EBooks

Publisher-Direct Sales to Customers will Accelerate Demise of DRM(A.K.A.: EEK, a Customer!)I predict publisher-direct sales, if the practice catches on among publishers, will accelerate the demise of DRM'd ebooks. Why? If publishers become retailers and are forced to communicate with their customers, publishers will quickly realize what a hassle DRM is for their customers. Every time a customer emails the newly minted publisher/retailer with a support question like "the code I'm entering to activate my book isn't working), the publisher loses money just opening the email.When publishers become retailers, they will suddenly further appreciate the valuable audience aggregation and customer service role played by retailers.

Key takeaways:Despite all the hype about rich media interactive ebooks, consumers appear to prefer, at least for now, just words on screens, like words on paper. Ebook affordability (lower prices) is much more important to consumers.Ebook customers would be willing to pay more for ebooks if they come with social-media-enabled tools that help them discuss and share the books with others.Men are bigger consumers of ebooks than woman by a narrow 51%/49% margin. Not a huge difference, but a reverse of print books, where women dominate.BISG answered a BIG question haunting large publishers. Will ebooks cannibalize print books? Publishers care, because consumers, on average, pay $6.25 less for an ebook edition they they pay for a hardcover, according to BISG. BISG's conclusion: YES, the 3 percent of people who have moved to ebooks buy fewer print books than before. Publishers aren't yet feeling the impact of this since ebooks represent such a small percentage of the overall book market.Most popular devices for reading ebooks: This is interesting. You might guess, as I did, the Amazon Kindle. Wrong. The most popular device for 47% of customers is their computer screen. Kindle comes in at a close and impressive second place at 32%, followed by 11% for the iPhone, 10% for iPod Touch (note this adds up to 22%, pre-iPad), 9% each for the Blackberry and netbooks, and 8% each for the Barnes & Noble nook and the Sony Reader. The nook percentage is actually quite impressive because the survey data was taken in November before the nook was even shipping. I'm not sure how they arrived at that number.BISG looked at whether or not ebook customers know about or care about DRM. The general conclusion, if I interpreted it correctly, is that most consumers don't know what it is, if you look at the trending data between their November and January surveys, it looks like it's becoming a more important issue for consumers as they learn about it.28% of consumers say DRM will affect their purchase decision, 34% say doesn't matter, 38% say maybe.Men are more anti-DRM than women (interesting, I'm not sure why this is so).Most popular ebook genres: 31% general fiction, 28% mystery/detective, 25% how-to guides, 21% sci fi, romance 14%. BISG cautioned publishers that their data is dynamic, and suggested they not rush to automatically adjust their strategies to cater to views and opinions of the early adopters, because as ebooks go mainstream the mainstream might have different needs and wants. In my mind, the dynamic nature of the data was fascinating, because consumer expectations are evolving rapidly. You can count on much of this data to be out of date in two months, if it's not already. Fun stuff.

The Best Presentation at TOC

THE EREADER MARKET FINALLY TAKES OFFIn the past year, the market for eReaders — low-power reading devices with paper-quality displays — has finally taken off. Forrester estimates that by the end of 2008, the Amazon Kindle and Sony Reader Digital Book hit the 1 million mark in combined US sales. Amazon recently announced the summer 2009 release of the large-screen Kindle DX, which it hopes will catalyze the textbook eReader market. Outside the US, Fujitsu launched a color eReader in Japan, Samsung announced it would release a touchscreen eReader in South Korea later this year, and iRex continued to build its Europe-based B2B eReader business. Still other vendors have announced their intentions to enter the market in the coming year.

