Although a lot of people are excited about ebooks, it's very difficult to get hard information on how the market for them is growing. We don't even know how many Kindles Amazon has sold, let alone more detailed specifics on the market.
So I was very happy Wednesday when the Book Industry Study Group (a publishing industry trade group) gave details from its recent survey of ebook adoption in the US. The survey was first revealed in January, but the press release was very sketchy and sometimes confusing. In its presentation at the Tools of Change conference, the BISG gave much more details on the results. My highlights from the presentation:
Ebook usage is growing fast, but it's still small. Roughly 2% of American book buyers over age 13 are active ebook users, meaning they obtained an ebook or a reader device in the last year. About half of those were first-time ebook buyers, so the usage of ebooks has probably roughly doubled in the last year. BISG is doing multiple waves in the survey, and says it found a 25% increase in ebook usage just over the holiday season, so it was a pretty good Christmas (and Hanukah) for ebooks.
The most-used device for reading an ebook is a personal computer (47%). Amazon Kindle is number two (32%), followed by Apple's iPhone and iPod Touch (21%).
Either there's something wrong with the numbers, or Amazon hasn't sold quite as many Kindles as some people think. More on that below.
What does it mean?
PC leadership is no surprise. There are so many PCs in the US that even a small percentage of PC users reading ebooks will swamp everything else. BISG said that the PC share of ebook reading is declining as other devices grow, also what I would have expected. I bet that in a year (or two at the most), a majority of ebook readers will be on non-PCs.
Apple is closer to Kindle than you might expect, but... A tidbit that jumped out at me was Apple's share of ebook usage. Kindle has gotten all the attention, but Apple has about 2/3 the share of Amazon in ebook usage without even trying. However, before we set off another round of "Apple uber alles" on the web, there are several big caveats:
--BISG didn't report on the number of books bought per platform. Based on my experience at Palm (which had an active e-reading community), I suspect that a lot of those iPhone book readers are pretty casual, buying a few books or publications to kill time when they are bored. I believe Kindle users are probably much more active readers.
(For comparison, about 4% of the Palm OS users in the US were reading ebooks at least occasionally in 2002. That total rose to about 8-10% if you included the Bible -- it was by far the most popular ebook. That amounts to about 1.5-2 million ebook users on Palm OS alone.)
--Apple and Kindle are also different demographically. After the presentation today, BISG told me that Kindle readers are older and more likely to be female compared to Apple readers. What we may be seeing is that if someone already carries an iPhone or iPod Touch, they're less likely to invest in yet another device just to read on it. Or maybe younger people just find it easier to read on a tiny screen. Either way, I think it's pleasant that Apple and Kindle are reaching somewhat different audiences rather than just stepping on each other.
--And of course the iPhone/iPod Touch installed base is a lot bigger than Kindle's. So as is the case with PCs, even relatively low ebook usage on the iPhone will add up to a lot of users.
How many Kindles are really in use? As far as I can tell, Amazon hasn't released any Kindle device sales figures, other than a quote referring to "millions" of users. Several analysts have jumped on the use of the plural as evidence that at least two million Kindles have been sold. But I think the BISG survey doesn't support that. Here's my math:
--About 2% of book buyers have ebooks and/or ebook devices.
--About a third of them have Kindles (that's 0.67% of active book buyers).
--If 0.67% of book buyers in the US is two million people, then there are 300 million active book buyers in the US. That is the entire US population, including infants and people who don't like books. I don't know what the base of active book buyers is in the US, but my guess is it's not over 200 million, meaning the installed base of Kindles would be about 1.3 million.
It's tricky to play with survey results when the percentages are this small -- the margins of error become very significant. But for now I think the BISG survey raises some questions, and I'm not willing to accept the two million figure for the Kindle installed base without some more rigorous evidence to support it.
