This post is adapted from a speech I gave at the O'Reilly Tools of Change publishing industry conference in February.
It's a great time for ebooks. There are at least six ebook reader devices on the market or in preparation. A major business magazine predicts that up to seven million of these devices will be sold next year. A major consulting firm says ebook sales will account for ten percent of the publishing market in five years. And an executive at the leading computing firm predicts that 90 percent of all publishing will switch to electronic form in just 20 years.
But the year isn't 2010 -- it's 2000, and the ebook market is about to go into hibernation for a decade. What went wrong, and what can the failure tell us about the prospects for ebooks in 2010?
I had a front row seat for the last generation of ebooks: In 1999 I was at Softbook (one of the early ebook reader companies), and later I interacted with the folks at Peanut Press (an ebook publisher) after they were bought by Palm. My short summary of the lessons I learned: Although some of the barriers that stopped ebooks in 2000 have been reduced, most of them are still in place. So I think the market isn't likely to grow as quickly as many optimists are predicting. However, the economics of traditional publishing are very vulnerable to a paradigm change. That change is likely to happen later than most people expect, but once it happens it'll probably move very quickly indeed. So stay out of the avalanche zone.
Here are the details on why, and how to avoid the avalanche when it does happen.
Why ebooks failed in 2000
I know I'm going to get some comments reminding me that ebooks didn't ever completely fail. They've been around for a long time, and some people read books on their computers every day. Granted. But the market for ebooks and ebook reader devices utterly failed to take off the way that most observers expected in 2000. It's important to understand why, or we may be at risk of repeating history.
I think the failure of ebooks ten years ago was due to five problems:
1. Not enough ebooks. The core customers for an ebook reader are reading enthusiasts, meaning they like to read a lot of books. If you ask them how many books they'd like to have available for their reader, they'll look at you funny and say, "All of them, of course. What's the point in paying for an ebook reader device that doesn't let you any book you want to read?"
In 2000, we had a huge problem with ebook availability. They were expensive to convert to ebook format (hundreds of dollars per title), and publishers were reluctant to make that sort of investment. I don't have any statistics on the number of ebooks available back then, but I remember that it was an ongoing, major problem for the company.
Today, the situation is better but not ideal. Looking at the New York Times bestseller list for February 28, all but one of the top 10 books in hardcover fiction and nonfiction were available in ebook format. However, there is still a problem with the timing of availability. Barnes & Noble had 15 books on its "Coming Soon" list for March 10, but only six of them were to be released as ebooks at the same time as they came out in print. That's a poor ratio, and would be a significant annoyance to an ebook user.
Looking at older books, availability seems to be hit or miss. Many more books are available in ebook format today than in 2000, but there are weird gaps. For example, many of the most popular works of Robert Heinlein (one of the leading science fiction authors of all time) are not currently available in the Kindle store, but are available for Barnes & Noble's Nook device. For Isaac Asimov (another all-time great), only a small subset of his work is available electronically from either Amazon or Barnes & Noble.
This sort of confusion frustrates many ebook users.
2. Ebooks were too expensive. Many book buyers feel they get extra value when they buy a hardcover book. It's more substantial than a paperback, and has a nice slipcover. The pages don't turn yellow, and the printing is generally very clear. If they like the book, they can put it on a bookcase somewhere to show their friends how tasteful they are. An ebook has none of these benefits. To many users, it feels more like a paperback -- disposable, intangible, slightly cheap. But in 2000, many ebooks were priced the same as hardcover books.
Combine high book pricing with limited availability, and most people didn't feel ebook readers were a reasonable value. The market stalled right there.
The problem with ebook vs. hardcover pricing is that publishers bundle two sorts of value when they create a hardcover book: The physical product is more impressive, and you get earlier availability of the book, often a year or more before the paperback version comes out. Unfortunately, book buyers think most of the extra value they're paying for from a hardcover is the physical book. Meanwhile, publishers (and authors) often think the main value of a hardcover is early availability. Many authors and publishers don't want to say this to the public, but hardcover books are a tax on the most enthusiastic fans of an author.
