April 18, 2009

Electronic book readers will revolutionize book reading & writing

Electronic book readers are finally reaching the critical threshold limit beyond which adoption can easily tip over for the product to become a mass phenomenon. What may really hasten the tipping point is price reduction - $300+ for just a stand alone digital book reader feels too high to me. Amazon Kindle and Sony Reader Digital Book are the two top selling pure e-book readers, in addition to several mobile phone applications that try to serve the same function on the mobile device.

Of the two, Kindle has clearly captured the imagination of early adopters (me included), given its seamless end-to-end ecosystem - a smart device plus the largest selection of current books for the device plus free wireless delivery of reading material through Sprint's wireless network in the U.S.

Amazon sold 500,000 Kindles in 2008, per Mark Mahaney, the Internet analyst at Citigroup Investment Research. The number would have been higher had Amazon not run out of the product in November, just before the start of the peak Christmas buying season. Mahaney estimates Amazon will sell 1M Kindles this year, and 3.5M in 2010. These are clearly impressive numbers for a new product.

Below are couple of "aha" moments from my experience with Kindle that makes me believe that e-book readers will fundamentally revolutionize how we read books.

Recently I was out on a beach in the Caribbean (Puerto Rico), enjoying the Sunday New York Times on my Kindle. The guy next to me, an economist, who also happened to be from New York, started chatting about the state of the world economy, and shared a few points from the book that he was reading, The End of Poverty, by the celebrated economist Jeffrey Sachs. Intrigued by Sachs' plan in his book on how to eliminate extreme poverty around the world by 2025, I tapped a few strokes on my Kindle and found that the Kindle version of this New York Times bestseller was available on Amazon. I ordered the book, and jumped out of my beach lounger to take a quick dip in the warm Atlantic water. By the time I was back, voila...there it was - the complete ~400-page long book was downloaded and available for me to enjoy.

It felt amazingly liberating. The whole world of books was at my fingertips, anytime, anywhere. (Kindle wireless service through Sprint 3G high-speed data network is currently only available in the U.S. and its territories like Puerto Rico).

Another such liberating moment came couple of months back. I was flying out of New York to speak at the FRAMES media conference in Mumbai, India. Just as I made myself comfortable on the flight seat, I realized that I forgot to bring the book, The Brief Wondrous Life of Oscar Wao by Junot Diaz, that a friend had lend me to read on the long fifteen-hour flight. I pulled out my Kindle, ordered the book on Amazon, and was half way through the introduction before flight doors were closed for the take-off.

These "aha" moments mainly reflected the fact that the whole book store was following me wherever I went. But the revolutionary aspect of e-book reader also includes leveraging three main fundamental aspects of the Internet medium - social, non-linear and interactive - to the centuries-old, un-changed, practice of book reading and writing, in addition to its ability to transform the economics of book/print business.

Digitization of books and availability of that content on the Internet will enable fundamentally new experiences. People today read books mostly in a linear and immersive manner. That will change in a connected, digital world where information and content on the Internet is organized and navigated through hyperlinks. Readers will be able to jump straight to the section, page or paragraph they're interested in inside the book. Such behavior changes will be especially relevant for non-fiction work, where plot and story-telling is less important, and linear reading consumption can be broken down. Internet search engines, which rank Web pages based on their popularity, will bubble popular sections inside books to the top of Web search results. Imagine cataloging together all digital books on a certain topic you want to research, and reviewing only the most cited sections, ranked by a search engine that lists them based on relevancy level of what you're researching and its popularity amongst the masses.

Book reading could also become social, where you'll be able to annotate purchased material, which, if you choose, could be shared with others who purchase the same material, in real-time.

Browse, discovery and consumption of book content will therefore follow the patterns users have already been using with other content on the Internet for a long time.

In addition to how books are read, book writing will also fundamentally change. Authors can include incoming and outgoing hyperlinks. Footnotes, citations and bibliographies are obvious areas to leverage links. Similar to how Search Engine Optimization (SEO) is a must-do for every Website publisher today, book authors will write to optimize how search engines crawl inside their books and improve ranking of not just the book, but individual sections and pages inside the book to the top of user search results.

