How Apple May Inadvertently Boost eBook Linking

"The net interprets censorship as damage and routes around it." John Gilmore, 1993

The official word from Apple finally came out today, in their press release announcing in-app subscriptions.

In addition, publishers may no longer provide links in their apps (to a web site, for example) which allow the customer to purchase content or subscriptions outside of the app.

Assuming that this limitation will be applied to the Kindle App, it means that the "Shop in Kindle Store" button will disappear, and similar features in other ebook reader software, such as Nook, Sony, and Kobo will disappear as well.

You can go elsewhere if you want to read apocalyptic whining about Apple's imperious ways. What I want to focus on is how the net will route around this damage. The net will route around this damage by making more links.

At O'Reilly's Tools of Change for Publishing Conference, I was able to spend some time with Keith Fahlgren, a partner at ThreePress Consulting. He's part of a group that has worked on the improvement of linking capability in EPUB 3. A Public Draft of the specification was released today by IDPF.

Since EPUB3 is based on HTML5, all the outbound linking that you would expect from a web page is already built into EPUB3 (as well as earlier versions of EPUB). Ebook reader apps available on iOS and Android use the "Webkit" webpage renderer for ebooks in EPUB. (Kindle devices use Webkit to render web pages and WebKit is used by Amazon to render Kindle ebooks (in mobi format) on  hardware other than their own.) So it's clear to me, at least, that even if ebook reader apps can't have "Kindle Store" buttons, the apps will be able to present "Kindle Store" links inside the ebook content. I'll bet you anything that Amazon is loading up ebook content with Kindle Store links: "If you like this book, perhaps you'd like this one". They'll even have specialized shop-books containing Kindle store links available for free. Ditto the others.

Publishers aren't going to like Apple's power-play. But neither will they like having their content getting hijacked to promote individual ebook stores. There will therefore be a great deal of pressure for the creation of vendor-neutral, customer friendly ways to link to ebooks from within ebooks, one that Apple can't ban because doing so would break Safari.

Here's where it gets tricky. If a customer has already purchased the linked-to book, it's pointless to send them out to a ebook store, they should connect their copy of the ebook. But figuring out whether a consumer already has the book is messy, given the state of ebook identification. There are many other use cases for linking to a specific chapter or paragraph inside an ebook.

Unfortunately, doing this sort of linking is not a solved problem. EPUB3 adds one tool that will help. A new required metadata property, dcterms:modified,  will help identify the epub in the case where it has been modified- in the past it was poorly specified what should happen to the epub identifier if the file was modified. With EPUB3, it's now clear that EPUB documents are identified internally at a level above the ISBN (different DRM wrappings of the same EPUB file often require different ISBNs) but below the "work".

There's still a lot of apparatus that will need to be built, both inside and outside of EPUB, for linking to work the way it should. Being able to decide which ebook to target will require external mechanisms. Perhaps some linking organization along the lines of Crossref be formed; perhaps a more wikipedia-ish database collaboration will suffice. In any case something like xISBN supercharged for ebooks will be needed. Fahlgren told me that without a strong use case to drive the solution, the EPUB group has had a hard time going very far in their linking development.

A true ebook linking solution would need to include Amazon, of course, and since they've not been using EPUB, it seems to me that ebook linking won't get done by the EPUB group itself. Amazon hasn't had much use for EPUB in the past, but now Apple may have handed the ebook technology community a giant use case for interoperable ebook linking.

Happy Day-After-Valentines-Day, EPUB!

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Inside an Indian Bookstore

I'm in Bangalore, the tech capital of India, where even the Cook pines look like cell phone towers.

My favorite "tourist" activity in a country new to me is to go inside ordinary stores. A walk through grocery store will give you a much better understanding of a nation's cuisine than their best restaurants. You'll see strange foods and smell strange smells, and you'll see familiar foods presented in unexpected ways.

So I just had to visit a bookstore here. I chose a medium sized one, situated on the second and third floors of a building in a busy shopping district. Like bookstores anywhere else, Indian bookstores find it profitable to stack lots of non-book items- in this store, the entire second floor is taken up with DVDs, toys, games, teddy bears and Ganesha figures.

In this bookstore, six of seven aisles are devoted to English-language books. The seventh aisle is devoted to books in the local language, Kannada. Kannada is spoken by a total of 60 million people in southern India, which is a lot more than than speak many European languages, but in India it's a minority.

