Are there any big opportunities remaining in eReaders + eBooks?

The Kindle, the Nook, the Nook Color, and the iPad seem to have wrapped up the reading device market.

Kindle Store, Nook Store, and a few other stores, like Kobo Store, seem to have wrapped up the ebook market.

We also have very scary competitors like Apple and Google entering the eReader and eBook markets. It makes you wonder.

Are there still opportunities for smaller players in eReaders + eBooks?

Well, there are a few things that come to mind -

  1. Indie authors get a shot. So, there’s definitely an opportunity for authors to hit it big.
  2. Accessory makers have a big opportunity – Kindle cases, Nook sleeves, reading lights and such.
  3. If one or both of Kindle App Store and Nook App Store take off, then developers get a shot.
  4. Smaller Publishers get a chance – It’s a sliver of a chance, but it’s there.
  5. Companies that provide services to authors get a chance.

Interestingly, the more chaos there is, and the more fragmented the eReader market, the better the opportunity for each of these companies to be able to rise up and become a significant company.

Most of the best opportunities are disappearing

Here are some of the opportunities that are disappearing quickly -

  1. eBooks – Not only do you have to compete with companies that have eReaders, you have to compete with companies that have huge amounts of customers.
  2. eReaders – Nearly all the smaller companies showing off eReaders at CES 2010 are dead or missing. How is a small company supposed to compete with entrenched giants?
  3. Software – There’s not really any opportunity here. You can sell through eReader stores, and that’s it. Some of the software that could have sold really well i.e. PDF support, ePub readers, etc. will probably not be let in.
  4. Services to Authors at Scale – There are giants rising up here too.
  5. Physical Book Stores – Book stores are getting squeezed. When Barnes and Noble can’t compete with eBook Stores, how’s an indie bookstore supposed to?

What’s happening, is that we have a few giants taking over what they assume will be the lucrative parts of the eBook ecosystem (ebooks, ereaders, services to authors), and leaving the scraps to everyone else (accessories, advertising, small apps). It’s understandable – It just puts smaller companies, and indie developers, in a very interesting position.

How do you make a service or a software for readers?

What if someone wanted to make the PDF Reader for eReaders?

Well, there would be a few problems -

  1. There are 5 different devices with 5 different App Stores. It’s 5 times the work. 
  2. Each store has different rules and different restrictions. In a lot of cases the restrictions include ‘no generic readers’ and an app like PDF Reader for eReaders would never get approved.
  3. Lots of stores would factor in the impact a very good PDF reader would have i.e. the possibility of lower book sales. They would be even less likely to approve it.
  4. There is very limited discoverability in the various stores, and the focus is on books, so software would get killed. PDF for eReaders would end up competing with NY Times Bestsellers.
  5. There isn’t really an avenue other than the Bestseller lists. The rich get richer, and the poor fade away into obscurity.

You also have a few additional problems – someone else would make a free PDF reader, eReader companies would prefer you have a free PDF reader since that helps them more than you selling your PDF Reader for $10, customers would expect the sort of customer service they get when they buy a $100 piece of software.

Basically, it’s really difficult for an Adobe or a Twitter to rise in eReaders because everything is very constrained.

What if someone wanted to make a Social Network for Readers?

This would be even more problematic -

  1. A few eReaders don’t have wireless. A few have wireless charges. 
  2. The eReader companies would probably ban any app that connected Kindle owners with Nook owners. Imagine the dangerous network effects that would create. 
  3. eReaders don’t yet support incremental payments in their app stores, so you couldn’t do add-on charges.
  4. Kindle and Nook both provide free Facebook and Twitter hooks. It reduces the motivation for readers to pay for another service, or even to use it.
  5. eReader companies would probably worry about the PR implications of letting everyone talk to everyone.

Logically, there’s a huge opportunity to take the millions of Kindle owners, the millions of Nook owners, and people who read on other devices, and hook them up with each other. However, Amazon owns Shelfari and wouldn’t let GoodReads in. Sony would want it to be done via a PC connection, and B&N would probably want to extend its LendMe App rather than let a third party in.

eReader companies are intentionally, and unintentionally, killing off a lot of the things that might take eReaders to the next level

Consider 4 examples of things that might take eReaders and eBooks to the next level (and, in italics, the likelihood of them happening anytime soon) -

  1.  A Common eBook format. Impossible – Each company wants to lock-in ebook revenue.
  2. Accessories and peripherals that work across all devices. Not going to happen as there are no standards. When Kindle 2 and Kindle 3 don’t have the same separation between the slots for the Kindle hinged covers, you can’t really expect different eReader companies to agree on anything.
  3. Common software across eReaders, so software companies have a large enough market, and will devote lots of resources. Impossible – Each company wants to have its own ecosystem.
  4. Killer Software that adds a lot of value to eReaders. Impossible – Only a few eReader App Stores are present. They’re all young, and they don’t allow fundamental things. If a company wanted to create a Multi-Level Folders app it couldn’t – neither for Kindle, nor for Nook. The App Stores just don’t give that level of access.

