Mitch Ratcliffe is a veteran entrepreneur, journalist and business model hacker. He operates this site, which is a collection of the blogs he's published over the years, as well as an archive of his professional publishing record. As always, this is a work in progress. Such is life.

A la carte and the Apple tablet

Wired‘s Brian X. Chen has a vision of Apple’s tablet with an interesting angle: The potential for a la carte pricing of books. It’s not a new idea, but his point about college students being excited about buying individual chapters of a textbook rather than the whole book rings true to me.

Would publishers consider pricing a textbook by the chapter? I doubt it, but this is something their primary customers may respond to, giving publishers an opportunity to experiment profitably. After all, if a textbook in paper costs $80 and can be broken into 15 $5 chapters that can be sold separately to more buyers than could or would buy the whole book, the possibilities become intriguing.

Offering chapters as free promotions is old hat, of course. What about rewarding buyers of chapters with rewards that encourage more purchases? If, after buying three or four chapters, the reader gets the whole book or credits toward chapters of another book by the same author, that could be an interesting twist.

The rest of the article anticipates Apple’s wiping the competitive table with Amazon’s Kindle and solving the world’s problems with tablet-of-destiny. Chen suggests that application-based delivery of books is a good idea. It isn’t because it represents the ultimate form of DRM–a book that won’t play unless the customer complies with strict rules about the device, application and codebase of the iPod Touch operating system. Apple, unlike Amazon, does not provide forward compatibility for applications or, if iTunes is any indication, will not curate a customer’s collection of e-books for redownloading if the file is lost.

The writer confuses a monolithic distribution technology with convenience. Texts, however, need to be portable to be useful and profitable on the lower price readers expect to pay for e-books. Portability is good for readers, writers and publishers.

Moreover, Chen is eager to see Apple fix e-book pricing with “arm twisting.” That perspective ignores the fact that Apple’s interests are in selling the device (and content that runs on that device, and only that device) but not necessarily with the interests of authors and publishers who need greater freedom to explore creativity than a universally low price point for e-books would allow.

Samsung also leaping into the Kindle cage fight

From The Korea Herald: Samsung takes on giant Amazon in e-books. And, no, we’re not talking about a battle of GIANT WOMEN. “We seek to become a bigger player than Amazon or Sony in the e-book market,” Lew Jae-young, vice president of Samsung Electronics, is quoted saying at a press conference.

The Samsung device, the SNE-50K, which launches later this month in Korea, has an E-Ink display the same size as Kindle 2, no wireless connectivity and touts the first handwriting recognition technology in e-books, which is not true.

The $270.00 (339,000 Korean Won) device will be available through a Korean bookstore chain, Kyobo, and features only 2,500 titles in its current catalog, with a thousand more expected to be added each month. Interestingly, the article states flatly that e-books will sell for 40 percent less than their paper counterparts, so there is no assumption that an e-book must be priced at a specific amount, such as $9.99, to be attractive to the Korean market.

Local language focus may be a boon for Samsung in Korea, where providing double-byte character support and domestic bestsellers can help establish a beachhead for the device.

iRiver’s got another Kindle competitor

iRiver, which dominated the market for “personal music players” or “MP3 Players” back in the days when we referred to portable music by technology acronyms and iPod was just a sparkle in the eyes of a few Apple folks, is reported to building a Google Android-based media player and an e-book reader. But, wait, the devices are “not yet 100 per cent signed off” yet, said iRiver product manager Danny Bejanoff in the article. The company is also developing a Web tablet and e-book reader that will be available in Australia “for testing” soon, according to Bejanoff.

Sounds like a trial balloon.

I believe the device referred to as a Web tablet is, or is related to, the P7, a $209.00 tablet-like device with 16GB of memory already offered by iRiver in the U.S. A $179.00 8GB version is also available.

Fun fact to know and tell question of the day: What company preceded iRiver with the first portable downloadable audio player? It’s not this, which was the first device designed for music playback. Enter your answers in Comments!

Apple’s mythic beast: These tablets don’t come from God

The flurry of reports about Apple’s rumored 10-inch tablet iTouch/e-book reader/Media tablet over the weekend have only one thing in common: All are wild guesses based on exchanged rumors taking on a life of their own.

