Why Mobile Will Win: eReaders are Sustaining, Mobile is Disruptive

Andrew Savikas
January 25, 2010 | Permalink | Comments (13) | Listen

In one of the comments to Friday's speculation post about The Tablet, Scott Lewis sums up one of the most common objections to the viability of smartphone-based reading:

3.5" screen... 3.5" screen... 3.5" screen! Can't think of anything else to say. It's too small for serious reading.

And Scott is correct that a 3.5" screen offers an inferior reading experience compared with a paperback when measured using the attributes that define a quality print reading experience. And that's precisely what Kindle and other eReader and eInk-based devices attempt to do, which is "help ... sustain the rate of historical performance improvement that their customers had come to expect." This is classic Clay Christensen disruptive vs. sustaining technology, as we watch firms attempt to make a "better book":

The second pattern is that the purpose of advanced technology development in the industry was always to sustain established trajectories of performance improvement: to reach the higher-performance, higher-margin domain of the upper right of the trajectory map. Many of these technologies were radically new and difficult, but they were not disruptive.

But people who are reading on smartphones are choosing to do so based on new and different attributes. Again from Christensen:

Generally disruptive innovations were technologically straightforward, consisting of off-the-shelf components put together in a product architecture that was often simpler than prior approaches. They offered less of what customers in established markets wanted and so could rarely be initially employed there. They offered a different package of attributes valued only in emerging markets remote from, and unimportant to, the mainstream. (Emphasis added)

Attributes like convenience, portability, price, immediacy, and connectivity are more important to these customers than attributes like paper weight, coating, or smell. So it's no surprise that we're seeing the quickest growth in smartphone reading outside of established markets. (As another data point, we sell more of our iPhone apps in Australia than in Canada, even though Canada has a significantly larger population, and is a much bigger market for our print books.)

Designing eReaders aimed at converting existing readers (particularly in large English-speaking markets) is a fine strategy if your aim is to achieve better margins through a "better" book and capture more customers from among your current markets. But doing so risks at best missing a much bigger new market, and at worst a complete evaporation of the old one. Mike Masnick offers a very nice summary of this trap over at TechDirt:

Historically, pretty much every disruptive innovation has followed Christensen's curve, meaning that the eventual outcome really is a better overall solution for the market, and thus makes the market much bigger, even if it doesn't look that way at first. But, the problem is that it's difficult to see that. So, when we get industry defenders (whether it's the recording industry, the movie industry, the newspaper industry or others) insisting that it doesn't make sense to jump off that cliff and embrace these new offerings, because the market just isn't big enough (or, as short-sighted Hollywood execs have taken to saying: "turning analog dollars into digital dimes"), we note that they're absolutely making the management trap described above.

In just the past two years, we've seen smartphones get much better at doing things like navigation, video, and even voice recognition. I have little doubt they'll improve for reading too.

Several of the sessions at next month's TOC Conference are aimed at helping publishers avoid this strategy trap, as well as better understand these new market opportunities. Space is limited, so sign up today.

The Unicorns are Here, They're Just Not Evenly Distributed Yet

Andrew Savikas
January 22, 2010 | Permalink | Comments (15) | Listen

I really didn't want to do another post about The Tablet. But then I saw this piece from Fortune (via @jafurtado -- does he ever sleep?) and this sentence drove me to it:

[S]ome publishing industry watchers think that if a deal were to go through, it could lead to an Apple-enabled selling platform that would allow publishers to sell books at a price they determine.

ARRGHHHH!

Sincere apologies to William Gibson for the the title of this blog post, but everything that publishers seem to want from this device that will deliver them from evil is in fact already here.