US online consumers spent $5.1 billion buying books online in 2008

With The Kindle DX, Amazon Goes After The Lucrative Textbook Market On May 6, 2009, Amazon announced the release of its latest device, the Kindle DX. The DX has a 9.7-inch screen, supports PDF files, rotates automatically, has greater storage capacity, and will retail for a whopping $489. Anticipating increased competition from new devices launching later this year, Amazon's release of the DX so soon after the Kindle 2 helps shore up its current position as the US market leader. The DX's features and price point indicate that Amazon is going after the textbook market, a smart move because the market for e-textbooks will eventually be bigger than the eBook market. But we don't think the DX will catalyze the eReader textbook market overnight because: There's still relatively little textbook content for eReaders. With the unveiling of the Kindle DX, Amazon announced content partnerships with Cengage Learning, Pearson, and Wiley, which collectively represent more than 60% of the higher-education textbook market. The publishers will start to offer textbooks in the Kindle store starting this summer. But for students to justify the cost of the device, nearly all the books and course packs they need will have to be available, and it will take some time for these and other publishers to get all their content on the platform. Universities and schools will be slow to adopt the technology. Amazon also announced a pilot program to test the DX at six US universities, but the scale of this program is small: At Pace, only 50 students will receive Kindles to test. Other universities we've spoken to, such as Harvard, have no plans in the foreseeable future to encourage students to bring eReaders with them to school, as they do with PCs and laptops today.

eReader devices like Amazon.com's Kindle face a pricing conundrum: The cost of the display component is high and sales volumes are still modest, yet consumers demand and expect ever-lower prices. Competition from adjacent categories like smartphones and netbooks doesn't help.

The main component of the device, the E Ink screen, costs an estimated $60 for a 6-inch screen and more for larger sizes.

eReaders face further downward pricing pressure from: Cheap smartphones and netbooks. Consumers aren't evaluating an eReader purchase in a vacuum. The price points of multi-use devices like smartphones and netbooks informs the value that they assign to a single-purpose device like an eReader. With new 3G iPhones selling for $199 and a variety of netbooks selling for $300, devices in adjacent categories put the squeeze on eReaders. Convenience plays a core role in consumers' decision-making. For many, the superior functionality of dedicated eReaders simply isn't seen as making them sufficiently more convenient than cheaper multifunction devices to justify the additional cost. Demanding, price-sensitive consumers. Consumers have radical expectations of how quickly consumer electronics devices become commoditized and drop in price. The first adopters of the 8 GB iPhone paid $599 in January 2007, but consumers who waited just nine months could buy the same phone for $399 — saving $200. For eReader manufacturers, consumer expectations of dropping prices pose a big problem: Consumers are interested in these devices, but they want them cheap. (see endnote 2) We expect screen prices to decrease by 20% next year due to increased manufacturing volume, but will that be enough?

We now anticipate sell-through in 2009 of 3 million units — up from our previous estimate of 2 million units — with 900,000 units selling during the holiday season, which Forrester defines as November and December. Based on a number of factors, we expect sales in 2010 to double, bringing cumulative sales of eReaders to 10 million by year-end 2010. If the category expands beyond E Ink-based displays in a substantial way, 2010 sales can easily surpass this projection.

