The Lost Symbol will be a dollar sign

The Da Vinci Code sold more than 81 million copies worldwide. Dan Brown’s new book, The Lost Symbol, will be released simultaneously in hardcover ($16.17 at Amazon, a 46 percent discount) and for Kindle ($9.99) on September 15th. Five million paper copies of the book will be printed, one digital copy will be encrypted several million times. Likewise, Sony is certain to offer the book at the same price or lower in its e-book store, taking its losses on The Lost Symbol to drive sales of its Reader devices.

What we will witness is a test of how far hardware vendors will go to increase unit sales of their respective devices. Since Random House will collect between $12 and $13 per copy from digital channels, the hit to Sony and Amazon’s top-lines will be substantial. Each will pay millions to keep The Lost Symbol at the top of their device’s bestseller list. The symbol lost in all this hoopla will certainly be a dollar sign, but it may result in greater uptake in e-book formats generally and, perhaps, a “winner” among the current dedicated e-book readers.

The Lost Symbol is the title that could make or break the current generation of e-reader devices, firming up reader’s investment in the platform and format in which they read digital books. I don’t think that Dan Brown’s latest will sell millions of Kindles on its own, but it will be the title that converts some readers to Kindle or Sony Reader. Both Sony and Amazon see royalties paid on this book as a sunk cost they expect to recoup from hardware sold. If the hardware revenues don’t follow, this book may convince one or both of them that dedicated e-readers aren’t the best business.

If there are approximately 3 million Kindle-compatible devices (Kindle hardware and iPhones running Kindle for iPhone) and some 500,000 other dedicated e-reader devices, as well as perhaps six million other software-only readers installed, electronic sales of The Lost Symbol could account for up to five million copies, matching the first print run. That will be a huge accomplishment.

However, because e-reader hardware is still too expensive for most consumers, e-book sales will likely be slower than print sales after the initial release, especially when paperback editions appear. The key market to watch then will be e-reader application installs on smartphones and computers. Since e-book applications that run on phones and PCs carry little migration cost, we can expect to see an explosion in sampling of reader apps if digital copies of The Lost Symbol are going to pace paperback sales. The only possible channel through which The Lost Symbol could continue to sell 50 percent of total copies sold in digital format is e-readers on phones and PCs.

In the long run, the economics of reading will drive adoption of common formats not incompatible e-reader hardware. I’d be very surprised if Dan Brown’s next book isn’t offered in a single digital format—most likely ePub—that can be read on any device or in any e-reader application. By then, Kindle will be compatible with ePub, because Amazon’s goal is to grow share of books sold, not just to be a e-reader hardware vendor.

ePub format wins critical victory—will it help Sony compete?

Sony Readers will offer only ePub-formatted books through its eBook online store and devices, dumping its BBeB proprietary format, according to The New York Times. This is an important step toward compatibility between e-reader devices, one that will challenge Amazon’s dominance in e-books to date, because Kindle will soon be markedly separate from Sony, Plastic Logic and other devices that support ePub. HarperCollins and Random House have signed on to the Sony ePub initiative. HarperCollins already offers ePub books.

ePub isn’t the ultimate solution to the question of an e-book standard, but it does solve the basic problem of making books readable across multiple devices. As Gartner analyst Allen Wiener told the Times: “If you see some Adobe executive up on stage with Steve Jobs when they announce the tablet, at that point Amazon has a lot to worry about.” Adobe Systems developed ePub as an “open” alternative to other e-book formats, however it is also pushing its PDF format as a solution for presenting formatted documents—Amazon promotes PDF formatted books for the Kindle DX. There’s no absence of a relationship between the two companies. ePub can still be made into a proprietary format by developers who add, for example, a proprietary DRM (in contrast to its built-in DRM) or display extensions to the basic text display capabilities of ePub.

Amazon can solve this problem by updating its existing Kindles and adding ePub support to new units, something I believe is already on the calendar. Jeff Bezos only has to make an announcement that Kindle supports ePub, which he has foreshadowed, to prevent a user migration. Amazon can retain its lead by adding ePub versions to its store, allowing buyers to download ePub versions.

So, while it is to Sony’s credit that it is leading the way toward document portability, the initiative still lies with Amazon.

An iRex Kindle competitor?

iRex’s iLiad e-reader has been the top dog in the “business e-reader” market, selling somewhere in the 60,000 units range to date. Today, CNET’s Crave blog reports iRex will offer a 3G-enabled reader with an 8.1-inch screen this fall. Plastic Logic enters the “business e-reader” business next year, so iRex is mixing a down-market device into its offering to counter the impact expected when that new competition appears.

Will the company find any wiggle room with Amazon, Sony, Samsung and Plastic Logic vying for market share? Instead it looks to me like iRex needs to focus on winning buyers in at least one segment rather than diversifying to meet the rising tide of e-readers. iRex has collaborated to develop specialized devices, such as the aviation-targeted SolidFX e-reader air travel charts. This device looks like another conform-to-compete e-reader.

Crave writer David Carnoy heads deep into speculative territory, saying this sub-DX but supersized consumer device will sell for “less than $400 and possibly less than $350” and that there will be a major bookseller offering e-books through the device, but iRex’s 8.1-inch screen, if it is Wacom-enabled, allowing users to write on the screen, is likely to keep the price near or north of $400. Furthermore, what major bookseller is left to do a deal with iRex? Borders? Perhaps, but that struggling bookseller has already released an e-reader from Elonex in the U.K. Plastic Logic has an exclusive with Barnes & Noble while Amazon has the Kindle.

There is so little information, other than a “mock-up” drawing of the device, that this looks more like a test balloon than a product. Grains of salt taken.

If you need more sodium in your diet: Acer may launch an e-reader, too.