As you might expect from Bangalore's status as a tech capital, an entire aisle of the bookstore is given over to computer-related books. The prices of these books were higher than I thought they would be. For example, the latest edition of Programming Perl was 750 Rupees, or about 17 US dollars. In the US, it's 33 dollars at Amazon. (Wow, that's pretty expensive!) Books aimed at the Indian market are priced lower- 150-300 Rupees.

You might wonder how programming books can command such prices given that many good ones are available in free html versions in a region with a per capita income only 1/40th of the US; even a software developer's salary is a fifth that of his US counterpart. Part of the reason may be that it's still unusual for people to have access to the internet at home. Print works better here.

By all reports, the ebook reader market in India is be poised for an explosion. If you think about it, a cheap ebook reader would be a really good way for Indians to take that free-on-the-web ebook home from the office. The bookstore I visited had a single ebook reader for sale- it's displayed in the book section on top of other luxury items such as the plastic-sealed copy of Dan Brown's Lost Symbol.

Infibeam's "Pi" ebook reader sells for 10,000 Rupees, or about $225. It's made in Taiwan and looks like a stripped-down Kindle, with e-ink display, but no keypad and no wireless connectivity. It supports all sorts of ebook formats, and most of the 22 official languages in India. The marketing slogan for the Pi is "Read eBooks Anywhere!" and the availability of free ebooks, including the "top 100 from Project Gutenberg", is prominently noted. The Infibeam website (which exhibits sincere flattery of Amazon) offers a wide selection of eBooks. Stieg Larsson has a good share of the Pi at 433 Rupees (close to the $9.99 Kindle pricing); he was nowhere to be found in the Bangalore bookstore.

While the Pi is first ebook reader targeted at the Indian market (Kindle is also available) there are a number of competitors waiting in the wings- I'll cover them in another article.

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For eBook Reading Devices, More is Less

If you've been following the evolution of ebook reading devices, you will have noticed a recent wave of new products and price reductions; for a review see this article. I've been interested in two intertwined questions: "How low will prices go?" and "How will reading devices evolve?

In my previous look at reader prices I showed a graph of historical pricing versus time and predicted that we'd see $25 e-readers in 2014; here's an updated graph. In this version, I've connected the pricing for particular devices to help unravel the tangle of lower prices vs. more features. What you can see is that the cheapest devices continue to get cheaper; we're on track to see $50 devices in 2012. At the same time, we see a a full range of devices emerging, with full color, video and gaming capable devices like the iPad occupying a price point of about $500 and adding functions instead of cutting price.

The latest Kindle exemplifies the evolution of the dedicated reading device. David Pogue's review in the New York Times suggests that its biggest improvements are things that have gone away- weight, area, and cost. It's quite possible that this trend will continue, but it's also possible that reader prices will stabilize and instead add features like touch screen, color, and video support.

Since the reader device evolution is determined in many respects by the display, I reached out to some contacts is the display industry to better understand what to expect over the next few years. What I learned was that, at least for the next year or two, the very best reading experience will be delivered by single-function, reading-focused devices.

The display technology behind the Kindle and its competitors from Sony, Barnes and Noble, Kobo, and the real-soon-now Copia is called e-ink. E-ink displays use electric fields to push black stuff to the surface of the display. These displays consume power only when the page is refreshed. They're too slow to do video, but the very low power consumption allows the reader to use a small, light-weight, long-lasting battery. They rely on reflected light, just like real ink on paper, and display manufacturers struggle to make the reflectivity of the white part as high as possible. White paper reflects about 85% of the light that hits it; black ink reflects only 20%. For comparison, the "white" part of an e-ink display reflects 40% of the incident light.

Since I've gotten used to the iPhone, the Kindle's lack of a touch screen bothers me. But the addition of a touch screen reduces the readability of text in two ways. Touch screens are extra layers that sit on top of a display. This extra layer includes a conductive layer made of a material called indium tin oxide (ITO). Although ITO is mostly transparent, it still absorbs about 10% of the light that goes through it. That means that the white part of an e-ink display with a touch layer is down to about 34% reflectance, which is closer to black ink than white paper. The touch layer also separates the pixel from the surface of the display; imagine the effect of reading a book under a thin layer of yellowish glass.

Nontheless, e-ink readers with the touch feature don't look so bad; the Sony PRS-600 Reader Touch Edition is one such device (currently retailing for about $150). Touch layers also a impose a power penalty; a device has to be constantly checking to see if there's a finger poking at it. The cost of adding a touch layer is significant; the yield of the attachment process is not 100%, the display is the most expensive part of a reader. However you slice it, a non-touch device will be easier to read than one with touch.