In 2009: Prices came down. In June, a startup called Interead launched the COOL-ER Reader, a stripped-down but colorful device with an E Ink display that sells for $249. Most US consumers have never heard of the COOL-ER, but its existence — and the fact that with the help of Taiwanese ODM Netronix it went from concept to product in just six months — showed Amazon and Sony that if they don't go after more price-sensitive consumers, someone else will. In August, Sony launched its Pocket Reader for $199, and Amazon followed by dropping the price of the Kindle 2 from $359 to $299. Amazon also recently announced it would sell refurbished Kindle 2s on its Web site for $219; it already sold refurbished first-generation Kindles for $149. All of these developments are crucial for increasing adoption of eReaders, as more than 60% of US online consumers think eReaders should be priced at less than $99. (see endnote 6) More content became available and accessible. In its efforts to organize the world's book collection, Google has now digitized more than 1 million books, which are available through both Google Books and partners like Sony. Sony has made other great strides toward making content more accessible: In August, it announced that it was discontinuing usage of its proprietary BBeB format in favor of the ePub industry-standard format, which means that consumers can buy eBooks anywhere that sells ePub or PDF eBooks and read them on their Sony Reader — or buy books from Sony and read them on another ePub-compatible device, which includes devices like the IREX Digital Reader 800 but not the Kindle. Sony also improved integration of its eBookstore with free library books through a partnership with OverDrive. Forrester's data and anecdotal evidence from vendors suggests that having more content is an important marketing feature of eReader devices, even if consumers end up buying bestsellers and ignoring the long tail of free and for-sale content. (see endnote 7) Retail distribution improved. Forty percent of US online consumers still say they've heard of but haven't seen an eReader device. (see endnote 8) Having a physical encounter with the device is paramount for convincing consumers of the value of the devices and enticing holiday shoppers to actually buy one. The fact that Sony's products will be in more than 9,000 stores this holiday season will be a key factor in increasing adoption. (Amazon's product is currently available only through Amazon.com.) In addition to having more stores carry the devices, eReaders will also benefit from having better displays within those stores. Best Buy, for example, is in the process of rolling out a new section in its stores for "Gadgets and eReaders," which will include interactive displays where consumers can test out the devices. Other stores are improving displays but have a long way to go. (see endnote 9) Media buzz increased consumer awareness. Media mentions of the Kindle went from 8,680 news stories in 2008 to 15,700 so far (through September) in 2009, and Sony's press mentions have increased 250% so far in 2009. (see endnote 10) Major press outlets like The New York Times and The Wall Street Journal cover eReader and eBook news on a regular basis. And consumers paid attention: Awareness of eReaders has increased substantially in the past year. The percentage of US online consumers who said they'd never heard of an eBook device decreased from 37% in Q2 2008 to 17% in Q2 2009. (see endnote 11) Consumers spread the word to each other, too, and not just with reviews on Amazon's site, although there are currently more than 6,000 customer reviews of the Kindle 2 on Amazon.com. eReaders are a hot topic in communities like Digg and Twitter, and posts on blogs like Gizmodo and ReadWriteWeb on the subject attract dozens of comments.

In 2010, Sales Will Surge In An Increasingly Complex Market All the dynamics that fueled growth in 2009 will be compounded next year, and we expect more changes that could push US eReader sales beyond 6 million for 2010, bringing cumulative sales to more than 10 million by year-end 2010. This means that the growth we had initially anticipated occurring over a five-year period will happen in just three years. There are a number of changes coming to the eReader market in 2010 that will both turbo-charge adoption and make forecasting the growth of the market increasingly complex. In 2010: The category will broaden beyond E Ink displays. 2010 will be the year that E Ink loses some of its near-100% market share of eReader displays. At least one device will launch next year that will be marketed as an eReader but that won't use an E Ink display; the display will be in color and will have a refresh rate fast enough to display videos, but the user experience for reading text will not be as high quality as E Ink. Two types of E Ink competitors will emerge next year: 1) companies that make lower-cost electrophoretic displays (the same technology that E Ink uses); and 2) companies that make different kinds of low-power displays, including transflective LCDs, that can support color and video. Competition will bring lower prices — the E Ink display module's prices have already fallen by 25% this year — and will provide a shortcut to color and video. If non-E-Ink-based devices take off in a big way next year, eReader sales can easily surpass our estimate of 6 million units in 2010. And then, of course, there's the highly anticipated Apple "tablet," a 10-inch device rumored to be launching in late 2009 or early 2010. The tablet, if it does indeed launch and assuming it supports apps, will add to the 20 million iPod touches and 30 million iPhones that Apple has sold to date, creating an enormous installed base for eBook app downloads, which currently have millions of subscribers. If Apple decides to support ePub and PDF files in its iTunes store, it will become a major player in the eBook market overnight. Apple's products are a much better fit for colorful, interactive content, such as that which magazine and textbook publishers hope to offer consumers. Flexible displays, new screen sizes, more touch, color, and video will expand consumer choice. Individual device makers like Plastic Logic have been working on flexible eReaders for years, but 2010 will see flexibility move further up the supply chain as display module makers make this technology available to all their clients. This means that any eReader manufacturer, including Amazon, will have access to the technology. What this will mean for consumers is as yet unknown: Will consumers pay more, and how much more, for an eReader device that's less breakable than the current Kindle? (see endnote 12) 2010 will also see more large-screen devices, as well as a growing market for small-screen devices like the Sony Pocket Reader. More touch-operated eReaders will launch in 2010, as will eReaders with color and video, such as the ASUS dual-display touchscreen PC, which debuted in concept form at CeBIT in March 2009. (see endnote 13) (The first E Ink-based color display will not be available until late 2010; video will not be available for E Ink displays until 2011 at the earliest.) Barnes & Noble will present serious competition to Amazon. Barnes & Noble (B&N) has been steadily building momentum for its foray into the eBook and eReader market. In March 2009, B&N bought eBook seller Fictionwise for $15.7 million in cash. In July, it launched its eBookstore with more than 700,000 eBooks, which can be accessed through the Web and via its eReader application for iPhones, BlackBerrys, and other Internet-enabled devices. B&N is the primary eBookseller on the IREX Digital Reader 800, which will be available at Best Buy and other retailers this holiday season, and it's also a content provider on the Plastic Logic eReader device, expected out in early 2010. All of these steps have laid the groundwork for B&N becoming a larger presence in the eBook market, but they've done nothing to help B&N steal share from Amazon. So what's B&N's next move? We expect that B&N will announce its own, B&N-branded device before the end of 2009. In 2010, B&N will become a more visible, aggressive competitor to Amazon, leveraging its customer relationships, in-store real estate, publisher goodwill, and marketing power to confront Amazon head-on and present consumers with a real alternative to the eCommerce giant, especially in the content arena.

