital ebooks. They tend to see the concept as intangible goods and unworthy of their time or money.
Major publishers are all recording double digit growth in ebooks and Amazon is raking in billions a quarter in digital sales. Canada simply does not provide the environment for new companies to flourish in the educational and consumer sectors.
Is Amazon AutoRip a Precursor for Free Digital Books?
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Amazon unveiled a new music service last week that will give you free MP3′s if you had bought a CD. AutoRip will give customers the ability to listen to the digital music in the company’s Cloud Player, or have the tracks available to download as MP3′s. This is a very convenient way to give people the digital editions when they have already purchased the tangible CDs. The main question is if AutoRip is a precursor for giving the ebooks away for free when you buy the print edition?
Last year Amazon began to gravitate from selling ebooks by other publishers to becoming a publisher itself. It formed an east coast publishing division in New York and a west coast one in Seattle. Amazon then hired star book agent Larry Kirshbaum to spearhead the east coast initiative. Towards the end of the year, Amazon announced it would branch off into Europe in early 2013 and Kirshbaum was put in charge of the entire US operation.
Amazon has thousands of ebooks it has published itself, with big names like Tim Ferriss and Penny Marshall. One of the more savvy moves was purchasing Avalon Press, which instantly gave Amazon 3,000 backlist titles. The move to publish books itself put the company at odds with some of the world’s largest publishers and widened the gulf between Amazon and its competition. Barnes and Noble famously said it would never stock a book in its stores that Amazon published itself.
In the past, we have asked Amazon about giving the digital book away with the purchase of its printed counterpart and were met with trepidation. There is simply too many hoops to jump through when dealing with the big six publishers, who see Amazon as a necessary evil for their book sales. Now that Amazon is publishing books directly and investing millions of dollars into the initiative, could we see an AutoRip for books for the content Amazon publishes?
I would venture to say that AutoRip for music is a precursor to rolling out a new program that will give customers the ebook when they buy a book directly from Amazon. This would be the path of least resistance because Amazon publishes the books and as an added bonus could incorporate books written by Indie authors using CreateSpace. The company basically owns the distribution rights for both platforms and this would be another nail in the coffin for its other competitors.
In the near future I could see an incentive program developing that is similar to KDP Select. Participating authors who give Amazon exclusive rights to sell the book net big rewards. Each title enrolled gets added to the Kindle Lending Library, which is available to people who buy into Amazon Prime. Each month, close to $500,000 is evenly distributed to authors who get their books borrowed for free! Sure, you can’t technically have your book available on other platforms, such as Kobo or Barnes and Noble, but free loans equate to some big dollars. Some authors have told us they actually make more money under Select than they do selling their book for $0.99. It would be all too easy for Amazon to offer some sort of incentive program for authors who physically print books with the company via Createspace. I know many people who would opt into having their ebook given away when customers buy their printed edition. Not only would the author capture the initial sale, but would get a small bonus for the digital conversion.
Inserting Ads in eBooks: New Concept or an Existing Idea Being Adopted by the Market?
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The recent ruling in the United States, where a jury awarded Apple $1.05B USD in damages from Apple’s suit against Samsung, was the largest patent settlement in history for willfully infringing Apple’s patents. The damages related to the look and feel of smart phones and tablets, with such features as the “pinch and zoom” and “bounce back” patents, along with the trade dress and icon designs. This case generated a tremendous amount of discussion on whom the winner really is from this outcome.
On the surface, the size of the damages awarded to Apple suggest it maybe the winner. However, given Samsung’s fourth straight record quarterly profit of $7.4B USD, and its global market share of 31.3% for smartphones, opens a debate about current and long term implications for this ruling. Although the settlement appears to be severe, a case can be made for effectively and efficiently replicating existing technology.
A similar scenario may be occurring in the electronic book market. There is no doubt that over the past few years that there has been a dramatic shift toward people preferring to receive and consume their information in digital form rather than print. The explosion of the tablet market in recent years has strengthened this trend tenfold. After 79 years in print, even Newsweek shifted towards a digital only strategy. The state of California recently signed into law a proposal to allow students to download digital textbooks for free. Newspapers are experiencing shrinking print advertisement revenue as readers prefer getting their news online.
The big question is how will companies adjust to this shift and what is the revenue model going forward? Are consumers willing to pay a flat fee or a subscription rate to have access to books, magazines, and textbooks, or do digital media consumers prefer a subsidized model where they receive their information free in exchange for being exposed to advertisements? Two start-up companies, Flipboard and Pulse, appear to testing this theory in real time. Flipboard is committed to generating revenue through advertising, while Pulse is focused on a subscription based model.
Ultimately the answer to this question is going to be determined by market forces and consumer preferences. We are seeing fierce competition in the United States with patents being filed at rapidly increasing rates. However, it is not just American companies that are leading this battle. A small company in Singapore may have an influence on the global ebook advertising market.