None of these is going to happen – Even though each needs to happen.

Kindle and Nook didn’t have Folders until this year. Neither has multi-level folders. If a company was allowed to make Folders for both (or either), we would have seen companies step up with beautiful examples. At least one company would have sold 1 million copies of a Folders software, at $5 per copy. Instead, no company made a dime.

All the big opportunities are constrained

It’s interesting when you think about it -

  1. The eReader Market is fragmented and eReaders don’t talk with each other.
  2. All the leaders have closed ecosystems.
  3. A lot of the big opportunities are off-limits.
  4. eReader companies also sell eBooks, and are also dipping their toes in Publishing.
  5. eReader companies also provide services to authors.

There isn’t very much left.

If a small company were to say – Let’s try to make it in eReaders and eBooks. Well, there wouldn’t be very much of an opportunity.

Are eReader companies hurting themselves by being so protective of their fiefdoms?

Currently, eReader companies seem to be saying -

We are really concerned you might topple this beautiful little ebook revenue stream we have.

Yes, yes, we know eReader owners would like a better ePub reader, a better PDF reader, multi-level folders, and personalization, and all manner of advanced reading apps. Yes, someone would write something that tracks reading history, and someone else would create a great recommendation engine.

However, we’d rather protect the revenue streams.

There are a few assumptions in there. Not the right time to go into them – but still, interesting little assumptions.

What happens with all this protection, is that nothing can upset the excellent little status quo. However, there also aren’t any very exciting developments. eReader companies are definitely hurting themselves.

The big question is – Would they hurt themselves more by letting developers and companies in freely?

Perhaps.

It’s all very convoluted

eReader companies don’t want 4 things – Another company to make them look bad by lowering quality, another company to make more profit than them, another company to steal ebook revenue, another company to take over their eReader or their eco-system.

At the same time they do want – To make more money, to improve their eReaders, to improve their ecosystem, to offer more features, to offer more value.

It’s very, very interesting. It’s also very complicated.

Unless there is more competition, we might not see a change from the current closed, overly cautious approach.

Which brings us to things smaller companies can do, to work around the controlled ecosystems of the large eReader companies.

Opportunities for Creative Destruction

The way things are set-up, it’s almost impossible for any company to come in, replace B&N or Amazon, and make $2 per ebook. It’s incredibly difficult.

The big opportunity is to come in, and say – We’ll make just 50 cents per ebook, and give the author more, and give the reader a better price. That might work.

There are some strong unfulfilled needs, and smaller companies can cater to one or more of them -

  1. Higher cut to Publishers.
  2. More Control to Publishers.
  3. Lower prices for readers.
  4. More control to readers.
  5. More options for readers – sharing, reselling, freedom from DRM.
  6. Cross-Device migration. There might be an opportunity for a company to create software that does Kindle to Nook DRM transfers. That would be HUGE.
  7. Advanced eReader features.
  8. Author Promotion. Authors are dying to get even a tiny shred of an opportunity. Any company that makes it possible, or easier, for new and existing authors to get more exposure, will get very, very rich.

There are quite a few more unsatisfied needs we could pull up.

The more protected eReader ecosystems are – The more unsatisfied needs there are

It’s such a lovely little game of Chess. You keep out everyone, and make your ecosystem very safe. At the same time, everyone in the ecosystem gets antsy because there isn’t enough new, good stuff.

The very things that eReader makers are doing to keep their ebook revenue safe (closed ecosystem, closed format), are the things that are creating strong dis-satisfaction. They are giving smaller companies, and bigger rivals, an opportunity.

It’s a balancing act, and while its killing smaller companies at the moment, it’s getting more and more dangerous. It won’t be long before Amazon and B&N will either have to open up more, or take the risk of losing more than just a small share of the profit.

What’s at the core of the success of eReaders?

The Kindle is selling an unknown number of Kindles, which happens to be more than the unknown number of Kindles sold in 2009. B&N is dropping hints about shipping 18,000 Nook Colors a day – Apparently, it’s doing so well it’s hiring 747s to ship its $250 Nook Colors to the US.

Clearly, a rising tide of eReader acceptance and success is lifting the Kindle and Nook. It’s worth taking a moment and wondering – What’s behind the success?

