Are we at the inflection point of maximum vulnerability for eBooks?

In some ways the current stretch seems like the exact opposite of end 2009.

End 2009 – eReader sales were assumed to be less than a million, eBook availability was limited, eReader prices were pretty high (around $299), eBook market share was only around 3% to 4%. For all practical purposes, there was absolutely no threat from eReaders and eBooks.

Now (Early 2011) – eReader sales are supposed to be over 10 million, eBook availability has more than doubled in the last 12-16 months, eReader prices are down to $139, eBook market share is 10% or higher. There seems to be little doubt that eReaders and eBooks are here to stay.

Just as End 2009 seemed dreary and harmless to Publishers, the current period seems to be bright and shiny and full of promise for eReaders and eBooks.

However, we only have to look back to what happened in end 2009 to see how dangerous complacency can be.

The End of 2009 Inflection Point

A few things happened at the end of 2009 that dramatically changed things -

  1. B&N announced the Nook. Nook’s feature-list looked like a prioritized list of Kindle customer pain points with PDF support, library book support, and a lot more. It even came in at a lower price.
  2. Amazon matched the price and some of the features.
  3. Amazon ended up selling perhaps a million Kindles in the holiday 2009 stretch. B&N sold perhaps half a million Nooks.

That holiday season was the foundation for everything that has happened since. The shift was so huge that by early 2010 Publishers were jolted out of their complacency and introduced the Agency Model. They even partnered up with Apple to weaken eReaders.

Basically, Publishers’ complacency through most of 2009 came back to haunt them.

End 2009 became one of the most important inflection points in the rise of eBooks and eReaders.

Are we at a 2011 Publisher-created Inflection Point?

There are three interesting things happening -

  1. The Big 6 Publishers are finally putting up a united front. All of them are now on The Agency Model – which becomes significant since they do have access to the majority of the literary talent.
  2. By using $15 and $13, Publishers have, in effect, bifurcated readers into ‘people who can’t wait/people who don’t mind spending more’ and ‘people who boycott higher prices’. They might not have shifted everyone to $13, but they’ve shifted enough people to be able to stick with the Agency Model for the short term.
  3. eReader and eBook companies are creating problems for each other. Apple is attacking eReader apps through its 30% tax, Publishers are forming partnerships with smaller retailers like Diesel Books and Scribd, Google is throwing its hat into the ring. Each new competitor is giving Publishers an opportunity to create one more Divide and Conquer crack. Each new competitor is confusing readers.

It’s an interesting theme – Publishers are uniting and they’re helping create divisions amongst everyone else.

Will eBooks be able to make it across the big divide?

Now, the Big 6 Publishers are all on the Agency Model. That means 60% of the ebooks sold, and perhaps a similar percentage of the best titles, will all be $13 at launch. It also means they will stay at $13 for 3 to 9 months after release.

A lot of people were buying eReaders because of cheap $9.99 books. If eBooks are almost as expensive as hardcovers the main reason to buy a Kindle or a Nook Color is gone?

Most of the advantages of the Kindle and the Nook Color aren’t obvious until you start using them. 60 second downloads doesn’t fully register until you actually get a book you want within a minute. No one’s been able to explain the benefits of eInk in language users understand – You have to read on it to get it. The list goes on.

For the rest of 2011, and perhaps for all of 2012, potential eReader owners will have to decide between -

  1. Buying an eReader and getting Indie titles for $1 and published novels for $13.
  2. Sticking with physical books and getting hardcovers for $14 and $15.

60% to 70% of the time the books people will want, will hear about, and will be waiting for – will be the $13 ebooks. Those can’t really compete effectively with $14 hardcovers.

Will indie authors be able to make up the difference? Will the FTC or some European Government strike down the Agency Model? Will published authors start leaving Publishers?

Something has to happen for eReaders and eBooks to regain their huge value for money advantage. The Agency Model has completely destroyed it.

We tend to underestimate inertia

The 10% of readers who have tasted freedom, who own eReaders, and who know all about lower prices and indie authors are not going to quit ebooks.

However, what about the 90% who don’t realize all the benefits?

Any reader who is new to ebooks needs a huge impetus to push her past her inertia. It’s only then that she makes the switch to eBooks. That impetus has mostly been provided by low-priced books. The belief/reality that you would save a lot on books was a big reason so many people jumped fearlessly into eReaders and eBooks.

If eBooks are $13 at launch, the ‘cheaper books’ motivator is gone.

eReader companies will have to find some huge benefit that replaces the value/motivation ‘books at $9.99 or less’ used to provide. It can’t be something you only understand after owning an eReader. It has to be something potential eReader owners instantly see the value of.

