Forecast: the evolution of the e-book market

1Executive Summary

Over the past 40 years, the e-book market has gone from being the dream of a few pioneers to a mass-market technology used by tens of millions of consumers worldwide (soon to be hundreds of millions). How did it grow from there to here?

At first very slowly. Then very quickly.

But let’s be clear: It wasn’t e-book technology and innovation that were in a seeming state of stasis for the first 35 years of the four-decade stretch after Michael S. Hart created the first e-book and launched what would eventually become Project Gutenberg. No, instead it was actual consumer adoption. Consumer adoption had been limited to extreme early adopters willing to experiment on e-reading despite the limited options in technology and platforms, lack of clear market leader, clunky user experiences and higher prices.

All of that changed when, in 2007, the “big bang” for the e-reading market occurred with the release of Amazon’s Kindle e-reader. With that release, Amazon created not just an e-reader device but also a complete package that was part storefront and part distribution platform and that provided a seamless end-user experience. The company also added some completely new concepts to the e-reader experience, such as the subsidized, contract-less wireless downloading of Whispersync that made getting new e-books anywhere and at any time possible.

Still, while Amazon clearly saw an opportunity to put all the pieces together, it certainly was not the first — nor will it be the last — to innovate in the e-book market. Just three years later, Apple raised awareness of the market even further (and turned the world of personal computing on its head) with the iPad. While so much more than simply an e-reader, the device’s highly intuitive user interface, 10-inch touchscreen and integration with the newly launched iBookstore created a viable competitor to the Kindle in the e-book marketplace. It also spurred others like Barnes & Noble and Google to quickly look into releasing their own tablet competitors.

The leading physical book retailer, Barnes & Noble, maximized its retail footprint to sell its new line of Nook e-readers. By sacrificing prime promotional real estate for printed books — as B&N did when it started promoting the Nook on display shelves in the front of its brick-and-mortar stores — the company has admitted that its future is as an online book retailer.

At the same time as the e-reader platform wars were fully joined, enormous changes began to take place in the business of publishing as large established players wrestled with the emerging world of e-publishing.

At first, the big publishers watched helplessly as Amazon set e-book prices at levels that many in the publishing industry felt were creating a permanently low bar for digital books. Along with Apple, they fired back in 2010 by agreeing (some would argue colluding) to use the agency model for pricing that allowed the book publisher to set the price of the e-book.

Amazon first resisted this move to the agency model, but it eventually relented as large publishers such as Macmillan forced its hand by demanding Amazon charge more for their titles. This show of force by big publishing was evidence that while Amazon has been able to disrupt the e-book marketplace in significant ways, the stronghold on power that big publishing has on the market will continue for some time.

However, while big publishing has not completely seen its pricing power dissipate, there are other ways in which its business is under attack. Authors such as Bob Mayer have begun to shun the traditional publishing route, seeing the opportunity to establish a more direct relationship with readers through self-publishing on popular e-book platforms. Others are establishing relationships with newer e-book publishers like Open Road to publish new work or to republish their backlist titles, where they own the rights (Carl Hiassen has done this with his early work). Some authors, such as Barry Eisler and J.A. Konrath, have also begun to align with one of the many Amazon imprints to publish their work.

But the newfound popularity of the e-book is, in many cases, raising questions over what exactly the e-book will look like in the future. While content put into new formats is often simply a repurposing of an older format, many authors and artists are realizing that the digital book creates entirely new opportunities to express themselves, through what some call transmedia storytelling or enhanced e-books. With digital formats, creation can happen in ways that go much further than what was possible on the printed page, creating social, interactive and continuously evolving experiences that may include not only text but also audio, video or even a combination of all three, such as the Angel Punk project.

And while we certainly expect the boundaries of what a book is to be pushed by emerging artists, J.K. Rowling has showed with the announcement of Pottermore that even some of the most established artists see an opportunity to innovate around the idea of what a book, and its extensions, could become.

No doubt, the 40 years of e-book innovation can’t be summed up in a few pages. And the pace of change in e-books and digital publishing is expected to continue at an even faster rate.

See our graphic below for a visualization of the past 40 years of the e-book marketplace.

Figure 1: an e-book timeline from 1971 to 2011: The disruption accelerates

e-book timeline from 1971 to 2011: The disruption accelerates

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Michael Wolf

Chief Analyst NextMarket Insights

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