It's a similar story with color. Color displays require either multiple layers or extra pixels. There will be a severe tradeoff between the readability of a display and its color capability.

Reader manufacturers are addressing these tradeoffs in various way. Apple uses a hefty battery powering a bright backlight to achieve acceptable performance in the iPad; they've been able to save lots of power with a custom processor, and the iPad's operating system and App Store impose severe constraints on what the iPad will run. The Nook has separate displays for reading and for color/touch; I find the result to be a bit clunky. The new Pixel Qi displays offer multiple display modes- the reflective black and white mode offers low power and good readability, while, a backlit mode offers color and video speed.

Right now there's no reason for Amazon to push its price point; the $139 Kindle is back ordered, and it appears that they're selling as fast as they can make them. E-ink displays are manufactured by a single company that has the ability to manage supply to avoid a margin-killing glut of displays. You can expect Amazon to drop the price even further as soon as its supply allows; its long term strategy is clearly to make money selling ebooks rather than reader devices.

After the iPad came out there have been all sorts of predictions of the imminent demise of the dedicated e-reader. My look at current technology suggests that, at least for the next few years, the best reading experience will be delivered by simple, cheap, dedicated reading devices, and the business models for ebook sellers will likely center around content and forms of interaction that work well on slow, black and white displays.

I'm still going to buy an iPad, though!

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Introducing the Totebag for eBooks

As we hurtle towards a future where books come on Kindles and iPads and Nooks, we tend to overlook the loss of many products and services attached to the print book ecosystem. Tens of thousands of people whose livelihoods depend on books will suffer tragic dislocations in their lives. While many bemoan the plight of bookstore workers, librarians, editors, and authors, there are other small industry segments no one ever thinks of.

Totebag manufacturing is just one of these overlooked industries. Half of the world's  novelty totebags for books are manufactured in a single town in China called Shu Bao (书包). Shu Bao is located in an inland area of China that has concentrated on book related products; neighboring towns specialize in bookmarks, dust covers and those little alphabet labels used in dictionary manufacture. At this weekend's American Library Association (ALA) meeting in Washington DC, I had a chance to speak with Shu Bau's mayor, Yi Rui-Da, who doubles as a sort of totebag ambassador and salesman to the world. Yi was in town to start getting the word out about digital book totebags.

Yi told me that the central committee of his town has been closely watching the shift to eReading for at least 10 years. They've seen one of the neighboring towns become quite wealthy by shifting their manufacturing to iPad covers, and hope to make a similar transition themselves. The lesson of what happened to buggy-whip manufacturers after the introduction of the Model T is known to the committee. Some committee members thought the town was in the luggage business, and preferred to stay in the luggage business. Other committee members, aware of the specialized fibers that must be added to their totebag fabrics, argued that the town was really in the information portability business; these voices prevailed.

To make the transition to transporting eBooks, the town had to nurture its programming talent, of which it has an abundance. Totebags are made in factories that employ hundreds of teenage girls. But it's not like the old days, when the girl were virtual slaves, sewing everything by hand. In a modern totebag factory, the girls program automated sewing robots using specialized smartphone apps. Over the past 5 years, the top sewing machine programmers have gone on to advanced operating system hacking; before, they would get bored with programming and get married.

The culmination of this program of training and development is the digital book totebag. I got a demo of this widget in a private suite at one of the conference hotels, but was not permitted to photograph it. The prototype looks nothing like a canvas totebag of course- it's more a mess of wires and connectors. The functionality is quite impressive, however. I was easily able to download an eBook from a Kindle to the "totebag" using a red suction-cup connector that came with some sort of special grease. I then attached an iPad using a USB connector and viewed the book in iBooks. I was also able to connect the totebag to my Google Books account and use the Kindle book there. Yi had a number of other devices to try; each of them had its own quirks, but more or less worked.

I asked Yi how this seeming magic had been accomplished; the most I could get out of him was that any book is "just another sewing pattern". I also asked him if standards for content and DRM would make ebooks portability possible without his digital totebag widget. We had a good long laugh at that one.

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iPad People, Here's What You Missed

I didn't get an iPad this weekend. I'll probably get one sooner or latter (I have a birthday coming up, hint, hint), but for those of you who spent your Easter weekend playing with your iPad, the first picture should give you a taste of what you missed.

I entered some data into a spreadsheet to see if ebook reader pricing shows any trend. The data comes mostly from the MobileRead wiki. I've added two arrows to indicate two possible evolutionary paths for ebook readers.

