The Most Important e-Reader Company You've Never Heard Of

Imagine you're the head of a big print media company. Sales of your print products have been eroding steadily and you find yourself competing with internet businesses that have very different business models and cost structures. Your own website revenues have been growing steadily, but it will be many years before they match your print subscription revenue. You know in your heart that digital subscriptions will somehow be the answer, but your otherwise loyal reader base is resisting web subscription rates that would allow you to sustain your business.

What do you do?

One answer is something I've speculated about, based on cost reduction trends for tablets and ebook readers. Bundle a reader device into your subscriptions! The consumer gets a device for "free", and you've retained a premium subscriber. You could even bundle a shopping application and collect a commission on purchases of content made through your estore.

At first glance, the obstacles to a successful implementation of the bundled e-reader strategy might seem profound. Here's an incomplete list of what you'd have to do:

1. You'd need an inexpensive device, of course. But it can't be something cheesy, because it will be carrying your brand.
2. You'd need an operating system for your device. Lucky for you, Google seems to have a good solution with Android. But you still need people who can customize and adapt Android to make it shine.
3. You'd need to figure out the logistics of getting your content onto the device. Maybe you've already started this process with Apps for iPad or Android.
4. If you're serious about an estore, someone has to build that, too. It's not only an engineering project it's also a big business development task to gather businesses willing to sell their content and goods through your estore.
5. You'll need to build a customer support operation.
6. You'll need some big marketing power and a sales channel.

Most big media companies have only the last item in their portfolio of competencies, so you might expect this isn't going to happen anytime soon.

But you'd be wrong.

On Thursday, my rounds in Bangalore took me to Ninestars Information Technologies Ltd. Ninestars specializes in back-end infrastructure for publishing companies. They started out doing newspaper backfile digitization, and today they work with a Who's Who of the newspaper and publishing world. It's Ninestars, an Indian company,  that's actually doing much of the heavy lifting in the preservation of the entire world's history. Early on, Gopal Krishnan, the company's Chairman, made a crucial decision to steer away from the brute-force, labor intensive approach to digitization in favor of developing technology and automation so that jobs could be done faster and with fewer people. That decision has paid off as publishing has become more and more dependent on advanced technology, whether it's website and e-commerce development, content delivery, or mobile and tablet apps.

Ninestars operates under a "white-label" business model. If you go to their website, you'll be surprised at its small size and inertness. But don't judge a book by its cover- Ninestars and Gopal are major players. Playing the white-label role to the hilt, Ninestars wants the spotlight to shine on their customers, as if Ninestars didn't even exist.

Ninestars' e-reader strategy is similarly white-label. Tablets and e-readers are being developed by Ninestars' associated company DisplayTronics Reader Devices Ltd.. DisplayTronics CEO Dr. Somanath V S gave me a peek inside the DisplayTronics development laboratory. I saw a range of e-reader prototypes- both EPD and color LCD, all with touchscreens. These will be sold under brands that are already familiar to consumers.

DisplayTronics is also building a white-label "estore" that its customers will use to sell their content, whether on their branded e-readers, or through apps on other device platforms.

While I've written a fair amount here about business models for ebooks, I haven't really covered business models for e-readers. Everyone knows about Apple's hardware-oriented business model and Amazon's commerce oriented business model, but there's not been much in the way of business models that put content at the center -yet. With e-reader pricing dropping at a relentless pace, big media companies are potentially in an excellent position to remake the e-reader market in a ways that sustain their businesses. Companies that try to make money by selling devices might find it difficult to compete against free or subsidized devices bundled into media subscriptions.

We'll find out how well the bundled-e-reader business models work when they launch - in 2011.

Inside an Indian Bookstore

I'm in Bangalore, the tech capital of India, where even the Cook pines look like cell phone towers.

My favorite "tourist" activity in a country new to me is to go inside ordinary stores. A walk through grocery store will give you a much better understanding of a nation's cuisine than their best restaurants. You'll see strange foods and smell strange smells, and you'll see familiar foods presented in unexpected ways.

So I just had to visit a bookstore here. I chose a medium sized one, situated on the second and third floors of a building in a busy shopping district. Like bookstores anywhere else, Indian bookstores find it profitable to stack lots of non-book items- in this store, the entire second floor is taken up with DVDs, toys, games, teddy bears and Ganesha figures.