E-publishing breaks that cozy little arrangement, by separating the early availability value from the better production value. Publishers couldn't figure out what to do about that in 2000. So they often did the conservative thing, pricing ebooks the same as hardcovers. To ebook customers, that felt like exploitation, if not outright fraud.
It still feels that way today.
The situation now is somewhat improved, in that ebook prices are often somewhat lower than hardcover prices. But it has not been resolved. For example, Amazon lists Payback Time by Phil Town as a hot new release. Its list price is $26.99 and the ebook price is $13.36, so that looks like a huge discount. But the hardcover version is already being discounted to $14.57. So the ebook price is about the same as the hardcover's street price. That's not acceptable to a lot of ebook customers.
Until very recently, Amazon had been subsidizing down the price of most ebooks to $9.99 in an effort to deal with conflicts just like this, but that arrangement broke down when challenged by Macmillan. The result was a very nasty public spat in which Amazon briefly pulled all Macmillan books (paper and electronic) from its online store. That drove many book authors into a frenzy, with most of them siding with Macmillan (examples here and here and here).
Hey, you want to know how to piss off an author? It’s easy: Keep people from buying their books. You want to know how to really piss them off? Keep people from buying their books for reasons that have nothing to do with them. And you know how to make them absolutely incandescent with rage? Keep people from buying their books for reasons that have nothing to do with them, and keep it a surprise until it happens. Which, as it happens, is exactly what Amazon did. As a result: Angry, angry authors. Oh so very angry.
Amazon apparently forgot that when it moved against Macmillan, it also moved against Macmillan’s authors. Macmillan may be a faceless, soulless baby-consuming corporate entity with no feelings or emotions, but authors have both of those, and are also twitchy neurotic messes who obsess about their sales, a fact which Amazon should be well aware of because we check our Amazon numbers four hundred times a day, and a one-star Amazon review causes us to crush up six Zoloft and snort them into our nasal cavities, because waiting for the pills to digest would just take too long.
These are the people Amazon pissed off. Which was not a smart thing, because as we all know, the salient feature of writers is that they write. And they did, about this, all weekend long. And not just Macmillan’s authors, but other authors as well, who reasonably feared that their corporate parent might be the next victim of Amazon’s foot-stompery.
--Science fiction writer John Scalzi
Hey, Amazon. When cutting off publishers, don’t start with the one that has the most science fiction writers. We will blog you dead!
--Science fiction author Scott Westerfield
What is it about the tech industry and authors? Both Amazon and Google have shown a unique ability to make authors bond with publishers, people they otherwise tend to view as parasitic scum.
The relationship between Amazon and Macmillan is very complicated, and I don't want to get into the details of their contracts here. There's ample evidence for labeling either one of them a villain and/or idiot if you want to. But my point is that ebook pricing remains screwed up today. Maybe not as uniformly screwed up as it was in 2000, but it's still a mess.
3. The hardware form factor was wrong. When ebook readers failed to sell well, ebook producers tried to focus on other electronic devices -- PCs, PDAs, and smartphones.
The trouble is that for most people, the ergonomics and psychology of reading are wrong on computers and smartphones. A laptop is the wrong size and weight to create an immersive reading experience, and the backlit displays on most laptops create eyestrain compared to reading ink on paper.
PDAs and smartphones are too small for immersive reading for most people, and besides people are usually in a different mindset when they use a pocket device. They use it briefly, in short spurts throughout the day, when they are bored or need to find a bit of information. It's like the information equivalent of snacking. A reference book might be useful in this context, and holy books like the Bible sell well in electronic form because some people take comfort in reading a bit of them every day. But for most people, a pocket device isn't something that you'd curl up with for a couple of hours, the way you would with a book.