The iPhone and the iPod (and the Nexus One, the Droid...) are rich multimedia devices capable of full-color, high-resolution display of text, images, and videos, as well as stereo audio. Many of them have GPS built in, along with an always-on web connection, and built in (or easily and freely acquired) social media hooks (email, Twitter, SMS, Facebook...). But most importantly, they feature (drum roll please ......) a platform that allows publishers to sell books at a price they determine. This market is available worldwide, it never closes, and most of its customers are within inches of the registers nearly all of their waking hours (and often beyond). This selling platform requires no inventory, returns are minimal, and sales data is provided nightly.

I've heard numbers tossed around suggesting that for some large trade publishers, Amazon represents 70% or more of their ebook sales. That's a scary situation, but consider that of the top 10 bestselling books on Kindle (as of this writing), exactly the-opposite-of-70% are available in the Books aisle in the App Store, and all at prices significantly higher than on Kindle:

• Dear John ($4.39 on Kindle, $13.99 in the App Store, )
• Adventures of Sherlock Holmes ($0.00 on Kindle, $0.99 in App Store)
• The Lovely Bones ( $7.50 on Kindle, $16.99 in App Store )

If publishers pushed the price lower on those iPhone Apps, Amazon would quickly decline from 70% of ebook sales (and I would lay odds that those additional app sales would exceed any corresponding decline in Kindle or print sales).

The problem is seriously compounded by the territorial restrictions most publishers face because of the historical approach to acquiring rights. But the Tablet isn't going to fix that problem -- publishing executives are the ones who can deal with that one, especially for frontlist titles. (I accept this is a very, very, very Hard Problem. There's enormous legacy business and infrastructure, and perhaps more importantly organizational structure and politics to manage. I'm glad I don't have that problem, but neither does your emerging competition.) Publishing executives must also accept that wishful thinking is not a pricing strategy. If your current cost structures do not permit you to include relatively low-priced mobile ebooks in your product mix (preferably at the same time or before the print version), then your cost structure must change.

But I said this post was about The Tablet.

I should clarify here that I have no actual knowledge of any Apple plans, nor any knowledge of conversations between Apple and publishers beyond what's already been reported in places like Fortune. So salt this complete and utter speculation to taste, but here goes:

• If a tablet is announced on Wednesday, it will run on a variation of the iPhone OS, and include access to the App Store (and the 100,000+ apps within it, including 15,000+ books).
• If Apple is talking to publishers, they are playing matchmaker between publishers and developers to help publishers turn their content into apps (including apps designed specifically for the new device). Book-style content is something a lot of people are already expecting to be prominent on this device, and it's in Apple's interest to make sure there's good stuff there at launch, stuff that's interesting and appealing to a wide audience. For example, I highly doubt that the New York Times just happened to sign up for the iPhone SDK and submit an App to be ready when the App Store launched. Apple must have helped. (Yet no one then claimed Apple was getting into the newspaper business...)
• That 30% is non-negotiable, so any give-and-take on this stuff relates to promotion and merchandising. It's most certainly worth a lot to any App to be featured in a product announcement, TV commercial, or ad campaign, and this device will result in whoppers on all of those fronts.
• Apple will almost certainly update iTunes (including the App Store) and that update may well include better merchandising and recommendation features for all apps, including books.

Nothing on that list prevents any publisher from taking advantage of the 50M+ strong market that already exists. While it's true that creating mobile apps requires software development skills, it's also true that at one time, creating a web site was considered something that required similar skills, yet somehow publishers seem to have figured that one out along the way. (OTOH, those two skills are merging very fast, especially for book-style content.) There's of course room for collaboration on developing or adapting open-source alternatives to commercial products.

Of course, building out mobile apps and a presence on emerging and growing platforms and markets (not to mention dozens and dozens of devices and services) is no easy feat, and in the same way that financing a print run and selling into the trade required both capital and a certain set of skills that publishers developed, a new generation of distribution service is on the horizon -- though whether existing publishers play a major role in that remains a very open question.

