Google Editions defies digital economics

Google today announced it will enter the e-book distribution business with a service, Google Editions, which will sell electronic copies of as many as 500,000 books offered by traditional publishing houses. The service is amazing, because the company has found a way to increase the retail distribution cost of e-books relative to paper books. Think about this—the zero cost copy of an e-book will be the basis for Google keeping substantially more, as a share of list price, to deliver a Google Editions e-book through a third-party retailer than buying directly from Google.

It may seem attractive to retail partners, which will purportedly include Amazon, Sony and Barnes & Noble, but even they’ve got to be scratching their heads about the added overhead Google built into its pricing scheme. An e-book purchased from Google Editions will list for the same price as the same book offered by a publisher through Amazon or Sony, for example, and Google will pay the publisher 63 percent of the list price. But, if the book is purchased in Amazon Editions format through Amazon or Sony, publishers will only get 45 percent of the list price.

Google said it will share the additional 18 percent with the retailer, though “most” of that 55 percent reportedly will go to the retailer. My guess is that by “most,” Google means the retailer will get 25 percent and Amazon 20 percent, or some approximation of that split. This seems a concession to make sure the Google Editions format books are carried by retailers.

Let’s break that down. For a bestseller, which the market has decided should be priced at $9.99, the publisher will earn $6.29 when Google Editions sells a copy. When that same Google Editions e-book is sold through a third party, the publisher will earn only $4.49. Intermediaries increase their share of revenue, even though they’ve taken on no inventory risk.

Publishers get 63 percent for selling directly and 45 percent for a Google Edition book sold through a third-party retail site. It defies all the economic logic of digital distribution. The likelihood that Google will really get more e-books from publishers on those terms compared to those offered by Amazon, Sony or Barnes & Noble to the same population of publishers strains credibility. But, we shall see.

More bad news: DRM

While the Google Editions e-books will be readable in a browser, they will not be unencrypted. Google makes clear that books will come with DRM, because they have created a way to let readers access files when not connected to the Net but without the ability to share those books with others. Books will be tied to a Google account, just as GMail, Google Docs and other services.

The retailers, all of whom have introduced proprietary e-readers and, except for Sony, which offers ePub formatted e-books, should be Continue reading

B&N’s double-duty e-reader

Gizmodo has photos of the new Barnes & Noble e-reader, which will be announced next week. Apparently after running a blurb on the B&N announcement, Gizmodo got the “scoop” direct from B&N PR, because they have a nice set of professional product shots to show you. The news is not news, but staged product release. Fast Company picked up the story and calls the unnamed gadget “more exciting” than most of the dedicated e-readers on the market, as it sports a touch LCD screen below the E-Ink display to facilitate greater interactivity, with color.

The B&N device is intriguing for several positives and an inadvertently negative reason. First, the positives:

The device will run Google’s Android OS, which implies it will have a variety of capabilities beyond simply displaying books. Fast Company suggests users will have “social chat” within books via the LCD screen. I think we like to concentrate when we read, so the kind of chat seen on Twitter or instant messaging would be interruptive. However, if the screen facilitates embedding of comments from friends, which could be entered on the LCD screen and conveyed to an insertion point in the text for later, non-interruptive access, that could be incredibly cool.

The LCD does offer a solution to the lack of interactivity in E-Ink-only devices, but it is much more likely to be useful for playing audio books, shopping for books (clearly a greatly enhanced experience with color and a refresh rate faster than ice melts), and non-book functionality. Here’s the negative side: It is just one of many solutions, though, and the dual-screen form factor seems to scream “this device isn’t big enough for our business model and your needs as a reader.”

The touch screen will make typing much easier than on a Kindle, but isn’t the stark similarity between the LCD portion of the B&N e-reader and an iPhone or iPod Touch underlining what an e-book reader doesn’t do? Should the device ship with Google’s Talk Voice over IP (VoIP) application and a combination of Wi-Fi and mobile data service, that would actually be revolutionary. But why, then, buy an e-reader and not a smartphone if the essential benefit of either is the LCD screen?

I’m actually eager to see this e-reader for myself. Until then, when we will know the price and its actual capabilities, we can only speculate about its ability to disrupt the market. Given the popular belief that e-readers must be cheaper than $100 to win a mass audience, it’s unlikely the B&N e-reader will do all the cool things it needs to to be really revolutionary.