What are the core reasons for the success of eReaders?

It’s really hard to figure out an answer. It doesn’t help that we know neither the extent of the success, nor the pattern that it’s followed.

  • The Main-stream press attributes it to the price cut. For them, the pivotal event was the price coming down to $139.

Is that really it?

Taking a shot at writing down the core reasons

Here are 11 factors that might have played a pivotal role in eReaders becoming a success -

  1. Sony taking a stab at the eReader.
  2. Amazon releasing the Kindle. Just to be clear – Without Sony and Amazon taking a shot, we would not be seeing the rise of the eReader market. It might not have happened for another 10 years.
  3. Readers trusting Amazon, and loving books enough, to buy a $399 device. Same for Sony Reader.
  4. Oprah recommending the Kindle, and producing a $50 Kindle discount code. This was pretty huge – Kindle 1 ended up sold out for months.
  5. Readers buying a Kindle 2, that wasn’t much of an improvement over the Kindle 1, for $299 and $259.
  6. The entry of the Nook. This was perhaps just as important as Sony starting off with an eReader. It forced Amazon to add PDF support, and work really hard on Kindle 3. Nook also introduced powerful ideas like ebook lending.
  7. Amazon’s Cloud infrastructure. We got 60 second downloads, and syncing across devices. It’s a remarkable coincidence that the leading eReader company also happened to be the leading Cloud company.
  8. Competition from all directions – The iPad forcing eReader makers to add features and cut prices. Sony keeping the race going with its new models.
  9. Nook WiFi and Kindle WiFi coming in at low prices. Let’s not forget that Nook WiFi came in at $149 before Kindle WiFi came in at $139.
  10. A much improved Kindle 3. Across the board improvements, and a lower price, meant that the value for money increased substantially.
  11. The Nook Color attracting attention, and giving dedicated eReaders some freedom from iPad comparisons. Every time a reporter writes Nook Color is better than iPad, or comparable to iPad, it’s a victory for devices focused on reading.

Predictably, the Press is trying to distill everything down to one single price-cut.

You can easily argue that some of above factors played a far more important role than the magical $139 price point. A $189 Kindle 3, and a $149 Nook WiFi, would have been enough to cause eReaders to take off. Sony releasing an eReader, and Amazon releasing the Kindle, started everything.

There’s a lot behind the success of eReaders – Readers, Sony, Amazon, and B&N deserve most of the credit. However, you have to wonder if there’s more to it than the above list.

Are we ignoring a deeper, more fundamental cause for the rise of eReaders?

eReaders and eBooks represent the democratization of reading.

Yes, readers played a key role by buying eReaders. Yes, Amazon and B&N and Sony played a critical role by releasing eReaders, and competing with each other.

However, what’s the real reason eReaders have been able to rise so rapidly?

Well, there are a few things that come to mind -

  1. The Internet.
  2. Smarter readers. The Internet probably had a hand in creating smarter readers.
  3. The democratization of music, and the spread of mp3 players. It created a precedent, and gave readers and eReader companies hope that it could be done again.
  4. The rise of wireless networks.
  5. The rise of Cloud Computing.
  6. The frustration with Publishers – the lack of evolution in book technology, the rising prices, the gatekeeping.
  7. The development of eInk screens by the Cambridge based eInk Corporation.
  8. Publishers not realizing how quickly ebooks would take off.
  9. Amazon discounting books to $9.99.
  10. Readers realizing they’re the only ones paying.
  11. Readers realizing they have all the power.

There must be other things too. Perhaps things that underlie all of these.

Is it worthwhile to figure out what’s causing eReaders to take off?

Absolutely.

If we assume the Press is right, and the real secret is lowering prices, then we’ll stay focused on cutting prices and disregard the other factors.

In that case – What happens if some combination of higher level factors (eReader competition, wireless delivery), and underlying factors (frustration with Publishers, readers realizing they have all the power) is the real reason for the rise of eReaders?

We need to come up with a prioritized list, of factors and conditions that have led to the eBook and eReader revolution. Then we have to keep those factors and conditions intact, and if possible strengthen them further.

We need a prioritized list, and we have to execute on it

One easy area to execute on is eReader competition.

We can safely assume that if there aren’t 2 or 3 eReader companies fighting each other the rate of innovation will drop dramatically.

Is there something users can do to encourage eReader competition?

Perhaps. Perhaps it’s something as simple as picking a reading tablet over a tablet – Knowing that it will keep B&N in the game. Perhaps it’s buying 10% of your books from another store, or from your local bookstore – Just to make sure that store doesn’t go bankrupt.

