The dangers of platform lock-in

One reason some consumers haven’t jumped on the ebook bandwagon is because they’re concerned the format they select might become obsolete in a few years. Others dismiss that as unfounded pessimism but I have an example of how it can happen, and not with some fly-by-night platform. This problem happened on Apple’s extremely popular iOS platform.

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Publishing's "open" future

If I had to summarize the future of publishing in just one word, I’d say “open.” We’re living in a very closed publishing world today. Retailers use tools like digital rights management (DRM) to lock content, and DRM also tends to lock customers into a platform. Content itself is still largely developed in a closed model, with authors writing on their word processor of choice and editors typically not seeing the content until it’s almost complete. Then we have all the platforms that are closed from one another; have you ever tried reading a mobi file from Amazon in an EPUB reader, for example?

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Three questions for…Jason Illian of BookShout

1. What is BookShout and what makes it unique?

BookShout is a unique type of ereader that allows for sharing and discoverability. In other words, the “social” tools are built into the ereader so that users can either actively or passively share the books with which they are most passionate, increasing unit sales and notoriety. Not only can readers share notes and thoughts to other BookShout users, but they can also share them out to Facebook and Twitter.

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EPUB 3 facts and forecasts: Why ebook publishing will look more like software development than print production

In an article posted a few days ago I shared the first part of an email exchange between Bill McCoy of the IDPF and Sanders Kleinfeld of O’Reilly. They were debating the merits of HTML5 and EPUB 3. In the second of this three-part series they dig deeper into the capabilities of EPUB 3 and what the future of this format might look like.

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HTML5, EPUB 3, and ebooks vs. web apps

One of the benefits of working on TOC is that I get to see some of the behind-the-scenes industry debates that take place via email. Since it’s “formats” month here in TOC-land I thought it would be fun to share a thread about HTML5 vs. EPUB 3 featuring O’Reilly’s Sanders Kleinfeld and the IDPF’s Bill McCoy. They’ve both agreed to share this thread with the TOC community since it helps clarify the state of both EPUB 3 and HTML5.

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Kindle Remorse: Will consumers ever regret ebook platform lock-in?

If Barnes & Noble doesn't already have a sense of urgency, especially after last week's developments, this quote from a thoughtful piece by Joe Arico should help fire them up:

In the age of the e-reader and tablet, every person that purchases an Amazon Kindle, Nexus tablet or iPad should be viewed as a customer Barnes & Noble will likely never get the chance to serve again.

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Amazon Prime Time

Like most technology products, each new version of Amazon's Kindle eInk reader is lower-priced than the last one. There's been speculation that the price will eventually go to zero, perhaps taking a page out of the cell phone model where the consumer commits to a long-term plan. There's no monthly service plan for a Kindle so I always figured Amazon would require consumers to purchase a minimum number of ebooks over a 1- or 2-year period instead.

That makes sense, but there's a bigger play Amazon probably has in mind and I'll bet it will eventually feature their tablet, the Kindle Fire.

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Why Aren't E-Reading Devices Smarter?

I'm sinking in ebook samples. I've stored so many articles that I cringe when I open Instapaper. I almost forgot I'm only halfway through Walter Isaacson's book about Steve Jobs. In fact, there are at least three other ebooks I started and pretty much forgot about finishing. They've just fallen off my radar.

What's wrong with this picture?

I'm drowning in econtent and I'll bet you are too. My nook's user interface is similar to the Kindle's. Virtual shelves are considered a revolutionary content management technique. Really? Why are we so focused on replicating the physical world in the e-reading world? Shelves work fine for print books but why should we limit ourselves to that solution for ebooks? These devices we're reading on are capable of so much more!

Today's e-reading devices are the equivalent of yesterday's dumb terminals. Let's make 'em smarter! I want one with an econtent manager that has the following capabilities:

  1. Let me create a reading schedule and help me manage it. I'm currently in the middle of reading at least 4 different books on my nook. The problem is I only seem to focus my attention on 2 or 3 in any given week. This econtent manager should let me tell it what books I want to prioritize on my reading list and nudge me every day to tend to each one. Let me configure it to text me on my phone if I fall too far behind, for example. Rather than presenting me with a set of shelves and an ordering of the most recent ebooks I've opened I want something that's far more powerful and helps me stay on top of all of my econtent.
  2. Don't let me forget about samples. Sample content management is pathetic on all the major ebook platforms. Seriously. I've told B&N that I'm interested in a title and they're content to simply toss the short sample my way and never follow-up. I've got samples that are really old now and I've forgotten about them. Let's have a feature in this manager that knows when I downloaded every sample and, based on how I configure it, reminds me to check them out. For example, I'd love it if my nook would tell me I've got 4 samples that are now a month old and I've never even opened them. You'd think the ebook retailers would see the benefit of this service, especially since it would only lead to more conversions from free downloads to purchased ebooks. And let me subscribe to samples! I love baseball. Go ahead and send me the sample for every new baseball ebook as it's published. Don't worry...I'll delete the ones I don't care for.
  3. Tap into my Instapaper acount. Why do I have to go from ebook reader app to Instapaper app to read all the interesting web pages I've saved? Can we please just do this all in the ereader app?! And be sure to integrate this with the reading schedule feature outlined in point #1. So let me prioritize which Instapaper articles I need to read today, this week or this month. Better yet, how about we just cut out the middleman and just give me a "Send to..." option in every browser on every device and platform I use? A quick click of that button in my browser means that page will be pushed to my nook's new content manager and ready for me to read the next time I turn it on.

Today's ebook platforms are pretty hard to distinguish. I switched from a Kindle to a nook earlier this year and didn't notice any difference. This is an opportunity for everyone who's not in first place (B&N, Apple, Google or Kobo) to rise above all the others. They should push aside the physical world metaphors, leverage the capabilities of a digital device and help their customers manage their content and achieve their reading goals.


What if DRM Goes Away?

TOC Latin America was held last Friday in the beautiful city of Buenos Aires. Kat Meyer, my O'Reilly colleague, and Holger Volland did a terrific job producing the event. As is so often the case with great conferences, part of the value is spending time with speakers and other attendees in between sessions and at dinner gatherings

Last Thursday night I was fortunate enough to have dinner with Kat, Holger and a number of other TOC Latin America speakers. We discussed a number of interesting topics but my favorite one was asking each person this question: What happens if DRM goes away tomorrow?

The DoJ suit against Apple and five of the big six has led to a lot of speculation. One of the most interesting scenarios raised is that if the government is intent on limiting the capabilities of the agency model, publishers need to figure out what other tools they can use to combat the growing dominance of Amazon.

Charlie Stross is right. DRM is a club publishers gave to Amazon and then insisted that Amazon beat them over their heads with it. So what if we woke up tomorrow and DRM for books disappeared, just like it has (for the most part) with music?

I was unable to reach a consensus at that dinner, but here's what I think would happen: Initially, not much. After all, Amazon has a lot of momentum. If current U.S. estimates are accurate, Amazon controls about 60-65% of the ebook market and B&N is second with about 25-28%. That only leaves 7-13% for everyone else. And if you've been buying ebooks from Amazon up to now, you're not likely to immediately switch to buying from B&N just because they both offer books without DRM. On the surface Amazon's and B&N's ebooks use incompatible formats, mobi for the former and EPUB for the latter. But that's where it gets interesting.

Converting from mobi to EPUB (or vice versa) is pretty simple with a free tool like Calibre. I've played around with it a bit, converting some of the DRM-free ebooks we sell on oreilly.com. I didn't do those conversions to get our books in other formats. After all, when you buy a book from oreilly.com you're buying access to all the popular formats (mobi, EPUB and PDF, as well as others), not just the one format a device-maker wants to lock you into. I did the conversions because I wanted to see what's involved in the process.

If you've ever used Microsoft Word to save or convert a .doc file to PDF you'd find it's just as easy to go from mobi to EPUB in Calibre, for example. But just because the tool is available does that mean if DRM goes away we'd suddenly see a lot of Kindle owners buying EPUBs from B&N and converting them to mobi with Calibre? I doubt it. Those Kindle owners are used to a seamless buying experience from Amazon, so unless there's a compelling reason to do so, they're not likely to switch ebook retailers. And that leads me to the most important point...

Creating the best buying and reading experience is one way any ebook retailer can steal market share from the competition. Amazon has a pretty darned good one, that's for sure, but there's plenty of room for improvement, IMHO. I'm not convinced any ebook retailer has pushed the envelope on innovation and exciting new features in their devices or reader apps. In fact, these enhancements seem to move at a glacial pace. So what if B&N (or anyone else, for that matter) suddenly invested heavily in reader app functionality that puts them well ahead of the competition? And what if some of those features were so unique and innovative that they couldn't be copied by others? I'd much rather see a competitive marketplace based on this approach than the one we currently have where the retailer with the deepest pockets wins.

Innovation is better than predatory pricing. What a concept. The iPod revolutionized music, an industry that was highly fragmented and looking for a way forward in the pre-iPod days. The iPhone turned the cellular market on its head. Think about how significantly different the original iPod and iPhone were when compared to the clumsy MP3 players and flip phones that preceded them. I believe today's crop of ebook readers and apps are, in many ways, as clumsy and simplistic as those MP3 players and flip phones. IOW, we haven't experienced a radical tranformative moment in the ebook devices and app world yet.