In this bookstore, six of seven aisles are devoted to English-language books. The seventh aisle is devoted to books in the local language, Kannada. Kannada is spoken by a total of 60 million people in southern India, which is a lot more than than speak many European languages, but in India it's a minority.

As you might expect from Bangalore's status as a tech capital, an entire aisle of the bookstore is given over to computer-related books. The prices of these books were higher than I thought they would be. For example, the latest edition of Programming Perl was 750 Rupees, or about 17 US dollars. In the US, it's 33 dollars at Amazon. (Wow, that's pretty expensive!) Books aimed at the Indian market are priced lower- 150-300 Rupees.

You might wonder how programming books can command such prices given that many good ones are available in free html versions in a region with a per capita income only 1/40th of the US; even a software developer's salary is a fifth that of his US counterpart. Part of the reason may be that it's still unusual for people to have access to the internet at home. Print works better here.

By all reports, the ebook reader market in India is be poised for an explosion. If you think about it, a cheap ebook reader would be a really good way for Indians to take that free-on-the-web ebook home from the office. The bookstore I visited had a single ebook reader for sale- it's displayed in the book section on top of other luxury items such as the plastic-sealed copy of Dan Brown's Lost Symbol.

Infibeam's "Pi" ebook reader sells for 10,000 Rupees, or about $225. It's made in Taiwan and looks like a stripped-down Kindle, with e-ink display, but no keypad and no wireless connectivity. It supports all sorts of ebook formats, and most of the 22 official languages in India. The marketing slogan for the Pi is "Read eBooks Anywhere!" and the availability of free ebooks, including the "top 100 from Project Gutenberg", is prominently noted. The Infibeam website (which exhibits sincere flattery of Amazon) offers a wide selection of eBooks. Stieg Larsson has a good share of the Pi at 433 Rupees (close to the $9.99 Kindle pricing); he was nowhere to be found in the Bangalore bookstore.

While the Pi is first ebook reader targeted at the Indian market (Kindle is also available) there are a number of competitors waiting in the wings- I'll cover them in another article.

Lots of Markets, Lots of Business Models

from Wikipedia

The book industry is a lot like the Soviet Union. The Soviet Union consisted of fifteen ethnically divergent states (soviets) stitched together by a highly centralized government model. When that government model weakened, it turned out that there was little holding the soviets together. The Soviet Union no longer exists.

Discussions of the ongoing transition from print to digital books frequently make reference to corresponding transitions that have occurred in the music industry and in the film industry. As I've learned more and more about how the book industry has worked in the age of print, it's been made clear to me that unlike music and film, the book industry has consisted of a large number of disparate industries thinly stitched together by a common delivery mechanism and shared supply chain.

Predicting what will happen to the book industry in its shift to digital by looking at music is like making predictions about the Soviet Union by looking at Germany.

Consider the different ways that books can be of value. The utility of a cookbook has very little in common with the utility of a romance novel. A dictionary and a travel guide are very different, even though you might take both on a trip. A manual on object oriented programming and a superman comic book might both be useful for squashing bugs, but the former should be open and the latter should be rolled up when doing so. I won't even mention coffee table books.

Compare the music industry. No matter the genre, most everyone uses music in the same way. Whether rap or raga, Beethoven or Roll Over Beethoven, the variations in consumption patterns are relatively small.

When utility variations of goods are small, the business models behind their distribution tend to converge. The film and television industries had very different pre-digital distribution models, but their business models are converging today because they are valuable in much the same way. Scholarly journals are another good example. 10 years ago, when journals began the transition from print to digital, publishers started out with a variety of business models for different fields. Today, however, the vast majority of journal publishers use roughly the same business model.

That's why I think the book industry of the past is fragmenting into many smaller industries based on business models that deliver the most value. We've already seing this begin to happen. The old business model of the encyclopedia industry has already died;  Wikipedia has almost wiped out the incumbent encyclopedia publishers with a public charity business model.

Whenever O'Reilly Media and their willingness to do free-on-the-web versions of their books come up in a conversation among publishers, one of them will say something like "well that's a very different market segment from ours". And it's true. The utility of a book such as Programming in Perl is of a sort that free-on-the-web + ebook + print works well.

