A context in which to evaluate ebook strategies
This post is part of a growing set initiated by the Sourcebooks experiment holding back an ebook from simultaneous publication with an upcoming hardcover. It is the second (link to the first below) and will be followed by at least one more, as the conclusion of this post makes clear.
We are talking here about narrative fiction and non-fiction: books that don’t need illustration or design-intensity to get their content across.
And we are talking about books intended for general audiences: trade books.
The first caveat matters because it describes the technical challenges of presenting the content and the second because it defines the commercial parameters for all the players (and the players will be the subject of a subsequent post.) Content that is delivered to more structured and organized markets, such as we see in academia or corporations, has a very different set of commercial realities.
There will eventually prove to be four distinct stages of ebook adoption, and what makes sense for all the players will change as we move from one to another. The four stages are vision, establishment, transition, and the new marketplace.
The first stage, vision, which started in the late 1990s, will be seen to have ended when the Kindle was launched in November of 2007. This was when ebooks attained a minimal market, substantially less than 1% of total trade sales. In that stage, we had the development of the ePub standard, which could be a permanently useful efficiency for the market. We also had the establishment of basic terms of trade, giving intermediaries approximately the same margins based on the publishers’ suggested retail price that they have had in the physical print-book world. (In my opinion, that will not prove to be so helpful.) Author royalties in publishing’s Big Leagues seem to have settled at either 15% of the publisher’s suggested retail or 25% of the publisher’s revenue, another formula that will be challenged by market forces. We have learned a lot about the futility and frustration surrounding DRM. And publishers have tried to establish ebook pricing that tracks the printed book availability at any time, generally listing the ebook at about the same or a buck or two cheaper than the lowest-priced print edition available.
The second stage, establishment, started with the Kindle. This is when ebooks are much more obviously headed for their ultimate central position in consumer trade book publishing. Ebooks are moving from making a negligible commercial contribution to each book to measureable value, a shift which could be said to have occurred. Many major books are now getting nearly half their Amazon sales from Kindle and other ebook sales are growing as well. Publishers are seeing ebook sales that have tripled as a percentage of their total sales in the past 12-to-18 months. In this stage we are also seeing — and will see more — new players enter the game. Amazon’s device play was followed by software launches from Apple (more than one, including Amazon, from the App Store) and Indigo (a smartphone application called Shortcovers which is part of the iPhone expansion). The Kindle device was preceeded by the Sony Reader; there have been UK-based launches of an independent competitor (Cool-er Reader) and one from Borders UK called Elonex; and strong rumors suggest that both Barnes & Noble and Indigo will deliver their own devices very soon. There are others as well. In this establishment stage, ebook revenues are growing, though they are not yet sufficient to change the overall power relationships in the publishing value chain. But because so many devices and channels are competing to get established and because of the high physical-world discounts, publishers have completely lost control of consumer-facing pricing at the title level.
The third stage, the beginning of which I reckon is about 1-to-3 years off, will be the transition stage. Since I’m inventing this paradigm, I’ll declare arbitrarily that the transition stage will begin when it becomes common for ebook sales to be as much as half the sales of ebookable titles (see the caveats above) and trade houses are seeing their overall unit sales (including the many books, still most juveniles and other highly illustrated titles they all publish that are not “ebookable”) grow steadily from 10% of total sales with no end in sight. In the transition stage, we will start to see real shifts in the value chain. Devices that can only import from a single source (such as the Kindle is today) will fade in importance (if, indeed, there are any left by then.) The number of potential purchase points will explode, as many web sites offer some sort of ebook-readable content, a great deal of it free, but lots of it based on the prices set by publishers. Large horizontal aggregators (Amazon, B&N, and the full-line bookstores that build their offerings from wholesalers) will struggle to hold onto a large and loyal customer base as the vertical web increasingly takes hold. Almost all publishers will be among the zillions of sites offering direct downloads to consumers, many through explicit verticals that sell the books of their competitors (as Macmillan’s tor.com sci-fi site, presciently, is doing today.) DRM will gradually disappear but policing commercial-level piracy will become much more effective because the entire industry will be fighting it. What Scribd is doing to fight piracy — using their archived content to locate pirated material posted by site visitors — will be more widespread and collaborative. There’s a real opportunity for a search engine to offer a service here that somebody will take, and then all will follow.
And the fourth stage, the new marketplace, will have arrived when ebook sales dominate and printed book sales shift primarily to short-run and print-on-demand, except for the very biggest titles. This will happen with accelerating speed when sales pass the point of being 40 or 50 percent digital overall, possibly within a decade. When ebooks become the “norm”, prominent authors will have less need for publishers and ebooks will be routinely updated and enhanced and linked to other content in ways that printed books simply cannot match. In the new marketplace, printed books will have very specific uses: tokens and souvenirs, delivery of certain material that makes great use of large presentation surfaces, and, of course, enabling those who are too old, too poor, or just too stubbornly luddite to make the shift to screen-reading that will have become ubiquitous by then.
In the next post on this subject we will really address the Bran Hambric experiment. We’ll tackle how the various stages of ebook development affect each of the stakeholders: authors, publishers, retailers, wholesalers, and, of course, readers. The context of the stages allows us to make sense of the issues of 1) timing, 2) pricing, 3) DRM, and 4) the content itself, and the marketplace impact of each of the four from the standpoint of each stakeholder. And we’ll see that the challenges Sourcebooks is responding to are symptomatic of what publishers face in the early establishment stage.