The Shatzkin Files


Publishing is living in a world not of its own making


A big ebook shoe dropped on Sunday. It dropped on Kobo first. And it has nothing to do with Borders.

Kobo just delivered a new iOS (that’s Apple’s operating system for iPad and iPhone) app that no longer contains the direct link to the Kobo bookstore within it. That means that buying new Kobo books requires going to Kobo.com through the browser (not hard, but additional steps) rather than from a single click from within the app.

Later news on this developing story is that the Google app has been “pulled” and that the Nook Children’s app no longer has a link to the store. We have to expect that the Kindle and main Nook apps will undergo the same change very shortly. That will mean that the simplest and most seamless way to buy and read ebooks on the iPad or iPhone will be through Apple’s iBookstore. It will almost certainly mean a growth in iBookstore market share at the expense of all the other ebook retailers. It will also almost certainly mean that a lot of people who read their ebooks on an iOS device (I’m one of them) and prefer to use any of the other ebook retailers (and I’m one of those too) will be inconvenienced and annoyed.

However, it is also true that Apple will benefit from this move that many of their customers will resent.

The point most emphatically made by all of this is that the book business is a cork floating on a digital device stream. We don’t control our environment. We must keep adapting to what bigger players, some of which have pretty minimal bandwidth to engage us in a dialogue and pretty minimal interest in what’s best from our point of view, see as the best strategy for them.

I have been guilty of a publishing-centric view of the possibility that Apple would enforce the rule that leads to this change since it was first prominently rumored last February. That is: with wishful thinking, when I first heard about this possibility six months ago I thought they wouldn’t do it. I talked myself into believing that because Apple had benefited substantially from the presence of the book apps on their platform, and because there are millions of us who read ebooks on our Apple devices with a distinct preference for using other readers and other ebook stores, that Apple would not enforce the rules which, through a couple of iterations of clarification, say that the way these apps and stores operated was outside their rules.

I will try to remind myself not to be making that mistake again. One of the other big companies recently congratulated me on the ease with which I accept the idea that companies (and people) act in their own self-interest. That’s what Apple has done here.

What this means depends very much on where you sit.

Barnes & Noble (Nook), Google, and Kobo all benefited enormously from Apple’s arrival on the scene in April 2010 because they brought with them the “agency” sales model that leveled pricing across all outlets for the ebooks that come from the biggest publishers. Without agency, many believe (and I’m one of them) that Amazon Kindle’s aggressive loss-leader pricing policies on the biggest books would seriously have diminished the competition.

B&N needs every penny it can spare to invest in device development and marketing; they’d be seriously handicapped if they had to give away margin to compete for consumers.

Google has signed up about 300 independent stores in the US to be partners in its ebook program. They might not have 10% that many if the indies thought they had to compete with loss-leader pricing on the biggest books even to play. When Random House switched over to agency at the beginning of March this past year — 11 months after it began — one of the motivations they cited was to respond to the desire of independent stores to sell ebooks which they heard over and over again depended on agency pricing.

Kobo has always had a global strategy that could enable them to thrive even if they had also-ran status in the US market. But they were trying hard to compete with Amazon pricing in the pre-agency days and as the smallest of the big global ebook players, they would have to be considered the most vulnerable in an environment characterized by loss-leader price warfare.

This change must mean they’ll all lose sales. It is hard to see that it could mean anything else.

Amazon will lose sales too, but they may win overall just because life gets a bit harder for B&N, Kobo, and Google.

All of these retailers have gotten an enormous (but unquantified in data revealed to them) lift from the massive success of iPads and iPhones and the retailers’ ability to access all those devices pretty seamlessly and at no cost. Amazon and Barnes & Noble sold many Kindles and Nooks, of course (Kobo’s device has been a competitor and Google is about to have one), and they’d be selling lots of ebooks if there were no iOS devices. Publishers know that, of the 55-65 percent of their ebooks sales that go to Amazon and 20-30 percent of their ebooks to Barnes & Noble, some of those sales go to the dedicated devices and most of the rest to the iOS devices. But they have no idea what the split is. Now they will start to find out as they see those sales shift from the other retailers to the iBookstore. (Sales to iBookstore, Kobo, Google, and others constitute no more than 15-20 percent of sales and often far less.)

Anyhow, the unambiguous benefit that Apple and the iOS devices used to represent to the retailers is now reduced in value, but agency pricing remains (cheering everybody but Amazon), as does the ability of their customers to use iPads and iPhones to consume their content.

Some publishers will need to reconsider their strategies.