One path, the tablet, is exemplified by the iPad. The tablet roadmap is characterized by a relatively constant price and ever increasing computer power and display functionality (color, speed, resolution).

The other path, exemplified by the Kindle, is the dedicated ebook reader. The reader roadmap is exemplified by relentless price reduction and gradually increasing accommodation for reading ebooks.

If you believe my extrapolations, the dedicated ebook reader will cost as little as $25 in 2014, and the iPad will still cost $400. You heard it here first.

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$25 eBook Reader Application Scenarios

My sixth grader goes to school with a 14 pound backpack. A few years ago, Consumer Reports weighed  backpacks at three New York schools and found that sixth graders had the heaviest backpacks, averaging over 18 pounds. A lot of that weight is textbooks, and there's a lot of concern that kids are hurting themselves by carrying around so much stuff.

The Kindle 2 weighs only 9 ounces; shoppers will take home 22 oz. iPads starting this Saturday. How long will it be before schools start issuing ebook readers instead of textbooks?

The big issue, of course, is cost. In my last post, I compared ebook readers to digital watches and other consumer electronics products that saw dramatic price reductions in the years following their introduction. It is inevitable that ebook reader prices will also come down to a point where they can find new applications such as textbooks for school children.

Another possible application is libraries. I've written several times about the difficulties ebooks pose for libraries, but I've not discussed a scenario that's becoming increasingly popular: libraries loaning ebook readers to patrons.

Most libraries that have tried ebook reader lending have found the programs to be popular with patrons. Typically a number of Kindles are loaded with a set of ebooks; sometimes all the Kindles have the same collection; sometimes different books are loaded onto different Kindles and somehow the library has to track which Kindles have which books. Patrons have to be instructed not to use the library Kindle to buy extra books. Unfortunately libraries don't have the budgets they would need to scale these programs.

So far, though, there's not been an ebook reader or reader loading system designed with library lending in mind. Imagine that the readers have dropped to $25 a piece. At that price, it would make sense to issue library reader devices (with a deposit) instead of library cards. If the library circulation system was designed specifically for use with dedicated reader devices, a patron could have access to a universe of books while in the library building; there would likely be a limit on the number that could be taken home. The reader device and circulation system would be designed so as to allay the legitimate concerns that publishers have with ebook distribution by libraries.

Another possibility is that content could be locked onto cheap reader devices. Imagine going to Target ten years from now, and instead of seeing stacks of the latest After Twilight Saga hardcover at the checkout, imagine seeing stacks of ebook readers preloaded with all ten novels in the Twilight and After Twilight series. Locking the content onto the reader device would enable all the reuse and resale that's possible with print books today- the buyer could lend the reader to friends, sell to a used book shop, or just keep it on a "book"-shelf in its attractive cover.

Each of these scenarios supposes that ebook readers will evolve to become increasingly inexpensive single function devices like the Kindle, and that they will diverge from general purpose media consumption devices like the iPad. A device designed specifically for reading will deliver a better reading experience at a lower price than one designed to support 3D video and gaming.

If you disagree, consider this question: How much reading would my sixth grader be doing if all his textbooks were issued on a gaming machine?

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Content is Bling

In about 1973, my father helped start a company that spun off from the CMOS chip manufacturer, Solid State Scientific, that he had previously helped to start. He was unhappy being a marketing executive and wanted to get back into engineering. The new company, Integrated Display Systems, Inc. (IDS), was formed to combine integrated circuit technology with the newly commercialized liquid crystal displays (LCD) to design and manufacture modules for LCD digital watches.

In the box of tech relics from my dad that I brought down from the attic last week was one of the watches that he worked on. It's a "Chronosplit" built for Swiss watchmaking giant Heuer. Introduced in 1975, the Chronosplit was the first digital wristwatch to combine a digital stopwatch function with a quartz digital timepiece. It was a tour de force of the day's technology, and I remember my dad being very proud of it. The Chronosplit used two separate displays for the two functions. The LCDs of the day were too slow to support the stopwatch function, while the LEDs sucked too much power to constantly display the time.

Much has been written about the Swiss watch industry and how it was disrupted and almost destroyed by the invention of the quartz digital watch. Although we're now used to the way consumer electronics drops in price with market penetration and manufacturing scale, the rapid reduction in digital watch prices that occurred in the early 70's is still astounding. From 1972, when the first LED watch, the Pulsar, was introduced at a price of $2000, to 1976, when Texas Instruments launched a digital watch that retailed at $20, the watch industry experienced a bewildering technology and business transition.

