Mobipocket

Is this where I came in?

In the early 1990s, the computer manufacturers and Microsoft were doing everything they could to persuade businesses and consumers that they really, really, really needed CD-Rom drives. That Microsoft would benefit from them was very clear; the software they were selling was taking more and more diskettes to deliver in those pre-broadband, pre-Web days when all software was “shrinkwrapped.” If computer owners could take their new software on CD-Roms, the cost of delivering the product would drop dramatically.

Only a year or two before, Bob Stein had developed what we can now identify as the first “enhanced ebooks”. His company, Voyager, introduced the “Expanded Book”. These were the first efforts to use the book as the foundation to do something much more ambitious: linking in pictures and sound and video and databased information. No web links yet, because there was no web yet, but the Voyager Expanded Books really foresaw the possibilities.

Microsoft encouraged publishers to build on the Voyager Expanded Books example with CD-Roms, and, indeed, the Voyager product itself moved quickly from a diskette-based product to a CD-Rom, which gave it a multiple of the digital space to add content.

Publishers at that time had recent experience with new product forms. In the early 1980s, a few had experimented with software publishing, but that was quickly seen not to work and the publishers who tried it, like Wiley, pretty quickly got out. In the mid-1980s, audiobooks first came on the scene, however, and their acceptance, fueled by the ubiquity of tape players in cars and the relatively new Sony Walkman family of portable cassette players, was very rapid. With the encouragement of Microsoft and the hardware makers promising that all computers would soon have CD-Rom drives, many publishers jumped into what we can look back and see was an enhanced ebook business with both feet.

It turns out they jumped into an empty swimming pool. Many legs were broken.

The whole idea that people who wanted a cookbook needed video in the middle of the recipe or that people would “read” a book on a desktop computer because of sound effects in a CD-Rom version always seemed like a stretch to me. Sometime in the middle of the CD-Rom craze, I learned that McGraw-Hill had a big animal encylopedia on which something like 60% of the cost went into the sound. This was for a high-priced professional product. This made no intuitive sense. It wasn’t placing the investment where I thought anybody would find the value.

What seemed more likely to work to me at that time was to just put the book on a diskette (they were still much more common then than CD-Rom drives) to allow one to just read it on their laptop. The writer and enrepreneur Po Bronson might not remember this, but he and I discussed that idea at great length at the time. Meanwhile, I predicted in 1995 and 1996 that CD-Roms were going nowhere, that the “action” for book publishers would be online, and that the first important thing that would happen online would be increased sales of plain old printed books, all of which turned out to be utterly correct.

Now, as Yogi Berra allegedly once said, we have deja vu all over again.

In the later 1990s, the simple ebook delivery I imagined happened through online distribution, not diskettes. The devices of choice were plain old PCs (mostly reading PDFs) and handheld PDAs, reading the Palm Digital format, Microsoft’s new “dot lit” format (remember how revolutionary that was supposed to be when it first came out!), and then Mobipocket which, until Amazon bought them and largely buried them, was going to be the cross-platform standard.

Now that I had what I wanted, I was a happy guy. I started reading ebooks predominantly and I went out on the prediction limb again. I figured that PDA-reading would become widespread, and quickly.

Talk about jumping into an empty pool!

In fact, underscoring my misunderstanding, I wrote in about 2004 or 2005 that PDAs were the key to ebooks. If you carry a PDA, was my thinking, then you shouldn’t need anybody to explain the advantage of ebooks to you. It was transparent; you always had your book with you. And, conversely, I figured that if you did not have a PDA, there was no great advantage to ebooks. What I saw as the big advantage was not having to carry the book as an “extra.”

Still, ebooks just didn’t happen. I couldn’t understand it. A lot of people told me the problem was that ebooks didn’t really do anything that couldn’t be done with plain old print books. They didn’t take advantage of the opportunities afforded by digital books. No video. No audio. No web links. That didn’t seem like the answer to me. I remembered the CD-Rom fiasco.

Then Kindle came along. On the one hand, it proved me wrong because here was a device that had to be carried around (like a book) and didn’t do anything for you except let you read a book. On the other hand, Kindles sold well (particularly considering Amazon was the only place to get one) and, more important, Kindles sparked an explosion of interest in and uptake of ebooks. And that, I thought, proved that “just the book” was enough for many people to have a satisfying ebook experience.