While I was in London I had a chance to chat with Frances Pinter, who I've mentioned on the blog. Her imprint, Bloomsbury Academic, is experimenting with another business model, one that resembles the "freemium" models common on the web. Basic ebooks will be available under a creative commons license, but print and enhanced digital versions will be available for purchase. Other publishers, such as Springer, are going with subscription based models for institutions. The subscription model, without DRM, works just fine for ejournals, and Springer is confident that it will work just fine for eBooks in libraries. I've previously written about other business models for ebooks, such as PDA (Patron Driven Acquisition) and of course, "collective acquisition" and "bounty markets". Other models that are likely to work in at least some of the book industry fragments include advertising and what I will henceforth call the PIP (Pretend It's Print) business model.

London Online Information

As I learned at October's ICv2 Digital Comics Conference, digital publishers of graphic novels are finding that a serial mini-book business model works well for their industry. By pricing smallish chunks of content at under a dollar, a series can build readership momentum and do well financially without DRM.

Geography and language are also likely to define book industry fragments. At the London Online Information show, I met a group of entrepreneurs from Estonia. Their company, LibroCS OÜ , has developed an ebook delivery platform that includes a storefront and nifty color-video capable ebook reader devices manufactured in Shenzhen. They hope to provide infrastructure for retailers and publishers, especially those in smaller countries like Estonia.

I was interested to hear how the market dynamics in Estonia might be very different from those in a larger country. There are only about 1.1 million speakers of Estonian in the world, but it's a very well connected group. (The one Estonian I went to school with is brother to the President, so it must be true!) As a result, any Estonian is only one Facebook friend away from any other Estonian, or so it's claimed. If you ask an Estonian publisher to allow lending of an ebook, they immediately think they'll only sell 2 copies, 3 if the author's mother is living. To address these concerns, LibroCS emphasizes their use of Adobe Content Server DRM to enable PIP business models. Just because the print model is old doesn't mean it's dead.

Physics tells us that interacting systems eventually reach their lowest energy state, although there may be some heat required for them to reach it. The corresponding rule in economics is that a superior business model will sooner or later drive out its inferiors. In the context of the Former Book Industry, "superior" means that it offers the best value relative to its cost. Business model experimentation is what provides the heat. An English chemist friend of mine pointed out to me this week that when the experiment releases energy, you can get an explosion.

For the record, many Estonians refuse to acknowledge that Estonia was part of the Soviet Union. I don't know what that means for book publishing.

Biblio-Social Objects: Copia, Mendeley, LibraryThing and Mongoliad

The long awaited Copia e-reading platform finally launched, and the big surprise is that the previously announced devices have disappeared. Copia's innovation is that it smushes together a bookstore, reading environments that live across devices, and a social network. As such, it's interesting to look at.

Another recent arrival is the App for Mongoliad, the ambitious collaboration between Neal Stephenson, Greg Bear "and friends". It's a serial work built on a custom platform (including both website and apps) that supports multimedia and user-generated content, and it aspires to be a community inside a fictional world containing multiple narratives rather than a novel.

It's undeniable that books belong in our social networks, but it's far from obvious how social aspects should fit into the reading experience. Copia is designed with the point of view that the integration should be tight- it allows the sharing of annotations right within the reader application. Mongoliad does that, and more, it invites and rewards reader contributions, even to the point of letting the community influence the narrative. In thinking about how books should fit in to a social network, it's useful to look at two thriving social networks built around bibliographic objects, LibraryThing and Mendeley.

LibraryThing describes itself as a "social cataloging website". It helps you catalog your book collection, but it derives its vitality from the way it lets members use your personal catalog to connect with other LibraryThing members. A typical "Thingish" activity going on now is SantaThing, a sort of Secret Santa for Book Lovers. (Sorry it's too late to join for this year!)

Mendeley is surprisingly similar in function to LibraryThing, but it concentrates on a different set of bibliographic objects- journal articles. Like Copia, it includes a stand-along application, but its core utility is managing references for scientists and scholars. If that's all it did, it wouldn't create much excitement- services such as RefWorks, EndNote, Zotero and many others do that job. It's the emerging community that makes Mendeley special, which has a look and feel reminiscent of Facebook. Mendeley has recently added a public groups feature that helps researchers coalesce around topics defined by articles of interest. Very soon, they'll be rolling out a feature that connects users with other users based on their reference libraries.