Other tidbits
BISG is not going to release all of the information from the survey (that goes only to the companies that paid for it). So I took as many notes as I could during the presentation. Here's what I captured:
Ebooks are somewhat cheaper than hardcovers
On average, an ebook costs $6.25 less than a hardcover book. This is a huge issue to the book publishing industry, which worries that ebook sales will cannibalize hardcover book sales. My comment: Of course they do, get over it. The thing publishers should be looking at is the much higher margins they make per ebook sold. I don't know of many industries that resist moving to a higher-margin product, but publishing appears to be the grand exception. Of course, the thing worrying publishers is the decline of independent bookstores, and they're afraid ebooks will accelerate that. But the decline of the bookstore has almost nothing to do with ebooks -- it's being driven by online sales of paper books and predation by retail chains.
Demographics
-Ebook buyers are 51% men (compared to 58% women for paper books).
-Ebook buyers are higher income than paper book buyers. Not a lot, but significantly higher income. No surprise there -- most poor people can't afford several hundred dollars for an ebook reader. Betcha they don't buy a lot of hardcover books either.
Cannibalization
Among ebook buyers, 11% no longer buy any paper books. 8% buy mostly ebooks, and about 30% prefer to buy ebooks. So about half of ebook users prefer ebooks to paper books. That's actually a lower percentage than I expected for something that is supposed to take over the world. But remember, half of ebook users are reading on PCs. What I really want to know is the percentage of Kindle users who prefer ebooks; that'll tell us how satisfied Kindle users are.
Preferred device used to read ebooks
-PC: 47%
-Kindle: 32% (and rising in later waves of the survey)
-iPhone: 11%
-iPod Touch: 10% Hmmmm! iPod Touch really is a PDA.
-Other smartphones (including Blackberry) 9%
-Netbooks 9%
-Sony Reader 8%
-Barnes & Noble Nook 8% (the BISG folks noted that Nook was just starting to sell at this point; they believe some users confused Barnes & Noble ebooks with the Nook device)
Genres of ebooks
-General fiction, 31%
-Mystery 28%
-How To 25% (but #1 over Christmas)
-Science Fiction
-Biography
-Business
I don't know where religion and travel went. I need to learn more about how this question was asked.
I'm speaking about ebooks in New York this month
I'm giving a talk on the ebook business at a publishing industry conference in New York in late February. I should have some spare time between sessions. If you're in New York and would like to chat during that week, please contact me here.
My talk is about the many ways the ebook industry has failed in the past, but my real focus is on how to avoid those problems in the future. As you know if you've read this blog for a while, you know I am pretty passionate on this subject (link). With all the recent goings-on between Apple, Amazon, Macmillan, etc, we have a lot to discuss.
Here's a synopsis of my talk. If you have any other ebook questions you'd like to see me cover in it, post a comment here.
Check Out My Scars: Seven Lessons from the Failure of Ebooks in 2000, and What They Mean to the Future of Electronic Publishing
1:40pm Tuesday, 02/23/2010
O'Reilly Tools of Change for Publishing (link)
The tech industry has a long history of celebrating its successes and forgetting its failures. We honor the IBM PC but forget the DEC Rainbow and Kaypro II. We put the iPhone and BlackBerry on a pedestal but sweep the Qualcomm PDQ and Ericsson R380 under the rug.
That selective memory is often helpful in the development of a new technology, as it prevents companies from being held back by other companies’ failures. But it also makes tech companies prone to repeating the same mistakes over and over again. So it’s useful to look back at previous efforts to make ebooks successful, both as standalone reader products and as software for other mobile devices.
When you do that, there are seven lessons that emerge for today’s e-publishers:
1. Beware the chicken and the egg. Purchasing a dedicated e-book reader is a major decision for most users. Even though reader devices aren’t all that expensive, they cost a lot more than a couple of books, and so the user needs to have a fairly high motivation before they’ll buy. But the most enthusiastic readers – the people most likely to pay for an ebook reader – are also the people who care the about having a wide selection of ebooks available before they buy the device.
Meanwhile, publishers look at the uncertainties and expenses of preparing an ebook edition, and are reluctant to convert their entire catalogs unless they’re convinced that a huge installed base of reader devices will be available.
This creates a classic chicken-and-egg situation in which the publishers won’t jump on board until there are a lot of reader devices, and users won’t buy the devices until there are a lot of books available. This was the root cause of the failure of ebook devices in 2000.
