Opportunities in the Digital Arena for Independent Bookstores
HISTORY
[Slide 2 - Hitchhiker’s Guide] In 1978 Douglas Adams envisioned a slim
electronic folio that contained all the useful knowledge of all the people on all the
planets in the universe. The Hitchhiker’s Guide to the Galaxy, as Adams
imagined it, would let you carry in your pocket a device that functioned like an
amalgam of Google and an e-book. And while he was trying to be funny, Adams,
it turns out, was prescient.
Throughout the 1980s and 1990s, the book industry went through a series
of fits and starts with digital content. [Slide 3 - Franklin Dictionary] “Franklin
was the first company to provide an e-book type device. In 1986 Franklin
launched a fully functional electronic dictionary. This would be followed in the
early 90s by Sony's unveiling of the Electronic Book Player. This product used
CD-ROM technology to provide book material for viewing. The limitations of this
product gave way to the eBookMan. In both cases consumers were tied to the
purchase of discs or cartridges in order to view book materials.” a
ABA’s own history with e-books began in 1999. That year the association
signed one of the first contracts with NuvoMedia, maker of the Rocket eBook, the
first stand-alone device onto which consumers were able to download trade
books. [Slide 4 - BookSense.com Logo] The intent was to sell digital content
through the BookSense.com network of sites, which was under construction at
that time.
But early consumer enthusiasm for e-books in general, and the Rocket
eBook in particular, evaporated, and a conscious decision was made to shelve
our e-book aspirations until the market was both better developed and more
settled.
MUSIC TO MY EARS
[Slide 5 - Musical Notes] During the early part of this decade, while ABA
was waiting for the e-book market to sort itself out, a revolution occurred in the
world of digital music. It began in 1999 with the launch of Napster.
[Slide 6 - Napster] A site for users to share MP3 files, Napster grew
exponentially right out of the gate, swelling to 26.4 million users worldwide by
2001b. The response from the music industry was swift and harsh. A series of
lawsuits by artists and labels, alleging copyright infringement, were filed against
Napster, forcing the site to shut down operations in July 2001. The music
industry had won, but it was a pyrrhic victory.
By focusing so heavily on copyright infringement, rather than trying to
understand the clear shift in consumer preferences and behavior, the big labels
and the music retailers were caught flat-footed in the face of the sudden and
enormous demand for digital content. It was this shift in consumer behavior that
was so important. Enter Apple.
[Slide 7 - Apple Logo] In October 2001, Apple introduced the iPod.
Portable MP3 players were not new, and the early success of the iPod was one
of form over function. It was sleek, easy to use, and marketed brilliantly. While
sales of the iPod were steady and strong in its first two years of existence, they
exploded in 2003. Since October 2004 the iPod line has dominated digital music
player sales in the United States, with over 90% of the market for hard drivebased players and over 70% of the market for all types of players.c The key to
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the iPod’s market dominance was a new, killer business model: The vertical
integration of content and the listening device.
Apple launched its iTunes store in spring of 2003, selling an astounding
1,000,000 tracks in just five days.d By 2006, iTunes had gained 88% market
share of the legal music download market, with consumers downloading one
billion tracks that year alone.e
While the burgeoning sale of digital content might, on the face of it, have
seemed to be good news for the music industry, it was not. “In 2008, Americans
bought 88 million fewer CDs than they did in 2007 -- a full 20-percent drop. At the
same time, according to Nielsen SoundScan, digital album sales shot up 32
percent and single-song sales rose 27 percent.”f
[Slide 8 - Empty Retail Store] This was devastating to the music
industry. Digital music purchases, which typically happen one song at a time,
have not been enough to make up for the loss in CD sales. In addition, Apple’s
proprietary Digital Rights Management (DRM) package, called Fairplay, created
an iPod/iTunes monopoly, and the labels found themselves held hostage as
Apple dictated below market prices for content.
