The Shatzkin Files


How the ebook evolution might get started in other places


The organizers of the Buenos Aires Book Fair, which will run for the next few weeks, invited me to speak at an opening session of their event last Friday. They left the topic completely up to me. What I offered to do, which the organizers liked, was to review the history of the past 20 years of digital change in the US and in the English language which has brought us to this point. The presumption is that understanding how it happened to us will help them understand what is going to happen in their market, in other Spanish-speaking markets, and in other countries and other languages.

The underlying premise of my talk, which was delivered formally at a Book Fair opening event last Friday and informally to other gatherings they scheduled for me — of students, of young editors, and of some publishing executives — and in a meeting consulting with about 20 employees of one publishing house, was that what happened in the US and then elsewhere in English was unique and would not be replicated in the same way in other languages and territories. What I had identified as the unique characteristics of the US market were:

Three hundred million people with one language, one currency, one commercial set of rules.

A powerful player (Amazon) able to change both publisher behavior (twisting arms to have them provide more titles as ebooks) and consumer habits (getting them to consider what started as an expensive device — a $400 Kindle) with their marketplace power.

Indeed, no other market has those two elements. In fact, in many markets, including all of the players I talked to in Latin America, Amazon is not seen as a really signficant factor.

In addition to the conditions that made the US market unique, I stated two additional assumptions which drew little objection from my audiences in Buenos Aires.

At some point — whether it is five years from now or 20 years from now — the world’s book publishing markets will look very similar. That is, the effects we see in the US — patterns of ebook uptake and the consequently devastating effects on bookstores — will somehow be replicated in other markets.

Both because the unique market characteristics of the US don’t exist elsewhere and because the market already made in the US has created global players and infrastructure that weren’t here when the ebook revolution caught hold, we need to expect that it will be a different path to the future in other places from what we saw in the US. The markets will not be made by the inherent marketplace scale and by Amazon, as ours was.

I thought some things we’ve seen constituted “universal” lessons worth taking on board. We’ve seen ebooks consistently work commercially for narrative reading and not for any other kinds of books. We haven’t seen “enhancements”, like video or interactivity, pay off in bigger sales or in making it easier to command higher prices. I suggested they should expect the same, and the people I spoke with agreed. They should also expect that the product competition from outside the commercial publishing community, which we’ve seen so far primarily from self-published authors, will drive down the prices for books from established authors as it has in our market.

But the more I probed, looking for what would make the market, the more I ended up in blind alleys. There is no online purchasing market anywhere in Latin America to compare with ours. That’s why Amazon hasn’t gained a strong foothold. Kobo’s strategy of working through local booksellers — an alliance has been formed in Brazil and they are clearly looking for partners elsewhere — apparently hasn’t made much of a dent either. One publisher said Apple sales were “promising”, but they’re still “insignificant”.

The reality underlying all this futility is the relative dearth of credit card use. In the US, we have had about three generations of ubiquitous credit card use. They are second nature to us. And the online purchasing world — Amazon in particular — would never have achieved the position they have if that weren’t true.

Well, it isn’t true in Latin America.

There is no way to make an ebook market, which must be an online market, without a payment mechanism. And the one we have in the US isn’t set up to work in Argentina, Brazil, or the rest of Latin America (or, for that matter, in many other parts of the world).

Of course, the cell phone carriers, who do send a bill and collect money from the masses in all these countries where credit card use is limited, had figured that out a long time ago. Nokia and others have been dancing around this opportunity for years. Txtr, a Germany-based ebook play, targets the cell phone companies as its path to the market. Txtr is building an inventory of titles and has come up with an ultra-low-cost ereading device called beagle to jumpstart their market. In doing that, they show that they learned something from Google’s experience, where ebook sales only started to grow when the Nexus7 tablet, which is tied to Google, made its way into the market.

All the conversation led me to come up with my own version of an “answer”; I don’t know if anybody else has made this suggestion but the small bit of conversation I was able to have between having this thought and leaving Buenos Aires didn’t uncover evidence that anybody else had.

It takes three components to make an ebook market:

1. A device to read the ebooks on. That could be a laptop or desktop computer or dedicated ereading device, but it is most likely to be a smart phone or a tablet.

2. A store: a merchandised selection of ebooks that can be shopped through browsing and searching that is compatible with the device.

3. A payment mechanism.

In the US, we really didn’t think about the payment mechanism. For many other places in the world, that’s a very tricky part.

Txtr is trying to deliver the missing pieces to the solution to the telcos, right down to delivering a very inexpensive device that can be the reader if the cell phone is not.