Another easy area to execute on is spreading awareness that now, readers control everything. All you have to do is tell one friend – It’s your money. You decide which book makes the best-seller list.

It’s a self-evident truth once people hear it. Then they stop taking nonsense, such as $15 ebooks, from Publishers.

A third area that’s promising is helping readers become smarter.

If a bunch of readers get together, and figure out the actual savings when moving to eBooks – Well, they can publicize it, and totally kill all attempts by Publishers to pretend that ebooks should cost as much as physical books. Another group of readers could get together and distill out the Top 1,000 Indie Authors. Then they spread the word. Those authors do well, it weakens Publishers, and it gives readers more power over the Bestseller lists.

In the end it’s down to readers to take eReaders to their logical conclusion

There are companies that are fighting for the eReader and eBook revolution, and companies that are fighting against it.

There are authors dying for the democratization of publishing, and authors that are doing their best to support Publishers and the current status quo.

They don’t really matter though.

That’s the amazing thing – It doesn’t matter what any company tries to do, or how eloquently an author pleads his/her case. The only thing that matters is what readers decide to do.

Readers are the ones paying the money

Readers pay for books. They are the ones paying advances, royalties, publisher salaries, and publisher bonuses.

Readers pay for eReaders and ebooks. They are the ones paying for all the advances in eReader technology.

In the midst of all this song-and-dance about ‘the future of books’ and ‘the future of reading’, it’s nice to take a step back and realize that what every book store owner, publisher, author, and company is doing is trying to sell itself to readers.

Readers decide everything.

We don’t even have to get started on the fact that there are hundreds of millions of people who want to write books, and only tens of millions of people who want to read books. Even before we get into that supply and demand dream/nightmare, we already have readers in control – because they are the ones powering the entire book industry with their purchases.

10 Kindle, eReader Predictions for 2011

The Kindle and Nook and Sony Reader have a lot in store for us in 2011. Here are 10 Kindle, eReader predictions that may or may not come true.

Race to $100 – Part 2

We’ll see the drop in eReader prices continue with the $100 mark well and truly breached.

The Kindle WiFi will hit $100 by March 2011, and $75 by July 2011

It’s looking quite likely that the Kindle WiFi will drop to $100 or $110 early in 2011. Perhaps around the time the iPad 2 launches. Later, after Amazon has achieved higher economies of scale, it’ll probably decide to subsidize eReaders even more and we’ll see the Kindle WiFi hit $75.

Nook 2 will further lower prices by coming in at $150

B&N seems intent on under-cutting its rivals on price – It priced the Nook 1 cheaper than Kindle 2 despite the LCD touchscreen, it priced Nook Color at an absurdly low $250. It’s almost certainly going to introduce Nook 2 at $150 and force Amazon to cut the Kindle 3’s price.

Kindle 3 will hit $125 by July and might even go lower

Once Nook 2 arrives at $150 Amazon will have no choice – It’ll have to price Kindle 3 at $125 or lower.

We’ll end up with an even more fragmented eReader market.

eReader Market Fragmentation will continue

By mid 2011 we should see 5 different eReader segments -

  1. Kindle WiFi and a few other eReaders in the $75 to $100 range. 
  2. Kindle 3 and Nook 2 in the $125 to $150 range.
  3. Nook Color and Kindle Tablet in the $200 to $250 range. 
  4. Color Kindle and Color eInk based eReaders in the $300 to $400 range.
  5. Larger screen eReaders in the $300 and higher range.

3. and 4. will be the most interesting segments as Kindle will have to compete with an incumbent market segment leader.

4. and 5. will have to compete with the iPad 2 and its promise of ‘do more than just read’.

New Kindles and new eReaders in 2011

If you found the last section’s mention of Nook 2, Kindle Tablet, and Color Kindle intriguing you’ll love this section.

Amazon will release a Kindle Tablet

While it’s possible Amazon is rounding up gaming companies and Tablet related patents on a lark, it’s far more likely that Amazon is planning a Kindle Tablet. The Patents are its defence and the gaming companies the ammunition.

If there was any doubt at all in Amazon’s mind about the viability of a Kindle Tablet, the success of the Nook Color should remove it.

You also have to factor in that Amazon needs a Tablet – to compete with multi-purpose devices, to compete with iPad 2, and to compete with Nook Color.

Amazon will release a color eInk based Kindle 4

The second big release for Amazon in 2011 will be a Kindle 4 built using Mirasol color ePaper.

eReader maker PocketBook has announced a 2011 release of its Mirasol based color eReader. It will retail for $440 (courtesy Yuzutea). There’s no way Amazon is going to let PocketBook be the first company to introduce a color eInk eReader to the US.