But now it looks like market forces are going to tempt publishers to invest in enhanced ebooks all over again. We are awash in news of new ebook readers — meaning both software that can play on PCs, netbooks, iPhones, or various more dedicated devices and a slew of those more dedicated devices to choose from. So people are going to be reading books on devices that can do a lot more than a Kindle or Sony Reader can do.

Two other things happening at the same time also push for more complex ebooks. One is that the tool sets to deliver them — and even to allow any author working with a bright young person alongside of them to deliver them — are getting more ubiquitous. And the other is that publishers think they see a connection between more complex ebooks and higher-priced ebooks, and that makes them very interested in exploring the subject.

A lot has changed in the past 15 years since the CD-Rom era. I am not in any way suggesting that the CD-Rom disaster of the mid-1990s will be repeated in the enhanced ebook era we are heading to now. But nobody figured out what compelling consumer product could be made from a book with lots of digital space to play with then and we’d be kidding ourselves to think anybody’s figured it out now either. There will be a lot of trial and error work done by the industry in the next couple of years trying to find the book-into-something-better formula that works artistically, functionally, and commercially. The answers are by no means self-evident.

One cautionary tale from the CD-Rom era. One of the first big successes on CD-Rom was issued by Simon & Schuster and based on StarTrek. In retrospect, we can see that StarTrek was the “perfect subject”: the one thing that would work with early-adapting techie geeks even if nothing else would. Unfortunately, S&S read the StarTrek success as an endorsement of the CD-Rom product idea and rapidly expanded their new media division to do more titles. Nothing else came close to matching StarTrek’s success.

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In three prior posts, we’ve explored the initial conversation that surrounded the announcement that Sourcebooks would delay the ebook release of Bran Hambric; sketched out what we think are the four stages of ebook adoption; and looked at how publishers see the early “establishment” stage, which is where we are now.

This post is about the other stakeholders: authors, retailers, distributors, and, of course, readers.

In the “vision” stage of ebook adoption, which ended with the launch of the Kindle in November 2007, authors were virtually powerless. With ebook sales even for established books struggling to make triple digits, publishers were gunshy about accepting digitization costs for books other than the biggest sellers and it hardly made sense for authors to make the investment on their own. With the exception of genre fiction, particularly romance and sci-fi, where vertical audiences were able to cluster early, the ebook world was inhospitable to the author working on her (or his) own.

That has changed dramatically. Today Amazon Kindle as well as web services Scribd and Smashwords make it easy for an author to upload a pdf or doc file and publish an ebook. While Amazon appears to be paying authors only about 35% of the selling price to access its army of device users, Scribd (80%) and Smashwords (85%) pay much more. Barnes & Noble’s ebook announcement yesterday didn’t mention author-generated ebook content, but with their goal being clearly to offer as many titles as they can, one must assume they’ll figure out a way to get at it too. So there is a clear path to the public developing for anybody with ebookable content; the challenge will be driving audiences to the content.

At each end of the bell curve, the publisher doesn’t contribute much to that equation. Small books and unknown authors often get little or no support from a publisher; big books and big authors often don’t need help to alert the public to their content. So after several years of publishers driving down ebook royalties to the current Major League standards of 15% of retail or 25% of net, we can expect to see the pendulum swing back to the author. Big authors will negotiate far higher ebook royalty rates; small authors will turn down small advances in favor of self-publishing as the ebook market grows (and the physical books, remember, can be delivered through a variety of POD self-publishing options.)

The biggest book retailers basically stayed out of the ebook game during the vision stage. Both Barnes & Noble and Amazon made a pass at the ebook business, but gave up on it pretty quickly (although Amazon first bought the Mobipocket format, which became the foundation for the Kindle software.) That made sense; there was too small a market early in this decade to occupy the attention of corporations doing billions in sales on printed books.

There were other complications which ultimately left ebook retailing to the smaller players. Early in the vision stage, the two big formats for handhelds were Palm, which displayed on Palm Pilots, and Microsoft’s dot lit, which displayed on handhelds that used the Windows operating system. Adobe Reader software, which was installed on PCs, began back then and has been used continuously to this day. Early in the decade, Palm’s model was to keep control of the sale of Palm ebooks, first through “Peanut Press” and then through the “Palm Digital” store. That meant no other ebook retailer could sell Palm books. When Palm became, by far, the preferred format for handheld ebook reading, they left the general ebook retailers, including B&N, without access to the heaviest users of ebooks on devices.