It's a bit early to judge either Copia or Mongoliad- both shows lots of rough edges and awkwardness, but you expect that in things so new and ambitious. (Random examples- At first, Copia didn't remember where I was in a book; now it does, and I'm not sure what changed. You have to log in twice because of DRM- once to Copia, and a second time to Adobe. This is soon to be fixed, according to Copia representatives. Mongoliad's web version has an annoying border trim that made the edges of the page rather hard to read, and the navigation is at times mystifying.) Instead, I'd like to point out two architectural issues that these products raise, and which aren't likely to change easily. The answers to these questions are likely to determine their ultimate success or failure.

1. Should reading environments and social activity be tightly coupled or loosely coupled?

Copia is betting that a better user experience will result from the tight-coupling philosophy. Comments and annotations live in the social graph of Copia members and are fed right into the Copia reading applications. It's the same philosophy that Apple has used for its Ping network with no great success - yet. YouTube's social networking features could be characterized as being tightly coupled to their video content, and if Copia achieved a fraction of YouTube's success I'm sure they'll be quite happy.

The alternative to tight coupling would be loose coupling. There's no technical reason that users of Kindle, iBooks, Nook, Sony and Kobo reading environments couldn't all share comments and annotations via Twitter, Facebook and Buzz messaging backbones. Technical frameworks for open annotation are beginning to emerge.

Loose coupling is the way MLB has added social activity to their baseball Apps, and it works well there. Watching baseball is very much a social activity, but that doesn't mean that people want to build their social network around baseball games. My guess is that reading a book is more like watching a game in terms of the social interactions that work well around it.

Loose coupling to social features would allow users to combine their favorite reading device or application for example, Stanza or Ibis on iPad, their favorite social network, say LibraryThing or GetGlue, and their favorite shopping environment, which might be Amazon or Kobo. Loose coupling makes for more competition, resulting in a more challenging business environment for the provider of the social network. The types of web services present in both LibraryThing and Mendeley (and Facebook and Twitter, for that matter) allow coupling to other services, greatly increasing the footprint of the social network.

Mongoliad, by contrast, is content with extreme coupling to its social network, to the extent that you worry about scaling. While the Mongoliad platform supports only one narrative work (not sure if I should call it a book!) the company behind it, Subutai, intend it to be a platform for many different works. How will the community formed by one work interact with other communities on the same platform? will there be narrative leakage?

2. Which comes first,  objects connecting you to friends, or friends connecting you to objects?

This is a chicken and egg question, of course, but the interactions enabled by a social network are of one type or another. In a network like Facebook, the friends come first, and the stream of social interactions can bring along connections to many types of entities, books included. In networks like LibraryThing and Mendeley, it's the other way around- the books and articles create connections between you and other members of the network.

The reason this question is architecturally important for book- and article- -oriented networks is that it determines whether the objects in your network are works or whether they are products. Products can live in a friend-first network, but they stick out like a sore thumb in book-first social networks, where they really need to be "works".

To understand what I mean, consider a book I mentioned in a previous post, Charlie Chan: The Untold Story of the Honorable Detective and his Rendezvous with American History. Copia has a product catalog, not a work catalog, and so there are two separate entries for this work, one an ebook, the other a hardcover. When a paperback comes out, there will be a third entry. It makes very little sense for my social interactions surrounding the hardcover to be separated from similar interactions surrounding the ebook. Other works are much worse. Try loading "Moby Dick" into a Copia library. Although it's a public domain work, free from Project Gutenberg, you have to pay for the versions available for download in the Copia store. It's not as bad as Kindle but it's not as good as Apple's iBooks; I WAS able to import my iBooks file of Moby Dick into the Copia Reader.

The "thing" that really separates LibraryThing from other book oriented social networks is the emphasis it has put on the grouping of different book editions. (Full disclosure- one of my achievements at OCLC was managing the productization of OCLC's book-grouping web service, xISBN, which competes with a similar service from LibraryThing). Similarly, Mendeley expends a huge computational effort determining which article instantiations are the same as other article instantiations in its network.

Retailers naturally work at the product level, and the current version of Copia exposes the weaknesses of using product data as the basis of a social network. They'll eventually clean this up (as has Amazon) but it will be a slow and difficult process for them to re-engineer their backbone to address the complexities that libraries have long needed to deal with.