What occurred to me, and I’m wondering whether it is being developed by anybody else, is what I think would be an even better — as in more likely to build a market quickly — solution. What I’m imagining is that a device manufacturer (or more than one, but if one, preferably one that makes both smart phones and tablets) teams up with a cell phone company (to do the billing) and persuades the ebook retailers — Amazon, Google, B&N, Kobo — to accept payment through the phone company. Then that hardware manufacturer has a fabulous value proposition to help them sell their devices and the ebook market has a choice of the best retailers with the best selections of ebooks already aggregated.

Actually, persuading one retailer will persuade them all. If Samsung were pushing a tablet and smartphone and got any of the major ebook retailers to go for the proposition, the others would surely have to follow. And, in fact, it would make sense for either Apple or Google to do this when they sell apps in credit-card-challenged markets as well.

Another complication in some places — particularly Brazil and Argentina at the moment — is created by complex regulations that make the sale of hardware manufactured outside their country either impossible to get or extremely expensive. Although that’s a problem that extends beyond the book business, it is much more likely to be solved by a multi-function device-maker than for one dedicated only to ebook consumption.

It is interesting to think about Apple’s position here. The other big ebook retailing operations already provide apps for both iOS and Android devices as a matter of course. The iBookstore, however, is a Mac-only play. If the solution I’m envisioning were to roll out around the world — and one can imagine a company like Samsung making such a thing happen — would that continue to be the wisest play for the Apple-owned ebook retailer? I think not, but one can only imagine how intense the internal discussions around that point could be.

Today (April 30) is the last day to get the Early Bird pricing for our next Publishers Launch Conference, which will be at BEA on May 29. The theme for this event is “scale”, a fairly obvious topic of great importance that we don’t believe has been a central focus for a digital change event before. We’ll have agents talking about it as well as presentations from three publishers — F+W Media, Hachette, and Random House — who are applying it in very different ways. We’ll have Brian Napack presenting the investor’s view of its importance. We’ll have a presentation on the current state of more complex ebook- and app-making from Ron Martinez, followed by a panel of publishers considering the future of the illustrated book. And Michael Cader and I will discuss the topic of scale in circumstances that most executives won’t (or can’t) in public, like how it is applied by Amazon and how it might be used by the new Penguin Random House.

 
See pricing information and registration options on the PLC site for more details. You may register either through our dedicated Launch BEA registration link, or via the main BEA registration page where you can sign up for BEA itself and other events at the same time.

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  • http://josephratliff.com/ JosephRatliff

    I wonder if Amazon would ever create, or join forces with, an easy payment mechanism for the Latin American market?

    If they do, they have the other pieces of the puzzle in place and ready. ;)

    e.g. Go to Amazon.com, select your favorite ebook, get a Kindle FREE today by using Amazon’s Simple Pay system. No credit card required, we send you a bill etc…

    But I suppose this market may not be as addicted to credit as the U.S. is.

    • http://idealog.com/blog Mike Shatzkin

      I totally agree that the solution applies to Amazon, just as it does to apps from Google or Apple. My expertise and POV are publishing-oriented, which would explain why I’m not “up” on how much the telcos see their role as credit card players. It seems to me from the little I know that when telcos look at the ebook business, they see themselves as vendors of the ebooks themselves; hence the Txtr solution fitting their scenario.

      But the fit for them as “bankers” is much better than as “retailers”. The rest of the ecosystem is largely in place and they can provide the missing link. Having figured this out in three days of conversation in Buenos Aires, I really expect to find that they have figured it out too and that either the complications are greater than I imagine or the failure is that nobody can pull together the three different entities: device-maker, eretailer, and telco for billing.

      I have a very smart and knowledgeable readership. Perhaps the answers will come over time in the comment string.

      Mike

      • Micah

        An example of this exists today in Africa. eKitabu is an ebook retailer that offers a Bluefire powered ereader app for Android with an integrated store that supports the M-PESA mobile phone based payment system that is very popular in Kenya and Tanzania. That app can be found here: https://play.google.com/store/apps/details?id=com.ekitabu.reader

      • http://idealog.com/blog Mike Shatzkin

        A step in the right direction.

        Mike

      • Micah

        Agreed. Though you seem to advocate that large multinationals are the “best path forward” to creating a robust trade in this critical cultural sector vs local players who actually care about the regional culture and peoples. Is that your position?

      • http://idealog.com/blog Mike Shatzkin

        You know, Micah, that’s a very good question for which I don’t have a pat answer. I think it may well depend on the market and the relative strength and agility of a local player, plus whatever alliance they can make with a larger global player. Ultimately, I think most even local ebook retailers will need to be multi-lingual, or at least include a robust selection of English alongside whatever else they have. Local players won’t have the necessary scale without help; global players will need local content and a localized presentation to optimize their chances. It could well work out differently in different markets, even within a region that is presumably homogeneous, like Latin America.