Mobipocket was created as a cross-platform ebook reader that would work on both Windows and Palm software. The first indication that Amazon would look for a path to ebook hegemony was when they bought Mobipocket in 2005 (they bought BookSurge, the print-on-demand capability, at about the same time.) But even though Mobi ebooks would play on multiple platforms, the market was apparently too small to interest Amazon.

The Palm Digital store became Ereader in 2007 and the Ereader platform, just bought by Barnes & Noble, will work on almost all devices (except Kindle and Sony Reader) now. In the final years of the vision stage, before Kindle, ebooks were sold by independent bookstores (Powells being the most successful) and dedicated ebooksellers like Diesel ebooks. Discounts off publishers’ established prices were only offered in targeted and time-limited promotions and seldom offered even as much as 10% reductions. The stores were “powered” primarily by Ingram Digital, which replicates its print-world role as a digital wholesaler. Competing with Ingram was an upstart company in Cleveland called OverDrive, whose wholesaling operation is called Content Reserve. Content Reserve became the primary supplier of ebooks to libraries.

When Sony Reader came on the scene in September 2006, publishers had four formats to convert their ebooks to: Palm, Microsoft dot lit, Adobe, and Sony. Adobe, which played on PCs, was at that time by far the market leader in titles available and sales. But publishers, still seeing very little market, would not necessarily convert each ebook into all formats. At a time when Adobe had over 100,000 titles available, there were perhaps 40,000 on Palm and fewer than that on Microsoft or Sony.

Amazon’s arrival with the Kindle changed everything: title availability jumped, prices were slashed, delivery was vastly simplified, and the biggest online book-buying audience in the world was constantly pushed to think about ebook reading. That signaled the shift from the vision stage to the establishment stage.

Another critical development that enabled the movement from the vision stage to establishment was the development of the epub format by the International Digital Publishing Forum, the ebook trade association, facilitating use of ebook content across platforms.

Now in the establishment stage, the big book retailers — Amazon, Barnes & Noble, and Canada’s Indigo — are in, competing in every possible way: price, selection, and merchandising. B&N and Indigo are trying to appeal to ebook readers regardless of the device they want to use. Amazon has suggested they’ll go that way, but so far are only pushing the Kindle format for Kindle or iPhone. Prices at Amazon and at B&N are clearly being subsidized in pursuit of a larger customer base. That is going to make things very difficult for the independents or any new entrants to make a go of ebook retailing.

As we proceed in the establishment stage, we can expect publishers to start selling digital downloads and we can expect most web sites to offer vertically-curated offerings. The big horizontal aggregators will thrive for the next few years as the market grows, but the verticalization of consumer attention will eventually chip away at their sales.

The distributors are, or have been, Ingram and Content Reserve. (I say “have been” because Barnes & Noble’s just-announced deal to power the Plastic Logic content offering  positions them as a competitor to Ingram as a digital wholesaler, although there is no suggestion as to how far they want to go and, as of now, several days after the announcement, nobody else to my knowledge has raised this point.) CR has recently done a deal to provide service through Ingram’s print-world competitor, Baker & Taylor. The subsidized discounting taking place at Amazon and B&N is going to make it very difficult for the distributors’ horizontal customers. Ingram may recognize this problem as being similar to what they faced when they tried to launch ebook wholesaling the first time in the late 1990s and Amazon responded with deep discounting.

The distributors have to find new opportunities through web sites that don’t think of themselves as content-centric or content-sellers now (they’re communities.) The trick will be to curate the set of offerings in a very granular way, but there is a marketplace that will develop there that will be served by aggregators.

For ebook readers, it is definitely the best of times, so far. Because of the epub standard developed by the IDPF, most ebooks can be offered for use on multiple devices without high conversion costs (which, in any case, are easier to bear now that there are real sales.) More and more titles are available and, despite the Sourcebooks experiment that triggered this series of posts, we are moving to a standard of ebook release when the book first comes out. I believe we’ll start to see ebook releases ahead of the book before long. The competitors have prices of the content to the consumer plunging. The choice of devices is proliferating and, of course, that means the devices will cost less in the future too. The deployment of smartphones that can also be used as book readers continues to increase. The pieces are in place for evolution to turn to revolution and, when it has, a few years from now, we will move from the establishment stage to “transition”. That’s when the printed-book world as we have known it for about the last century will change into something completely different.

Due to a little programming change we did, I haven’t been alerted to comments and I haven’t been answering them for a little while. I will clean this up on Friday (and then this message will disappear…)

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