Notable in today’s Financial Times, for example, is the devastatingly guessy comment from Oppenheimer & Co. analyst Yair Reiner: “I think it will have a lot of the functionality of the iPod touch, but will be quite a bit bigger.” Mashable jumped on the FT’s report this morning, saying it “adds credibility” before going on to list the same set of questions everyone has been guessing about. Will it be a Kindle competitor? Will it be a phone or not? And so forth.

Pointing to one article riddled with guesswork does not add credibility to the rumors reported. Another article in the FT today, which discusses Apple’s efforts to revitalize the “album” in music sales, at least has some sources speaking on the record. The only named source in the tablet article, Mr. Reiner, quoted above, offers speculation. A source, described as a publishing executive said of the tablet: “It would be a colour, flat-panel TV to the old-fashioned, black and white TV of the Kindle.” That is a characterization without any detail from someone speaking off the record—why speak off the record if you aren’t leaking substantive information? Why let a source play authoritative expert when they are offering guesses?

Wild-eyed guesses. That’s all people are running with, because everyone dearly desires a good horse race to report. There is no horse race, there is a breeding program underway that will yield a lot of mules and a few thoroughbreds. Watching a breeding program can get very dull, sometimes gruesome. Unfortunately, most press are looking for “winners” and “losers” rather than seeing that features and traits developed in each generation of device are the only Darwinian players in this story. No one device or platform will win, because media is a deeply fragmented marketplace with broad choice for buyers.

Here’s what we can be sure of:

  • Apple never races to meet Christmas season deadlines. The company manufactures enthusiastic buyers whenever it wants, making the primary claim of the rumors, that the device must launch between September and October, ring hollow.
  • The market evolution underway now assumes that people are going to adopt specialized devices for different activities, such as reading, watching movies and browsing the Web. We have computers, televisions, radios, personal media players and myriad other devices that do most of these same things.
  • No one, not even Amazon with the Kindle and its almost 800,000 units sold, has brought about the adoption of a new activity specifically suited to a small computer with a screen capable of displaying text. It’s still just reading and we’re being asked to buy another device to do it. Whether e-readers will catch on in the current form is still very much up in the air.
  • The first substantial change in publishing as a result of these devices will be in magazines and newspapers, which will find renewed vitality when they don’t kill as many trees.
  • Readers who buy books—the third of Americans who read more than one book a year—are not going to give up paper for formats that will be obsoleted or lacks substantial enhancements over paper, except for short-lived information, such as newspapers and magazines. Anybody remember interactive CD-ROMs, which did sell millions of units and went absolutely nowhere. The benefit of these devices is not eliminating books from people’s lives, yet that is how many characterize every step, as the “end of books.”
  • Kindle is the ultimate newspaper and magazine reading device, since it provides the benefit of relieving readers of a lot of trash. No more piles of old magazines and newsprint; instead, your subscriptions will all be stored for reference and searching on a Kindle. However, any portable device, including a computer, can do the same thing. An Apple tablet could offer this, too. So, choosing a device becomes a matter of preferences and priorities. The Apple tablet addresses different priorities than the Kindle.
  • Any device introduced as a Kindle-killer will be hyped, and any product Apple makes will probably be very pleasing to the eye, the ear, the touch and, because Steve Jobs will not ship a monochrome screen in an age of rich media, as he is no fool, Apple products will not deliver the long battery life that characterize e-reader devices.
  • Steve Jobs will not introduce a device for a market of less than 100 million. An Apple tablet will have to combine functionality to appeal to many target users in addition to readers.
  • All the devices on the market and in the offing will involve trade-offs between different classes of functionality. The Apple tablet, if it even exists, will aim for the video market and e-books will be an afterthought supported by third-party developers, meaning readers will only embrace it if they also feel strongly about carrying movies and television along with them.

Relax, the world will not end or dramatically change when Steve comes down from the mountain with his tablet, if he even does so this year.

Does this mean “free” is working?

Chris Anderson’s new book, Free, will no longer be free on Kindle. It will be $9.99, only until August 21. But, buyers get a free copy of Anderson’s previous book, The Long Tail (currently listed at $9.56). Does this mean “free” strategy is working? Does the price go up again after August 21? If so, this is the first book to pursue a mark-up strategy as the title fades to the midlist.

