Is there a big eReader opportunity everyone is missing?

The Kindle, the Nook, and other eReaders accounted for over 12 million eReaders sales in 2010 – At least that’s what DigiTimes analysts think.

Even if we were pessimistic, it’d be hard to argue that less than 5 million eReaders were sold.

5 to 12 million eReaders is a hugely significant number, and it becomes more significant when you consider it’s really a platform. First, a little on platforms.

eReaders are massive platforms, eReaders are platforms for massive success

Platforms are very powerful things

Apple sold a lot of iPods. Then it came out with new types of iPods. Then it came out with the iPhone. Then new versions of the iPhone. Then the iPad.

It started by selling music, then expanded into apps, shows, movies, and more.

Microsoft sold a lot of Xboxes. Then it released Xbox Live and racked up tens of millions of subscribers. Then it released Kinect and sold 8 million in the first few months.

It’s selling movies and games and arcade games and lots of other things through Xbox. It’s trying to morph Xbox into a family entertainment platform.

Why aren’t eReader companies looking at eReaders as platforms?

Platforms in the sense that they can deliver a lot of services. Platforms in the sense that they are a platform on which companies can build entire empires.

The success of eReaders is a platform

Success of the Kindle is a platform on which entire families of products can be built and sold. Same thing for the success of the Nook.

Kindle owners are likelier to buy a very good Kindle Phone than a very good Android Phone. That’s just a fact of life – Note that we mean ‘on average’, and not ‘every single Kindle owner’. They are also likelier to pick a very good Kindle Tablet over a very good Nook Color.

It’s the same for Nook owners. They are likelier to buy a Nook Color than an iPad. Again, we mean ‘on average’.

B&N is leveraging its existing customer base with the release of the Nook Color. However, Amazon has done nothing of the sort. Why not?

The eReaders themselves are platforms

The Kindle is a platform and a channel.

Currently it’s selling – Books, newspapers, blogs, magazines, apps.

It could be selling – everything via a shopping app, music. If a Kindle Tablet arrives, that could be used to sell movies and TV shows.

Are Amazon and B&N just waiting for the right moment?

You have to wonder whether Amazon and B&N are just racking up sales and keeping their plans secret. Once they hit tens of millions of eReaders, we’ll see the actual platform aspects unveiled –

  1. A Kindle Tablet and a Kindle Phone will appear as soon as Kindle Sales hit 15 million. By then the Kindle will have too much momentum to be derailed.
  2. B&N will release more devices as soon as Nook and Nook Color hit 5 million sales each. B&N probably wants to sell enough Nooks, and be in a good, defensible position, before announcing new product lines.
  3. Amazon will wait until it has 25 million Kindles and Kindle Tablets in circulation before it reveals the blueprint. Why unveil something early – when competitors like Apple and Google can put up blocks and introduce alternatives. Instead, wait until you are close to unstoppable, and then do a proper unveiling.

B&N grew from a few stores to the biggest chain of bookstores. Then it added toys and games. Then it added Nook and Nook Color. It already knows the powers of being a platform, and it knows how to use past success to build new ventures.

Amazon is an even more extreme example. From selling books to selling kitchen sinks. From selling physical goods to selling digital everything. You can be sure it has plans beyond what we might imagine.

eReader customers are your (the eReader company’s) customers for life

Take a typical Kindle or Nook owner and you get a few interesting things –

  1. The Kindle or the Nook is the path of least resistance for buying books. There’s no reason it couldn’t be expanded to become the path of least resistance for buying everything.
  2. Kindle/Nook is a direct channel to customers. It’s also a store that is with customers nearly all the time.
  3. Customers trust Amazon/B&N, and have a relationship with the company. That’s a very, very tough thing to create.
  4. Trust, the relationship, and loyalty all grow with every purchase. Visit any forum devoted to one eReader, and you’ll see how strongly people feel about their Kindles and Nooks.
  5. Customers want to continue the relationship. You don’t just have a customer – you have a customer that will stick with you unless you make a major mistake.

Quick question –

For an average Kindle/Nook owner, is there any store other than Kindle Store/Nook Store from which the owner makes purchases as often?

The answer is probably No for a surprisingly large percentage of Kindle and Nook owners.

Not only are these customers to whom you have a direct channel – they are also very loyal customers who will stick with you, and whose relationship with you grows stronger every day.

All things being equal, eReader owners will buy everything they can from the eReader company

This doesn’t just apply to books. In fact, that’s the least interesting aspect.

Amazon probably sells a lot more non-ebook things to Kindle owners, than it does to non-Kindle owners. It almost certainly sells a lot more non-ebook things to Amazon customers that are Kindle owners, than to Amazon customers that are not Kindle owners.

Amazon won’t ever release the figures. It’s probably a 100% or higher increase in non-ebook sales.