The 100-fold reduction in price could have been predicted. From the user interface point of view, the Pulsar was rather clunky. Even though the watch had no hands, you needed two hands to read the time, because the display was normally off. A subsequent version added an accelerometer that turned on the display when you flicked your wrist. In order to sell the Pulsar, its manufacturer had to capitalize on the novelty value. The Pulsar came in a gaudy gold case- which looked great when it was featured in a James Bond movie, Live and Let Die. The resulting manufacturing bill of materials was thus dominated by the case. Japanese manufacturers realized that by putting quartz modules in cheap cases, they could deliver accuracy as good as the most expensive Swiss watch for a fraction of the cost; Swiss manufacturers took decades to recover.

The first few years of the digital quartz watch were marked by incredible creativity and diversity. Eventually,  economies of massive scale resulted in a shake-out among digital watch producers. (IDS went bust and my dad moved to Hong Kong to run a watch factory.) If you go to the store today to buy a watch, you find an amazing diversity of digital watch cases and a depressing lack of diversity of the electronics inside them. The watches are sold purely as jewelry- even watches that cost hundreds of dollars use electronics modules that wholesale for a few pennies.

At the center of the US watch industry of the 70's was an electronics importer called North American Foreign Trading (NAFT). NAFT was a company owned by New York's Lowinger family. Maurice Lowinger was a survivor of the Holocaust who emigrated from Hungary to New York and built a business importing consumer electronics and other items from Japan and Hong Kong. Among the items they dealt with were inexpensive watches. When Hughes Electronics went looking for a partner to sell digital watches, they were rejected by numerous Swiss and American watch makers. Lowinger jumped at the opportunity, however, and became one of the top watch producers in the US. The consumer electronics company that resulted, Unisonic,  was successful in a number of similar businesses, including electronic calculators and digital phones.

Today, Maurice's son Andrew leads the family business, which has become the DMC Worldwide group of companies. DMC includes companies specializing in private equity, logistics and supply chain management, GPS tracking devices, luggage, and even life insurance settlements. Their latest venture aims to create a new distribution channel for ebooks, called the Copia. It's a major investment.

On Wednesday evening, I had a chance to chat with Andrew Lowinger at an event where the Copia platform was being introduced to the New York publishing community. He emphasized DMC's long history of working with many partners, integrating technology, marketing, distribution and sales so that each partner could focus on their core competencies and overlay their business models onto new technologies. The message to publishers was that working with DMC would allow them to stick to publishing great content and avoid all the messy techy and selling stuff they hate.

The Copia platform will include e-Commerce, social networking, reading applications and a line of ebook reader devices; platform components will be launching gradually throughout 2010. The Copia hopes to provide infrastructure and technology to a variety of "powered by Copia" partners. Although there's nothing innovative about any single aspect of what the Copia is doing, the combination of all these pieces represents a level of ambition and effort that's right up there with Apple, Amazon, and Google.

What DMC and the Lowinger family really bring to the table is experience in successfully exploiting rapid technological change in consumer markets. My guess is that DMC will repeat its strategy of providing value to the consumer by pushing prices lower, just as in the watch, calculator, and phone handset markets of the past.

A look at the evolution of these industries suggests a possible future for ebook readers. In each case, an existing industry is invaded by new technology. At first, the new technology is pricey and a bit clunky, but as technology advances and manufacturing moves to scale, prices drop. In each case, successive generations of devices add functions at the top of the line while continually lowering the price of the base model. Prices drop until a floor is reached. The base model then adds functions in new iterations until the high end of the market is marginalized.
 
For digital watches, the price floor today is set by the case and the batteries; for ebook readers, the display and batteries are likely to set the price floor, at least in this decade. DisplaySearch, an analyst firm covering the display industry, estimates global production of 22 million e-paper displays and $431 million in display industry revenues in 2009. (That's an average price of about $20 per display.) For 2018, they forecast a market of 1.8 billion units and $9.6 billion total revenue. That's $5 per unit. eBook readers are forecast to consume 77 million of those units, suggesting that display prices will be driven down by applications (such as shelf tags) having nothing to do with ebook readers.

If the price of an ebook reader drops by a factor of 10 from today's Kindle, it will be $26, less than the list price of a new hardcover. If it drops by a factor of 100, the way digital watches did in five short years, it will be $2.60, similar to what it costs to print a book; the print book would join the mechanical watch as a low volume niche product.