The result has been the erosion of revenue at the labels, and a body blow
to the ranks of music retailers. According to the “Almighty Institute of Music
Retail,” an industry research group that provides data to record labels and music
retailers, approximately 2,700 record stores closed between 2003 and 2008.g
Digitization and consolidation were changing the music industry and changing it
fast.
BACK TO BOOKS
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As the music industry unraveled, and as consumers became comfortable
accessing content in digital forms, the ground for e-books became fertile
[Slide 9 - eBook] In early 2007, as reports of renewed consumer interest
in digital content began to permeate the blogosphere and the tech news stream,
ABA partnered with Ingram Digital to offer e-content in three formats to
consumers shopping the family of BookSense.com websites. This was an
inexpensive solution that allowed independent booksellers to dip their toes in the
vast digital ocean, but it wasn’t a comprehensive solution. The formats available
to our customers could not be easily read on the most popular devices and the
process for searching for e-books was not immediately intuitive.
However, this move did position our channel to participate in future e-book
sales, and it did educate our in-house technical and customer service staff in how
to implement digital solutions for end-users. More importantly, it allowed ABA to
participate in a digital content dialogue with its members through education
sessions, Bookselling This Week articles, and the new functionality itself.
Our timing was fortuitous, as the ground has shifted again. A convergence
of factors has brought the issue of digital content to the front burner. I’d like to
speak about six of those factors in particular.
1.
[Slide 10] An Internet connection and any device with a browser
(computer, iPhone, Blackberry, etc.) provides access to the
collected knowledge of the entire world. It’s Adams’ Hitchhiker’s
Guide come to life. And while it’s true that the information
available is unfiltered and unqualified, it hasn’t stopped society
from relying increasingly on the Internet to answer questions.
According to Nielsen Online, an estimated 5.9 billion search
queries were conducted on Google in January 2009, representing
almost 41% year-over-year growth.h And while fully half of those
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were people doing Google searches on their own name, the fact
is, consumers used to go to libraries and bookstores to find the
same information they’re now seeking online. We are training
ourselves to use digital content as the default option for
information searches.
2.
While the United States lags behind some other nations in terms
of the penetration of broad band access, it’s the exception, not
the rule, to find the consumer and/or bookseller without high
speed access in the home and/or store. High speed connectivity
enables the easy and wide distribution of content.
3.
The AAP and the IDPF support the open EPUB format for digital
content. This is “an e-book file type for reflowable texts from
which any e-book delivery format can be rendered.” i What’s
important here is that a publisher is now more likely to create the
original digital file as an ePub file. This will allow for the easy
creation of different e-book formats – Kindle, eReader, etc. -- at
any point along the supply chain. Just as VHS and Beta battled
for market dominance in the videotape market, and just as BluRay and HD DVD battled for market dominance in the world of
high definition video, several formats have been competing for
eyeballs in the e-book universe. With the industry now backing a
standard format, that competition will fade, paving the way for a
more seamless mass distribution of content. Random House, for
example, announced that it will double the number of digital
books offered to roughly 15,000 titles, citing a 400% increases in
sales in the last year.j Standardization and increasing comfort
with the market are also helping publishers sort through licensing
issues, which were once the largest stumbling block to the
widespread distribution of e-content.
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4.
Apple is once again leading the way for digital content, this time
in book form. Lexcycle, a company which makes a free e-reader
application for the iPhone called “Stanza,” recently announced
that the app was downloaded one million times in 2008.k With the
explosive growth in iPhone sales (4.36 million in the fourth
calendar quarter of 2008, representing 88% growth over the
same quarter the previous year), and the growth in iPhone
copycats from Blackberry (500,000 units of the Blackberry Storm
sold in its first month of availability) Google, and perhaps most
importantly, Palm, this market is expected to grow rapidly and
exponentially, putting viable e-reading devices into tens of
millions of pockets. If further evidence is needed, Amazon.com
purchased Lexcycle and Stanza, and Barnes & Noble purchased
FictionWise.com, the largest provider of e-content to iPhone
users.
