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.


Bob Russell said...

Nice article. Wish I could catch your talk.

As another person with no small interest in e-books, here are few thoughts...
1) With regard to pricing, the battle really is about how to view an e-book. Publishers want it to be about the content, and use DRM to "lease" the book on a particular platform. The content value will be affected by timeliness, interest levels, availability of close substitutes for the title (you can easily chose another mystery writer, but the latest tell-all by a hot personality is not so easy to find alternatives for), etc. Consumers, on the other hand, see the vast selection of public domain and free books once they make the transition into the e-book world. They also view an e-book as a regular book minus the printing and shipping costs. Eventually, DRM will be viewed as a lease/rental rather than purchase, which would further reduce the price point in their mind. It's still up in the air to see what the ruling e-book pricing paradigm will become, and how it might vary across book categories.
2) Direct publishing of e-books by authors is certainly expected. Print on demand supports this, and sloppy e-book quality by major publishers also takes away much of the incentive to work with a publisher. But editorial and marketing benefits will never go away so there will be some happy equilibrium including some that use specialty services for e-book formatting or marketing or sales.
3) The whole backlist issue for out of print books is a huge opportunity for publishers and authors. It will be interesting to see how it gets monetized and whether it will be invisible to customers or a direct selling point.
4) Magazines and newspapers can renew their market with e-books, but the technology still has a way to go for usability. Due to the short window of relevance, it might also be an interesting place to consider non-DRM content delivery.
5) For the future, we need to look past the e-ink model of the present. I would not be surprised, for example, if desktops become the computing surface and reading surface that eventually helps enable the elusive paperless workplace. Heck, we might even end up with interactive 3-D book holograms hovering in front of us from a smartphone. We see magazines and newspapers with hyperlinked structures, and could also include multimedia, sniff samples, coupons, advertising, etc. Tech books on programming languages, for example, may have embedded computing capabilities, to allow running Python scripts right there on the book device.
6) I suspect that the biggest paradigm shift of all, other than the pricing model and radical technologies, may be the socialization of book selection. How are people doing to decide what authors and titles to read? Is it going to be determined by relying mostly on major publishers advertising and book reviews and industry controlled aspects? Will popularity be determined by sales figures at online stores? Or will it become socialized in the Web 2.0 era, where you get such good information from the masses, that consumers are driven by other readers rather than industry-driven market dynamics? If it does become socialized, who will control the infrastructure? And, of course, the bottom line in that scenario is the question of who those influential people will become and how the industry can touch them.

Btw, I hope you'll share your thoughst after you return!

Marc said...

Fantastic article! Thank you!

You asked for questions so here I go...what future do you see for short fiction in the electronic world? It seems perfectly suited to the use habits of mobile device users. As a part time writer (my day job is with Ilium Software) who has mainly published short fiction, I'm extremely interested in this. Any thoughts?

Marc Tassin

PS: One other note - a big fear that I hear publishers lamenting about when I talk to them is piracy. There is still a sense of panic (something software folks got over years ago) that piracy will destroy their entire business and every single person is going to steal their books.

Anonymous said...

how will the modern replacement for pubic libraries work? myself, my parents and many of my friends are all avid reader. but we purchase very few books. instead we check them out from the library for free.

will future generations be able to do the same? while today i could afford to buy some of the books i borrow there was certainly a time in my life that would not have been much of an option. without libraries i wold have never developed my lifelong love for reading.

make it as convenient to check out(and renew, maybe even turn in late for a fine) a book on a reader as it is to go to the library and you will have me converted. also similar government funding as libraries have today would likely be needed.

Michael Mace said...

Great comments, folks. Thanks very much for the help.

I will definitely come back and let you know how the talk went.

Bob, I agree with all of your comments. And Marc, I dearly hope that e-books will revive the market for short fiction, which has declined dramatically in the last few decades. The key is having a good micro-payment system that enables an author or editor to charge something like 25 cents per story.

As for libraries, I don't think that physical books will go away completely, and so libraries will continue to exist for a long time. But all of the schemes I've seen for electronic libraries (where e-books get somehow lent out via a rights management system) feel very artificial to me.

Good question, and I am not at all sure of the answer.

Anonymous said...

when someone buys a book at a bookstore they can then sell the book when they are finished with it. with high priced books like textbooks this common. also you can sell books that are given to you for free. university professors sometimes do this with extra copies of books given to them by sales associates of the book companies. this is completely legal even if the books are marked as be 'not for resale.'

how will this translate to ebooks? if i can not sell my book when i am finished at least in my opinion it should be very substantially cheaper than the physical copy.

maybe the reality is that electronic literature needs to be free and we need some radical new thinking on how authorship is to be compensated. while i certainly want writers to continue to make a good living if this means the publishing companies end up disappearing than so be it.

Ellen said...

I'm another one who wants e-books to work like public libraries. I'd pay for it - either via a subscription or a 'rental' fee per book, but, as you said; I'm cheap. I get books free from the public library, and I don't want to own them, or pay much for them. A service like lala.com, where the books stay on their server but I can read them on my reader, or a reader that lets me only have a few books at a time, and I get a new one only after I've erased an earlier one, would have me buying whatever e-reader supported that, and paying the subscription or book 'rental' cost for 10 or so books a month.

