As many things in life – if you live long enough, history repeats itself in fascinating ways. The intersection of technology, media, and publishing is no stranger to reliving historical challenges. As I write this post I think about a great essay that was recommended to me back in the 90’s called “The Cathedral and the Bazaar.” A descriptive story comparing two different software engineering theories, the cathedral (commercial world) and the bazaar (open-source Linux) and its implications to the future of software engineering efficiencies. A decade later and many are still struggling with similar issues.
It’s hard to avoid all the latest ‘eReader’ buzz. Several companies launching or soon to launch eReaders to be featured at the Jan 2010 Consumer Electronics Show in Las Vegas. I am happy to see folks making investments as the traditional book business continues to suffer. Looking at the data, in 2008, book sales fell to $24.3 billion down from $25 billion in 2007. At the same time eBook sales roughly doubled to $117 million in 2008 from $67 million in 2007. I suspect that trend will continue for some time. The majority of the current eBook sales can be attributed to the Amazon Kindle, which is projected to generate $310 million in revenue and $70 million in gross profit this year. Additionally, Collins Stewart analyst Sandeep Aggarwal forecasts Kindle at $2 billion in revenue and $560 million in gross profit per year by 2012.
Forrester forecasts 3 million eReaders sold in the US and iSuppli forecasts 5.2 million sold worldwide in 2009. That is a 5x increase over 2008. Clearly these are healthy numbers and a positive outlook for growth in this category.
If you’ve had the time to follow all the press releases or are an industry insider you are probably aware of the myriad of eReaders being talked about (Sony, Kindle, Apple Tablet, Plastic Logic, IREX, Polymer Vision, Microsoft Courier, Barnes & Noble via Plastic Logic, Borders Elonex, Hearst, NYTimes, Financial Times, and the list goes on and on.) Each of these industry stakeholders are witnessing the success of the Kindle and want to avoid what Steve Jobs did with the iPod. Basically, identifying a product category with significant opportunity and dominating it by owning roughly 74% market share, thus building a sustainable competitive advantage.
There are several challenges for the Kindle to remain the market leader, however one stands out in my mind. Amazon sets its own prices for books purchased through the Kindle store and controls the relationship with the consumer, thus keeping publishers distanced from their end customers. In many cases the Kindle is selling eBooks at a loss given their commercial relationship with publishers for book assets.
Two interesting recent announcements have caught my attention that have begun to challenge the current Kindle “closed commerce” ecosystem. First, Google announced the upcoming 2010 launch of “Google Editions.” It’s an online store to deliver eBooks to any device with a web browser. Google claims to be working with publishers and plans to launch the service with roughly 500,000 available books. For comparison purposes, the Kindle store currently offers 350,000 eBooks. Google’s offering is an “open commerce” system whereby Google hosts the eBook content and makes it searchable, yet purchases can be made at publisher sites, retailer sites, or at Google.
Second, is a recent interview with Kevin Hamilton, the North American CEO of IREX Technologies at the Frankfurt Book Fair where he describes their go-to-market strategy. He explains to publishers, “you promote your product, you price your product, you format and deliver your product in the way that you want to and you’ll enter into a 1-to-1 relationship with your customer. We’ll (IREX) facilitate that and we’ll take a piece of the revenue. We don’t want to stand in between the customer and the publisher, if you want to cross sell or upsell or cross market or do other things with your customer, it’s your customer. We’re not going to try to dictate or control that.
In my professional experience I’ve seen the success of both open and closed systems. However, I believe closed systems are less efficient and less productive as compared to the potential for open systems. As an example, back in 2004 I was trying to convince publishers to migrate away from expensive licensed content management systems (CMS) to Drupal, an open source CMS gaining lots of credibility and popularity. Many folks thought I was crazy recommending an open source tool to run our web business. I did what I believed was the right thing and successfully implemented and launched Drupal to power ThirdAge.com and now you are beginning to see many media companies migrate to Drupal.
Just like the Cathedral and the Bazaar debate from years ago, the industry still deliberates on the merits of each model. As I wrote in my open letter to Steve Jobs on the new tablet, a friendly and open commerce relationship with content providers is your key to significant scale and success.
What do you think?