Finally, let’s do remember that B&N is a retailer and discount publisher, not a hardware company. It’s entering a business it does not comprehend, because prevailing opinion says everyone needs to have their own e-reader hardware offering. Amazon’s Kindle, as I’ve written many times, is a temporary phenomenon tied to extending Amazon’s ability to retail books. Both the B&N and Amazon hardware businesses are kick-starting efforts designed to drive the providers’ e-book retailing business, and not likely to result in long-lived hardware products.

We don’t drive cars made by Chevron and Ford doesn’t build cars that burn only one brand of gas.

Nokia’s Symbian gambit

Nokia today announced via Twitter that it will not make a smartphone based on Google’s Android operating system. This is significant because it shows that hardware makers are concerned about losing control of their relationship with customers.

Symbian, Nokia’s favored OS—it has slowly acquired the company that develops the OS since joining it as a partner in the mid-90s—will remain Nokia’s focus. It prevents Google from claiming a direct relationship with Nokia’s customers through the OS, meaning Google will have to invest in a Google Books for Symbian application (it has various apps for Symbian already), or partner with Nokia, to gain access to Nokia smartphone users who want to buy or read ad-supported e-books.

UPDATE: Analysts say Nokia is doomed, will lose out to Apple in two years. Rumors of Nokia’s death have run rampant before. The question remains whether it will stay at the forefront in its relationship with customers. Apple mastered that challenge with the App Store, Nokia’s not in the position to do the same.

Soon, Amazon, Apple and Google will not be e-book competitors

Observing a market in development, such as the e-book business today, teaches the thoughtful analyst one thing above all else: No company is making investments that lead to failure. They only fail by mistake, by placing too large a bet on one direction the market might take. Amazon is no more at war with Google than it is with Apple. Yes, they are competing for dominance. But neither company would kill itself over this one vertical within either of their much broader businesses.

Amazon can drop the Kindle hardware to sell more books on an Apple device or through Google Books. Google could embrace the Kindle format, as well as the Mobipocket format that Amazon owns. Apple could provide hardware to serve up both Amazon and Kindle books. Microsoft, as the odd-man out and dominant operating system player is least like to control the high ground in any of these markets, because it holds the largest share of revenue generated by consumers today.

None of them will destroy the rest of their business to control the book publishing market, which is worth only $46 billion annually according to the most optimistic estimates. Mobile phone hardware, search engine marketing and advertising and PC operating systems are all larger markets than books, though one could argue that publishing has the greatest potential to drive revenue if managed perfectly. It is easier for any of these companies, however, to sell hardware, advertising and operating systems and development tools than to undertake the challenges of publishing.

Instead, these companies are jockeying for leadership, which will allow them to dictate their share of the resulting market for e-books, e-magazines and e-anything that generates revenue. Eventually, and I believe it will not be long, Amazon will yield to Google, making its book available on Kindle, or by licensing its formats to Google to sell independently of Amazon (but sharing revenue when the Google-scanned books are sold in Amazon’s Kindle Store). Apple will sell hardware, driving sales of e-books through any channel that provides books that run on its hardware. Likewise, Microsoft, which know it has lost the high ground in electronic publishing, will cede publishing revenues in exchange for support of its OS by the widest range of e-readers.

Only Google and Amazon are so decidedly at odds that they cannot work together. One of Microsoft’s most profitable divisions has long been and remain its Mac software unit. Everyone else in the e-books market has only their long-term survival at the center of their calculations, and none of them depend on dominating publishing.

Wattpad debuts on Google Android phones

WattpadlogoWattpad, a venerable ebook sharing community founded in 2006, has introduced its Wattpad e-reader application for smartphones that run on Google’s Android operating system. (The Android download is not currently listed on the company’s download page, here. Mobile phones may download Wattpad here.) It is also available on Apple’s iPhone, RIM’s Blackberry and Nokia’s Symbian OSes.

The company has more than 10,000 new titles published by members each month. The Wattpad application has been downloaded more than 3.1 million times as of June 1, 2009.

The significance of this announcement is somewhat muted by the emphasis on mobile handsets. Android is Google’s fulcrum for dislodging Microsoft Windows across a variety of platforms, including netbooks, laptops and desktop computers. It is also the foundation of an interactive cable/TV initiative, all of which would be open to Wattpad users. Asus, for example, has announced an Android netbook, and many more Google-powered devices are on the way.

Netbooks, tablet PCs and other home- and office-oriented screens will soon be book-reading devices, as well.