        Mike

      • John Andrews

        Google’s Nexus 7 WiFi only with no expansion slot sells for £184.99 on Amazon UK. So I have just ordered an Asus Fonepad from Amazon UK for £179.99. It has slot for micro SD and 3G connectivity and can be used as a cellphone. So our friends in Latin America can save a little cash and buy a tablet phone which is ready to give your idea legs. Asus have had a bad year and could do with the business!

      • http://idealog.com/blog Mike Shatzkin

        Our friends in Lat Am can find tablets, but they often have to pay exorbitant duties that raise the price over what you and I pay. And if they don’t have credit cards, they’ve still got no way to buy ebooks.

        Mike

  • J.M. Porup

    Mike,

    I’m a former Lonely Planet author (and self-pubbed novelist) who spent many years living and travelling in Latin America, particularly Colombia.

    I have to disagree with your notion that credit card aren’t used that much. Step into any major supermarket in Colombia and you’ll find the majority of payments made with plastic. Of course, this varies from country to country, but anyone with the money to spend on a tablet or smart phone is already going to have a credit card.

    The two most important points you are missing here needed to explain what’s holding back ebook consumption in Latin America are: a lack of culture of reading, and piracy.

    Latin America has suffered under one jackbooted imperialist thug after another–first the murderous, cruel Spaniards, then the murderous, cruel yanquis. One consequence of this kind of imperialism is that it creates a major inferiority complex. The local cultures turn to American television, movies, etc for cultural role models. They don’t read books.

    Secondly, a culture of piracy is practically an institution in Latin America. Want a $10 copy of PhotoShop? No problem. Windows? No problem. (This is, incidentally, the reason Linux adoption is so poor in Latin America). Because of the relative digital freedom still enjoyed south of the border (the MPAA is not slapping million-dollar lawsuits against housewives and college students in Brazil), NO ONE CARES. Even the ridiculously small percentage of the population that reads is not going to pay for ebooks. They just aren’t.

    Fascist copyright enforcement by megalithic corporations seems to be a cornerstone of ebook adoption. For better or for worse, this is lacking in Latin America.

    • http://idealog.com/blog Mike Shatzkin

      One thing that was made clear by all the Latin Americans I spoke with is that it is a country-by-country proposition. What is true in one place isn’t necessarily in another.

      So Colombia might well be different than Brazil and Argentina, the only two countries I’ve been in. But, I can tell you, I spoke to a LOT of sophisticated businesspeople in both Brazil and Argentina and they describe a very different profile of credit card use than you are describing for Colombia. And since I posted, I’ve been getting support for the substance of the post, including word that there is an example of telco billing for ebooks in Argentina already. What hasn’t happened yet is my vision of using the telco billing in concert with the established global vendors.

      Mike

      • alejandra guerrero

        The real problem is the kind of credit card they have; the majority are local or regional, but just a few are international; so maybe a lot of people have a credit card, but just a few can use it to buy on an international site (for example Amazon).

      • http://idealog.com/blog Mike Shatzkin

        Helpful additional detail, but still an opportunity for the telcos to be the billing mechanism *if *the big international players will accept it.
        Mike

  • http://twitter.com/jcalderazi Juli Calderazi

    Mike,
    Very interesting post.
    let me add my view/opinion from Buenos Aires as i Lead a Graphic Design Studio in which we develop (HTML5 + CSS3 + JavaScript) and also provide editorial design under IDPF’s EPUB3 standards in/from Buenos Aires.
    The main problems we see in Argentina are:
    a. Device cost (Kindle Paperwhite is over USD 250!) and lack of availability.
    b. Publishers doubt to invest due to unpredictable sales, thinking that they ‘do’ know how to sell paper but are kind of afraid of eBooks even on cheap novels convertions.
    c. Many local publishers don’t understand about IT at all. Mixing or unknowing differences between epub2, epub3, mobi nor KF8 mainly because they are working exclusively with free tools for converting (in the end they adapt content). We still have a lot to grow in this field.

    - From point “c.” beleave me, we are still far away from fixed-layout developoment, interactivity for books for children or other kind of more complex ebooks.
    d. Credit card is not a serious problem for a person who can afford a Kindle reader at the price i mentioned on point ‘a’ as an example).
    e. Yet we see that our eBooks are being sold -in average- better in iBookstore rather than Kindle.
    f. Distribution (iBookstore/Amazon) is also an issue for small Publishers.