2009 O'Reilly Ebook Revenue up 104%

Andrew Savikas
January 22, 2010 | Permalink | Comments (2) | Listen

During the past 18 months we've seen a dramatic shift in customer preference from print to digital when looking at sales from oreilly.com, which is a substantial sales channel for us. And looking across all of our sales channels for individual ebooks -- including mobile apps -- 2009 ebook revenue was up a staggering 104% on 2008 (which was more than 50% above 2007):

Overall, printed books are still the biggest sellers for us (though Safari Books Online is our second-largest individual sales channel), but with the market for printed computer books declining at a double-digit rate, digital sales will overtake print much sooner than most people realize.

It's becoming clear that as in the print world, there are a handful of very large channels (four or so for us) and then a lot of smaller ones that together add up to quite a bit. Pushing a large quantity of content into all of these channels effectively isn't easy, and suggests the role publishers have long played of aggregating authors for retailers and retailers for authors will only grow in importance -- though whether existing publishes continue to play that role remains to be seen.

Ten Reasons Why You Should Sign up for TOC 2010 Right Now

Andrew Savikas
January 20, 2010 | Permalink | Listen

In no particular order, here's ten links/reasons you should sign up right now for TOC 2010:

• "A Conversation with Tim O'Reilly & Ray Kurzweil"
• Arianna Huffington is one of the keynotes this year
• "Bringing e-Books to Africa and the Middle East" (speakers Ramy Habeeb and Arthur Attwell interviewed by James Turner)
• Ignite! TOC hosted by Brady Forrest
• The hotel block is filling up fast
• We sold out the last two years
• "The New How" author Nilofer Merchant's workshop "Reinvention as an Economic Necessity"
• "Running Two Companies -- Taking Book Publishing beyond Publishing Books"
• An incredible lineup of speakers from around the industry (and the world)
• User-generated content (you can join the program by submitting a Roundtable proposal)

Why the Apple/Publisher News isn't Really News

Andrew Savikas
January 19, 2010 | Permalink | Comments (5) | Listen

The interwebs are abuzz over reports that Apple has been in talks with the "big 6" publishers to make their content available on the mythical (and purportedly forthcoming) Apple Tablet.

Mike Shatzkin has a nice analysis piece on why publisher-set pricing is a potential game-changer for ebooks, and while it is indeed refreshing to see retailers and publisher drop the physical-goods framework used to set most current trading terms, it's hard for me to see it as news for a few reasons:

• It's already been done. The "publisher" sets the price in the App Store, the Android Market, Scribd, and BookGlutton to name a few.
• The market and platform already exist for publishers to sell content via the App Store, and the terms are already crystal clear: Apple (and Google) take 30%.
• Most publishers don't have enough experience at retailing to find the price that maximizes sales revenue. Just look at the current pricing for ebook apps from major trade publishers. They're priced way beyond what the market will bear.

The pricing model I expect to see retailers like Amazon, Kobo, and Sony eventually adopt is a hybrid, where the retailer sets the ultimate price to the customer, and pays the publisher a fixed percentage on the sale price for that transaction (with some minimum in place, like 25-30% of the list price). That nicely aligns the incentives of the reseller and the publisher to finding the price at which total sales revenue is maximized. There is of course a not-insignificant risk that any individual retailer will swallow smaller margin in exchange for building market share, but that's already what's happening at Amazon anyway. (The hybrid pricing/commission model isn't just speculation -- we already have it in place with one ebook retailer, and I expect to see it with several others before the end of the year.)

There is nothing stopping any publisher from already putting their books in the App Store, setting the price themselves, and taking a healthy 70% of the purchase price while reaching the 50M+ people walking around already with a bookstore in their pocket. It'd be great to see some fresh attention and interest from Apple in the Books category of the App Store, but the pieces are already in place -- the market, the platform, and yes, the pricing model.

PDF vs. EPUB vs. Mobi Format Download Comparison for oreilly.com

Andrew Savikas
December 18, 2009 | Permalink | Comments (11) | Listen

UPDATE: Additional view showing relative volume, rather than percentage.

