The e-reader market has shrunk and consolidated into two major entities, Amazon and Kobo. The other major companies who used to be involved in this industry have either gone completely out of business or are a very small regional player. It is possible in the current market climate for any company to make a viable business out of selling e-readers and tablets, while selling e-books? The answer is no.
Many people became aware of Amazon when they released the first generation Kindle in 2007 and started to sell e-books.The company has done very well in this regard and now accounts for 75% of e-book sales in the United States and 95% in the United Kingdom. In India they have driven their closest competition out of business and have reported their overall sales have tripled in the last calendar year. They are starting to see success in the Chinese market and have been able to overcome all of the red tape in order to sell tablets, e-readers and e-books.
Amazon was able to leverage financial resources attained by their online e-commerce business and start an e-reader revolution.
The Kobo story is vastly different. The company started out as Shortcovers in 2009, which was basically a Chapters/Indigo pet project. Chapters financed the development of a cloud reader app to read e-books. Michael Tamblyn and Michael Serbinis manged to convince Indigo to let them spin off the company into its own autonomous entity and called it Kobo. In the next few years Indigo invested $100 million in various financial rounds that helped put Kobo on the map. A few years ago Kobo was sold to Rakuten and Indigo made $300 million from their initial investment, which is a solid return.
Kobo was at the forefront of the e-reader revolution and got involved in e-readers, tablets and e-books. The company managed to get a strong user based by early expansion into countries not dominated by Amazon. They also won over users by developing custom apps for operating systems such as Blackberry 7, Blackberry 10 and the early Windows phones.
Amazon and Kobo found success by hiring local agents in countries they wanted to expand into, who had a wellspring of experience in the publishing sector. They were able to leverage all of their local connections and get small and medium sized companies to convert their print books into the e-book format and insure that when they launched in that country, they had enough titles available in the local language to make it instantly viable. Whoever was sitting on the fences and not digitizing their catalog ended doing so after they saw how much money their associates were making. This was the blueprint of expansion that endlessly repeats in every new market these two companies move into.
Barnes and Noble got into the e-book and e-reader industry at the same time as Kobo. Their biggest advantage was that they were a publicly traded company that brought in enough revenue to make a serious play within the industry. In a few short years they were earning hundreds of millions of dollars selling hardware and e-books. While the going was good, everyone was patting each other on the back, while their competition took the money they made and invested it into expansion.
The main reason Barnes and Noble failed to make a meaningful impact was because management refused to move into other markets and keep pace with Amazon and Kobo. Microsoft and Pearson invested hundreds of millions into Nook to expand into Europe selling e-books. B&N made a Windows 8 app to facilitate this, but closed it down within two years when they bought back the stake MS and Pearson put into it.
Barnes and Noble went from making a few hundred million a year in e-readers, e-books and accessories making less than 30 million a quarter. They continue to operate in two of the most heavily saturated markets in the world, the US and UK.
People tend to think that e-reader innovation is dead, and it is. There is nobody who is investing significant capital in making an online e-book store anymore, because too many have went out of business in the last few years. Everyone who used to make cool innovative tech on the e-paper side of things are all gone, only e-Ink remains standing.
I recently talked to a contact of mine, that operates a moderately successful e-book business. He is neither poor, nor rich, but has a nice office and a staff of 12. Whenever he attends meetings in Silicon Valley or in New York, trying to raise capital and the conversation turns towards e-books, most VC’s all run for cover. They refuse to invest in digital publishing or e-books anymore because they don’t see it as being financially lucrative. Nobody invests a lot of money just hoping to see a small return, they want a home run. They want an UBER, Lyft or a Dropbox. They want to invest in things that Y Combinator firmly endorses.
I firmly believe that it is not financially possible to make selling e-readers, tablets and e-books happen anymore. This in turn is stifling innovation and results in small incremental updates that doesn’t really give users a reason to update. We have two companies left, Amazon and Kobo, and that’s it.