Amazon and Sony, to their credit, have been trying to power through the chicken and egg situation through very aggressive marketing and price subsidies. They have made progress, but the reader market is not yet self-supporting, in part because of issue #2:
2. Ebook customers are cheap. It would be much easier for book publishers to embrace the ebook market if they could charge more for an electronic edition than they get for a hardcover book. That way they wouldn’t worry about cannibalizing their traditional channels. The reality is just the opposite—consumers generally view an electronic edition as less valuable than a hardcover. Even though an ebook is easier to carry, it’s viewed as evanescent, without the seriousness and tactile quality of a hardcover. As a result, many people are reluctant to pay more than paperback prices for ebooks.
But the book enthusiasts who are likely to be interested in ebook devices are the sort of people who want to read the latest releases, rather than waiting for a paperback edition. They want hardcover content at paperback prices. So Amazon and Sony have been forced to subsidize the sales of ebooks, paying hardcover prices to publishers but collecting lower revenue from their customers.
This doesn’t bode well for the economics of the reader device market. Instead, a lot of people are hoping that other reader devices will emerge, like smartphones. That brings us to the third lesson…
3. Mobile usage patterns are hostile to most publishing. Most print publishing is built around the idea of an extended reading session – the customer settles down with a book or a newspaper and reads through it cover to cover. Mobile devices have a completely different usage pattern. People use them on the go – they pull out the device when they have a minute free, use it briefly, and then put it away.
The usage pattern is more like eating bon-bons than sitting down to a meal.
That means there are strong, natural limits on the amount of text content that many people will consume on a smartphone or other small mobile device. If you’re publishing a joke book, a mobile device may be the perfect distribution medium for you. But unless you are publishing in a country where most people commute by mass transit for long distances (Japan, Korea), extended reading on mobiles is likely to remain a niche for a long time.
4. Periodicals are promising. Combine points 2 and 3 and they indicate an interesting possibility for e-publishing: Magazines. Other than National Geographic, most magazines are viewed as disposable after they’re read. And many of them are read in short sessions rather than all at once. So there is not as much customer resistance to paying the full list price for an e-magazine, and the format is more compatible with a mobile device. Plus, an e-magazine can be delivered faster than a print version, giving the e-edition an advantage.
The challenge for magazines is that the ad-heavy format of a traditional print magazine does not translate well to an electronic device. On an electronic device, people expect to jump straight to content rather than thumbing past ads they way they do in a print magazine. That’s why software products that replicate a print magazine on screen haven’t taken off. The usage pattern is just different.
So the challenge for magazine publishers is to remake their business models, balancing much lower printing and distribution costs against reduced (or different) ad revenue. No one has perfected that balance yet.
5. How do you get a better experience than paper? Here are the first two sentences of Sony’s online pitch for its Pocket Reader: “Carry hundreds of books in your pocket. The Reader Pocket Edition lets you access up to 350 of your favorite books from anywhere.” The problem with this reasoning is that almost no one wants or needs to carry 350 books at once; you can only read one at a time. So Sony’s touting an advantage that’s not actually advantageous.
If they want to win over users, ebook companies need to offer a product that’s actually superior to paper. Amazon’s instant download of books is a good start, but another promising opportunity is the backlist. Even popular authors routinely go out of print on their less well-known titles, and once an author dies their work can virtually vanish from the marketplace.
For example, in science fiction the late Robert Heinlein is considered a giant in the field, but about half of his titles listed on Amazon.com are out of print.
The enthusiastic readers who make up the core market for ebook devices would respond very well to a device that made large numbers of out of print books available, but the process of getting them available has been very slow. This is another area where Amazon is making some progress through the application of money.
6. Beware the tipping point. For book publishers, there is an economic cliff lurking somewhere on the horizon. Once ebook reader devices do take off, there is a point where it will make economic success for a successful author to completely bypass print publishing and self-publish electronically.
The economics work like this: An author typically gets about 15% of revenue as royalties. But a self-published e-author could retain a much larger cut—up to 70% if e-book stores come to resemble the iPhone app store. At that royalty rate, an author would make more money as soon as about 20% of the book-buying public has e-readers.
