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.

$55,500 for indie author in 31 days – The 2nd tipping point

An indie author sold over 100,000 copies of her books in the last 31 days – By my calculation she earned at least $55,500.

It’s the signal everyone’s been waiting for. Now there can be little doubt that we are in the midst of a second gigantic tipping point. A tipping point that impacts indie authors, published authors, publishers, and publishing. Eventually, it’ll impact us readers too.

It’s the first time indie authors are earning so much that going with a Publisher becomes a financially unsound decision.

The second major tipping point

Let’s start by looking back.

Looking Back at the First Major Tipping Point

The first major tipping point was the end of 2009 – the great holiday sales for Kindle and Nook meant that eReaders and eBooks got enough traction to kick off a glorious 2010. 

In 2010 we had eBooks grow to 10% market share and eReaders sell millions and millions of units. In 2009 we were still under the impression that ebooks constituted just 2 to 3% of the market. Reaching 10% market share for ebooks in 2010 definitely suggests that the last few months of 2009 were a tipping point for ebooks.

Given that every eReader company is claiming much better eReader sales in 2010 than in 2009, you have to wonder – What tipping points are we going through right now?

Well, courtesy TeleRead, we find out about one of these tipping points – The rise of indie authors. We have 25 indie authors who are sharing their ebook sales figures – figures that clearly show we are at a tipping point for indie authors and for self-publishing.

The superstar indie authors

Please note that these are sales for just the last 31 days. They do include the Shopping Season bump, and the new Kindle owner bump – there might not be another stretch this good until Christmas 2011.

Please also note that most of these authors sell 1 or more of their books at a price of $1, and the rest at $3. We will assume that 70% to 85% of their sales were at $1, and the remaining were at $3. There are exceptions – authors who sell all their books at $1, and authors who sell all their books at $3.

Here are the indie authors who have triggered a new Tipping Point –

  1. Amanda Hocking – Over 100,000 books sold in the last 31 days. Assuming 85% of these sales are for the $1 books in her series, and that the remaining 15% are for the $3 books in her series, we get $55,500 in earnings. Note: This is the minimum – Her earnings might be a lot more than $55,500.
  2. Stephen Leather – This author spams the kindle forum so much that it pains me to even mention him. However, he claims to have sold over 30,000 copies.
  3. H. P. Mallory – 20,000 sales. Again, the first book is just $1 and is probably the one accounting for 70% of sales. That suggests $16,200 in earnings.
  4. Five authors who sold over 10,000 copies – Michael R. Sullivan, L. J. Sellers, Victorine Lieske, J.A. Konrath, Scott Nicholson. Here, we have J. A. Konrath, who’s selling his books at $3, and probably earned between $20,000 and $35,000. Scott Nicholson is selling all his books at $1, which suggests between $3,000 and $5,000 in earnings.
  5. Six authors who sold over 5,000 copies – David Dalglish, Terri Reid, Tina Folsom, Ellen Fisher, Imogen Rose, Bella Andre. These authors probably earned in the $1,500 to $15,000 range. The large range is because a $1 book earns just 30 cents per copy sold, whereas a $3 book earns $2 per copy sold. Additionally, over 5,000 copies could mean anything between 5,001 and 9,999 – We’re assuming 7,500 as the upper limit.
  6. A further 3 authors sold over 4,000 copies.
  7. 8 authors sold over 2,500 copies.

Those are stunning numbers. We are truly in the midst of the second major tipping point.

4 Figures that will set the Publishing World on Fire

Consider these 4 figures –

  1. $55,500 or more in earnings for Amanda Hocking in the last 31 days. This is the figure that’s going to get mid-list authors and published authors to go indie.
  2. 100,000 books sold in the last 31 days. Amanda Hocking has single-handedly proven the sustainability of self-publishing. If a hundred thousand Kindle owners were willing to take a chance on one indie author, it probably means that hundreds of thousands of Kindle owners will be willing to take a chance on indie authors.
  3. 5 or more authors who earned over $15,000 each in the last 31 days. This is the figure that’s going to show indie authors it’s possible to make a good living selling books yourself. One Author earning a ton is great – However, when you see 5 authors doing it, then it’s obvious that you have a shot too.
  4. There were 25 indie authors who sold over 2,500 copies of their books in the last 31 days. For a lot of people selling thousands of copies of their books is motivation enough.

The walls have been broken down – main-stream acceptance and financial success are now both attainable goals for indie authors.

There isn’t just one indie author who earned over $15,000 last month – There were at least 5.

There isn’t just one indie author who sold over 2,500 books last month – There were at least 25.

It’s remarkable – And these are just the indie authors who shared their figures, and who we know about. There are probably quite a few others.

Example: Nancy C. Johnson, D. B. Henson, Richard Phillips, and Cort Malone are all indie authors who were in the Top 100 in December 2010. That’s 4 more authors who might have earned $10,000 or more in December.

Who in their right mind would choose Publishers?

Amanda Hocking, for the month of December 2010, had her books at sales ranks 23, 54, and 75. That was enough to earn her $55,500 or more.