The recovery of the Swiss watch industry in the 90's came about as Swiss watch manufacturers began  once again to market their products as jewelry. The value of a watch today is not in the mechanism, it's in the bling. When the cost of an ebook reader drops by more than a factor of ten, the value of the reader will once again be in the content it holds. Once again, content will be bling.

I'll write more about the implications of cheap ebook readers in my next post.
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After EBSCO Hooks NetLibrary Will Others Take the eBook Bait?

Don Linn's post on the business of book publishing "Risk and Return in the Time of Cholera", did a good job of explaining the John Sargent "disastrous but stable" comment that I reported last week. The observation that I found most interesting in Linn's article was that technological change surrounding the transition to ebooks will necessitate significant expenditures of capital. "Given weak balance sheets and low ROI's, where will the capital come from to finance the rapid innovation and change required?"

Yesterday a major transaction was announced involving one of the leading ebook distributors in libraries. OCLC sold most of its NetLibrary Division  to EBSCO Publishing. The transaction is surely a manifestation of the need for innovation capital identified by Don Linn.

First, I need to make disclaimers. For the most part, I've avoided writing here about OCLC, the world's largest library cooperative.  I worked there for three years, and I have continuing obligations regarding proprietary information, so writing about OCLC means I have to do extra work to make sure that things I know and write are public information. Although I didn't work with the NetLibrary division at all, you can't work somewhere for three years without developing bias, so consider yourself disclaimered.

NetLibrary was a bubble-era dot-com that was the first company to try to make a business of creating, aggregating and selling ebooks. eBook adoption was too slow for NetLibrary to generate the returns that investors had hoped for, and it burned through over $100 million of venture capital and crashed. OCLC was the white knight that rode in to rescue the company, picking it out of the bankruptcy dumpster for only $10 million. OCLC said that it did so to protect the investments its members had made in NetLibrary ebooks, but another way to understand its motivation is to note that libraries and the institutions that serve them have much longer horizons than venture capitalists, and OCLC could afford to wait for for the day that ebooks would transition from curiosity to widely used medium.

As part of OCLC, NetLibrary's market presence grew steadily along with the library ebook market. Its content expanded to audiobooks and the FirstSearch article databases,  but its technology was designed long before Kindle and iPad came along. While you can listen to a NetLibrary audiobook on your iPod, you can't read a NetLibrary ebook on your iPhone. NetLibrary now uses the Adobe Content Server to allow its PDFs to be read on the nook from Barnes & Noble and on Sony Digital Readers. Clearly NetLibrary will need some significant investment to keep up with the rapidly changing ebook environment.

The sale of NetLibrary should be viewed primarily as a capital allocation decision by OCLC. eBooks and eReaders are not the only change happening in the library world, and NetLibrary is not the only major product at OCLC that would suck up significant capital. OCLC is making significant investments in cloud-based library management service based on WorldCat and WorldCat Local, and sensibly managed businesses, even non-profit ones, allocate capital according to the potential value created.

With capable ebook competitors such as Overdrive, ebrary, Myilibrary (part of Ingram Digital Group) and others, it's difficult to make the case that NetLibrary was providing unique value or substantial cost savings for OCLC member libraries. In contrast, WorldCat is a unique resource and the library management services being built on it promise a revolution in the way libraries work. According to OCLC VP Chip Nilges, quoted in an article worth reading in Library Journal, selling NetLibrary is "a strategic repositioning from hosting and reselling content to building WorldCat out as a platform that libraries can use to manage and provide access to their entire collection."

Netlibrary's presence in the ebook market may also have conflicted with OCLC's desire to catalogue, expose and link to every ebook held by libraries. To best do this, OCLC needs cooperation from ebook vendors other than NetLibrary. These competitors probably weren't happy that OCLC's library holdings database constituted valuable market intelligence- what they were selling and who they was selling it to.

If OCLC wasn't willing to finance rapid ebook innovation, why does EBSCO Publishing appear to be willing to do so?

EBSCO is one of the more unusual players in the library space. EBSCO started out selling magazine subscriptions. Elton B. Stephens, the company's founder and the EBS of EBSCO, noticed that his customers, which included the military, needed binders to put the magazines in and shelves to put them on, so he started selling binders and shelving. EBSCO grew into the largest subscription agency in the world, and provides libraries and corporations tools to create and manage their virtual magazine shelves. Somewhere along the way it also became the largest fishing lure manufacturer in the world.