The actual location of the tipping point will vary for different types of books, and the situation is quite different for new authors who can’t generate demand for themselves. But in general, e-publishing changes the economic balance between authors and publishers, and it would be healthy for publishers to get ahead of that transition rather than waiting for it the way the music business has done.
(In the session I’ll flesh out this analysis more, with pointers to help publishers identify where the tipping point is and what it’ll mean.)
7. Be careful what you wish for. Beyond the financial tipping point, there’s another trend that will likely affect publishing: the rise of free. In both music and consumer software, prices have been inexorably trending toward zero. On the Apple App Store, for example, ASPs are steadily declining. Authors and publishers both should be thinking now about how they’ll maintain the perceived value of written content, and what other models they might use to monetize it.
(In the session we’ll discuss what some of those models might be, based on what’s happening in other types of content.)
================
A couple of unrelated links:
--We've posted the Rubicon "Competitive Idea Book," a collection of famous competitive strategies designed to help companies think about their businesses creatively (link).
--Thanks to WAP Review for including my post about the iPad in the latest Carnival of the Mobilists.
My talk is about the many ways the ebook industry has failed in the past, but my real focus is on how to avoid those problems in the future. As you know if you've read this blog for a while, you know I am pretty passionate on this subject (link). With all the recent goings-on between Apple, Amazon, Macmillan, etc, we have a lot to discuss.
Here's a synopsis of my talk. If you have any other ebook questions you'd like to see me cover in it, post a comment here.
Check Out My Scars: Seven Lessons from the Failure of Ebooks in 2000, and What They Mean to the Future of Electronic Publishing
1:40pm Tuesday, 02/23/2010
O'Reilly Tools of Change for Publishing (link)
The tech industry has a long history of celebrating its successes and forgetting its failures. We honor the IBM PC but forget the DEC Rainbow and Kaypro II. We put the iPhone and BlackBerry on a pedestal but sweep the Qualcomm PDQ and Ericsson R380 under the rug.
That selective memory is often helpful in the development of a new technology, as it prevents companies from being held back by other companies’ failures. But it also makes tech companies prone to repeating the same mistakes over and over again. So it’s useful to look back at previous efforts to make ebooks successful, both as standalone reader products and as software for other mobile devices.
When you do that, there are seven lessons that emerge for today’s e-publishers:
1. Beware the chicken and the egg. Purchasing a dedicated e-book reader is a major decision for most users. Even though reader devices aren’t all that expensive, they cost a lot more than a couple of books, and so the user needs to have a fairly high motivation before they’ll buy. But the most enthusiastic readers – the people most likely to pay for an ebook reader – are also the people who care the about having a wide selection of ebooks available before they buy the device.
Meanwhile, publishers look at the uncertainties and expenses of preparing an ebook edition, and are reluctant to convert their entire catalogs unless they’re convinced that a huge installed base of reader devices will be available.
This creates a classic chicken-and-egg situation in which the publishers won’t jump on board until there are a lot of reader devices, and users won’t buy the devices until there are a lot of books available. This was the root cause of the failure of ebook devices in 2000.
Amazon and Sony, to their credit, have been trying to power through the chicken and egg situation through very aggressive marketing and price subsidies. They have made progress, but the reader market is not yet self-supporting, in part because of issue #2:
2. Ebook customers are cheap. It would be much easier for book publishers to embrace the ebook market if they could charge more for an electronic edition than they get for a hardcover book. That way they wouldn’t worry about cannibalizing their traditional channels. The reality is just the opposite—consumers generally view an electronic edition as less valuable than a hardcover. Even though an ebook is easier to carry, it’s viewed as evanescent, without the seriousness and tactile quality of a hardcover. As a result, many people are reluctant to pay more than paperback prices for ebooks.
But the book enthusiasts who are likely to be interested in ebook devices are the sort of people who want to read the latest releases, rather than waiting for a paperback edition. They want hardcover content at paperback prices. So Amazon and Sony have been forced to subsidize the sales of ebooks, paying hardcover prices to publishers but collecting lower revenue from their customers.