It’s hard to imagine what the answer could be – Perhaps a free collection of back list titles and public domain titles. Perhaps some completely new feature. Perhaps a $79 eReader. Perhaps a $10 per month all-you-can-read subscription plan.

We are at another crucial inflection point – Random House joining the Agency Model has triggered it. How eReader companies and readers react will determine whether this is the inflection point that will take eBooks to 50% or whether this is the inflection point that stalls eBooks at 20% of the market.

8 Responses

  1. A lot of people I know who are avid readers and read almost exclusively on the Kindle get their books either free of between 0.99 and 4.99. They would buy no more than one or two full priced books a month, if that.

  2. “A lot of people were buying eReaders because of cheap $9.99 books.”

    It was smart strategy on Amazon’s part to “jump start” their EBR sales that way.

    “However, what about the 90% who don’t realize all the benefits?”

    They’ve got friends or relatives who can clue them in.

    “eReader companies will have to find some huge benefit that replaces the value/motivation ‘books at $9.99 or less’ used to provide.”
    “How eReader companies and readers react will determine whether this is the inflection point that will take eBooks to 50% or whether this is the inflection point that stalls eBooks at 20% of the market.”

    I don’t think sales will stall. EBR sales gains have reached the self-sustaining level. They don’t need a door-buster attraction to maintain their penetration rate. They’ll get to 50% in God’s good time. (And Amazon is already providing a benefit that usen’t to exist: an enormous library of current books–nearing 1M.)

    “Perhaps a free collection of back list titles and public domain titles. Perhaps some completely new feature. Perhaps a $79 eReader. Perhaps a $10 per month all-you-can-read subscription plan.”

    Hey, I wouldn’t object! It would be fun to see the publishers routed so soon.

    • PS: The free non-Kindle “apps” mean that there is a low-cost entry point to the eBook environment.

  3. There is a third marketplace besides the big 6 and indies – this is going to drive piracy and make it mainstream! Many people – I believe the main bulk of the market – will turn to piracy if they see that they have been wronged by the publisher already. (In the same way that people try to get their own back when they feel they have been ripped off.)

    “so you want to rent me ebook for $13 when I can buy it for $13. Well you’re just a nasty scam artist so I will just get a free copy of the internet and since you’re robbing me its not like I am doing anything wrong”.

    At the moment piracy is not mainstream because why would you bother? Why bother searching for pirated copies when its such a hassle and the legitimate ones are cheap and easy to get? At some point there will be a tipping point – enough people will do it, hear about it, talk about it, the tools will become better, specialised search engines pop up.

  4. I’m fairly optimistic about the Kindle and e-readers/e-books in general. The publishers aren’t only trying to overcome the proclivities of the hardcore reading public, they are also trying to swim against the tide created by the switch to digital, as opposed to physical media.

    In a world where the norm is becoming “$15 a month or an Amazon Prime membership buys you the right to watch thousands of movies when you want and where you want” how likely is their attempt to impose a price *premium* on digital media to succeed?

    In a world where you no longer have to buy an entire album to get the one or songs you like it’s hard to imagine a medium-to-long term future where they can charge the equivalent of the $17 for the third re-issue of a John Coltrane CD.

    They appear to be succeeding, just as the RIAA appeared to be succeeding when it went after file-sharing/piracy (take your pick). Pardon the cliche, but that’s confusing the battle for the war: the market has already started to move. Much of the current and almost all of the next generation of readers, i.e., their customers, will not accept the status quo ante.

    If anything, they are more vulnerable than the RIAA: just about everybody likes and buys music. Reading, on the other hand, is more of a minority taste.

  5. “That means 60% of the ebooks sold, and perhaps a similar percentage of the best titles, will all be $13 at launch. It also means they will stay at $13 for 3 to 9 months after release.”

    This isn’t happening anymore. For the last serveral months publishers are keeping the price of ebooks at hardcover prices when the paperback version comes out. This means paperback books are significantly cheaper than the ebook versions.

    The logic in this escapes me.

  6. I have seen very few hardcover books priced at $14 or $15 dollars. The norm seems to be $20 and up to $25.95. That said, I still would seldom buy an e-book for $13.00. There are lots of good books under $5 that have been fully edited and put out by small publishers.

    It is interesting to consider the monthly fee for e-books, much like movies are available now, but how would the authors get paid in this system? There would have to be some sort of royalty paid and the accounting for that could be a challenge. But maybe I only think so because I am not an accountant. (smile)

  7. Actually, it’s quite simple. If you look at this from the perspective of big-6 publishers trying to make eBooks fail, everything they’re doing makes sense.

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