Amazon won’t allow associates to link to the offer, so the free offer certainly collapses part of the value-chain, the online word-of-mouth marketing component, that we all thought was important to e-books. I still think Hyperion and Anderson need to do a full disclosure of the accounting for the title and the ancillary revenue it produces.

Random House UK caught in e-royalties stupidity

The Bookseller reports that literary agents in Britain are steering clients away new deals with Random House UK over different royalty schemes offered to authors based on their sales potential. Lower-selling authors are being offered between 17.5 percent and 20 percent royalties on e-books compared the emerging standard royalty of 25 percent for electronic editions.

A publisher wishing to build a stable of successful authors should not begin the relationship by offering them less than a “proven” author for electronic rights, because the inventory risks are lower with e-books and, more importantly, the authors’ online efforts on behalf of new books can produce far greater results than traditional marketing. If publishers are concerned about sinking costs into the paper publication of new books, they should start the titles out on an e-book and on-demand release and make decisions about paper editions based on the success of these less costly editions.

By “stupidity” in the headline, I mean a lack of judgment.

A bookstore with no books, but lots of coffee

Moriah Jovan has a nifty idea for a bookstore annex, of sorts, where people could order and pick-up print-on-demand books. Paul Biba at Teleread picked it up, and there are excellent comment threads on both postings. Check out it.

The design is reminiscent of the environment I discussed in this posting about the Espresso Book Machine. Here are my thoughts, which are also posted to the comment thread at TeleRead, so you can just go read them there….

I think this idea is viable, but only in the concierge/bookstall (like those that specialized in particular kinds of books in early printing) sense. It would make a great ground floor of a paper bookstore. The design makes sense as a place to WAIT, but not to browse. Bookstores are places to browse, cafes are places to wait — indeed, that’s all Starbucks and other coffee places think about in the design of their stores, in terms of making it pleasant to wait for a drink.

I don’t think on-demand bookstores are as practical as Moriah believes they will be. The estimates of wait times for a POD book always assume optimal performance and perfect demand (no more orders than the book machine can make in any given time), when retail is a highly inefficient setting characterized by long waits whenever business improves. See: http://booksahead.com/?p=329. It’s never “GOOD TO GO,” but usually “you’ll need to wait a bit longer.”

The question not addressed here is the cost of the space and technology for selecting the book one would like printed. If all the espresso seats have a screen, each sharing one-fourth of a workstation and there is a need for more than two POD machines, the upfront cost of the design would run somewhere north of $45,000, with ongoing costs for leasing the machines, point-of-sale systems and so forth. I’m not sure that is going to make sense to a retailer.

Nolan Bushnell gave a speech about the future of retailing at Digital World in 1994 that anticipated this scenario. It assumed people would go to places to browse, then order for home delivery. That model didn’t come to pass, because there was no link between browsing costs assumed locally and the potential revenue from actual sales (one could go online and order from someone else for a better price). The bookstore of screens ONLY doesn’t really enable browsing — which I think will take place from home.

Assessing Amazon’s quarterly report: 783,000 Kindles sold to date

Amazon.com had a very good quarter, in spite of the continued great recession. The company reported operating cash flow of $1.88 billion, a 72 percent increase over the same quarter in 2008. Net sales were up 14 percent to $4.65 billion in the quarter, but income decreased by 27 percent because of unfavorable exchange rates (Amazon’s international sales were up 28 percent, when adjusted for the $30 million cost of foreign exchange increased only 14 percent) and several business events that cumulatively, added about $2 million in income. Here’s the earnings report PDF.

In short, Amazon sold a lot more at home and overseas, which increased its costs overall—its operating margin fell from 4.7 percent a year ago to 4.0 percent this past quarter. Even in the worst of times, Amazon sells more stuff, which is the good news. The bad news is only marginally so, because higher costs can be managed, and Amazon continues to find ways to eke out more profit.

But, here’s the question: How many Kindles were sold in the quarter? We know the Kindle DX was introduced and sold out in the quarter and that Kindle 2 was available for the entire quarter. Contrary to the earnings release statement that Amazon dropped the price of Kindle 2 to $299 during the second quarter, that didn’t happen until July, so all the Kindle 2s sold went out at $359.

I’ve previously estimated that the total number of all Kindle models sold was 754,000 as of July 1, 2009.