Of course all of this innovation I'm dreaming of could happen today. We don't need to wait for a DRM-free world. Or do we? Amazon has no incentive to innovate like this. They already have a majority market share and it's only going to get larger when the DoJ dust settles.

This is more of a rallying cry for B&N, Kobo and every other device and ebook retailer. If DRM goes away tomorrow nothing much changes unless these other players force it to. But why wait till DRM disappears? It might not happen for a long time. Meanwhile, the opportunity to innovate and create a path to market share gain exists today. I hope one or more of the minority market share players wakes up and takes action.


DoJ: Consumer Hero or Predator Enabler?

Last week I got a better sense for why Clay Johnson, author of The Information Diet, recommends gathering the facts as close to the source as possible. When the DOJ released the final judgment with settlement terms for three of the big six publishers I was on a plane and was formulating my opinion based on what I was reading in the tweet stream.

By the time that plane landed my mind was made up. Or so I thought. At that point I felt the DOJ’s settlement terms were over the top and taking us right back to square one. It appeared that the agency model was going away, the deep-pocketed Amazon could continue selling ebooks at a loss, drive the competition out of business and create an ebook retailing monopoly.

I was also confused and led astray by this Wired article which reported, “Publishers can enter into one-year agency agreements that stipulate that the retailer can sell individual titles at a loss, but must show a profit overall for all the books it sells from that publisher’s catalogue.” That seemed vague since the article didn’t say how much of a profit had to be generated.

Then I read the relevant sections of the settlement terms (see section VI, Permitted Conduct, paragraph B).

The settlement document actually says that there are some restrictions in customer discounts going forward, but that “such agreed restrictions shall not interfere with the E-book Retailer’s ability to reduce the final price paid by consumers to purchase the Settling Defendant’s E-books by an aggregate amount equal to the total commissions the Settling Defendant pays to the E-book Retailer.”

In other words, the retailer doesn’t have to generate a profit on ebook sales and the agency model isn’t really going away. But the DOJ is altering agency so that it once again tilts the scales in favor of the deep-pocketed retailer. According to the settlement terms, Amazon will be able to forgo their cut of the transaction and pass that discount along to customers. So let’s say the agency model includes a 30% cut for the retailer. Instead of the publisher being able to set the final consumer price, as they can under the original agency model, the retailer is now able to discount the consumer price by as much as their 30% cut.

That might seem harmless because it doesn’t let Amazon sell ebooks at a loss under the new terms of the agency model. Once the terms kick in it seems certain Amazon will reprice all these agency titles from settling publishers to 30% off, thereby forcing their competitors to do the same and not make a nickel on ebook sales. That’s OK for Amazon because they’ve got loads of cash and sell a bunch of other products they can make money from. What does it mean for other ebook retailers though?

The wholesale model was accelerating the death of other ebook retailers. Amazon could sell all their wholesale model ebooks at a loss until the last competitor was run out of business. The agency model took control away from Amazon by not letting them sell at a loss. This new agency model is somewhere in between but will definitely put other ebook retailers at a disadvantage, especially if they’re not as diversified as Amazon and unable to make a profit somewhere else. We’re not quite back to square one, but we’re painfully close.

So while the DOJ feels they’re solving a price-fixing problem what they’re really doing is paving the way for a monopolist retailer. And don’t think Apple or Google with their deep pockets are going to save the day. Neither of them are selling that many ebooks, Apple will probably lose interest now that the agency model has changed and Google has already started their retreat.

Even though my employer, O'Reilly Media, doesn't use the agency model, I think it’s perfectly reasonable for a publisher to set the final consumer price, especially if they’re trying to prevent one retailer from selling at a loss to drive competitors out of business. I was also inspired by the letter Macmillan CEO John Sargent wrote about the situation. He feels Macmillan has done nothing wrong and that they plan to fight the accusations.  That makes me wonder about the publishers who have already settled. Either they’re guilty of collusion or unwilling to take a stand at this very important moment. Neither scenario casts them in a favorable light.

When I was on that plane I was ready to grab my own torch and join the lynch mob because the agency model was going away and Amazon could revert to selling those agency titles at whatever loss they wanted to. Now that I’ve read all the facts I’m not so much angry as I am disappointed in the DOJ. They haven’t completely nuked the agency model but they’ve changed the rules enough to all but ensure Amazon’s dominance.

There’s one question I’d love to ask Attorney General Eric Holder: When Amazon’s ebook market share climbs back to the 90% level it once was, and competitors are run out of business, will he consider these settlement terms a success?