The Shatzkin Files


Sony exits and the ebook business loses an original player


Sony has thrown in the towel on the ebook business and turned its customers over to Kobo. This has unleashed speculation that Nook will soon do the same. If B&N were really forced to choose between the investments they need to make in their stores and the investments required to compete in digital delivery, it would be hard to see them making any other choice but to save the stores. The notion of another retailer, perhaps Walmart, buying the whole thing seems eminently logical, but one can’t account for the role that a sentimental attachment to the stores by B&N’s principal owner, Len Riggio, might play in these decisions.

Despite the hopes and expectations of upstarts like Zola Books (which itself made an acquisition lately, taking Bookish off the hands of the three publishers that started it) and Baker & Taylor’s Blio or longtime competitor Copia or the originally phone-based txtr, it feels to me like we’re seeing the beginning of consolidation of the ebook business. Verticalization may work, as it has seemed to for Allromanceebooks but just being “indie-curated” wasn’t enough for Books on Board, a pretty longtime player that expired last year. (So far, Diesel, a comparable indie, is hanging in there.)

Sony is a big company with a very tiny ebook business. They were also really the “first mover” in the modern era ebook device space. The e-ink Sony Reader is more like the Kindle and Nook than any other thing that came before. But if the ebook play ever fit into a larger objective for Sony, it is not clear what that was.

Apple opened their ebook store because they thought they had a suitable device for book consumption (the iPad), but they also had experience with selling content before (iTunes). They also see potential for iPads in the school and university markets, so they have developed technology to enable more complex books — the kind that haven’t been successful commercially yet — to be developed for their platform. Establishing their devices and the iOS ecosystem in the education market would be a big win for them.

Google recognized over a decade ago that books, being repositories of information that contained the best response to many searches, were a world they wanted to be in. With their growing position in devices — the Nexus 7 phone and Chromebook computers — and as the developers of the Android ecosystem that competes with iOS in the app market, there are many ways that being in the ebook business complements other endeavors, including, perhaps, competing with Apple and iOS in the schools.

In the last post here, I posited (among other things) that ebook retailing just wouldn’t work as a stand-alone business; it has to be a complement to other objectives and activities to make commercial sense. Sony has found that it doesn’t fit for them, almost certainly because it doesn’t add value to any of their other businesses.

Of course, ebooks definitely complement Barnes & Noble’s core business. You have a pretty obvious deficiency if you run a bookstore and don’t sell ebooks, so everybody manages to do it somehow or other. Among the mistakes Borders is accused of having made before they disappeared was turning their ebook business over to Kobo. Doubts about the future of Waterstones in the UK include whether it was wise to turn their ebook business over to Amazon. If Barnes & Noble didn’t have Nook, they’d have to make a deal with whoever did have Nook, or with somebody else.

I’m sure Apple or Kobo or Google would be just delighted to have their ebooks integrated into Barnes & Noble’s suite of offerings, and probably Amazon would too, although they would almost certainly never be asked. All of them have shown interest in affiliating with indie stores, with Google having gone in and out, Kobo now trying hard with them, and, even Amazon, which can’t penetrate indies effectively with their own published books now offering them an affiliate program to sell Kindle ebooks called Amazon Source. But surely all of them would jump at the chance to expand their distribution to Barnes & Noble customers.

It is likely that B&N believes that the Nook business can only be truly successful if they keep investing in improved devices and create a global presence. That may be true, but it also might be that Nook can be a useful adjunct to their store business without continually adding devices or creating a presence outside the US where there are no B&N stores. More and more people are comfortable reading on multi-function devices through apps. Maybe B&N could profitably hold on to a core Nook audience by emphasizing synergies with the stores more (bundling print and ebooks, like Amazon does with its Matchbook initiative and as has been tried on a smaller scale by some publishers, would be one such way) and not worrying so much about making Nook competitive with the other ebook retailers as a stand-alone business.

The wild card here is if some big outside player — Walmart being the most frequently mentioned — saw benefits to having the ebook business (or even the whole book business) in its portfolio. That’s happened in the UK, where supermarket chain Sainsbury’s bought a majority stake in Anobii (a UK-publishers-backed startup, analogous to Bookish in the US) and Tesco bought Mobcast because the ebook business was one that they thought fit in well with their offerings and customer base. (Both Sainsbury’s and Tesco made statements about strengthening their “digital entertainment” and online retailing propositions. Tesco is investing in devices as well.) Kobo has made it a pillar of their strategy to find brick-and-mortar partners all over the world.