Amazon has to find an advantage over other eReaders, and a way to compete better with ‘Reading Tablets’ and Tablets, and color eInk is as good an option as any.

B&N will release a Nook 2 and a Nook Color 2

B&N will be almost as busy as its lawyers -

  1. Expect a Nook 2 in March or April 2011. It’ll come in at $150, have eInk Pearl and touch, and will instantly put B&N back into the thick of the dedicated eReader race.
  2. Later in the year we should see a Nook Color 2. The quick release of the Nook Color 2 will be motivated by the strong sales of the Nook Color (more on that later).

Both will do very well. B&N will cement its #2 position in the eReader and eBook markets and will also cut into Amazon’s lead.

Sony will again push the technology bar – and will again fail to make headway

Sony will introduce new eReaders that will be the best eReaders around. It’ll disregard a few things – value for money, wireless downloads, having a good ebook store, making things easy for users.

So, yet again, Sony Readers will fail to have the impact they could.

Sony will then partner up with an eBook provider, perhaps Kobo, and make another push towards the end of the year.

Smaller eReader companies will announce lots of eReaders which will never be released

Ratio of ‘eReaders announced at CES’ to ‘eReaders actually released in 2011′ will be 30:1.

Things will get even tougher for new eReader makers because Kindle and Nook will have even bigger leads and will be subsidized even more.

Kindle, eReader sales will grow to tens of millions of eReaders

One analyst is predicting an 80% increase in eReader sales. It’ll actually be a lot more – especially if you include Nook Color and the soon-to-be-released Kindle Tablet.

Kindle to 10 million in annual sales, Nook to 3 million in annual sales

Kindle will sell very, very well and will hit the ’10 million Kindles sold in 1 year’ mark.

Nook 2 will sell around 3 million units.

Neither company will release numbers although B&N might give in to temptation and steal Amazon’s ‘millions of Kindles sold’ Press Release.

Nook Color to 10 million in annual sales, Kindle Tablet to 2 million in annual sales

Nook Color will exceed all expectations and sell 10 million units. It’ll steal sales mostly from iPad and Android Tablets.

Kindle Tablet will take a few mis-steps, then recover and sell a couple million units by end 2011.

Kindle Tablet mis-steps will include – Depending on external software, making everything tightly controlled, including its own products as defaults.

Color eReaders, Reading Tablets, and Tablets

We will see good old black-and-white eInk eReaders face three considerable challenges – Color eReaders, Reading Tablets, Tablets.

Color eReaders will arrive and will fail

2011 will be the ‘Year of the Arrival and Failure of Color eReaders’.

Year of the Arrival because color eInk is almost ready and there’s a lot of pressure from Tablets and Reading Tablets.

Year of the Failure because the prices and quality won’t be good enough. It won’t be a bone-crushing, soul-sapping defeat. Just a semi-painful ‘it was a learning experience’ kind of defeat.

Color Kindle will arrive

Amazon will be squeezed by Tablets, Reading Tablets, and Color eReaders and will decide to push a color Kindle to market.

It’ll get great reviews and then people will decide the $125/$150 Kindle 3 is just as good for reading books. Amazon will probably be happy to have the color Kindle as it’ll put an end to Color eReader vs Kindle 3 comparisons.

Reading Tablets will become very popular

Nook Color and Kindle Tablet will steal lots and lots of casual readers – from iPad 2.

Dedicated eReaders will get all the hardcore and regular readers.

Tablets will still be stealing away casual readers – just not very many

iPad 2 will still get a decent number of casual readers – who will then become even more casual readers.

There will be endless articles about how Tablet X, Y, and Z will destroy eReaders and the significance of having accelerometers in your reading device – How do you know you’re holding the book the right side up without an accelerometer?

Kindle, eReader Predictions for 2011 – Extras

We’ll see a lot of interesting things happen in areas that intersect with eReaders.

eReader sales will spur eBook sales to 21.5% market share

All those people buying dedicated eReaders devoted to reading, and Reading Tablets focused on reading, will end up reading more than they did. It’ll lead to a huge increase in ebook sales.

eBooks will account for 21.5% market share by November 2011.

One of the Big 6 Publishers will go bankrupt

2011 will be a year of huge shifts. A direct result will be that one of the Big 6 Publishers will go bankrupt.

One of the eReader App Stores will explode in popularity and importance

We know that, just like in every other market, one App Store is bound to take over. In the eReader market, we have the Kindle App Store for 5 million or so Kindles, and the Nook App Store for half a million or so Nook Colors.

One of the two stores is going to take off and the associated device will see an additional 2 to 4 million sales because of that. This is on top of the above estimates.

