Content Matters

Twitter was abuzz yesterday with links to this New York Times article quoting Amazon as saying that eBooks in the Kindle format are now outselling hardcovers.

So, what does that really mean and what does it tell us?

First, the details behind the headline (since Nick Carr suggests we rarely bother to click through). According to Amazon, for the past three months, eBooks have outsold hardcover books by a ratio of more than 1.4-to-1.  In other words, for every 100 hardcovers sold, they sold 143 eBooks. And that ratio has increased to 1.8 to 1 over the past four weeks.

That’s pretty impressive, considering the Kindle store has been open less than three years. There are fewer than 5 million Kindle-compatible readers (excluding phones) out there today, a small fraction of the book-reading audience.

Amazon has been extremely successful at managing a multi-channel device strategy. While pushing its own reader, the uptick since the iPad launch makes it clear that a lot of those eBooks are being read on the iPad. In the Times story, Amazon suggests that the iPad is a different device and is not competitive to the Kindle. While that may be true to some extent, it's naive to suggest that it won't have any impact. As an iPad user, I can't see myself buying a Kindle device. That said, I still use both Apple and Amazon libraries. While I prefer the iBooks app to the Kindle on the iPad, the Kindle has a much larger library of titles, so what I can’t get in iBooks format, I will buy in Kindle form.

It also shows that price wars have helped shift e-readers from novelty gadgets to mainstream products, suitable for young and old. Just 12 months ago, I’d perhaps see 1 Kindle user during my daily commute; today, there are likely to be 5-6 commuters using Kindles, iPads or Nooks in a single car on my train.  The Kindle price has dropped to $189 while the Barnes & Noble Nook is priced at $149. As they approach the magical $99 price point, they’ll become an impulse purchase and adoption will continue to grow.

The audience for eReaders is surprisingly diverse. While the typical technology early adopter is a 30-45 year-old male, eReader users seem equally distributed by gender and run all ages. 40+ readers have found the adjustable font size makes life easier, while teens and tweens are adopting them as well. The student market is likely to explode in the next 12-24 months. Barnes & Noble recently inked a deal with Blackboard to pursue the high school textbook market. I’ll be shocked if by the time my 11-year-old enters college she uses any printed textbooks.

What’s the likely impact?

The rapid adoption of eReaders will no doubt have a huge impact on the publishing industry.

First, the good news. Users of eReaders tend to read a lot more than others.  It’s no surprise that when you can carry as many books as you’d like in one device, you’ll buy more than if you had to carry each individually. So, despite lower prices, revenue and profits should see a noticeable bump.

It will be interesting to see, over time, how the reading patterns of users on dedicated readers, such as the Kindle or Nook, compare to those on multi-function devices like the iPad. While I have a couple of books in progress on my iPad, I’m more likely to read RSS feeds, use a news app or read Twitter much of the time.

At the same time, eReaders should quickly bring some level of disintermediation to an industry where publishers and distributors have incredible power. For bestselling titles, those blockbusters with 7-figure advances for name-brand authors, publishers will still hold court. But for long-tail titles, which never received much marketing support from their publishers, there is likely to be great change. I’d expect a new market to emerge, where PR and marketing professionals help self-published authors drive awareness of their titles.

On the channel side, it seems likely that the Big 3 will dominate. Amazon, Apple and Google (with their soon to be launched Google Editions, a store which will drive users to multiple channels for purchase) are likely to vie for dominance in the eReader market.

Barnes & Noble looks like it can be at least a niche player and can leverage its existing relationships to potentially dominate the educational market. 

That leaves question marks for companies like Borders and Wal-Mart. Borders has been on shaky ground for quite a while and despite launching its own eReader software, seems more likely to follow the Blockbuster video path than to find success. Wal-Mart has established itself as a dominant bookseller and has reach into many households which Amazon and Apple don’t reach today. Yet it’s hard to see what their value proposition will be in a segment where pricing is generally set by the publisher.

Similar challenges will be felt by independent booksellers, already an endangered group. Traditionally, these businesses thrived by their personal, hands-on touch. A market where awareness will be a huge challenge suggests a potential role for the independents, perhaps as affiliates to Amazon or Google, yet even that model suggests that a physical presence no longer serves a purpose.

Many have argued that the endearing qualities of physical books would make many hesitate to give them up. I have fond memories of wandering the “miles of aisles” at the Strand Bookstore. Yet, just as with digital music, it’s apparent that convenience and improved functionality can easily trump sentiment. Of course I still haven’t figured out how to get an author to personalize and sign a copy of an eBook.