In 2013, eBook Sales Collapsed... in My Household.

2013 was not the year the ebook industry was expecting. We hoped that ebooks would continue their explosive year-on-year revenue growth, and that the replacement of print by digital would proceed apace. We suspected that the growth of ebook sales might moderate, because, as HarperCollins CEO Brian Murray told Publisher's Weekly, "Nothing grows by triple digits for too long." But just as CDs replaced vinyl and digital downloads replaced CDs, it seemed obvious that the the age of the printed book was nearing its end; the century of the ebook was dawning.

We got a few things right. Internationally, ebook sales growth was strong. Print continued its slow decline. Bookstores continued to close. But for some reason, ebook sales in the US stopped increasing. And even started declining!

There are many possible explanations for this turn of events. There are technicalities with the data collection, particularly with publishers such as Amazon's imprints that don't report their sales numbers. Young Adult sales dropped steeply, as there was no smash hit to follow on the huge success of Hunger Games. 50 Shades of Gray didn't turn out to be a lasting relationship. And there's been a downward trend on prices, particularly as publishers start to use dynamic pricing to stimulate sales. But it seems to me that something in the environment is changing, more than just a market maturation.

Amazon probably has enough data to understand what's happening, but they're notoriously opaque about reporting numbers. On the other hand, they're quite good about reporting to customers what they've bought. So I decided to analyze my own household's Amazon data. I had the impression that my family was spending less on ebooks, but I wasn't sure, because they still seem to spend all hours of the day reading. The results were kind of shocking.

The graph shows my household Kindle ebook purchases from 2009-2013. As you can see, 2013 marked a steep drop from the 2009-2011 peak years of about $1000 per year.

I don't buy Kindle ebooks myself (I buy ePub only, so I can hack on them) but other members of my household have bought quite a lot. The average price paid is about $7, and this has held quite steady. But in 2013, Kindle purchases stopped almost completely, and they were not replaced by purchases on other platforms.

Based on detailed "interviews" with the subject ebook purchasers, here are some non-factors in this collapse:

1. "Netflix-for-Books" services. Nobody but me has heard of them.
2. Kindle Owner's Lending Library. Despite an well-used Amazon Prime subscription, they haven't figured out how to use it for ebooks.
3. Our public library. Nobody but me has used it for ebooks.
4. Piracy. As if!

The two main reasons for this spending collapse turn out to be:

1. The Kindle acquired in early 2009 reached end-of-life due to a cheaply made power cord, and was replaced by an iPad. The lack of in-app purchase for the Kindle App has resulted in a significant impediment to Kindle purchases. The iBookStore has not attracted a single ebook purchase.
2. The iPad owner now spends the vast majority of her reading time in fan-fiction websites, mostly fanfiction.net and ArchiveOfOurOwn.org. Same for the iPad borrower, but a different mix of websites.

I find it worrying that the Justice Department pursued an big antitrust suit against Apple and 5 of the big 6 publishers, won, and despite making an issue of Apple's in-app purchase ban in iOS, it seems to have lost the argument with Judge Cote. We'll see how that turns out.

It's worth paying close attention to the fan fiction sites. After all, 2012's biggest revenue engine for the book industry, 50 Shades, was a repackaged fanfic. On an iPad with a decent internet connection, the fanfic sites work better than ePubs. They link and they script. Just try making a link from one ePub to another and you'll get my point.  They deliver content in smaller, more addictive chunks, and they integrate popular culture MUCH more effectively than books do, for reasons relating primarily to copyright. The authors are responsive and deeply connected to readers; they often ARE the readers!

There's a fanfic site to appeal to every reader; I highlighted Wattpad earlier this year. ArchiveOfOurOwn.org ("AO3"), a project of the Organization for Transformative Works, a non-profit, experienced the growth in 2013 that was missing from the ebook sector. The number of works hosted by AO3 doubled to just under a million works, covering almost 14,000 "fandoms". (A good example of a fandom is the "Dragonriders of Pern" fandom, which currently hosts 534 works). Fanfiction.net, an advertising supported site, hosts almost 2000 fandoms and over 1.3 million works, more than half of which are in the Harry Potter or Twilight fandoms. Game oriented discussion forums also engage in fanfiction. (Popular in my house is spacebattles.com)

My anecdata might be completely anomalous, although Amazon, a very data-driven company, seems to be aware of the same phenomena. They've been making the Kindle into a full featured tablet to go head-to-head with the iPad. They've also launched a fanfic site called Kindle Worlds, which has 15 worlds and 341 works.

Early stage venture capitalist Josh Kopelman says that many of the best opportunities for startups are not those in expanding markets. "We love investing in technologies and business models that are able to shrink existing markets. If your company can take $5 of revenue from a competitor for every $1 you earn – let's talk!",  he has written on his firm's website. Kopelman founded Half.com in the early days of the internet, a company which shrank the book market by getting people to resell the books they had just bought for a fraction of the price of a new book. Microsoft's Encarta shrank the Encyclopedia business from $1.2B to $600M before Wikipedia shrank the business by another 90%.

In 2014, I'm guessing it's the book publishing industry's time to shrink. A convergence of tech startups, tech monsters, and tech non profits seems to be ready for the assault. The fanfic sites, the Wattpads, the Project Gutenbergs and the Manybooks, the Readmills, the Leanpubs and the Smashwords (and I hope the Unglue.its); these are people building the foundations of a creative industry that will flourish even if the ebook sales collapse that I see around me spreads to your house as well.

Happy New Year!