Because Amazon will only allow agency terms to the Big Six publishers (they have ways to offer a competitive 70% share of sales, but they won’t play ball with giving up control of pricing), because some publishers aren’t comfortable with the agency model, and because the iBookstore has not been as aggressive about sourcing content as their competitors (I don’t know this for sure, but it definitely feels like all of the other ebook players have much bigger teams chasing content than iBookstore does), there are publishers selling to the other players and not to Apple. I’d imagine those might be expecting a sudden drop in sales through iOS purchases, although they never actually knew how much of their sales were iOS purchases.

And this points out a big difference between the publishers and the retailers. The retailers know how much of their sales are coming through their app customers. They also know how much of the reading of their ebooks is done on iOS devices. Publishers have no idea. In the longer run, this shows how publishers can benefit if the new players they are creating — Anobii in the UK (who has told us they will share data with publishers) and Bookish in the US (which we have heard less directly will do the same) — get some market share and can provide visibility into consumption that publishers do not have now.

And that takes me back to the book business cork bobbing in the larger digital device stream. There was no ebook business to speak of until Amazon delivered the Kindle device, put massive muscle behind selling it, and used the ability they had then to sacrifice margin to create a powerful commercial proposition that was the catalyst to create the market. There was no serious competition for Amazon until Barnes & Noble’s new management delivered the Nook with an equally powerful commitment to establishing it, using their presence in stores to introduce ebook reading to new audiences and, with further innovation of the devices, contributing to the explosive growth of reading in digital formats.

There was no restraint on Amazon’s ability to use their deep pockets to discount publishers’ content in pursuit of their own market share growth until Apple’s new device, the iPad, created a whole new sales model that forced price stability in the marketplace and, at the same time, handed publishers a new capability to maximize revenue and to use price as a marketing tool.

There was no effective way to introduce book readers to the convenience of digital reading without the investment in a dedicated device until the iPad put the capability into millions of hands that didn’t know they wanted it.

There was no great motivation for ebook retailers to introduce interoperability across devices until many ebook device owners also became iPhone and iPad owners.

We note that all these changes in the marketplace were created by others, not by publishers. That’s not necessarily a bad thing, or even a new thing. Publishers also didn’t spring for the investment that created superstores and then Amazon in the 1990s, all of which increased their sales. A publisher’s role is to use the channels that are available to get books into the hands of readers.

From most publishers’ perspectives, this change might have very little impact. Any iPad or iPhone reader who wants a book can still find and buy one. If the Apple store is strengthened at the expense of Kindle and Nook, that constitutes marketplace diversification that is good for them. (If the impact somehow fell disproportionately on Nook, though, that might not be.)

But the happy symbiosis between the ebook retailers and Apple, by which the retailers got access to customers they would not otherwise have had and Apple was able to readily deliver their customers content they hadn’t otherwise aggregated, appears to have come to an end. And the iBookstore, which had been fighting others for the scraps after Amazon took half or more of the US ebook market and B&N took much more than half the rest, is about to be a much more significant competitor.

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  • Jack W Perry

    Excellent thoughts, as always. It will be interesting to see how the market share fir ebooks evolves. Will we see a day with Amazon, B&N and Apple all at 30% and Google, Kobo and etc. fighting for the remaining 10%?

    What is certain is technology will continue to evolve and there will be continued shifts in market share.

    Yes, it has not been driven by publishers. But I do feel there will be more D2C in ebooks and soon that piece may be significant. Harlequin is in that space now, I’m sure others will follow.

    Lots of fun!

    • /blog Mike Shatzkin

      Not so sure lots will go into D2C. At least not soon. It is working for
      genre publishers and it is working for a publisher (F+W) that can use the
      same infrastructure across 25 niche stores, but the requirements to run a
      D2C business are considerable and the trade publishers also have to contend
      with how unhappy it will make their biggest customers.

      In the “long run” I agree that almost all publishers will have that
      capability, but over the next two or three years, I’m skeptical that we’ll
      see a lot of it.

      The other part to think about in all this is international. B&N isn’t a
      player in that arena (or at least they aren’t yet.) Apple could be much more
      competitive with Amazon internationally as a result of this.

      I don’t have any evidence for this, but in the back of my mind is the belief
      that Google will find ways to be much more active in the market. Whether or
      not they do, they won’t be going anywhere.

      It is still early days.

      Mike

      • http://profiles.google.com/kelly.mcclymer kelly McClymer

        Yep. I agree. We’re looking at Apple aiming at Amazon and Google. Will be interesting to see what happens on that front in the next year. Or month, as the speed of these things seems to continue to defy expectations.

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  • http://twitter.com/olympiapress Olympia Press

    Apple has been steadily improving for publishers since allowing us to bypass third-party content providers at last year’s BEA, but, they’ve too much of a backlog to be aggressively chasing any author not named Rowling.