Google Book Search initiative is a key component to enable the above experiences. Google recently settled with book publishers and authors in a landmark $125M lawsuit, the biggest book deal ever, thus allowing Google to continue digital scanning of copyrighted books, an initiative Google had earlier started without their permission. It already has scanned over 10M books, and continues to scan several thousand more each month, including some which are out of circulation and cannot be found in book stores.

E-book readers may also significantly transform the economics of books/print business, and push for new business models. Steve Balmer, the CEO of Microsoft, believes that in five to ten years, physical delivery of all media will disappear in the U.S.

Google's legal settlement lays out a new system that will track total revenue generated by Google from books (book sales, advertising and other fees) and split it between Google (37%) and authors & publishers (63%).

Easy availability of digital books will boost sales. Impulse purchases, as I did with The End of Poverty on the beach, will be possible, and should further increase sales. According to Amazon, purchasing behaviors already show that Kindle owners buy more books on Amazon than non-Kindle owners. I've certainly bought more books in the past six months since buying Kindle than I would have otherwise. Not that the amount of free time I now have to read books has changed, but my reading behavior has. I've all my books in one light-weight device which I can easily carry everywhere, so I'm often "snacking" different books simultaneously, and more frequently jumping from one to another depending on my mood.

In terms of new business models, a-la-carte pricing, allowing readers to purchase only certain sections of a book/newspaper/magazine will become feasible. I may want to subscribe to only the Arts section of The New York Times on Sundays, as opposed to the whole newspaper, seven days a week, or just the Special Report section of Economist, whenever this section, which is not a regular piece, is carried in this weekly magazine.

As mentioned before, e-book readers, currently priced at $300+, are too expensive for a dedicated reading device. For Kindle, in addition to revenue from the device, Amazon has the potential to make money on purchased books as well. Amazon may want to therefore consider subsidizing the device to drive adoption, and recover the subsidy by requiring customers to purchase content worth a certain amount over a specified period of time - essentially following the model used by wireless carriers where new mobile phones are sold at substantially reduced price in return for a contract that allows carriers to recover the subsidy through monthly usage fees from the customer over the contract life.

Some however estimate that Amazon is currently loosing money on every book it sells on Kindle - it's subsidizing the book prize to promote the device. It may therefore be unlikely that Amazon will take a further hit and reduce the device price.

The fight between Amazon (content distributor) and authors/publishers (content owner) over who controls the content prize is already brewing up for books, as it did earlier with video on iTunes.

E-book readers eliminate printing and distribution cost of physical books, that can be up to 40% of the total cost of a book. Some of that cost savings can be transferred to customers. Already, the Kindle versions of The New York Times best-sellers cost $9.99 (incur no printing & distribution cost). In comparison, hard copy of the same book may cost $17 on the Amazon online book store (incur no distribution cost), and up to $28 at the Barnes & Noble bricks-and-mortar store (incur both printing & distribution cost).

Additionally, and increasingly important, is the "green" nature of electronic books, magazines & newspapers. It'd be interesting to calculate the total carbon foot-print of printing all of the reading material our planet consumes every year, and estimate reduction is green-house emissions if, say, 5% of the total reading consumption on the Earth goes purely digital.

Lastly, the subscription model for print, already hailed as the potential savior of last resort for newspapers, can get a significant boost by e-book readers. Kindle already sells hundreds of newspapers, magazines, blogs, etc., on a subscription basis. Yes, some of that content is otherwise freely available on the Internet. But similar to the role that the iTunes/iPod ecosystem has played with digital music, Amazon's seamless experience with its bookstore, one-click payment leveraging existing credit card information of millions of customers from the largest e-commerce store on the planet, and the impressive Kindle device can easily popularize a micro-transaction payment model for books, magazines & newspapers. It may very well provide a new lease of life to content providers which are otherwise struggling to derive full monetization potential of their content in the digital age.


Anonymous said...

What a bunch of BS. You don't know what your talking about.

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