Have no idea what scenario is going to end up looking best for readers. Let’s explore the 5-6 main possibilities.
60-30-10 market share for top 3 companies in both eReaders and eBooks
Let’s say we end up with – 60% share for the Kindle, 30% share for Nook, and 10% for readers reading on other reading devices. We’re only considering serious readers here so feel free to complain about how your favorite brand of cellphone is being underrepresented.
On the eBook side let’s assume that Amazon manage to leverage their big market share and their Kindle Apps and keep 60% of the market. That another provider like Google manages to get 30% of the market and Nook, due to some unforseen circumstance like letting in ePub, is left with just 10%.
There would be some benefits – Amazon would have a lot of revenue coming in and would be able to keep lowering prices and keep investing in R&D, Nook and Google would have enough incentive to keep pushing for improvements and enough earnings to actually do so, customers would have a good range of choice, competition would mean lower prices, and there would be a reasonable amount of guaranteed progress.
There would also be some downsides – Except for the top two in eBooks and eReaders no one else would make significant profits, there would be little incentive for smaller companies to compete as the top two would be very firmly entrenched, customers would only have the top 2 options.
It may not be ideal – It is, however, a pretty good outcome as far as readers are concerned. It’s probably an 8 out of 10.
Single Domination – A company controls either eReaders or eBooks but not the other
Here, let’s assume its ebooks that get dominated and the company is Amazon.
At some level it doesn’t matter very much whether we have a 60-30-10 break-up in eReaders or a 30-30-30-10. The key would be that Amazon would control ebooks and would be able to dictate the direction of both the eBook and eReader markets.
The good – very low prices as Amazon applies economies of scale, Amazon would probably cut eReader prices against the promise of future ebook sales, lots of R&D investment from Amazon, a $9.99 or lower price for ebooks, Publishers would gradually be forced to become very efficient, if eBooks are the domain dominated then it ensures sustainable prices.
The bad – a closed format, Amazon gets to decide what devices its eBooks are available on and could lock potential competitors out, except for Amazon no one would be able to offer subsidized eReaders as they wouldn’t have future ebook revenue to subsidize against, no cut-throat competition in ebooks, if it’s not ebooks that are dominated by one company there’s the danger of unsustainably low prices due to competition.
Surprisingly, this isn’t a bad situation either. As long as one domain, eReaders, are left undominated the dominating company in the other domain, eBooks, has to behave or risk losing its dominance. This is probably a 7 or 7.5 out of 10.
Two dominating companies – One company controls eReaders and another controls eBooks
This is a really hard to imagine scenario and also a very interesting one. Let’s say Amazon manage to dominate eBooks in pretty much every channel and then Apple or another ‘more than just reading’ company comes up with something that gets even readers to switch (No, we’re not talking about a magical, super emotional commercial with second grade actors – we mean something like Pixel Qi screens).
We then have – one company dominating ebooks and another dominating devices. If the FTC gets involved neither would be able to leverage its dominance to attack the other (well, they could use the path of least resistance and the power of the default – However, lets pretend the FTC figures that out by then).
The good – Both companies would be using economies of scale, both companies would have lots of revenue to pump into R&D (if they choose to do so), customers would get lower prices and better features.
The bad – the companies would be struggling with each other and trying to go in opposite directions, constant attempts to extend dominance to both products, smaller companies are completely blocked out, risk of a gentleman’s agreement to simply stop progressing and turn the businesses into cash cows.
This is a scary situation – The middle path is unlikely and we’re either going to have two companies trying to outwit and outcompete each other or, more likely, two companies that just decide to carve up the pie and stop progressing. This scenario is probably a 4 or 5 out of 10.
Double Domination – A single company controls both eReaders and eBooks
Please note that this includes the scenario where a company controls one domain and also has 70% or more share in the other.
Let’s say this is Amazon. They manage to get 90% plus of the eBook market and the Kindle has 70% plus of the eReader market (things aren’t that different if you imagine 80%). They basically decide where both eBooks and eReaders go.
The good – There’s one central decision point that can move books forward, there’s one de-facto format, there is lots and lots of revenue to pour back into ebooks and eReaders, there’s no danger Publishers can sabotage ebooks, there’s no danger multi-purpose devices can sabotage reading, there are huge economies of scale which result in cheap ebooks and cheaper (subsidized?) eReaders, the company can ensure authors still get paid.
The bad – No other company has a chance unless they dream up something as huge as the eReader+eBook revolution, more and more companies drop out and we have less choice in eReaders and eBooks, Amazon might be tempted to turn the businesses into cash cows (though they haven’t done that for any business yet and you have to wonder if they’re crazy enough to take kaizen to its logical conclusion).
Overall, this is a scary scenario. If Amazon really are wedded to kaizen (so far they’ve certainly indicated it) they might drive us all the way to the lowest possible sustainable price for ebooks and eReaders and create a golden era of reading. That would be a 9 out of 10. At some point of time though the lack of competition might stall evolution of eReaders and eBooks so this golden age might not last beyond 10-20 years.