Regardless of my personal desire to see lots of killer apps on the Kindle, it’s likely that the Nook Color will be the one seeing a lot of killer apps – thanks to the LCD screen, the touch capability, and the Android foundation.

At least a few indie authors will spurn book deals

The true measure of the impact of eReaders and eBooks will be when a few indie authors find success in the Kindle Store, and the Nook Store, and then turn down book deals.

This will happen in 2011 itself, and will become a trend by end 2011. Authors will do the math, and will figure out that 70% of $3 is a lot more than what they’d earn with Publishers.

Amazon Encore is excluded as it holds the keys to the Kindle Store.

Authors will become a bigger market than Readers, and companies will rise up to serve them

We’re talking about companies that provide ‘great’ service, and increase the probability of success by 0.01%.

There will be a few lone exceptions that actually help authors succeed.

Closing Thought – 2011 is going to be crazy and fun

A lot is going to happen in the eReader World in 2011. There’s so much to look forward to.

We have brand new technologies, and brand new entrants. We have B&N working on an answer to Kindle 3, and Amazon working on an answer to Nook Color. We have iPad 2 and Pixel Qi Tablets. We have smaller eReader companies promising color eInk eReaders.

We have our 20 Kindle, eReader predictions for 2011. It’s going to be a very interesting year for the Kindle, and for eReaders.

Kindle, eReaders and Relativity (Relative Competition)

With the Kindle and Nook now becoming increasingly main-stream we get a lot of different competitors trying new strategies. This is true of both new eReader entrants and new eBook Store entrants.

One of the most fascinating aspects is the focus on features that are significant mostly because they are ‘relatively’ better than what existing eReaders have. While eReader companies have introduced some features that are long-term differentiators, most of the features they have been adding are features that are easily matched and do little more than give them a month or two of leg-room.

Examples of Relative Competition

Here are a few examples of what we mean when we say ‘relatively better features’ and relative competition -

  1. Nook introducing a LCD touchscreen to make navigation ‘easier’ and to let users use cover-view to browse books.
  2. Sony attempting to divide the 6″ eReader market into three with their Touch, Pocket, and Daily Reader editions.
  3. Kobo going with a cheaper price point.
  4. Nook adding a Nook WiFi.
  5. Nook adding Lending. 
  6. Google adding browser-based reading.
  7. Sony adding touch and free hand drawing.
  8. Nook adding PDF support.
  9. Google enlisting independent bookstores.

A few of these are great moves. A few are great moves but easily matched. Most of these are temporary band-aids which don’t really do much in the long-term.

Small incremental band-aids don’t do much 

Consider what Kobo did by introducing a rather cheap eReader – it established the Kobo eReader as the cheapest eReader. However, Nook WiFi and Kindle WiFi soon destroyed that advantage and Kobo’s USP was gone. If you’re using an easily matched feature as your Unique Selling Proposition you’re setting yourself up for failure.

It’s the same with Nook introducing a touchscreen for navigation – it did more harm than good as it didn’t work well with the eInk and caused all sorts of usability problems. It also wasn’t a real move forward. The original Nook’s touchscreen was a temporary and rather pointless move. Contrast that with the Nook Color which you can argue is a real step forward since it’s the first ‘reading tablet’.

However, there are worse things than a relative advantage quickly disappearing.

Relative Competition can be harmful to everyone

Nook and Sony added ePub support and support for library books – All that does is reduce ebook revenue and allow anyone to come in and steal revenue. A classic case of cutting off your nose to spite your face.

Nook adding ebook lending, without thinking through the consequences, is another example. With eBooks the used book market and book lending were both gone – What eBook company in its right mind would bring these back?

It’s insanity. Users were already comfortable with not having lending and not being able to resell their ebooks – the precedent had been set. B&N destroyed all that.

Relative Competition is weakening eReaders

There are a few features that really helped eReaders and are good examples of competition being good -

  1. PDF support. 
  2. Adding touch.
  3. Introduction of the ‘Reading Tablet’ as it forces eReaders to scramble to add touch and color.
  4. Lower prices.

There are also cases where competition is hurting eReaders -

  1. Changes like adding lending and adding ePub support and introducing support for library books – these hurt eBook revenue. For eReaders to keep growing the ebook revenue stream is critical – It provides the money for further Research and Development.
  2. Market confusion caused by Sony taking one clear niche (small screen eReaders) and breaking it into 3 niches (pocket, touch, and daily editions).

The latter move is dangerous because it confuses users.

Healthy Competition vs Relative Competition

Currently most companies have shown a strange focus on ‘beating the Kindle’ and ‘destroying Amazon’s revenue streams’ rather than on making a better eReader.