    • /blog Mike Shatzkin

      Thanks for the info. I have no doubt that Apple can put in the tech to make
      this as good an automated process as it can be. But they almost certainly
      need more people in this endeavor. On the other hand, a lot of the
      purchasers of iPads and iPhones will just shop from what the iBookstore
      makes available if they funnel their traffic to it, so in a way it is up to
      the publishers to figure it out and get their ebooks available there.

      Mike

  • wen scott

    I always buy my books via computer link to sites, then allow Kindle/Kobo/Nook to sync the next time I have the software open (all on my smartphone). Reason? I’m not comfortable with the security and clunkiness of using built in search and/or purchase via the app software. This won’t affect me at all.

  • http://profiles.google.com/kelly.mcclymer kelly McClymer

    It seems like the dominoes keep falling, and no one is quite sure where they are going to go. My prediction when the big announcement about in-app purchasing rules were announced was that Apple was trying to strong arm distributors into giving them a piece of the pie (probably not 30%, but at least 10% — as you say, a way to look after Apple’s self interests). I figured B&N, Amazon and Kobo would object to losing a whack off sales to Apple). I didn’t think they would be stupid enough to try to find a way around it (my husband did, though).

    I’m just glad that I buy my books online through Amazon and send them to my iPad Kindle app and Kindle at the same time. I don’t like using the browser to buy on the iPad, and the iBookstore is still not customer friendly enough for me, although it is improving and I have downloaded free books there.

    I wouldn’t give up reading on my iPad for anything (except in the sun, where the Kindle wins).

    • /blog Mike Shatzkin

      Kelly, the more people who buy like you do, the less difference this all
      makes.

      The conversations are private, but my understanding is that Apple wants the
      ebooks sold through them on in-app purchases. The 30% they charge is just
      the beginning of the problem with that from the pov of other retailers.

      I believe the expression is “an offer you can’t accept…”

      Mike

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  • http://claudenougat.blogspot.com Claude Nougat

    This is very interesting: the rise of the iBookstore! That could also mean (say a couple of years from now) that enhanced e-books will finally have a market worth their while! Because enhanced ebooks, with video and music, really do need the iPad…

    • /blog Mike Shatzkin

      I’d *like* to believe that by a couple of years from now there will be
      significant tablet competition for the iPad.

      Unfortunately, there’s precious little evidence to support that belief.

      Mike

      • http://publishingyourself.blogspot.com Keri Knutson

        It will be interesting to see what kind of a market there is for the coming Amazon tablet, whether it will be a strong rival for the iPad market or just for the color Nook market. (There are predictions coming down on both sides.) I guess we’ll see in the fall. I think it will depend on app capabilities and price point. Anecdotally, most people I know with iPhones, iPods, and iPads use the Kindle app for reading books and bypass the iBookstore completely.

      • /blog Mike Shatzkin

        Hard to speculate about the tablet Amazon won’t actually admit is coming yet…

        I’m one of those iPhone readers who never uses the iBookstore. I split among the others but I admit I’m finding Kindle more and more the easiest one to shop at.

        Mike

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  • Kassia Krozser

    Amazon does offer agency terms to other publishers, but, based various conversations, the trade-offs are not necessarily worth taking the offer. One publisher I spoke with noted having an Amazon Rep and  the ability to participate in key promotions as a factor against going Agency — these were features that were critical to this publisher. Each publisher needs to decide what works best for their business. (Note: on a personal level, I expect some flavor of agency — though something with more flexibility — to become the industry standard for ebooks in the not-to-distant-future.)

    I am not so sure this benefits the iBookstore, except perhaps from the perspective of the casual shopper (I am not convinced that heavy readers, the type who buy a lot of books, use iBooks). The shopping experience leaves sooo much to be desired (and the selection is still pretty dismal). Customers with existing relationships with Amazon, Barnes and Noble, and Kobo aren’t likely to abandon those relationships, particularly because each of those players makes shopping very easy in other ways. As far as I know, purchasing from the iBookstore requires the use of an iPhone or iPad, which is far more limiting from my perspective.

    Still, this is bad news for the book business — anything that makes buying and reading books harder is not good. I do wonder if Apple will be able to enforce this rule; I can’t imagine all of their app customers (it doesn’t impact only books) taking this rule without some sort of fight.

    • /blog Mike Shatzkin

      Kassia,

      If there is a publisher aside from the Big Six with an agency deal at
      Amazon, I don’t know who they are. Can you name even one? (Offers nobody can
      accept don’t count.)