I'm honored to have been elected to the IDPF Board of Directors, and will use the occasion to share some interesting data about download formats from oreilly.com.

For most of our titles, we offer three different (DRM-free) formats: PDF, EPUB, and Kindle-compatible Mobipocket. PDF continues to be the most popular format, though it's losing ground to EPUB (and to a lesser extent, Mobi). We've been tracking which of those three formats customers actually download after purchasing (it's of course possible that they download multiple formats), and here's the breakdown over the last 16 months:

And here's the same data in terms of relative volume, rather than percentages:

David Pogue Revisits DRM Question about Ebooks

Andrew Savikas
December 17, 2009 | Permalink | Comments (13) | Listen

In a blog post today, New York Times Columnist (and bestselling O'Reilly author) David Pogue responds to a reader question about DRM (he calls it "copy protection") in light of all the recent ereader buzz, and he's very honest and open about his (very natural) reaction to finding copies of his books out in the wild:

As an author myself, I, too, am terrified by the thought of piracy. I can't stand seeing my books, which are the primary source of my income, posted on all these piracy Web sites, available for anyone to download free.

He then discusses sales for one of his books since we began offering it as a (DRM-free) ebook:

Well, it sounded like it could be a very costly experiment. But I agreed. My publisher, O'Reilly, decided to try an experiment, offering one of my Windows books for sale as an unprotected pdf file. After a year, we could compare the results with the previous year's sales.

The results? It was true. The thing was pirated to the skies. It's all over the Web now, ridiculously easy to download without paying.

The crazy thing was, sales of the book did not fall. In fact, sales rose slightly during that year. That's not a perfect, all-variables-equal experiment, of course; any number of factors could explain the results. But for sure, it wasn't the disaster I'd feared.

I'm thrilled David was willing to take a look at the data, and at least be willing to consider that piracy is less of a threat than many publishers and authors fear, especially when readers are given great reasons to pay for the ebooks (in our case, multiple DRM-free formats, perpetual access, and free updates).

What's worth also pointing out about David's books (and it's something I tried pointing out in the comments section of his blog post, but at last check my comment is still "awaiting moderation") is that while his print books continue to sell like proverbial hotcakes (one of his books made up about 4% of sales across the entire computer book market in a recent week), those DRM-free ebooks are also outperforming. The app version of iPhone: The Missing Manual is our best selling app of 2009, and two of his books are #1 and #3 for us on Kindle this year.

First Look at nook: Not Encouraging

Andrew Savikas
December 15, 2009 | Permalink | Comments (6) | Listen

We (finally) received our nooks (pre-ordered quite some time ago), and the early results are ... disappointing. Loading one (any) of our EPUB ebooks causes the nook to hang, and the book never opens.

Liza Daly hit the same snag as reported on the Threepress blog:

I tried loading a number of O'Reilly Media titles that are valid and work on the Sony Reader and every other ePub device. The Nook only brought up the "Formatting" message, and then hung. Only a full restart would bring it back.

This is an extremely serious problem.

Though many of our EPUB files are large (because of images), they're definitely standards-compliant, and load just fine into Bookworm and Stanza (which is the rendering engine used for our iPhone apps). Ditto for Aldiko (the rendering engine used for our Android apps).

We were able to get one book to load after removing all of the CSS, but that's not a viable long-term workaround. I'm disappointed to see this that after B&N watched Amazon do such a terrible job in rendering complex content on Kindle ("what are these tay-buhls of which you speak? Who would put one in a book?").

(We're clearly not the only ones disappointed -- David Pogue even called the nook "a mess" in his review.)

Dear New York Times: I would have loved to link to David's actual column, but it's behind a registration wall. Which means nobody else links to it either, which is why it's not on the first (or even the second) page of a Google search for "pogue nook". Those registrations really worth sending so much traffic elsewhere?