The Nook was a mix of good and bad changes. The Nook Color is a very interesting attempt at trying something new. Sony finally got touch right and that’s a valuable differentiator. However, every other eReader company is stuck in ‘Let’s be 10% better mode’ or ‘Let’s spoil the party for everyone’ mode.

Not sure what Google’s attempts will result in – However, not having an eReader is a strange choice.

Healthy Competition makes everyone better

When eReader companies add features that increase the scope of eReaders, or improve the value proposition without destroying future revenue streams, it makes everyone better. Example Features are – PDF support, touch, introducing a ‘reading tablet’, an SD card slot, increasing performance, lowering the price without going into the red, adding new features like text to speech, adding reading apps.

Short-sighted Relative Competition makes everyone worse off

This is especially true if it’s a catch-up feature or a destroy-revenue feature. Examples include – adding lending, adding selling of ebooks (hopefully we don’t get this), adding an open format that kills the ability of device makers to earn money for further R&D, confusing users by fragmenting a market, introducing knock-off and clone products.

Luckily, most of the clone eReader makers have died off or have decided to quit the market. However, we still have B&N and Sony making moves that hurt every single eReader maker – including themselves.

Closing Thought – We need Actual Differentiators and Long Term thinking

All three of Kindle, Nook, and Sony Reader need to focus on features that give them long-term, tangible advantages. Features or product offerings that other eReader makers can’t easily duplicate.

When B&N introduces an interesting new product like Nook Color it’s 6 months or more until Kindle and Sony Reader can catch up. That’s a good move. Provided B&N keeps improving Nook Color it’ll always have a relative advantage.

If B&N adds ebook lending all it does is force other eReader makers to add the same feature and lose ebook revenue. It’s also an easy feature to add – Anyone could add it in a month or two. Kindle and Sony Reader haven’t gotten it yet because it’s not a smart move. Now Kindle will be adding it because it’s forced to.

It’d be nice if eReader makers and eBook Stores approached books as a market they want to make good money from for 1,000 years while providing good value to readers – rather than an opportunity to show how good they are at destroying profits and making childishly shortsighted moves.

eReaders, Kindle gaining traction

Perhaps it’s due to the Kindle 3, perhaps it’s due to eReader ownership reaching a tipping point, perhaps it’s due to everyone finally realizing eReaders aren’t going anywhere – eReaders and the Kindle are gaining a lot of traction. 

People are beginning to realize eReaders are more than a fad

There’s a very real sense that eReaders could be something BIG – In particular, a lot of people are beginning to feel that eReaders are set to explode this holiday season and will keep growing all through 2011 and 2012.

People finally feel that eReaders aren’t just a 1 or 2 year craze that some loony ‘reading people’ are indulging in.

For a lot of us this has always been obvious – 

the Kindle and Nook and Sony Reader obviously have a future. After all, books are a $23.8 billion a year business and tens of millions of people in the US love reading and eReaders are particularly suited to reading.

It’s also easy to be optimistic because we’ve seen eReaders add-on features and cut price relentlessly.

As the technology and devices evolve eReaders can take over all of reading – not just reading of books.

However, for people who aren’t into reading the Kindle has been an inexplicable device. Now that there’s a Kindle WiFi available for $139 and our investment in Kindles and Nooks has resulted in feature-rich eReaders at prices non-readers consider reasonable they’re beginning to realize eReaders really are great for reading.

The net result is that for the first time there is a belief spreading amongst the general population that eReaders like Kindle and Nook are here to stay.  

People still haven’t crystallized that they can read more than books on Kindles. They still don’t see that their assignments and papers and shopping lists and work documents will someday be read on a dedicated reading device. However, at least they’re beginning to see eReaders as the best option for reading books.

What are the signs that eReaders + Kindle are gaining traction?

Well, let’s start with a poll since we know how amazingly unreliable they are. It’s the first time a poll has found that there’s a strong future in store for eReaders.   

Harris Interactive Poll says 12% of Americans want to get an eReader

Lots of interesting data points from this Harris Interactive poll on eReaders in America (courtesy Reuters) -

  • Poll of 2,775 US adults. 8% already own an eReader.
  • 12% plan on buying an eReader in next 6 months.
  • 60% said they were not at all likely to buy an eReader.
  • eReader owners far likelier to buy books than non-owners. What a surprise.  
  • 26% of eReader owners bought 21+ books in the last year. Across owners and non-owners the figure was just 12%.
  • 36% of eReader owners read 11 to 20 books in the last year. Across owners and non-owners the figure was 21%.
  • 53% of eReader owners said they read more now than they read 6 months ago.