Mongoliad, though I'm sure it will cause the ISBN agency all sorts of headaches, is crystal clear about its status as a single, sprawling work. It will be interesting to watch its development as users begin to interact around the objects inside the work- characters, maps, places, etc, each of which is associated with a "'pedia" page.

Now what?

Once you've collected a network of people around a book, what happens next? Social networks are not unlike coffee shops or bars. If the business model for the network owner is to sell books (beer, coffee), the point is to get the network to buy their books (beer, coffee) through the network. Thus Copia's network will inevitably be slanted towards discovery of new things to read. If the business model for a social network is to collect some sort of membership fee, the point is to make the members so cozy they recruit more members. Hence the vibrant communities at LibraryThing and Mendeley, both of which use "freemium" business models. If the business model is to sell a subscription, the point is to get the reader hooked on characters and continuing narrative narrative. Hence Mongoliad is likely to include a lot of cliffhangers.

There's one more thing a book-mob will be able do, and that's evangelize the book. Large, evangelical groups of readers are exactly what Gluejar will need to gather the financial muscle to "unglue" books. Cooperation with all sorts of social networks will be a key to the success of this venture.

Even though its very much a self contained system, I'm really starting to get into Mongoliad, however. Thinking back on other Stephenson works, I'm realizing how ill-fitting they are in book form. The Subutai platform has unglued the narrative from the pages in a rather unexpected way.

I'd like to acknowledge invaluable conversations related to this article with Copia's Sol Rosenberg, LibraryThing's Tim Spalding, Ian Mulvany and Jan Reichelt of Mendeley (and all of Neal Stephenson's novels!)

Where English is Spoken

According to Wikipedia, the countries with the most English speakers are

1. United States, 251 million English speakers
   
2. India, 232 million English speakers
   
3. Nigeria, 79 million English speakers
   
4. United Kingdom, 60 million English speakers
   
5. Philippines, 50 million English speakers

The US and UK, of course, are wealthy countries with strong publishing industries, but it would be a big mistake for English language publishers to ignore the possibilities for growth in the other three. India in particular already supports a billion dollar publishing industry.

The coming transition from print to digital books will cause significant upheaval for distribution of books from the US and UK in countries like India. This is because India and other developing countries are "price-sensitive". The idea of selling a popular western novel for $30 or so is seen as outrageous price-gouging from the Indian point of view. The book industry has historically worked around this issue by carving up rights to books into regional pieces. An Indian publisher can thus bring out an inexpensively manufactured edition of the book and sell it at a 20% of the price it fetches in its home market. The regionality of the selling rights protects products being sold in the developed market from competition with products priced for sale in developing countries.

With digital products, this practice becomes complicated. The DVD industry for example, uses region coding to prevent DVDs sold in one region of the world from being played on players sold in another region of the world. They have managed to do this by building a type of DRM into almost every DVD player sold.

This promises to be much harder to do for digital books; that's not to say that the book publishing industry isn't trying to do it. [Insert here your favorite argument against applying DRM to books]

Nonetheless, certain aspects of ebooks seem ideal for developing countries with large populations. The cost of creating an additional copy of an ebook is almost zero; and the cost of reader devices, which has finally cracked the $100 barrier in the US, continues to fall. It's not far fetched to think of generating significant revenue by selling millions of copies of popular ebooks for 10-25¢ a copy. Libraries could play an important role in helping to enable this sort of distribution securely.

One possible stumbling block to realization of this fantasy is ebook piracy. While no reproducible research has been able to show that ebook piracy is a significant issue in the US and UK markets, all the available data indicate that demand for pirated material is quite strong in developing markets. Publishers that ignore these markets because of their small economic value today are throwing away huge potential future markets by training consumers that if they want to obtain ebooks they need to avoid legitimate markets.

Bounty markets for ebooks could play an important role in monetizing large numbers of people who can only pay small amounts for ebooks. Because bounties are posted for open access release of ebooks, it doesn't work unless all global rights holders agree and get a share of the money. A credible market of this type would thus have to start out with a truly global presence. That's one reason I've just arrived in snowy London for a short visit and also a reason I'll be heading to balmy India this weekend.

Wish me luck.