Singapore based E-Book Systems was founded in 1998 and has been issued 22 US patents. The company was a pioneer in the industry, in the sense that its patents might be some of the earliest that cover the range of innovations needed for navigating electronic books and serving advertisements to the end user. For example: simulating a page flip, organizing a display of books and subset of books, and dynamically inserting advertisements.
The E-Book Systems portfolio includes US Patents: #6,496,803, #6,701,301, #7,367,582, #6,725,203, #7,165,039 related to inserting advertisements into electronic books. Both families have a relatively early priority date (October 2000) given the infancy of the market at the time of the filings.
The following is a brief summary of some of the features included in the patent families:
- Dynamically inserting advertisements into specific locations within electronic books.
Targeting advertisements based on received electronic book class codes.
Targeting advertisements based on demographic information such as: gender, age, education level, interests, occupation, geographic location, income level and spending habits.
Gathering demographic information and matching it with a targeted audience.
Defining the advertisement parameters: identification, category, display duration, ad dimensions, position, start time, stop time, repeat rate, ad rate.
Billing an advertiser for an advertisement.
Generating a debit notice to debit an advertiser.
Many of these techniques covered by the patents seem to be appearing in the market through various forms. Overall adoption has not taken place, but the trend toward generating revenue through ads in electronic books continues while eventually we will wait for companies like Amazon, Google, and Microsoft to create and establish the de facto industry business models.
Ironically many of the techniques and ideas originated in a small company in Southeast Asia and the main investor in E-Book Systems is Mr. Kai Wa Ng, who was one of the founders of a more recognized Singapore based company, Creative Technologies, which brought to the world such innovations as the Sound Card and MP3 player.
Creative is also well known for winning a milestone 100 million dollar lawsuit against Apple, yet it is Apple that went on to become the market leader for personal MP3 players due to clever marketing and focus on consumer-centric design. We see a similar situation take place years later in the Apple vs Samsung case, as explained earlier. The lesson here could be that being the innovator doesn’t always guarantee market capitalization. What matters is who applies the technology best and which company is able to get the correct market timing. Are we about to see history repeat itself in the world of ebooks?
This blog post was contributed by Mark Ashworth, an innovation enthusiast with a keen interest in technology from emerging markets. You can read more about patents from emerging markets at Mark’s IP Blog.
53 Million People Choose Good e-Reader
Posted by: Michael Kozlowski | Comments (4)When Good e-Reader first burst onto the scene in 2009, the e-reader landscape was very different than what we see today. Amazon had been releasing Kindles for a few years and along with Sony’s e-readers were the only devices in retail. We saw the rise of Barnes and Noble, Kobo, and many other companies, as they experimented with electronic books and e-readers. Since our launch date 53,804,252 people have read our publication or visited the App Store we launched last year.
e-Readers and ebooks have come a long way since we first started. At the time, something was very compelling about having a library of thousands of books in your pocket. I have always been a reader, learning how to read at 3 with those old Star Wars read along records, and I was hooked ever since.
When we started, there were no iPads, no tablets to speak of, e-readers were very fringe, and most libraries’ entire digital strategy was PDF files. We have seen the rise of digital libraries, digital magazines, digital newspapers, the onslaught of self-publishing, and the companies that have risen up to fill voids in the market. We now see e-readers in every single major store and many publishers are seeing 24% of their entire revenue stream stem from digital.
The entire Good e-Reader team is very happy with the way the industry has grown up in a short period of time, and companies that only have been in business for a few years are being sold for billions of dollars. It is very exciting for us to see the rise of an entirely new industry and we’ve been in the game long before 95% of the online publications even knew what an e-reader or tablet was.
We have had a fun time traveling the entire world covering digital books, e-readers, tablets, and digital publishing news. I have been lucky enough to visit Taiwan, London, Germany, New York, San Francisco, Toronto, Seattle, and many other cities and countries covering the news. It was always very important to our entire team to not just parrot the news, but make the news. Be there live on the scene, getting the essential stories, conducting interviews, and talking with the movers and shakers of the publishing world.
We take great pride in being the most beloved and respected news sources in the world that focus on digital reading. We have produced over 675 YOUTUBE videos and our entire channel has millions of hours already watched. We have launched an eBook Lending Site, an App Store, a Cloud eBook Storage Locker, and purchased a local company to provide schools and the general public with e-readers. We are also proud to sponsor great companies like the IDPF in determining the future course of ebooks and digital formats. We are heavily invested in the digital realm and are here to stay.
I would like to thank everyone in the industry that has granted us an interview and to the many friends of our website. It is very exciting for us to meet old friends at all of the events we visit, and it feels like you all are family. I would also like to thank our loyal readers, some of whom have been with us since the very beginning. Our entire staff has been doing a great job maturing as writers and globetrotting in search for the latest scoop.