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.

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