On a global basis outside the English-language world, the ebook business is still in its infancy. But it is hard to see how any player without a strong English-language presence could develop the scale to compete with those who have it. Every nation and language will have local bookstore players who have “first claim” on the book-readers in their locality. Some might harbor ambitions to also own their local ebook business, particularly as it becomes increasingly clear that ebooks cannibalize bookstore shelf space. But the cost in cash and time of doing it, combined with the competitive advantage of having English-language books in the offering no matter what language your target market reads, will make a build-it-yourself strategy increasingly unattractive. So it would seem that Amazon, Apple, Google, and Kobo are positioned to grow organically and partner ubiquitously. And it will require some seriously disruptive event, like Walmart buying Barnes & Noble, to break the hold that quartet will have on the global ebook market over the next decade.

A potential disruptive development which this piece ignores is the possibility that ebooks become largely a subscription business over the next decade. I have two overarching thoughts on that.

One is that the book-by-book purchasing habit is sufficiently ingrained that it will not be changed drastically around ebooks in the next ten years. I have no idea what percentage of the ebook market is now subscription, but I think it is safe to say “far less than 1%”. So my instinct is that it would take wild success for it to get to as much as 10% in the next ten years.

The other thing to remember is that any ebook retailer can always develop a subscription offering. Amazon effectively started already that with Kindle Owners Lending Library. You can be sure that if Oyster or 24Symbols starts gathering a substantial share of the market, all of the Big Four as we see them here will find a way to compete for that segment. (It is considerably harder to go the other way around; it is much less likely that Oyster or 24Symbols will open regular stores.)

So whether subscription grows faster or not, the giants of ebook retailing will remain the same.

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  • Nate

    “the originally phone-based txtr, ”

    When txtr first appeared in 2009 they wanted to release an ebook reader, not a phone. It didn’t work out, and eventually txtr pivoted to providing a white-label ebook platform that combines apps, the store, and the backend.

    Speaking of acquisitions, txtr was bought by 3M in 2011 (about 40% ownership share, to be more exact). 3M also paid txtr to develop parts of the 3M Cloud Library.

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

      Thanks for straightening me out.

      Mike

  • Nate

    ” Doubts about the future of Waterstones in the UK include whether it was wise to turn their ebook business over to Amazon.”

    Many seem to have missed this, but Waterstones has an ebookstore. I think they’re one of OverDrive’s retail partners, but I cannot be sure,

    And yes, I do find it strange that they sell both the Kindle and Epub ebooks. But it seems to work for them.

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

      Actually then I think it’s smart. Why not give customers a choice of formats.
      Thanks for the info.

      Mike

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  • Matthew

    Didn’t Microsoft buy into Nook? Do they still have this investment? If so what are they doing with it? I can’t even find a Nook app for WindowsPhone 8 which suggests not very joined up thinking.

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

      They bought in without control. I agree they should be a potential buyer if B&N sells.

      Mike

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  • Ben

    Sony’s exit in ebooks just shows how you can’t force readers/consumers to change reading to digital simply because they throw money at it. Sony won’t be the last to exit this market. I highly doubt anyone would want to buy Nook either, it’s a sinking ship!

    I also don’t see Sony’s exit as a bad thing. This segment needs consolidation badly, be it Kobo or Amazon or Apple. I don’t even consider Google a player, they have invested the least effort other than scanning books that got them into a lot of legal issues.

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

      Nook has a lot of devices in place and a lot of customers. They have value, to B&N or to somebody else.

      Google will build slowly but surely. They aren’t exiting the game; they can afford to play for a long time.

      Mike

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  • carmen webster buxton

    Sony may have been around before the Kindle, but Sony didn’t understand how to sell ebooks. The original Reader had a very nice touch screen but no connectivity except via USB cable! I am convinced that part of Amazon’s success with the Kindle was the ease of buying books and being able to read them instantly. You didn’t need to own a computer to use it or know what “USB” means. That got them a large swath of the reading public who were old enough to value the ability to enlarge the fonts and too old to be comfortable downloading a book and then copying it to another device. Plus the Sony Reader Store was limited compared to the Kindle store.

    I wish I knew what was going on at B&N as far as the Nook. They seem to be expanding (to Brazil) and contracting (firing people) at the same time.

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

      Oh, yes, Sony really failed bigtime and you’re right that the big breakthrough with Kindle was direct loading of content into the device. It took Amazon to take the risk on paying for the connectivity to do that.
      Nook is confusing. But I don’t think there’s a necessary contradiction there. Firing engineers means they’re compromising future Nook development. Making a deal in Brazil means they’re trying to do a better job of monetizing what they already have.

      Mike