Rolling out Android .apk Files in Ebook Bundles

Andrew Savikas
December 4, 2009 | Permalink | Comments (3) | Listen

A distinguishing feature of Google's Android Market compared to the App Store is that it's a non-exclusive agreement. That means Android app developers are free to sell their apps in other places.

With the nearly 200 Microsoft Press ebooks now available through oreilly.com, we've begun adding the Android ".apk" application file to our ebook bundle (we'll be rolling it out for all of our ebooks soon). We don't yet know if enough people are interested enough to bother installing the application (the process isn't very friendly) as opposed to just adding the EPUB file (via Bookworm or Aldiko), but thought it worth trying.

Outperforming Books at Getting a Job Done

Andrew Savikas
November 16, 2009 | Permalink | Comments (2) | Listen

Clay Christensen talks about how people hire products to do jobs for them, and for a very long time books have been the best performers at doing certain types of jobs. That's changing of course, and the crop of new Augmented Reality applications should be on the radar of many types of publisher, from travel to fiction to repair manuals:

In the not-too-distant future, it might be possible to slip on a pair of augmented-reality (AR) goggles instead of fumbling with a manual while trying to repair a car engine. Instructions overlaid on the real world would show how to complete a task by identifying, for example, exactly where the ignition coil was, and how to wire it up correctly.

A new AR system developed at Columbia University starts to do just this, and testing performed by Marine mechanics suggests that it can help users find and begin a maintenance task in almost half the usual time.

We'll have a session on Augmented Reality at February's TOC Conference.

http://www.technologyreview.com/computing/23800/?a=f

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Michael Tamblyn's TOC Frankfurt presentation (actually a dramatic recreation thereof)

Andrew Savikas
November 7, 2009 | Permalink | Comments (6) | Listen

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William Patry delivering Frey Lecture in Intellectual Property Law at Duke

Andrew Savikas
November 7, 2009 | Permalink | Comments (0) | Listen

Google Senior Copyright Counsel Bill Patry, who will be one of our keynote speakers at TOC 2010, delivered a great lecture at Duke last month dissecting the "moral panic" approach to copyright debate, as exemplified by the late Jack Valenti, former CEO of the MPAA. His talk is just under 30 minutes, and then he goes into Q&A with the audience. I particularly appreciated his point that copyright is a social structure, not a moral one, and not one that's based on property rights.

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Qwitter: Accessible Twitter client (uses TTS) (via @doctorow)

Andrew Savikas
November 5, 2009 | Permalink | Comments (1) | Listen

Just make sure not to follow anyone who's a member of the Author's Guild ...

"The Qwitter client enables blind individuals to interface with the Twitter service globally, regardless of application focus. Based off of revolutionary concepts pioneered in The Jawter Jaws Scripts, Qwitter, with full support for the three major comercial screen readers and sapi speech, provides you instant access to all aspects of the twitter microblogging service, giving you the ability to post a tweet from anywhere, read tweets, perform searches, and far, far more."

http://www.qwitter-client.net/

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"Web-based ePub validator adds Preflight and API" (via @liza)

Andrew Savikas
November 4, 2009 | Permalink | Comments (1) | Listen

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Despite recent gains for books, Games still dominate in the App Store (via @dliman)

Andrew Savikas
November 3, 2009 | Permalink | Comments (1) | Listen

O'Reilly's Ben Lorica slices and dices current app trends for iPhone and Android (nice data points on price stabilization too):

"While it might be true that the number of Book apps is growing at a faster rate, Games continue to dominate the list of popular U.S. iTunes Apps. Games accounted for about a fifth of all iTunes apps over the past week†, but the category continued to have a disproportionate share of the Top 100 charts, accounting for 52% of the Top Grossing, 56% of the Top Paid, and 50% of the Top Free apps."

http://radar.oreilly.com/2009/11/games-top-the-charts-iphone-android-markets.html

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