Amazon reported an increase in North American electronics and general merchandise revenue of $267 million compared to Q2, 2008—a 29 percent increase. Somewhere in there, amongst the increased sales of LCD TVs and other electronics, are the full revenues for Kindle, since it is only available in the US. Since international sales of electronics and general merchandise rose 41 percent (35 percent after adjusting for foreign exchange), we can assume that approximately three-fourths of the increase in North American electronics sales were in other categories than Kindle, following the international patterns. That leaves roughly $67 million in North American electronics and general merchandise sales that were probably Kindle-related.

AMZNIf 20,000 Kindle DX sold before the stock was depleted, that would account for roughly $10M in new revenue. Assuming Kindle 2 is now selling at three times the daily rate Kindle did last fall, when orders ran between 600 and 700 a day, and going with the low-end number of 1,800 units per day, the Kindle 2 generated approximately 162,000 unit sales in Q2, for $58.3 million in revenue. Add it all up and we’re within $1.3 million of the revenue that we believe can be accounted for by Kindle.

That would make a total of 182,000 Kindles sold in Q2, 2009. So, they did slightly better than I expected when I last estimated sales. The total number of Kindles sold to date is approximately 783,000.

By way of comparison, Apple sells that many iPhones every two to three weeks. Kindle has not crossed the chasm, yet.

UPDATE: Reuters reports this was a “ho-hum quarter.” Shares gave up all the day’s gains and $1.20 more in after-hours trading (see right). Tightening margins in a recession are not cause for alarm; Amazon is picking up market share.

A funny thing happens on the way to a Pynchon novel

Thomas Pynchon’s latest novel, Inherent Vice, will be released on August 4th. A strange thing happens to me before his novels appear. I can’t read.

In contrast to other nights, when I sit down to read for three to five hours before going to sleep, in the weeks before a Pynchon novel comes out I find I can’t read at all. Last night, I went through a few pages of ten books, putting them all down and, finally, turning to Joyce’s Finnegans Wake and Pepys’ Diary for a while before giving up to fidgeting and wondering about the new Pynchon. A detective novel. All Pynchon novels are a mystery at heart, one that will never provide an answer, just myriad perspectives into the truth.

EFF seeking authors concerned about reading privacy

The Electronic Frontier Foundation is recruiting authors for a class action intervention in the Google Book Settlement, because the titles offered by Google under the agreement have no protections for the privacy of readers. This is a pressing concern, one the consequences of which were demonstrated by the recent Amazon Orwell debacle, which I discussed here. A book is or, rather, can be used to police the limits of citizens’ thought by linking reading of words with endorsement of the ideas those words represent. Here’s the nut of the EFF challenge:

The agreement has no protections in it for reader privacy or anonymity. None. Neither the Author’s Guild, the publishers nor Google has taken any steps in the context of this landmark agreement for the future of books, to ensure that the fundamental right of readers to privacy and anonymity of their reading habits are preserved. Our goal is to remedy that by asking Google and the others to enter into an enforceable agreement to implement those protections, or if that attempt fails, to ask the court to disapprove the settlement until it has sufficient protections for authors and their readers.

For years, the FBI and other national police forces in other nations have attempted to, and have, collected reading records from bookstores and libraries when seeking nonconformist and radical citizens. What we read becomes a brand of shame used by the police and government, as well as institutions like the church, to justify punishment. If Google’s book search and display technology creates a record of one’s personal reading, it can be subpoenaed. That represents a grave new threat to personal privacy and freedom of thought, for if we cannot explore ideas without becoming wed to them by police judgments of our reading, we can no longer safely explore controversies and decide for ourselves.

If you are a rights holder, consider joining the action.

UPDATE: Inside Google Books blog responded to the EFF call with a privacy-related posting. The Google privacy policy is inadequate in a variety of ways, because it allows Google to build very deep personal portfolios on which it builds ad-placement profiles for individuals. The posting is correct that a library terminal user would not be exposing any data, if they did not log into their own Google Books account, but the fact remains the service will constantly encourage logins in order to provide personalized services and access to one’s own library of books. The company’s data can also be subpoenaed by governments and, in some cases, Google has business agreements in place with governments limiting what information it may display and, conversely, it must be assumed, what information it must share with the government.