This doesn’t bode well for the economics of the reader device market. Instead, a lot of people are hoping that other reader devices will emerge, like smartphones. That brings us to the third lesson…
3. Mobile usage patterns are hostile to most publishing. Most print publishing is built around the idea of an extended reading session – the customer settles down with a book or a newspaper and reads through it cover to cover. Mobile devices have a completely different usage pattern. People use them on the go – they pull out the device when they have a minute free, use it briefly, and then put it away.
The usage pattern is more like eating bon-bons than sitting down to a meal.
That means there are strong, natural limits on the amount of text content that many people will consume on a smartphone or other small mobile device. If you’re publishing a joke book, a mobile device may be the perfect distribution medium for you. But unless you are publishing in a country where most people commute by mass transit for long distances (Japan, Korea), extended reading on mobiles is likely to remain a niche for a long time.
4. Periodicals are promising. Combine points 2 and 3 and they indicate an interesting possibility for e-publishing: Magazines. Other than National Geographic, most magazines are viewed as disposable after they’re read. And many of them are read in short sessions rather than all at once. So there is not as much customer resistance to paying the full list price for an e-magazine, and the format is more compatible with a mobile device. Plus, an e-magazine can be delivered faster than a print version, giving the e-edition an advantage.
The challenge for magazines is that the ad-heavy format of a traditional print magazine does not translate well to an electronic device. On an electronic device, people expect to jump straight to content rather than thumbing past ads they way they do in a print magazine. That’s why software products that replicate a print magazine on screen haven’t taken off. The usage pattern is just different.
So the challenge for magazine publishers is to remake their business models, balancing much lower printing and distribution costs against reduced (or different) ad revenue. No one has perfected that balance yet.
5. How do you get a better experience than paper? Here are the first two sentences of Sony’s online pitch for its Pocket Reader: “Carry hundreds of books in your pocket. The Reader Pocket Edition lets you access up to 350 of your favorite books from anywhere.” The problem with this reasoning is that almost no one wants or needs to carry 350 books at once; you can only read one at a time. So Sony’s touting an advantage that’s not actually advantageous.
If they want to win over users, ebook companies need to offer a product that’s actually superior to paper. Amazon’s instant download of books is a good start, but another promising opportunity is the backlist. Even popular authors routinely go out of print on their less well-known titles, and once an author dies their work can virtually vanish from the marketplace.
For example, in science fiction the late Robert Heinlein is considered a giant in the field, but about half of his titles listed on Amazon.com are out of print.
The enthusiastic readers who make up the core market for ebook devices would respond very well to a device that made large numbers of out of print books available, but the process of getting them available has been very slow. This is another area where Amazon is making some progress through the application of money.
6. Beware the tipping point. For book publishers, there is an economic cliff lurking somewhere on the horizon. Once ebook reader devices do take off, there is a point where it will make economic success for a successful author to completely bypass print publishing and self-publish electronically.
The economics work like this: An author typically gets about 15% of revenue as royalties. But a self-published e-author could retain a much larger cut—up to 70% if e-book stores come to resemble the iPhone app store. At that royalty rate, an author would make more money as soon as about 20% of the book-buying public has e-readers.
The actual location of the tipping point will vary for different types of books, and the situation is quite different for new authors who can’t generate demand for themselves. But in general, e-publishing changes the economic balance between authors and publishers, and it would be healthy for publishers to get ahead of that transition rather than waiting for it the way the music business has done.
(In the session I’ll flesh out this analysis more, with pointers to help publishers identify where the tipping point is and what it’ll mean.)
7. Be careful what you wish for. Beyond the financial tipping point, there’s another trend that will likely affect publishing: the rise of free. In both music and consumer software, prices have been inexorably trending toward zero. On the Apple App Store, for example, ASPs are steadily declining. Authors and publishers both should be thinking now about how they’ll maintain the perceived value of written content, and what other models they might use to monetize it.
(In the session we’ll discuss what some of those models might be, based on what’s happening in other types of content.)
================
A couple of unrelated links:
--We've posted the Rubicon "Competitive Idea Book," a collection of famous competitive strategies designed to help companies think about their businesses creatively (link).
--Thanks to WAP Review for including my post about the iPad in the latest Carnival of the Mobilists.