Sony conforms to compete: Low-priced reader and $9.99 e-books ahead

According to The Wall Street Journal, Sony will introduce new versions of its Reader and lower the price of e-books in its store to match the prices at Amazon.com and BarnesandNoble.com. The devices, the PRS-300 and PRS-600, as well as their respective prices, $199 and $299, were “leaked” last week, including the pricing (ZD Net’s Larry Dignan has a good summary about the new readers). Sony’s falling into line with pricing of e-book titles is the news here.

Now, what’s got me wondering here is how all the would-be major vendors of e-book readers are competing on price and only price, for both the hardware and content, what’s the opportunity to differentiate? At this point, only connectivity, which Amazon has nailed with the WhisperNet technology it currently offers. Plastic Logic will have a Sprint-enabled WAN service, too, but Sony’s still in the wilderness with its dock-to-sync e-readers—however, The Bookseller reports that Sony is planning a Wi-Fi-enabled Reader for European release this fall.

If connectivity is the only differentiator, the opportunity to extend competitive advantage lies in one of two directions:

  • The iTunes Model—Make a proprietary system so darned convenient that the customer hopefully forgets about the DRM and other downsides, or;
  • The Rich Format Model—Take an open format for e-books and begin adding to it, putting annotation and other “social” features into the titles to begin to add value.

No device succeeds without adding value to the experience its competitors provide. Amazon remains the standard setter in the e-reader business. No one wants to go into the uncharted waters of open and “social” formats where the real wealth lies.

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.

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.

Plastic Logic e-reader will feature AT&T 3G

AT&T will provide broadband connectivity to the Plastic Logic e-reader, the companies announced today. Details about the way customers will pay for broadband service, however, were not announced. In the past week, Plastic Logic has filled out key components of its ecosystem, announcing that Barnes & Noble’s e-bookstore will be the exclusive seller of books to the Plastic Logic device (though it will support books acquired in other channels, the BN.com store will be the built-in source of e-books) and this alliance with AT&T, which is also the provider of data voice and data services for Apple’s iPhone.

This is s win for AT&T as much as for Plastic Logic, as Sprint and Verizon had also been discussed as potential broadband providers.

Plastic Logic’s device is being pitched as a business tool that has the benefit of providing e-book, newspaper and magazine subscription access. That’s a very different point of entry than the Amazon Kindle, which has come to market as a pure “consumer device” designed for the typical reader. It suggest the device will be priced higher than the Kindle when fully configured, but the low-end configuration will probably come to market at or below the Kindle 2’s price.

Since the Plastic Logic device also features Wi-Fi connectivity, it could be the case that 3G service will be available only on a monthly subscription basis through AT&T, similar to the iPhone data plan. If that is the case, and I get the strong feeling it is as I look at the positioning of the Plastic Logic device, then we can probably expect wide-area 3G networking to be a checklist item among the upgrades available for a monthly fee discounted to unlimited AT&T data service for the PC (which costs about $70 a month on average). The iPhone data plan, which is $30, is the likely model.

The question is, how much data will the Plastic Logic device be using on a typical day. If most subscriptions are fulfilled over Wi-Fi when the device is charging, wide-area service would be trivially inexpensive—unless the device is more oriented toward Web surfing than currently described. A Plastic Logic data plan could be less than the iPhone plan.

A Plastic Logic spokeswoman said details of wireless pricing will be released closer to the early 2o1o launch date.

Amazon and Apophenia

TeleRead‘s Paul Biba has a useful critique of Amazon’s repeated poor handling of e-book and Kindle-related customer issues. I think, though, that he has gone from suggesting improvements to exercising the tendency people have toward apophenia. His conclusion that Amazon’s failure to staff its organization with publishing industry veterans is the cause of all these issues results from aggregating disparate events and imposing an overriding pattern to explain them. It’s not an accurate portrayal of Amazon’s organization. While few on the team have previous experience with e-books and e-readers few of those people exist (though Amazon hasn’t hired several legitimate e-book vets I know who have applied), the company’s problem is not that there is no publishing industry savvy on board.

However, the teams that run the Kindle business are split between the book sales side of the company, the book acquisition team and the Kindle development team. Contending perspectives and responsibilities that seem to be at cross-purposes sometimes result in the isolated and apparently boneheaded decisions Biba correctly identifies, all of which Amazon ultimately learns from and generally does not repeat.

Amazon could use some more experience with rapid innovation and publishing generally, but that’s the same challenge faced by every company that has stepped into a yawning chasm of opportunity to find early success.

A good discussion to drop in on…..

Thad McIlroy has an interesting discussion of The Wall Street Journal‘s article about the Sourcebooks decision to withhold an e-book edition of its big Fall book. He raises a couple questions based on statements in recent coverage of e-books, including whether people who buy e-books also buy and read paper books, as well as whether graphics-intensive books would be better in paper than on the Kindle.

I think the Journal’s reported “one to two percent” of book sales now being accounted for by electronic publishing is well above the real number. I’ve looked at a lot of publishers reports and the aggregate industry figures, and it appears that the correct range of e-book revenue as a percentage of total publishing revenue is between 1/10th of one percent and a half percent. As a share of units sold, e-books account for two to three times the revenue figures, because e-books are sold at a deep discount to paper editions.

Amazon’s numbers suggest that Kindle users frequently buy both the paper and e-book version of a title in order to read in different settings. Frequently does not mean the majority, but the statements by Jeff Bezos last fall and in January were unequivocal, Kindle sales have not cannibalized paper sales and the Kindle buyer buys more books than the ordinary Amazon book customer. There’s no evidence that Kindle readers don’t read paper books or vice versa and, the categorical statement that no Kindle buyer also buys paper books is clearly incorrect. I buy both, choosing formats for different kinds of uses.