If someone - Amazon or Apple - implemented this, that would be great, not only for people who read a lot, but for the publishers and ebook distributors. They'd make less money per book, but I think a lot more overall.

Anonymous said...

Hello Michael,
I don't think that books now is a format that defines anything in our real world anymore. Actually, a book is what can store a person's memories. Now, when we have computers, it's a new time to store our memories only by these means - and it's really unique new opportunity. It's our reality. As for me, (I don't watch TV, listen to the radio, and I don't have Internet at home) - I just go to the library once a week or two weeks to support my project of a cell computer - genetechnics.webs.com.
Best regards,

mallwitt said...

Michael, you may want to check out Baen Books. (www.baen.com) They've beene an early leader in e-books and their webscription store is great. The have advance copies, ebook bundles and even multiple formats to entice customers and justify costs.

While I love books (and I susspect most early adopters love their hardcovers), I'm trying to find more and more of my paperbacks in ebook format. I'm tired of loosing large amounts of my limited apartment space to paperbacks.

As to DRM, I honestly don't care too much about it, provided:
1) It's universal, I'm not going to be reading on just one device and the industry better realize that it's going to be even more portal than music.
2) Settle on a format. Once I buy an ebook, I'm even less likely to rebuy it because there is a new format that supports new features. I'd better be getting that update free.
3) If they want to rent it to me (ala lala.com) then their software needs to work on my device.
4) Longevity. Learn from Microsoft and playsforsure DRM. If you think you're going to go out of business or sell the rights (and management) to someone, I'd better still be able to read my book. If not, why wouldn't I just buy the paper version?

If you want justify the price of your ebooks, focus on what makes them better. Accessability and portablity - different language, searchability, multi device accessable anywhere I'd get a normal book (and some places I wouldn't). Logevity - either I can download it again or back it up. Annotation - bookmarking, notes, lookups and web integration.

Peter Millard said...

Nice piece, though I think there'll be a few folks smarting at being called 'cheap' just because, having shelled out for a dedicated reader, they're not happy paying hardcover prices for e-books that turn out to be poorly OCRd copies of the printed books, non-proofread, unedited and supplied with punitive DRM that locks you to one device.

Publishers have to provide value, whatever the format; an e-book sale doesn't equate to a 'lost' hardback sale; many e-book buyers never buy paper books any more, so no e-book sale means no sale, period.

And personally, I think magazines are absolutely the wrong content for digital delivery, but hey, sieze the day; make a magazine readable on an iPad and make the subscription cheap enough to make it worth my time, and convince me otherwise…

I'm on the wrong side of the world to attend your talks - please do write about it afterwards.

Ellen said...

It's so surprising to me that Apple - who pioneered the 99 cent song and held music publishers to it, and who has led the way for a radical drop in software pricing - has become the white knight that's saving publishers from Amazon's attempt at lowering eBook prices.

It's the opposite of what they've done in the music and software market, and seems to me like a very considered, deliberate strike at Amazon.

Anonymous said...

As to #2, I'd be interested to hear more on your thoughts on the relationship between pricing and production costs.

Without having sat down with pencil and paper to work out some numbers, my guess is that it should be cheaper to produce an ebook, than say a paperback. Why? Well, there are no printing costs to start with. You also avoid multiple shipping and handling costs. And there are potentially all sorts of savings from not using a bricks-and-mortar retailer (eg, you don't pay for some sales clerk to re-arrange the bookshelves twice a day).

Armin said...

As to your #6 you miss two points: Authors will need access to an authoring system plus an app deployment service to get their works to the market. But without marketing, their app will just remain at the bottom end of the app store and they will get 70% of nothing or very few.

I am not convinced that authors will be able to bypass publishers that easily.

Merle Tenney said...


Your comment about the tipping point for authors to go direct with e-books is interesting. You predicted that that would happen when 20% of the buying public had e-book readers.

I don't know what percentage of the potential market has e-readers, but Jeff Bezos made a very interesting comment about print book sales vs. e-book sales, when the title is available in both formats. For the 2009 Christmas buying season, per Bezos, 6 e-books were sold for every print book of the same title. I would love to see you rework your tipping point projection based on relative sales of books in the two formats.

BTW, here is the reference for the Bezos quote: http://www.betanews.com/article/Amazon-CEO-We-sell-6-Kindle-books-to-every-10-books/1264781064


Michael Mace said...

Thanks, Merle.

I'm at the publishing conference right now, and that "ebooks outsell paper books" quote has come up several times. It's the object of a lot of annoyance -- the explanation here is that Amazon took a snapshot of its ebook demand right after Christmas, when people who just got Kindles as gifts were buying books for their new devices.

In contrast, how many people do you think order physical books on Christmas day?

There's no question that Amazon's ebook products are doing a lot better than Softbook did in 1999-2000. But Amazon is being so selective with its data that it's very hard to tell exactly what's going on.

Bitacora said...

I love to read ebooks and that's why I really liked this post. I'm looking forward to seeing the Kindle tablet that Amazon will launch very soon and Apple's Iphone 5 with possible features for the next Ipad3. Maybe, I will wait till the presentation of the Ipad3 to decide which to buy in order to read ebooks in my trips. What are your insights of the Amazon tablet which is aimed at ebook readers? do you think that Amazon will innovate and have a great success in this field of electronic books where many have failed?