5.
Industry estimates suggest that in its first year the Sony eReader
sold 300,000 units, and in its first year the Kindle sold 500,000
units. While many question the long-term viability of stand alone
readers, the public imagination has been captured by Kindlemania. Publishers are also buying into the hype, and maybe with
good reason: Brian Murray, chief executive at HarperCollins,
noted that 20% of Amazon’s sales of The Story of Edgar Sawtelle
were in Kindle format.l Kindle, now also available as an
application for the iPhone, is a closed format, shutting out all
other retailers, similar to iTunes.
6.
While Mark will talk about the college market in detail, it’s now
secret that digital content is well established on college
campuses. Roughly 95% of available textbooks from McGraw Hill
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are offered as e-books in almost every academic subject. One
school, Abilene Christian University, has promised all incoming
freshman an iPhone or iPod touch, for the purpose of
“educational enrichment. Reportedly, the handhelds will enable
students to "receive homework alerts, answer in-class surveys
and quizzes, get directions to their professors' offices, and check
their meal and account balances" -- and that's just for starters.”m
It’s reasonable to assume that ACU will make course work
available to these same students in digital format in the future.
The point here is that the next generation of consumers are
already very comfortable in reading text digitally.
Given all of this, we find ourselves at a critical moment. We can either
build on the knowledge-base we’ve established and use the collective power of
our trade association to facilitate the sale of digital content through our member
stores, or we can cede this business to other channels.
That’s a provocative statement, and it’s meant to be. Consider the
explosive growth in the sale of digital content. [Slide 11 - IDPF SLIDE] Consider
these figures from the International Digital Publishers Forum. They show the
dramatic growth in the sale of digital content. But it’s starting from a very small
base. In other words, it’s still a tiny fraction of the total book industry in the U.S.
With that in mind, how urgent is this issue? With a sputtering economy,
with an unsettled supply chain, do we really need to worry about this right now?
The answer is yes.
[Slide 12 - Adoption Curve Chart] One of our favorite charts in ABA
education and environmental scanning is the technology adoption curve.
[Adoptcion Curve chart attached.]
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New technologies start slow, finding their way through R&D trial and
errors, consumer education, and the building of a manufacturing base and
necessary infrastructure. From cars to washing machines to cell phones, new
technologies need time to mature and grow. Many such technologies—maybe
even most of them—ultimately fail. Consider telephone pagers and eight-track
cassettes. These were stepping stone technologies. But these technologies
failed in their execution, not their concept. People wanted mobile communication
and portable music. It took cell phones and the WalkMan to get the concept right.
When an increase in utility meets a decrease in production cost, the line curves
sharply up, and adoption explodes.
[Slide 13 - IDPF Sales Chart] Now look at those IDPF/AAP sales figures
again and see how this compares with the adoption curve chart. E-books, it
would seem, have arrived at that bend in the road. The reality is finally starting to
outpace the hype.
THE OPPORTUNITY:
ABA is pursuing five different strategies to help our members participate in the
marketing, sale, and distribution of digital content.
1. [Slide 14 - IndieCommerce Logo] For the past decade, ABA has offered a
turn-key e-commerce solution to its members. Formerly known as
BookSense.com, and now called IndieCommerce, the product provides members
with the ability to display and sell more than three million titles, to upload their
own content, such as events and staff picks, and to brand themselves as they
see fit.
After a decade, the product had become stale, and a decision was made to
upgrade it. We moved from old, clunky, proprietary computer code, to a truly
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open-source content management system, and have improved the speed,
performance, and functionality of member websites.
With this new system, we’re rolling out greatly improved e-book functionality, and
expect it to be live in the next few weeks. The digital content solution will include:
The ability for consumers to easily search for and purchase digital content
across a wide breadth of titles.
