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E-Books: A Guessing Game

In honor of Amazon.com’s Kindle let’s play a game and try to guess the forecast for ebook sales over the next few years.

In 2007 the ebook market is in the infancy stage. Despite Sony and Amazon.com both releasing consumer friendly devices ebooks have yet to gain widespread consumer acceptance.

Based on the reach which Amazon.com has in customer base, the proliferation of technology and the comfort of consumers purchasing electronics and virtual goods online – I forecast the sales of ebooks in 2008 will be $25 to $40 million. This is a small fraction of the overall publishing revenue per year as you can see below.

A few numbers of note (numbers are rough estimates):

2007 Literature Rate: 50%

US Population:300 Million

PC Penetration: 60+%

Itunes Downloads: 2.5 Billion

Amazon.com customer base 40+ million

# of books purchased per year – per consumer: 4

Publishing Industry revenues in 2006: $25 Billion

As we see electronics advancing the trend is convergence. The long term trend will no longer be for a separate gps, handheld, cell, mp3 player, etc – but for one unified device.

We can already see this happening with cell phones, organizers, cameras and mp3 players. As technology evolves this trend will only increase. This will result in a super-set of market size for any good or service that can be delivered to that device. Ebooks will be just such a product. In 10 years I see pocket sized devices that project onto any surface, that read and translate any text, are simple, powerful and consumer friendly. Based upon this the potential consumer (or market size) for ebooks will be in the range of 50 Million in the US, 400 Million Worldwide.

In technology the market is nearly always guided by innovators and then grown by imitators. The cutting edge innovators first create the product, unit or system in order for the innovators to make it affordable and bring it to mass production. This holds true for older products such as dvds, downloadable movies and music. From Beta video players to 8-tracks the innovation piqued curiosity in the marketplace, but little else. Until the imitators came along and created copies and more drove prices down.

The same will hold true in the e-book marketplace. As Amazon and Sony are on the cutting edge of innovation – others (like Microsoft) will sit back, watch customer reaction and learn.

At the right time the imitators will enter the market and bring volume of both product and consumers.

Let’s compare ebooks to the popular itunes – as itunes provides a near-as possible model (discounting the hardware device for ebooks which has yet to appear)

Examine the itunes sales for 5 years (again – estimates):

Itunes:

Year 1 = 70 million

Year 2 = 370 million

Year 3 = 602 million

Year 4 = 1.5 billion

Year 5 = 2.5 billion

As we can see – low volumes for the first year but nearly double each year after. I will concede that Apple’s ‘star’ power has helped itunes sell in such rapid pace.

Discounting that affect for ebooks (although it certainly a possibility.

2008: 40 Million

2009: 75 Million

2010: 135 Million

2011: 200 Million

2012: 350 Million

These figures are arrived by extrapolating the # of consumers who purchase books per year, as well as textbooks (which I predict will be the first large ebook market to hit critical mass). They are much lower then itunes volumes as you can see – as we’ve got a much lower base of consumer for books then for music.

Adoption of ebooks will be similar to music. The major difference in adoption really lies in the behaviour of the consumer. Music is vastly more popular of a medium then literature, and is much less ‘easier’ of a consumable. Meaning that consumers can make use of downloadable music in many different ways, while working, playing, in recreation and anywhere that the device follows. The consumption of music does not require dedicated attention as does literature. This creates a much tougher challenge for the adoption of ebooks – both in terms of device (hardware) and usage patterns. Music is rather indifferent to device, some may be stylish, others not – but all have the overall same delivery methodology. Until the innovators can find an acceptable delivery platform the volumes will not materialize. However, once the acceptable platform is found it will be imitated and the pattern will closely follow that of the music downloads.

The attitudes of digital content have changed dramatically in recent years. The Internet as we know it and worldwide web passed the 10 year maturity mark and has saturated through the population at a staggering rate. As this has happened the flow of information and data has followed and opened up opportunities and marketplaces which we could only dream. As the generation X’ers grew up into expendable incomes of their own they began to influence online purchases. These purchases are no longer limited to physical goods (ie . amazon.com) but now virtual services and goods such as movies, music and ebooks are common. Music content delivered electronically opened the floodgates and direct delivery of movies via electronic methods is now hitting its stride. As often occurs with new technology the old producers had difficulties (and still do) monetizing their product in a new delivery method. Early delivery methods were prone to theft and abuse. Ebooks have struggled to catch on to this new marketplace as no consumer friendly device has been introduced to satisfy the apparent need. There are many less consumers for electronic literature then movies and music, and whereas a movie or music can be delivered to a computer literature is not often read online. Attitudes have changed, but roadblocks still remain.

Hardware devices play the pivotal role in widespread adoption of ebooks. The critical hurdle which must be overcome is finding a consumer friendly hardware device which can be marketed to the masses. The Kindle (Amazon’s) is a leap forward on that front. The device addresses several important consumer concerns such as ease of use, ease of purchasing ebooks, readability, portability and battery life. The Kindle is an advanced ebook reader and Amazon is a true innovator. The major flaw (or hurdle) to the Kindle is the price-point, $399. At that price the average consumer will not jump into an unknown or unproven technology. The major advantage of the Kindle lies in the wireless ability to connect to the ebook marketplace and download fresh content. The benefit Amazon has given to the market is in innovation. The new device will test out the market and provide feedback to other device makers on what works, what is accepted by the consumer and what does not. The hidden benefit is in market awareness. Since Amazon is such a large public entity many have been exposed now to the Kindle (many more consumers then those exposed to the Sony ebook reader). Market awareness is raised for the ebook product itself and downloadable literature.

The flattened marketplace of our era has created many opportunities for businesses, products and sales. The ebook will reach out to educators and recreational consumers alike -given time, consumer acceptance and ever changing technology.

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