If Amazon decide to turn these businesses into cash cows then we’re in trouble. It’s a 4 out of 10 and we might exchange one roadblock (Publishers) for another (market domination of eReaders and eBooks by a single company).
Stalemate – 4 to 5 eReader + eBook companies with equal market share
This scenario is becoming possible due to Publishers’ desperate Divide and Conquer strategy – which egoistic Apple helped enable.
We might end up with a situation where 5 companies split the eReader market and 5 companies split the eBook market.
The good – lots of competition, prices keep going down, lots of innovation and new features, the possibility of a shared format since smaller companies can’t really force users to use their format, it sets the stage for the next big revolution, lots of choice for readers.
The bad – No company will be making enough to invest a lot back in, prices keep going down and authors are soon starving, it sets the stage for Publishers to get back their power, new companies stop entering the eReader market since its brutal competition and low margins.
This is actually a pretty bad scenario. Progress would stall, ebook prices would race to zero, and Publishers would be in position to re-establish their gatekeeper role. A 3 out of 10 unless you’re a Publisher.
Note: Publishers would be in a position to take back power – However, there’s no guarantee they’ll be able to re-establish sustainable prices. By promoting Divide and Conquer Publishers are risking the future of books – just so they can get back their position of power.
Publishers win – Back to a world where Publishers control eBooks while eReaders are commoditized
This is a rather unlikely scenario but worth discussing as Publishers might find a few more companies as stupid as Apple and re-establish themselves before ebooks truly take off.
The good – sustainable ebook prices, a clear demarcation of high quality books, authors don’t starve, Publishers shut up about how ink and paper and printing and storage costs nothing.
The bad – Publishers try to kill off ebooks, ebook prices go to $14.99, windowed releases whenever Publishers can pull it off, indie authors and smaller publishers get locked out, eReaders become nothing more than commodities, eBook stores become nothing more than agents.
In this scenario we would undo all the good that’s happened in the last 2.5 or so years. While it’s highly unlikely this will happen it’s worth guarding against. A 1 star out of 10.
Thoughts – Two surprising front-runners
The two potential outcomes of the Book Wars that appear to be best for readers are -
- A 60-30-10 scenario in both eReaders and eBooks.
- One company dominating either eReaders or eBooks and lots of competition in the other (60-30-10 or 30-30-30-10).
The benevolent dictator situation where one company dominates both eReaders and eBooks could be better if the dictator is constantly evolving eReaders and eBooks – However, it’s not implausible that the dictator decides to focus on profits and that would be really bad. So, readers ought to ensure that no single company dominates everything.
The situation where one company dominates eReaders and another company dominates eBooks comes out looking quite unappealing. This makes a lot of sense since the companies would be more inclined to raise profits or steal each other’s profits than evolve ebooks and ereaders.
Perhaps most interesting is the stalemate situation. The public perception is that an open system with 20-20-20-20-20 market share would be ideal. On the surface it seems the perfect outcome. However, it would very quickly stall evolution and progress and allow for Publishers or another type of middle-man to take over.
We want companies that have enough market share to be able to pump back money into research and evolution of eReaders and to be able to cut prices. We also want their market share not to be so high that they can turn the market into a cash cow. Luckily we have twin markets – eReaders and eBooks – and we can afford to have a company take over one market as long as the other remains competitive.
Started off thinking the benevolent dictator scenario or the stalemate scenario would be ideal for readers – However, it’s easy to see the huge downsides with each. Readers need to set up a 60-30-10 equation in both eReader and eBook makets as that best serves their interests.
Filed under: evolution Tagged: | future of ebooks, future of ereader
You should read “The Gorilla Game” by Jeffrey Moore.
He describes in his book the dynamics of a situation where one companies dominates one half of the equation, and calls it the Gorilla Game. The winner is the Gorilla, and the other companies are either chimps (that try to compete with the Gorilla) or monkeys (that produce generic compatibles). This is what happens when a market standardizes around a proprietary, open format (perhaps if Kindle finally decides to license their format).
He would call the 60-30-10 equation a Gorilla-less tornado. In that case the 60 company is the king, with the 30 company the prince and everyone else the serfs. This happens when a market standardizes around a non-proprietary, open format. This will probably happen if epub continues to grow unchallenged as the favored format. In that case I think B+N will get the 60, Kobo the 30 (or the other way around) and Amazon and Apple simply drop off the map after being outgrown by the rapidly expanding market.
Other dynamics are rare because markets need to standardize in order to grow rapidly and acquire mass-market adoption.
Thanks – Is that the ‘Crossing the Chasm’ author?
The Gorilla-less Tornado seems likely – though don’t see any way Amazon doesn’t get a top 2 position.