This is an area where we're obviously making a lot of progress. Amazon and Sony have both been willing to subsidize their tablet devices for years while the ebook market develops, and Apple and other big computer companies are now entering the tablet market, not to mention a host of smaller startups.
Just remember that most electronics companies are sheep. If tablets don't sell well, they will exit the market as quickly as they entered it.
4. Periodicals weren't ready. Although we call these devices "ebook readers," if you look at user attitudes and usage patterns, in many ways they are a better fit for reading periodicals (newspapers and magazines) than they are for books. Most printed magazines and newspapers are viewed as disposable, so many people don't object to paying the same price for an e-version as they do for the printed version. And most periodicals can be read in short bursts, which fits the usage pattern for mobile devices.
Even better, an e-magazine can get to the reader faster than a printed version, because it doesn't have to be printed and mailed.
When I was at Softbook, there was a lot of user interest in getting magazines on our devices. Unfortunately, very few were available, and the effort to get them converted started too late to save the company.
Today, there are electronic versions of a number of publications targeted at the ebook readers. But a couple of additional problems have surfaced. One is that often the e-versions are inferior to the printed versions. On the Kindle store, 64% of the reviews for the e-version of The Economist magazine are a single star (the lowest possible rating). Here are some sample comments:
"I was very happy and interested in the Economist on Kindle despite the cost until I learned that the subscriber content on the Economist web site is not included....For the cost involved the Kindle subscription should at least equal the print subscription benefits."
"Why does it take a week to make the Kindle version available. I find it very convenient to read and search but do not want to be a week behind in reading."
"I only receive part of the magazine. Overseas users don't get images -- including the cover image and graphs/charts."
"Many of the charts and graphs are so small the legend is unreadable which in turn renders the displays meaningless."
Time Magazine, 46% of reviews are one star:
"This is a rather embarrassing electronic version of Time Magazine. There are NO pictures, no charts, no illustrations. Instead whenever you run into an article that has these in any decent amount, they've inserted an entry telling you to go get a PDF or print version....It looks and feels like some cheap RSS reader collected this rather than being an electronic version of the magazine."
"I'd like to read some parts of Time but not others, so I very much miss having a convenient table of contents. As it is, we have to (slowly) leaf thru all articles to find out what's of interest."
Wall Street Journal, 50% of reviews are one star:
"The pricing makes absolutely no sense: $99/year for the WSJ print edition with the Online Web edition included. $119.88/year ($9.99/month) for the Kindle edition.... That makes no sense because I could buy the Web edition and read it through the Kindle Browser for no additional charge."
"I also subscribe to the print and wsj.com which shows how the Kindle edition is very limited in his layout and pizzaz....Compared to the NYTimes Reader or even the wsj.com it is a sad commentary on their apparent lack of effort. There should be a more detailed table of contents instead of just very general catagories of articles. To find a specific article is sort of a blind proposition...being forced to go through the all article until you find what you're looking for."
In fairness, some other publications are better-reviewed. The Kindle version of the International Herald Tribune has an average rating of four stars, as does the New England Journal of Medicine. But overall, there are a lot of teething problems as the publishers figure out how to produce their e-versions and how to price them. This is likely to hinder customer adoption until the problems get sorted out.
5. Poor marketing. In my opinion, the right way to create a technology product is to identify a group of customers who have a major problem, and to solve that problem decisively. It's not clear that ebooks, especially as they are constituted today, do that. Paper books simply aren't broken, from the perspective of most users. S. David Mash had a good quote on this (link):
The reading device for the paperback is widely available for free (sunlight). This device can be used for other tasks as well.
A lot of the investment in ebook devices today seems to be driven more by strategy than by user needs. E-books are believed to be an important future business opportunity, and companies are maneuvering to be in position when that opportunity takes off.
The problem is, unless they solve a user problem, and communicate it to the users, the market won't take off in the first place. This tripped up the ebook companies in 2000, and I think it is still true today. Check out Amazon's pitch for why you should buy Kindle: