Why Kobo and Sony Are Losing the Digital Race
Mar
31

Why Kobo and Sony Are Losing the Digital Race

By

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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.

Michael Kozlowski (4161 Posts)

Michael Kozlowski is the Editor in Chief of Good e-Reader. He has been writing about electronic readers and technology for the last four years. His articles have been picked up by major and local news sources and websites such as the Huffington Post, CNET and more. Michael frequently travels to international events such as IFA, Computex, CES, Book Expo and a myriad of others. If you have any questions about any of his articles, please send an email to michael@goodereader.com


  • MaskedHypocrite

    “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.”

    Can’t say’s I blame them for that – it would mean, for non-Agency books, that they’d only make about 20% on each full-priced sale (roughly 50% to the publisher, 30% to Apple, 20% to the vendor, likely not enough to do much more than break even) if they don’t raise prices (which would lose them a LOT of customers) to compensate.

  • http://www.facebook.com/ford.warrickjr Ford Warrick Jr

    Good article. With Amazon’s size, acquisition of other companies and dominance in the market, not to mention that ebooks is only one division of their company, I am worried how other ebook venders are going to remain competitive. Having options is in the best interests of consumers.

  • Lori Fan

    Good article. I agree with everything. Nothing against Kindles or Amazon, but it would be a disaster if e-books became a one-horse race.

  • Bhugtaan Pragyaware

    Yes i totally agree with you. Amazon is dominance in the market. I also worried about ebook venders who are remain competitive but don’t gain a specific position in the market.

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  • jmn

    Great article and unfortunately I have to agree although I have to say that Kobo management has got to be the most underperforming of any management team out there. I recently bought the Arc on the internet from an Indie bookstore because it never hit the big retail chains in the US. The Arc has the beginnings of a very good reader but will suffer the same fate as the TouchPad. The Nook will be saved by MSFT and hopefully will be developed into a competitive book seller.

  • http://goodereader.com/blog/ Good E-Reader

    That is the way i think it is going to go. There will always be other eBook stores, but i think Amazon makes the most meaningful acquisitions that enhance their ecosystems, while others seem content to just expand into other markets and never innovate.

  • http://goodereader.com/blog/ Good E-Reader

    I realize that selling eBooks via Apple may not be financially lucrative and you may JUST break even, but think of all the new customers they would get.

  • http://goodereader.com/blog/ Good E-Reader

    I think Kobo is just focused on expansion and meeting certain targets. I think in order to be competitive they have to “enhance” their ecosystems and offer things no one else does.

  • someonethat knows

    Sony is dumping their ereader line, they’ll be totally out of that market very soon (fact).

  • http://goodereader.com/blog/ Good E-Reader

    Actually, we have it on good authority that they are coming out with a glowlight e-reader very soon, which is why they are discounting on the T2 in all markets.

  • http://www.brianbianco.ca/ Brian Bianco

    Great article. Very informative. Keep them coming.