The ability for consumers to easily download that content in a variety of
formats and to a variety of devices, including the iPhone and the Sony
eReader.
The creation of promotional opportunities to feature digital content online
and in-store.
A plan to leverage the unique value of our members, as independent and
locally-owned curators of content, in the sale of digital product.
A carefully planned public relations campaign to educate consumers on
the availability of e-content through indie bookstores.
Partnerships with other indie businesses (e.g., music and movie stores) to
cross promote digital efforts.
In addition, once the association provides the technology, we need a
significant effort to educate members on why and how independent booksellers
should engage in digital commerce, and to share best practices for
communicating the benefits of buying digital through indie stores to the
consuming public.
2. The development of e-content for our e-commerce solution has been geared
toward reaching the largest install base of e-readers, and in the U.S. that is the
iPhone. [Slide 15 - IndieBound App] ABA recently developed an application for
the iPhone to promote the IndieBound program. The app allows consumers to
search for bookstores, search for books, and review recommended reading and
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bestseller lists. The app has been downloaded more than 20,000 times and is
number two among the iPhone free book apps. It is our intent to grow this
application to include the sale of digital content, allowing readers to buy,
download, and consumer e-books all from their phone.
3. [Slide 16 - E-reading Device] Once our members begin selling content in a
meaningful way, they will need to direct their customers to a reading device or
reading devices. To that end, we’re in conversation with a number of device
manufacturers to determine if there is an appropriate device to distribute through
independent bookstores.
4. [Slide 17 - “Open-source”] Unfortunately for independent bookstores, the
two leading reading applications for the iPhone have been purchased by
Amazon.com and Barnes & Noble respectively. This brings to light a potentially
difficult situation for independent bookstores – we do not have a stake in a
reading device or application. To that end, we’re in the early phase of
investigating the creation of an open-source e-reader application for the iPhone.
This is an expensive and time consuming proposition, and we’re talking with
other interested parties about creating a coalition to build such a product. Of
course, the difficulty is in what’s unknown. We could through the time and
expense of building an application for the iPhone, only to arrive at a point when
the iPhone is irrelevant. For this reason, we intend to be careful in pursuing only
those opportunities that are flexible, scalable, and open-source.
5. [Slide 18 - Bundling] The final strategy we’re pursing is in the area of the
content itself. Specifically, we’re talking with a number of publishers about
bundling opportunities. The idea is to reach the consumer in the store (or on the
store’s website) with an offer to purchase e-content along with the printed content
for a nominal additional charge. We believe this will help educate not only
consumers, but our members as well, about digital content, and will give us a
good story to tell, particularly if the bundles are unique to our distribution channel.
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While there is no guarantee that digital content will have the impact that some
are predicting, and while we should not let the issue derail us from other
important work we must do, it is clear that this is something that requires
serious study and attention now.
And remember, the reason the Hitchhiker’s Guide to the Galaxy was so
successful [Slide 19 - Don’t Panic] were the two words in giant letters
printed on the cover: DON’T PANIC!
a
Ebookfanatic.com
ComScore.com, Press Release—July 20, 2001
c
Wikipedia.org, “iPod History”
d
ABCNews.com, “1 Billion Served” – February 23, 2006
e
Wikipedia.org, “iTunes Store”
f
ColoradoDaily.com, “RIP, CD” – January 13, 2009
g
http://www.almightyretail.com/
h
MediaPost.com, Online Media Daily, February 12, 2009
i
Open letter from the Association of American Publishers, May 12, 2008
j
New York Observer, “Random House CEO Markus Dohle to Staff: ‘Our Future Has Begun’ as
"Evolutionary" 2008 Ends”—December 18, 2008
k
MediaBistro.com – Galley Cat, January 9, 2009.
l
New York Times, “Turning Page, E-Books Start to Take Hold”—December 23, 2008
m
Engadget.com, February 28, 2008
b
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