eReader device ownership has doubled. According to Forrester's survey data, in Q2 2008, a scant 0.6% of US online consumers said they owned an eReader; by Q2 2009, 1.5% claimed ownership. Forrester estimates that the number of eReaders sold in the US will top 3 million by the end of 2009, with 13 million selling by the end of 2013. (see endnote 2) This market is growing quickly, to be certain, but growth is modest compared with other categories like music: Five years after the iPod was first released, 50 million US adults owned an MP3 player. (see endnote 3)

AS WENT IPODS, SO GO EREADERS An alternative view, which isn't entirely unlikely, might claim that Apple had no relationship with music consumers and yet it dominated both early and later sales of MP3 players and digital music. Competitors, both existing and new, will have to fight hard to ensure that the eReader story plays out differently than the iPod. If competitors fail to move in where Amazon is weak, then: Amazon, like Apple, will dominate the market into maturity. Amazon has the early lead in the US and a strong relationship with many book-buying consumers. Apple had a relationship with a small percentage of computer buyers and no claim on music consumers. It's entirely possible that Amazon could maintain its early lead and maintain market dominance as the market for eReaders and eBooks becomes more mainstream. Mobile providers will profit via eReader apps and books sold through app stores. AT&T, the exclusive distributor of the iPhone, doesn't profit directly from app sales, but it does gain revenue from the data plans of iPhone subscribers. Other mobile providers see an opportunity to profit more directly from content and app sales: Orange has launched its Orange Application Store in France and the UK, and we expect others to follow. Whether eReader devices take off or are surpassed by reading on smartphones, mobile providers could be poised to win either way if they can position themselves to profit off of content, rather than just use of their network via a wholesale subscriber model, as the relationship between Sprint and Amazon is currently structured.

The E-Book Reader's Five-Year Potential Market Is Just Half A Million Buyers

This means that, at the most optimistic, 10% of this group or 490,000 homes, will find the value Kindle offers appealing in its first version.

That means Amazon will be lucky to capture 10% of this audience in its first iteration, which is why we estimate sales will stay below 50,000 in the first full year.