Perhaps you only get sales rank #33 and have just 1 book. You could still earn $10,000 or $15,000 in a month.

Perhaps you get a higher sales rank, say #11, for a busy month, and have more books. Then you could earn $100,000 or more in a month.

All of this is happening at a time when there are just 10 million eReaders, and eBooks have just 10% market penetration. When ebooks hit 50% market share in 2012, then there might be multiple authors taking home $500,000 each in the month of December alone. There might be indie authors who make over a million in earnings in 2010.

There are 100 slots in the Top 100. Publishers are too greedy to compete on price. They are too lazy to improvise. The stage is set for indie authors to take over.

What would you rather do – Spend 3 years trying to get a book deal, or self-publish your books and make $250,000 in the month of December 2011?

Will Kindle 3 end the eReader wars?

The one question the Kindle 3 has made me ask myself more than any other (well, besides Graphite or White?) is – Does Kindle 3 end the eReader wars?

The easy way to answer that question is to hide behind ‘Kindle 3 will sell millions’. However, lots of eReader companies are going to sell millions of eReaders before and after the eReader Wars are decided.

The real question is – Which eReader is going to win the eReader wars and end up with an overwhelming (90% market share) or dominant position (70% market share)?   

Kindle 3 is the first eReader (including the $139 Kindle WiFi under the ‘Kindle 3’ umbrella) that threatens to provide a firm answer.

How would we know Kindle 3 has ended the eReader Wars – What’s the criteria?

Let’s say there are two possible criteria for announcing an end to the eReader wars –

  1. A Microsoft Office like dominance with 90% or more of the market. A situation where there isn’t really a viable competitor. 
  2. A Google Search type dominance with 70% or so of the market. A situation where the 2nd and 3rd best companies in the market are not really a threat.

Forget the companies and the market – The 70% to 90% market share and the cemented #1 position are the key criteria.

If Kindle 3 and Kindle WiFi help Amazon get to 70% market share AND cement the Kindle as the #1 eReader then we can safely say the Kindle 3 has ended the eReader wars.

Please note that we are talking about dedicated eReaders. So number of iPhones sold or number of cigarette lighters with LED displays sold doesn’t factor in.

Kindle 3 and the Invisible Competitors – Nook 2, Sony 606, iPad 2

There are bound to be strong reactions to a ‘Kindle 3 as decider’ post.

People who read on the Nook or Sony and people who read on the iPad (no jokes please, we mean the 5% who actually do read) will be aghast. As will a lot of people with an axe to grind (Press) or whose future depends on the death of the Kindle (Publishers, Paper manufacturers).

Well, they have a valid argument – We haven’t seen what Kindle 3 competitors will bring to the table.

We have the iPad 2 which will try another round of ‘LCD (this time with Retina Display) is better than eInk’.  It’ll also keep drumming on ‘the number of people who could possibly read on their device’ as opposed to ‘the number of people who actually read a lot on their device’.

The Nook 2 already has FCC clearance and this time it is Amazon that has made the mistake of announcing its features in advance – though you have to suspect (with the microphone etc.) that Amazon might have kept a few things in reserve. Nook 2 may have the eInk Pearl screen, it might have some new feature that blows us away, and it’s likely to match Kindle 3 in price (even if it bleeds B&N dry).

Sony offers a big threat – An alliance with Google Editions would add the missing range of books and supply some much-needed infrastructure. Sony’s new devices might figure out a way to do touch without sacrificing visibility. Sony has been delivering good devices – It’s the store and eco-system they mess up and perhaps they finally realize it and figure out a solution.

Perhaps the biggest threat is the giant search company and who knows what they might bring to the table.

All these companies face a few big challenges.

Kindle 3 has set a very high bar

There’s little doubt that Amazon had the best store. It also had amazing infrastructure – Free 3G wireless is pretty impressive no matter how you put it.

It was the Kindle that was the weak link. Firstly, the improvements were all incremental. Secondly, the Kindle 2 was 1.5 years old and had old eInk screen technology. Thirdly, Amazon’s avoidance of ePub and lack of openness and lack of library books and lack of WiFi were real disadvantages.

Kindle 3 changes most of that – We’ve gone from a state where the Kindle Store and WhisperNet were letting Kindle edge other eReaders to a Kindle 3 that can stand on its own. In fact, it beats the other eReaders handily (unless ePub or library books are a must-have for you).

As we go through this list of Kindle 3 improvements keep in mind that Nook and Sony Reader will probably match the Kindle 3 on some (perhaps even all) of these improvements –

  1. The eInk Pearl screen is better than any other eReader screen available. The graphite casing adds to the contrast and Amazon has added tweaks to further improve the contrast.  
  2. Kindle 3 is lighter, thinner, and more compact.  
  3. Kindle 3 has double memory and double battery life with wireless off.  
  4. The PDF support has been extended to include search and taking notes and making highlights. You can adjust the contrast and can do incremental panning when zoomed in.
  5. There’s a microphone that’s going to be used for at least 1 killer feature (nothing yet).
  6. There’s a Kindle App Store in the wings and it will almost certainly make a difference.
  7. New Accessible menus combine with the super size fonts to make it very usable by blind and low vision readers.
  8. There’s finally WiFi.
  9. Support for CJK fonts and Cyrillic fonts lets Amazon sell in China, Japan, Russia, and lots of East European countries.