That last point is pretty important as Information Week points out -

Over half of the poll respondents said they read more with e-readers.

“At the moment, it is too early to tell for sure, but this early evidence is pointing to something good,” according to Harris, “People seem to be reading more if they have an e-reader which is something the publishing industry, which has been decline over recent years, is sure to celebrate.”

The Publishing Industry is certainly celebrating increased book purchases by eReader owners.

It’s celebrating by trying to kill eReaders and eBooks.

While it’s pretty obvious that 8% of Americans don’t own eReaders it’s still interesting to see the 8% and 12% figures. If 20% (or even 10%) of Americans end up buying an eReader we might see a wide-spread reading renaissance.

There are stronger signs that eReaders are set to take off

We have signs far more reliable than a poll of 2,775 random people -

  1. eReader sales are almost certainly in the millions. News sites like DigiTimes that cover the supply-chain in Asia say eReader sales are in the millions, analysts say eReader sales are in the millions (Forrester estimates 5 million Kindles and 1 million Nooks have been sold), and even secretive Amazon has revealed that ‘millions of Kindles’ have been sold.
  2. eBook sales are now 8.5% or so of the book market. Even Publishers have admitted this.
  3. Amazon and Sony are both running TV Ads and have been since late last year. If they weren’t selling a decent number of eReaders they wouldn’t have been spending a ton of money on TV advertising.
  4. Amazon, Kindle, and Sony are continuing to invest in eReaders. Sony and Amazon just released new models and B&N has Nook 2 at the FCC.
  5. eReaders are being sold at more and more stores including BestBuy, Target, and Airport Stores. B&N is revamping its stores to create more space to sell Nooks – that strongly suggests sales are good.
  6. Amazon is planning an App Store. There must be at least a few million Kindles in circulation for Amazon to think a Kindle App Store is viable.
  7. Amazon has said Kindle 3 is the fastest selling Kindle ever. At the minimum that means eReader sales haven’t died.
  8. The revolutionary and magical iPad hasn’t managed to kill eReaders. If Steve Jobs’ marketing sleight of hand can’t kill eReaders there might not be anything that can.

Perhaps the biggest sign eReaders and the Kindle have well and truly arrived is that the Kindle skeptics are changing their stance.

Trefis goes from Kindle-doubter to believer

We’re at a point where even sites with ultra-conservative Kindle sales estimates think the future is bright. Trefis has these Kindle sales estimates (including Trefis members’ Kindle sales estimates in italics) -

  1. 200,000 Kindles in 2008.
  2. 1 million in 2009.
  3. 2 million in 2010. Trefis members estimate 3.5 million Kindles will be sold in 2010.  
  4. 3 million in 2011. Trefis members estimate 5.23 million Kindles will be sold in 2011.
  5. 5.46 million in 2013. Trefis members estimate 8.12 million Kindles will be sold in 2013.

200,000 Kindles in 2008 and 1 million Kindles in 2009 are perhaps the most conservative estimates for Kindle sales I’ve ever seen. Yet, this ultra-conservative financial website (Trefis) goes on to predict 3 million Kindles sold in 2011 and 5.46 million Kindles sold in 2013. Even the skeptics are becoming believers.

So, is everyone right to believe in eReaders?

If we turn contrarian, and to some extent we should, now would be the time to start doubting the Kindle’s prospects (and the prospects of eReaders in general).

There are definitely a few risks – iPad 2, a drastic move by Publishers, Google Editions changing the game, Android Tablets, piracy.

There are also some signs supporting the theory that eReaders have won or are about to win – ebook sales traction, eReader sales traction, much lower eReader prices, wider range of books available as ebooks, lots of improvements in eReaders, lots of awareness, international spread of ereaders and ebooks.

There’s something missing though. The fact that so many people have started thinking eReaders are here to stay while we know that eReaders aren’t yet selling tens of millions of units a year means that we’re probably at an inflection point.

  1. eReader makers could become lazy and greedy like netbook makers and that would open up an opportunity for another product to come in and destroy them.
  2. eReader makers might slow down their pace of improving eReaders and that would mean Kindle and Nook would no longer be able to compete against ever-improving smart phones and the new Tablets.
  3. Publishers might make a last-ditch stand that could possibly stall eReaders. It would require Publishers to pull off things perfectly but it’s not out of the question.

If there was ever a time for Amazon and B&N and Sony to bring their A-game – this is it. In the next 9 to 18 months they could turn eReaders into a 20 million units a year business or blow it all up.

It’ll be interesting to see whether Kindle 4 and Kindle 5 and Nook 3 and Nook 4 can continue the torrid pace of improvement Kindle 3 has shown.

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