      I don’t think Apple will have a hard time at all enforcing their edict. If
      they can make Amazon, B&N, and Google yield, I am sure that it won’t take
      too long to track down any and everybody else.

      I agree that many existing customers of the other retailers will manage to
      do what they need to do through the iOS browser or simply by purchasing on
      another device (like their Kindle or Nook), but I am also sure that this
      will shift some business from those players to Apple. I don’t like the idea
      either, but I think the erosion will be palpable. Particularly going forward
      with new iOS device owners who don’t have an ebook store yet, they’re going
      to pick up customers they wouldn’t otherwise have gotten.

      Mike

    • http://pulse.yahoo.com/_LUEG2WZK7QBTM2M6FYK4QMX3MA holycow

      I am a heavy reader and use ibooks most of the time — for reading DRM-free epubs which I have transferred via itunes or from the ipad email app.

      One underlying problem behind ibookstore is that they give a lot of hoops for indie publishers to get through. if  they want their ibookstore to have more titles, they could take simple actions. Like 1)stop requiring ISBN  numbers, 2)stop  requiring that publishers upload through an Apple machine and 3)make info about publishing on ibookstore more freely available.

      Ibooks — great app .. if only they’d be more friendly to indies…

      Robert Nagle
      http://www.imaginaryplanet.net/weblogs/idiotprogrammer

      • /blog Mike Shatzkin

        We just dealt with all of this in our office. One title. As “indie” as you
        can get.

        We think it actually makes sense to own your own ISBN. That’s the identifier
        for your content and you want it to be independent of any retailer. So we
        don’t share that complaint.

        The need to upload through an Apple device is a real barrier and an annoying
        one. Although in this day and age most people ought to be able to get
        themselves to an Apple computer (they aren’t exactly rare) it seems a petty
        requirement on their part.

        The lack of promotion of what they can do for indies seems a trivial
        problem. We found out what we needed to know by googling for the
        information. Most people would just do that.

        What *is *a problem, reports our staff member who did this work, is Apple’s
        extremely slow response time to everything, from mounting the initial file
        to processing changes in a file. You can change load a title on Amazon in a
        day; with Apple apparently it can apparently take weeks. And metadata fixes
        or additions — changing a price or a page count or adding a review: same
        thing. Fast with Kindle (and Nook); very slow with Apple. That’s a case
        where aggregators might help speed things up, but why should we need them?

        Mike

  • Michael W. Perry

    I wonder if Apple’s dastardly rules would permit an app that would simply search for a book title and link (via  a browser) to that title on the iBookstore, but at the same time linking to that title at other ebook retailers.

    Apple couldn’t complain that they were being left out, since a link to them would be there and they’d get 100% of the income from those sales. And they couldn’t demand a 30% slice, since the app isn’t doing any selling.

    For what it is worth, a new version of Google Books, the app that Apple is said to have removed, just appeared in iTunes (Monday afternoon). It’s described as having “Minor enhancements and bug fixes,” with no mention of any in-app links being pulled. 

    Was Apple so shocked that none of these major ebook retailers agreed to their terms, that it has begun to bend a bit? Or is something else going on?

  • http://pulse.yahoo.com/_DVYGP3YCHYH46NJBFU2EU6SL74 Anthony

    I believe I’ll delete my iBooks app in protest.  Not that I ever use it anyway, but it’ll make me feel a little better :)

    • /blog Mike Shatzkin

      Apple had to know they’d annoy people with this. A friend who is a consumer
      electronics expert thought they wouldn’t do it because of that.

      I should have noted in the post that the most aggrieved party here is
      Amazon. I wonder what they can cook up to express *their* dissatisfaction.

      Mike

  • Chris J Snook

    Great anaylsis Mike. I love your commentary

  • http://www.facebook.com/profile.php?id=1736483685 Eric Welch

    I would be very interested to know just how much reading is actually done on the iPad.  I have a Kindle, Nook, and Color Nook (which I rooted to Android’s Gingerbread to make a great, cheap tablet) and iTouch and iPhone.  I find I read on the smaller devices by preference and the Kindle software is by far the best. I have used Kobo, Nook, iBooks, Aldiko, Stanza, and Kindle apps.  Kindle, because of its ability to link/resume across all devices the best is my favorite. Ironically, I almost always purchase books (I spend a lot on books) from the vendor’s website, or the native device – never through iBooks, nor the other apps. The Kindle software’s ability to direct the delivery of the book to a particular device is outstanding as is their Kindle.Amazon.com site for reviewing highlights (very handy when writing reviews.) To my knowledge no one else has come close to matching Kindle software’s abilities so I’m not so sure this will have much effect on their sales.

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