The reason that a move into ebooks makes sense for EBSCO is that ebook purchases are really subscriptions. The print book production and distribution chain was built under the assumption that once the book was delivered to the customer, the transaction was done and could be forgotten. Magazine subscriptions, by contrast, are continuing relationships. Electronic magazines and journals require even more continuing support, and this is true for ebooks as well. A corporate infrastructure built to sell and support magazine subscriptions works well for supporting ebooks.

I think the answer to Don Linn's question is that the capital to support rapid innovation in ebooks will come (and has come from) from incumbents in adjacent industries with expertise in products that are not print books. Amazon first developed eCommerce capability; Apple developed consumer devices and a content marketplace; Google sells ads and delivers search. Starbucks does storefronts.

I wouldn't be surprised if one or more of the NetLibrary competitors I named above are soon acquired by "adjacent industry incumbents".  The comment thread is open for your speculatory pleasure.

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When Amazon and Kindle Win

Last week, I went to a talk given by Mike Shatzkin, who has been doing a good job preparing book publishers for their future. One of his points was that the growing market power of Amazon.com has the potential to disrupt the way that book publishers do business.

After the talk, I was inspired to go home and do a tiny bit of math. It occurred to me that it should be possible to write an equation to describe the point at which authors would find it to their advantage to sell directly through Amazon and Kindle rather than working through publishers. After filling up a spreadsheet, I boiled everything down to one equation that defines the moment that Amazon wins, and the Big 6 publishing houses (Hachette, HarperCollins, Macmillan, Penguin, Random House, and Simon & Schuster) would lose.

Let k be the Kindle's maximum market share for a book's market. In other words, if Going Rogue: An American Life sells a million copies, and 200,000 of those could be Kindle e-books, then k=20%.

Let d be the fraction of the list price that Amazon has to pay publishers for the right to sell a Kindle version. This number is currently 50%. For front-list titles, Amazon is currently subsidizing the Kindle pricing. That means that Amazon pays the publisher $15 to be able to offer a book with a retail price of $30 for $10 on the Kindle. (for Going Rogue the Kindle edition has a pre-order pricing of $8, and the publisher will get $14)

Let r be the author's gross royalty rate from a publisher. In other words, if Going Rogue lists at $28, sells a million, and Sarah gets $2.8 million, the r=10%. It's not uncommon for authors to receive net royalties of 5-10% on print and 25% on e-books; the corresponding gross royalties would be 2.5-5% for print and 12.5% on ebooks, if you assume a 50% wholesale discount.

Finally, let f be the percentage of the book's list price that goes to production cost. For blockbuster books, f can be quite small, because fixed cost are amortized over a very large number of books. It goes without saying that reproduction costs for the Kindle are close to zero.

When

d*k > r+f,

then it is advantageous for Amazon and Sarah to deal directly, cutting out the publisher completely.

I should note that this ignores the possible profit Amazon might be able to derive from print versions. Do you think they have the logistics expertise to do that?

Its also worth considering the effect of fixed costs. Publishers who specialize in producing many titles that sell only moderately well (i.e. f is large) are probably less at risk of Amazonian disintermediation than those who rely on blockbuster books.

Upon sharing this with a group of people with more experience in the book publishing world, I got the following reactions:

• Sarah Palin would never go direct with Amazon because what she really wants is a big media campaign.
  Is there a law that prevents Amazon from doing a big media campaign?
  
  
• What about advances? How would authors manage without advances?
  
  If you put some private equity together with unemployed publishers and bankers, the advances problem might have a solution.
  
  
• Amazon woud never want to become a publisher. Think of the headaches of handling idiosyncratic authors.
  Author agents may play a useful role in easing Amazon's difficulties here. And agents will have lots of fun playing off Amazon against Apple and Google.
  
  
• Amazon might be able to win authors that are already their own brand, but how will new authors be discovered and developed?
  Oprah, I have a business idea for you!
  

As if to prove my point, it came out yesterday that Steven Covey, author of The 7 Habits of Highly Effective People, is moving his electronic rights to Amazon, which is going to heavily promote his books.

Give me a few more days and I'll have the differential equation. It won't look linear.
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A Reading Miracle. It May Be Legal, but Don't Ask the Grox

Over the summer I witnessed a miracle.

Do you know which book was the first you ever read on your own? I'm not sure about mine, but my younger brother's first was definitely Go, Dog. Go! by P. D. Eastman. He was under 4 years old when he start reading it. If you haven't read it, Go, Dog. Go! is a 62 page multiculturalist masterpiece with engaging illustrations first published in 1961. Here is the complete text of pages 3-9:

Dog. Big dog. Little dog. Big dogs and little dogs. Black dogs and white dogs. "Hello!" "Hello!" "Do you like my hat?" "I do not." "Good-by!" Good-by!"