By selling a user a Kindle, Amazon might be increasing non-ebook purchases by 100% or more. That’s the type of ‘big eReader opportunity’ this post is talking about.

Where’s the iPhone and iPad to go with the iPod (Kindle, Nook)? Where’s the iTunes?

At the moment Kindle and Nook seem content to stay in eReader+eBook land.

Nook Color is a branching out, but it’s still a reading tablet.

Where are the iPhone and iPad equivalents? Is Amazon just waiting to reach a certain figure for Kindle Sales? Is B&N content to keep selling books and only books to its loyal customers? Do Amazon and B&N feel that the eReader market is so big they should focus exclusively on eReaders? Do they first want to cement their dominance in the eReader market?

It makes you wonder.

Top 5 eReader events of 2011 (candidates)

The Kindle, the Nook, and all of us await what 2011 might bring.

2010 was a very interesting year. We had a lot of interesting eReader related events – CES 2010 was full of eReaders, we had the advent of $150 eReaders, the iPad arrived, Kindle DX 2 arrived, we got Nook WiFi, we had Kindle WiFi and Kindle 3, the Nook color was released, Sony brought touch to eReaders.

2011 promises to be just as interesting. Let’s look at the eReader events and happenings that are candidates to be the Top 5 eReader events of 2011.

Things left unfinished

There are a lot of things left over from 2010 –

  1. Arrival of color eReaders. eInk, Qualcomm, and Pixel Qi all promised or hinted at color eReaders in 2010. In 2011 they get to deliver on their unfulfilled promises.
  2. iPad 2 to destroy eReaders. Lots of people thought iPad would kill eReaders. Steve Jobs gets to try to get that done in 2011 with iPad 2. We all know this is rather unlikely – still, it’s fun to let non-readers, who hardly ever buy books, remain delusional and believe they are going to determine the future of books and reading.
  3. Google to deliver the most dangerous Kindle competitor. Google eBooks has a lot of potential but it seems rushed – In 2011 Google should have enough time to deliver a full solution.
  4. Sony Reader finally adds wireless support? Sony refuses to add wireless support to its Pocket and Touch models. In 2011 we might finally see it change its mind. Kobo took 5-6 months to realize lack of wireless was a deal breaker – Why can’t Sony see this after 3+ years?
  5. Plastic Logic to release Que. Plastic Logic delayed its Que proReader after the iPad was launched. In 2011 it should have something out, and we’ll find out if there’s a market for ‘business eReaders’.

A lot of the biggest events of 2011 might be the outcome of things started in 2009 and 2010.

The Reading Tablet Wars

Nook Color has carved out a new market. It’s also managed to capture the dual crowns of best Android tablet and best Tablet under $400.

A few of the top events of 2011 might be events related to the Reading Tablet Wars –

  1. Release of a Kindle Reading Tablet.
  2. Release of Nook Color 2.
  3. Nook Color becoming a major force and hitting the 5 million units sold mark.

The Nook Color and other Reading Tablets will have a major impact in 2011. People still don’t realize that a lot of what they really love about dedicated eReaders is the dedication to readers. A reading tablet that is dedicated to readers and reading will have a lot more impact than people realize.

New eReaders and Color eReaders

This ties in with the ‘Unfinished Business of 2010’ list.

  1. We will see a color screen PocketBook eReader powered by Qualcomm Mirasol in Q3, 2011.
  2. We will find out which company was the motivation for Qualcomm’s $2 billion investment in Mirasol production facilities.
  3. We’ll see Hanvon release their color eReader. Perhaps even in the US.
  4. We might see a Color Kindle.
  5. One out of Sony Reader and Nook might take a gamble on a color screen eReader.

We also have eReaders we don’t know about yet – a possible GReader, Pixel Qi powered tablets sold as eReaders, perhaps a dedicated reading device from Apple (actually, it’s rather unlikely). Kobo is likely to release a new Kobo Reader.

There are also a few new eReaders being shown off at CES 2011, including the iRiver Story HD which has 1024 by 800 screen resolution.

Kindle 4 and Nook 2 and Sony Reader 675

The Big 3 eReaders of 2009 and 2010 (Kindle, Nook, and Sony Reader) are all likely to see new versions released this year –

  1. Kindle 4 might be an improved Kindle with a color screen or a touch screen.
  2. Nook 2 has to compete against Kindle 3 – you have to wonder what surprises it might spring.
  3. Sony Readers have consistently been the best reading devices. They have also been consistently let down by poor infrastructure and by a terrible ebook store. Will 2011 be different?

Nook 2 is the biggest release here – It sets the tone for Kindle vs Nook for all of 2011. Nook Color is gorgeous, but it’s in a different segment – B&N really, really needs a solid Nook 2 to compete effectively in the dedicated eReader space.

The new Sony Reader releases are important – especially if Sony ties up with Google, and lets the ‘Do No Evil’ Empire provide infrastructure and ebooks.