Those are just the big improvements – We also have faster page turns, better button placement, sharper fonts, three font types, auto-disappearing book title bar, a webkit browser, and an article mode in the browser.

Keep in mind that this has arrived 4-6 weeks after a massive Kindle 2.5 upgrade that added PDF pan and zoom, Collections, sharper fonts, super sized fonts, and the ability to share passages on Facebook and Twitter.

Kindle 3 is an eReader which, on its own – without factoring in Kindle Store and Kindle Whispernet, is clearly better than the competition. It’s almost unfair that it gets the backing of the best eBook store and the best eBook/eReader eco-system and infrastructure.

Nook 2, Sony 606, iPad 2 have to beat Kindle 3 by a margin

Here we’re assuming the iPad 2 is going to pretend to be a dedicated reading device which just happens to have a screen optimized for playing games. So we consider it a competitor.

When the Nook 2 and Sony 606 arrive later this month, and when the iPad 2 arrives later this year, it’s not enough for them to match or beat the Kindle 3. They have to beat the Kindle 3 by a wide enough margin that Kindle Store and Kindle WhisperNet and free 3G can’t make up or exceed the difference.

This is perhaps the biggest thing people are going to misunderstand when they get upset about the ‘Will Kindle 3 end the eReader wars?’ question. Kindle 3 just needs to make sure it’s not worse than the competition. The Kindle service/ecosystem (including Kindle Apps on other devices) and Kindle Store will take care of things if there’s a tie between devices or even if another eReader is slightly better.

Which means Nook 2 doesn’t just have to match the 10 to 15 solid improvements the Kindle 3 has made – Nook 2 has to find an additional 5 to 6 improvements and implement them successfully.

It’s the same with the iPad – especially since Kindle 3 has improved on almost every advantage Kindle 2 had over iPad. Kindle 3 is cheaper (well, the WiFi model is), lighter, has battery life of 1 month with wireless off, its more compact, and the eInk screen has amazing contrast. Kindle 3 also cuts down on Kindle disadvantages – there’s double the memory, page turns are faster, there are 3 font types now, PDF support is better, and there’s a WebKit browser. 

Quick Synopsis – Where we stand on our Kindle 3 argument

We’ve established a few things so far (feel free to disagree in the comments) –

  1. Kindle 3 is much better than Kindle 2 and also much better than Nook and Sony Reader.
  2. Kindle 3 has the support of the best ebook store (Kindle Store) and the best eBook/eReader infrastructure (Kindle WhisperNet).
  3. Nook 2 and Sony 606 would have to beat Kindle 3 handily to make up for their comparatively poor ebook stores and for their weaker infrastructure.

We’ve also set 70% or higher market share and a cemented #1 position as the criteria for Kindle 3 to end the eReader wars.

Now, let’s look at why it’ll be exceptionally hard to catch up with the Kindle 3.

Kindle 3 and Amazon’s Kaizen Strategy are hard to beat

Amazon is in the enviable position of having the current best eReader (Kindle 3), best store (Kindle Store), and best infrastructure (Kindle WhisperNet). However, it’s biggest advantages are its kaizen philosophy, its focus on reading, and its deep pockets.

Sony cares only about gadgets. Apple cares only about selling beautiful things to cool people. Apple sells iPads to us strange people despite us wanting to read books – not because they care about books or reading but because they care about iPad sales. Nook is hampered by B&N’s financial struggles.

Amazon is running faster than all of them in the race to develop the best reading solution – Apple could catch it but Apple doesn’t want to run in this race. Sony thinks it’s in the race but it only cares about making a great gadget for reading (it couldn’t care less how, what, or if people read on the gadget). Nook is the only real competitor and unless Google saves it (or buys it) it won’t last (B&N just doesn’t have the resources to compete long-term).  

Amazon has basically done a few key things –

  1. It has focused on reading. The iPad was perhaps the biggest temptation to veer from that path and Kindle 3 shows Amazon has resisted it.  
  2. It has set itself up to invest in the Kindle for a long time.
  3. It has improved relentlessly. Until Kindle 3 we only saw the impact of the Kaizen philosophy in the service and the bookstore and in Kindle Apps. You have to look at the sheer number of improvements in Kindle 3 and realize kaizen is beginning to show up in the device too.

The Kindle 3 is the best current eReader – and still Amazon is improving the device, store, and infrastructure relentlessly.

Not only do Nook and Sony Reader have to catch up to the Kindle 3 they have to do it given that Amazon is improving faster than they are. It’s a race where the runner in front of you suddenly reveals bionic legs and starts accelerating.

With eReaders the inflection point is going to become apparent like it did with ebooks – 6 months after it has occurred. We’ll look back and realize the inflection point has long since passed and will try to piece together exactly what happened.

Well, the Kindle 3 happened.

The only question left is – Is it an inflection point only for the survival of eReaders OR Does it also cement the Kindle 3 as the winner of the eReader wars?