    Hope my comments and views ad some usefull info in this post.

    • http://idealog.com/blog Mike Shatzkin

      Juli, if the ebooks you’re most interested in are “complex”, including pictures, etc., I can quite understand why iBooks does better with them than Kindle. Or Kobo.

      But if there is going to be a *real* market, it will be reflected in sales of narrative reading — novels and other books you read from beginning to end. That has been proven in the English market to transfer far better to digital reading than other books do. And publishers won’t bother even with * those* conversions until they see a market. Amazon had enough market power to make them develop a bit ahead of the market in 2007. I believe if a device manufacturer announced the combination I mention in the piece, it would give the publishers enough faith that a market would happen that they’d get the conversions done. (They’re cheap for straight text, after all.) The current market size for ebooks doesn’t justify the investment.

      Mike

  • chris

    What about a free book app that as ad supported?

    Even a tiny revenue stream would be better than nothing.

  • Trini Vergara

    Mike, it was great having you among us last week in Buenos Aires,
    very stimulating and debate-opening! Let me give you some feedback on this last
    post regarding your vision for our region.

    E commerce and electronic payments are in fact, in the middle of a
    strong expansion in Argentina and in all Latin America. Since 2007 e commerce has
    grown 5 times in Argentina, and the use of credit cards is growing at a rate of
    14% year to year, with 87% of the economically active population already using.
    Of course if you take a fixed picture of the electronic payment market, the US
    is several times bigger in every way you could measure it, by absolute numbers
    or relative to other variables. But I feel we must see the tendencies playing a bigger role than pictures here.

    My perception, if I may, having created and developed publishing companies
    in Argentina, México and Brazil for the last 16 years, is that we simply don’t
    have, in our continent, enough supply and demand yet, the two sides required to build any market. Supply
    being the immense number of choice of ebooks to download plus an affordable and easy way to buy reading devices (as
    you in the US had with Amazon the minute they started offering the kindle in
    2007), and the demand being readers eager to take advantage of this supply. As
    the English speaking ebook markets developed after an innovation, in this case supply
    created its own demand (no one was anxiously waiting for ebooks before they were
    offered, as anyone would be anxiously waiting for a glass of water in the
    middle of the desert). In fact, as Spanish and Portuguese readers have been
    witnesses of the extraordinary expansion of the English market of ebooks –at the same time strong consumers, we must
    bear this in mind, you may ask any economically active person in our continent
    about their normal purchases of books in English through Amazon from each of
    our homes—, the demand here is quite ready and mature for the supply. Even a
    cultural barrier that our demand has had in terms of a certain mistrust in
    using your credit card on line, is being destroyed year by year with ever more
    secure electronic payment systems http://www.paymentmedia.com/
    (An online Latin American review that reports updated info on this subject).
    Again, this is just to add a vision of a tendency instead of a photo. From your
    three conditions: a device, a store, a payment method, I believe we will have
    quicker more, better and less expensive devices; more, better and safer payment
    methods, than “the Store”. That will take quite a longer time.

    • http://idealog.com/blog Mike Shatzkin

      Trini, your data suggests that I got a “dated” picture of reality from the people I talked to in Buenos Aires. That’s not entirely surprising when a situation is changing very quickly, as your stats about credit card use suggest this one is.

      But I’m having a bit of cognitive dissonance about the facts because it would seem to me that if credit card use is robust, Amazon should be doing great business in Latin America and the impression I got is that it is not. But five times growth in ecommerce in five years (which is doubling approximately every two years) is definitely a sign of what’s to come, which supports the original premise: we’ll all be in the same situation before too many more years have passed.

      Mike

  • Stephen McNabb

    From my time in Peru, the reading culture is just different. Granted, my time was spent away from Miraflores and other better off Peruvian communities but even if ereaders, tablets, what have you, became regularly available, i’m not sure the native market would respond. What i did notice was a lot of expats that can’t find a reliable source of english language books, expats that do have credit cards and are more responsive to electronics for reading. While it’s not a huge market, it may be one worth exploring.

    • http://idealog.com/blog Mike Shatzkin

      The cross-border opportunities for sales are huge, particularly in English. There are other issues the post didn’t touch on, such as in what currency prices are quoted. This is especially complex in Latin America. In Europe, you use Euros everywhere. There’s no equivalent “currency franca” among all the countries south of the US. Pricing in dollars doesn’t always do it and pricing in all those currencies is a lot of work for, still, relatively paltry sales.

      But these are the problems of marketplace development. They will be solved. Ten years from now, or sooner, the sales of English language ebooks across the Latin American market will be providing important revenue for publishers based in New York and London.

      Mike

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