This summer, I witnessed my own son "reading" his first "book". It wasn't written by a single author and it wasn't published by Random House. It wasn't printed on paper, and it wasn't even what we might call an "e-book". It was a website devoted to the game "Spore" that currently consists of 3,819 articles written by website users, and over the course of the summer, my son read a majority of those articles. Here is a sample passage:

The Grox are a sentient species of cyborg aliens generally considered to be the most evil and hostile in the galaxy. They are most notable for their evil and hostility, but are also notable for their asymmetric, weak impish appearance.

Needless to say, my son's outlook on the world and his ability to explore it have dramatically changed.

This miracle was made possible by text-to-speech (TTS) software. You see, my son has a disability that makes normal reading excruciatingly difficult for him. Through a great deal of work, and some considerable courage, he is now able to read, with great effort, printed sentences and short paragraphs on his own. But as a bright 11-year-old sixth grader, books like Go, Dog. Go! and others that pose little reading difficulty hold little interest for him, and so he won't read the words in printed books on his own. He likes computers, though. At the beginning of the summer, I showed my son how to activate the text-to-speech features of his Mac. Mac OS X has text-to-speech capabilities built in, and because Mac applications are built using standardized text display objects with hooks that allow access to the system TTS services, there's a uniform, cross-application way to have text spoken. (In contrast, TTS on Windows Vista is almost useless!) Similarly, Wiki-based websites present content in uniform ways that made it easy for my son to interact with text.

I was amazed by the way my son began to devour the content that interested him. Every day after coming home from camp, he would spend hours staring at the screen and listening to the Mac's robotic voice speak the text to him. Then he would watch some YouTube videos and play some Spore. I realized that TTS had given my son a way to fully satisfy, for the first time in his life, his hunger for information.

People who see miracles tend to develop intense beliefs. I am no exception. I am no longer an objective observer of digital copyright issues when they relate to access by the reading disabled. When I want to feel some anger (it helps me run faster) I think about people and institutions who try to use copyright law in ways that prevent people like my son from being able to read what they want to read.

After having moral imperatives made clear to me, I've spent some time learning about the relevant technology and laws, and I find that these include many of the issues I've been working on and learning about. For example, last year, before I started paying attention, Amazon faced criticism from authors and publishers who argued that text to speech on the Kindle DX constituted a performance that Amazon did not have the rights to deliver. Could publishers similarly enjoin Apple from allowing my son to use its TTS on copyrighted material? With my new perspective, I cannot talk about this without fuming at the blatant immorality of some of the arguments being made.

When Amazon relented, Random House (publisher of Go, Dog. Go!) asked Amazon to turn off text-to-speech on the Kindle DX for its books, which sparked considerable controversy. This led the National Federation of the Blind and American Council of the Blind to file a discrimination lawsuit against Arizona State University which intended to test the Kindle DX as a means of distributing textbooks. The basis of this lawsuit is the Americans with Disabilities Act (ADA), which bars discrimination against people with disabilities in any public accommodation, a term which would include libraries and bookstores. The ADA has been used to force e-commerce websites to make their websites accessible to people with disabilities.

Unfortunately, the laws on accommodating disabled users have not kept up with changing technology. In 1996, the "Chafee Amendment" changed US Copyright law to allow "authorized entities" to make reproductions of previously published nondramatic literary works for the purpose of producing formats used exclusively by the disabled. Unfortunately, the possibility that all the worlds books might someday be digitized and thus made available to those with reading disabilities was remote at that time. As a result the ambiguity of the amendment's language is enough that the American Association of Publishers was able to argue that the Chafee Amendment could not be used by libraries to help them comply with the ADA. Luckily, organizations like Benetech and its BookShare website are working with publishers to get around this sort of conflict. I hope my son will be able to read the books he needs to read through BookShare.

It's my considered opinion that the Google Book Search digitization project has created the potential for a direct collision between book publishers and the ADA, and that this prospect has played a significant role in shaping the controversial aggrement to settle the publishers' and authors' lawsuit against Google, but that's a topic for another article.

Now that I know a bit more about the potential legal obstacles to my son's reading, I'm wondering what I should be doing to make sure those obstacles disappear. I'm still hoping to see more reading miracles. "Good-by!"

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