After a weekend of brinksmanship in January, Amazon effectively conceded that it could not stop Macmillan from setting what it described in a post on its Web site as “needlessly high” e-book prices. The company says those prices should reflect the reduced cost of distributing digital works. Five of the country’s six largest publishers — Macmillan, Simon & Schuster, Hachette, HarperCollins and Penguin — have already reached deals with Apple to sell their books through its iBookstore, which will be featured on the iPad. (The holdout is Random House.) Under those agreements, the publishers will set consumer prices for each book, and Apple will serve as an agent and take a 30 percent commission. E-book editions of most newly released adult general fiction and nonfiction will cost $12.99 to $14.99. Amazon has agreed in principle that the major publishers would be able to set prices in its Kindle store as well. But it is also demanding that they lock into three-year contracts and guarantee that no other competitor will get lower prices or better terms. Apple, for its part, is requiring that publishers not permit other retailers to sell any e-books for less than what is listed in the iBookstore. So the publishers have sought to renegotiate agreements they have with Amazon under which they sold books to it at wholesale, allowing Amazon to set the consumer price. Amazon has built up a 90 percent share of the American e-book market, in part because it sells most new releases and best sellers at a heavily discounted standard price of $9.99. Many Kindle owners have said the low price motivates them to buy more e-books, but publishers feared that the price would eventually erode their profits. According to three people briefed on the discussions, publishers are reluctant to sign three-year contracts because the digital book world is changing so rapidly and they want room to adjust as it takes shape.

Amazon has also begun talking with smaller publishers that have not yet signed contracts with Apple. In those conversations, according to one person briefed on the discussions, Amazon has said it prefers to retain its wholesale pricing model, as opposed to Apple’s so-called agency model.

Amazon’s strategy “is to work very hard to limit participation in the agency model to only the big four or five firms that are already announced,” said Evan Schnittman, vice president for global business development at Oxford University Press. “This would leave 50 to 60 percent of the content out there subject to the standard distribution terms, enabling Amazon to promote and price as it does today, and forcing Apple to have to compete with Amazon’s strength.”

ere’s a riddle: How do you make your book a best seller on the Kindle? Skip to next paragraph Related Times Topics: Kindle Alessandra Montalto/The New York Times Two novels by Ms. Johnson. “Scarlett Fever,” the latest in a series for young adults, is due out in hardcover on Feb. 1. Readers' Comments Readers shared their thoughts on this article. Read All Comments (92) » Answer: Give copies away.That’s right. More than half of the “best-selling” e-books on the Kindle, Amazon.com’s e-reader, are available at no charge.

Earlier this week, for example, the No. 1 and 2 spots on Kindle’s best-seller list were taken by “Cape Refuge” and “Southern Storm,” both novels by Terri Blackstock, a writer of Christian thrillers. The Kindle price: $0. Until the end of the month, Ms. Blackstock’s publisher, Zondervan, a division of HarperCollins Publishers, is offering readers the opportunity to download the books free to the Kindle or to the Kindle apps on their iPhone or in Windows.

“Giving people a sample is a great way to hook people and encourage them to buy more,” said Suzanne Murphy, group publisher of Scholastic Trade Publishing, which offered free downloads of “Suite Scarlett,” a young-adult novel by Maureen Johnson, for three weeks in the hopes of building buzz for the next book in the series, “Scarlett Fever,” out in hardcover on Feb. 1. The book went as high as No. 3 on Amazon’s Kindle best-seller list.

Postrel on E-Book Prices and Demand Elasticity

The other side of the equation is consumer response: How many more copies will people buy if the price goes down? Or, in economic lingo, what is the price elasticity of demand? Book publishers talk (and often act) as though book buyers aren’t particularly price sensitive

The Borders and Barnes & Noble coupons in my email suggest otherwise. So does what little academic research exists on the subject. In a paper looking at people buying physical books using a shopbot, economists Erik Brynjolfsson, Astrid Andrea Dick, and Michael D. Smith found very large elasticities: A 1 percent drop in price increased units sold by 7 percent to 10 percent.