Could Kobo produce a couple of the most significant events of 2011?

Kobo is threatening on multiple fronts. If it manages to release a killer eReader it might end up with an eReader+Store combo that’s as good as Kindle.

Could Kobo produce something exquisite in 2011?

eReader Wars of 2011 – Strategy Wars

There’s a lot that might happen in terms of strategy –

  1. A Tablet might convince people it’s an eReader.
  2. Reading tablets might overtake dedicated eReaders.
  3. Perhaps we see $100 eReaders and $75 eReaders.
  4. There might be a real Kindle DX competitor.
  5. Perhaps eReaders make serious headway in education.
  6. 2011 might be the year we get eReaders that are subsidized by a subscription plan or a contract of some sort.
  7. We might see a great eReader feature that massively increases adoption.
  8. An eReader+eWriter combination like the Asus Memo might start stealing eReader market share.
  9. Advertising supported books might arrive.

There will be a lot of new strategies implemented in the eReader market this year. A couple of them might prove to be the decisive events of 2011.

Will the Kindle App Store and the Nook App Store take off?

Kindle Apps for Kindles. Nook Apps for the Nook Color.

What impact might they have? Will we see any true killer eReader apps?

Apps that make eReaders even more of a value proposition. Apps that make more people choose an eReader over a Tablet. Apps that make more people buy an eReader.

This is a wildcard. No one knows what apps we might see, or what impact those apps might have. We just know that there’s a lot of potential here.

Could there be developments that take eReaders in a completely different direction?

What if there’s an eReader released that changes the direction eReaders are evolving in – an eReader for kids, an education-focused eReader, an eReader that replaces both the reading and writing aspects of paper.

There is a chance that something is released in 2011 which proves to be a lot more meaningful than color or touch. A development as important as eInk and wireless delivery of books.

There’s a slight chance Nook Color is exactly such a development. We’ll find out this year.

My prediction for Top 5 eReader events of 2011

Here are the 5 things likely to cause the most impact –

  1. Kindle Reading Tablet. If this is released, and it looks increasingly likely, it’ll be huge.
  2. Google and Sony teaming up. It’s possible, and if it happens it’ll instantly make the Go-ony combination the #2 eReader+eBook solution.
  3. $100 and cheaper eReaders. At $100 people start buying for the love of buying – especially if Amazon and B&N learn from Kobo, and start bundling in 1,000 free public domain books. Public domain books that make people feel they instantly got their money’s worth.
  4. Nook Color. The significance of the Nook Color isn’t clear yet. The key turning point would be people realizing what the Nook Color is capable of, and the outcome would be Reading Tablets becoming a tens of millions of units a year market.
  5. One out of Kindle App Store and Nook App Store taking off. The 1-year head-start of the Kindle App Store versus the army of Android developers the Nook App Store can tap into. One of these is going to result in killer apps, which in turn would have a huge impact on the adoption rate of eReaders and Reading Tablets.

The wild cards are Nook 2, the new Kobo reader, and possibly a strategy shift that throws off everyone – It’s likely to be a subscription/subsidy based eReader. It’ll be a strategy shift that changes how eReaders are sold.

Google is another wildcard. It’s just that it’s so scattered in its focus – Will it be interested in the unsexy world of providing great ebook and eReader services, or will it prefer to make cars that drive themselves?

There are a few events that will get a lot of hype. Here are my reasons why they aren’t very significant –

  1. Arrival of the iPad 2. Well, since iPad completely destroyed eReaders – to the point that only 10 million or so eReaders were sold in 2010 – we know that iPad 2 couldn’t possibly have any impact. After all, eReaders are already dead and buried.
  2. Release of Color eReaders. Firstly, it’s been a year since they were announced, and 6 months since they were supposed to arrive. They are still being announced, and now are being promised for Q3, 2011. They might not arrive, and they might be released by the wrong companies – companies other than Amazon and B&N. Unless Amazon releases a color Kindle 4, or B&N releases a color Nook 2, we won’t see color eReaders do much.
  3. The new Sony Readers. If Sony doesn’t partner with Google it just doesn’t have the store or infrastructure to provide a great experience.
  4. eReaders + eWriters. The current solutions are based on touchscreens and styluses and are tacky. The real way to do this is with keyboards and software – usable keyboards and really excellent software.
  5. New eReaders. The battle is being fought by ecosystems and pure eReaders will have an incredibly tough time. To win, or to do well, a company has to provide an eReader, a store, and infrastructure – It’s very, very tough to get all three right.

There’s a pretty big disconnect. People who don’t read books think that color screens and the iPad 2 and being able to do more than just read are the real events that will shape the future of books. The truth is that it’s going to be remarkably boring things that shape the future of eReaders – providing more value for money, releasing a device that is EVEN BETTER for reading books, replacing paper, eReader apps, tablets that are focused on reading, expanding to reading of all types.

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?


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.