A bizarre obsession with “turning pages”

One of the strangest design caveats in e-books and online publishing is the need to reproduce the experience of turning a page as one would with paper. The fixation on creating the simulacrum of a paper page has held sway since the earliest days of electronic reading. E-magazine platform Zinio, for example, made the page-turning features in its reader the hallmark of its claim to reproduce the experience of reading a paper magazine.

Now, TechCrunch reports that Google will introduce “Flipper,” a page-turning feature, for Google News as a way of improving the user experience.

It all reminds me of the 50-year period following Gutenburg when, because printers had no better idea how to make a book, they simply imitated the designs of scribal manuscripts. Aldus Manutius had to come along and shake things up to kick-start the real evolution of reading and authorship, since most of the aping of scribal books led to folio-sized, un-attributed (except for mostly dead authors, who sometimes were deemed to have earned their billing) copies of a small set of acceptable books and lots of copies of The Bible and prayer books.

We may return to the scrolling page, which most of our ancestors found more pleasing than the codex-style page until the Dark Ages. We may not, choosing varying modes of access to text, and the “page-turn” may be an essential feature people can choose to turn off in favor of scrolling or something else. But the digital turning of pages isn’t an innovation, just imitation of a physical quality of printed works, without a solid design rationale, unless breeding familiarity is really the only challenge. It isn’t.

Noted News & Opinion, June 16, 2009

Global entertainment and media spending will reach $1.6 trillion in 2013, according to PricewaterhouseCoopers annual industry projections, AdWeek reports. The U.S. media industry will not match growth in the rest of the world, increasing only 1.2 percent annually, compared to the global rate of 2.7 percent, reaching $495 billion in 2013. Digital revenues are predicted to grow from 17 percent of the market today to 25 percent, for a total of $124 billion annually, four years from now. Bad news for magazines and newspapers, where revenues are expected to continue to head south.

Surprise, Jeff Bezos doesn’t like the Google-Author’s Guild settlement. But he won’t say why, according to CNET: “We have strong opinions about that issue which I’m not going to share,” Bezos is quoted as saying during the Wired Business Conference. “There are many forces of work looking at that and saying it doesn’t seem right that you should do something, kind of get a prize for violating a large series of copyrights.” The article also suggests that Bezos said Kindle sales now account for 35 percent of paper book sales, which I believe is a misinterpretation of what he said, as I discussed yesterday. What he appeared to say was that when a book is available in paper and on Kindle, 35 percent of the sales are in Kindle format.

Author Jeff Matthews suspects Google’s good for writers. He’s fond of Google Books as a research tool, as I am, then relates an interesting story about discovering why his grandfather won a medal in World War I through a book scanned by Google. It’s a touching story and is completely valid with regard to out-of-copyright books, but that kind of title isn’t what the Google-Author’s Guild covers. I have a different opinion, but I found Matthews’ story compelling.

S&S e-books venture is doomed. Author Anthony Policastro (Absence of Faith and Dark End of the Spectrum on Kindle), writing on his blog, argues that Simon & Schuster’s announced distribution deal with Scribd will fail because the pricing strategy is wrong. “Most people won’t even pay even $10 for an eBook,” Policastro writes. “The reason is that they do no perceive the value the same as the printed version.” I disagree, not because of the price point, but because the e-book as it is today is no improvement over reading a book and, in many ways, diminishes the reading experience. Someday, readers will pay more than the Jeff Bezos price ($9.99) for a book, because it will be a portal to new experiences through reading. But Policastro is right about S&S’s pricing strategy: If they want to succeed on Scribd they must compete on price, going below Amazon’s pricing.

Mitch’s Perspective: Today’s e-books have been positioned as less valuable than a mass market paperback. That needs to change, which means the features and services associated with the e-book have to change, for the better.

Amazon would be boycotted, if Science Fantasy publisher has a say. Antellus, a publishing company operated by its only author, Theresa M. Moore, has complained that Amazon is slow to respond to publishers experiencing problems with its DTP publishing platforms’ management of ASINs and and associated accounting systems. She also says Amazon should be faster in its deployment of a color Kindle. While the former may be a real problem, condemning Amazon for a “seller agreement, which allows Amazon to modify and/or sell books from its suppliers in whatever format it chooses at its own discretion,” which is key to providing book buyers archival access to titles without having to renegotiate rights each time it updates file formats, and failure to be the first to deliver a color reader diminishes the force of her arguments.