Tumultuous Times for eBook Industry

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The past few months have turned out to be quite volatile for the eBook industry. In June, Gemstar-TV Guide International decided to drop out of the eBook business. This was followed by PalmGear's acquisition of Palm Digital Media, which produces eBook reading software and is an eBook supplier, and, then, Barnesandnoble.com dropped a bombshell in September when it announced that it would no longer carry eBooks.

Despite these closures and consolidations, those in the eBook industry who spoke to BTW still hold fast to the notion that the sky is the limit for eBooks, if only they ascend more slowly than once predicted. Their reasoning may be based, in part, on figures showing that eBook sales have experienced significant growth -- though these sales only account for a very small percentage of overall book sales. A recently released study by Open eBook Forum (OeBF), an international trade and standards organization for the eBook publishing industry, reported that, over the first six months of 2003, eBook sales revenues were up by 30 percent and unit sales were up by 40 percent over the same period in 2002. Furthermore, sales are expected to top $10 million in 2003.

Nick Bogaty, OeBF's executive director, said, "We're really seeing something emerging that has the type of sales growth that audio books had. We're starting from a small percentage and seeing good growth." He noted that libraries are a huge growth category as they are seeking to "revitalize themselves in the age of Google" and that "school systems are finding that today's kids like to read when the media is digital."

Good growth or not, the reality of what constitutes good eBook sales today is a far cry from what was forecast a mere three years ago, when research firms projected eBook sales of about $250 million by 2005, as reported by Reuters. As it turns out, those predictions were more hype than anything else. Bogaty told BTW that past eBook sales projections weren't "legitimate. There were a lot of expectations coming out in a different economic era -- expectations that were not realistic."

In the current industry climate, some companies have decided to bail out of the eBook market, rather than wait for its potential to come to fruition. One such company was Gemstar-TV Guide International, which closed its eBook subsidiary, Gemstar eBook Group Ltd., in June and stopped selling its eBook reading devices and eBook content. However, Gemstar noted that current eBook users will have access to previously purchased content for the next three years, as reported by The Write News.

Ironically, Gemstar's decision might end up benefiting one or all of the remaining major eBook reading device makers. Eventually, Gemstar users will be seeking a new eBook reading device. This is significant because there are a variety of different eBook reading platforms on the market, with Palm Digital Media (Palm Reader), Microsoft (Microsoft Reader), and Adobe Systems (Adobe Reader) vying to become the eBook reading device choice of consumers.

According to Mike Seagroves, director of business development for Palm Digital Media, about 60 percent of eBooks sold are in the Palm Reader format. However, he noted that Gemstar users accounted for 20 percent of the market, a significant number of consumers that are now up for grabs.

Surprisingly, in early September, PalmSource, a provider of the Palm OS operating system for handhelds and a subsidiary of Palm, Inc., announced that it had sold Palm Digital Media to PalmGear, a commercial Internet site devoted to third-party software solutions for the Palm OS platform. PalmSource and PalmGear called the deal a "strategic alliance," and PalmGear will operate a new PalmSource online store and license the "PalmGear," "Palm Digital Media," and "Palm Reader" brands.

Still, Brighthand, a business information Web site that provides news regarding handhelds and smartphones, questioned the sale, and noted, "[I]t's safe to say that Palm Digital Media is not a significant source of revenue, or profit. If it were, PalmSource would likely not be abandoning it, especially for next to nothing."

Less than a week later, on September 9, Barnesandnoble.com, which provided eBooks in both the Adobe or Microsoft eBook reading platforms, announced it would no longer be selling eBooks. Carolyn Brown, a spokesperson for Barnesandnoble.com, explained, "Sales [of eBooks] didn't take off as we expected and were not significant enough to support the eBook business. Consumers were not quick to embrace the technology."

Bogaty told BTW that Barnesandnoble.com's announcement was more a psychological blow to the eBook industry than anything else. "We certainly regret them leaving," he said, "but the percentage of Barnesandnoble.com eBook sales as a percentage of total eBook sales is small."

Adobe Systems, meanwhile, still has high hopes for eBooks. "We're continuing to invest in the area and we believe it is an area of growth in the future," Adobe's Group Manager, Business Development for eBooks, Tom Prehn, told BTW. "In public libraries, there is a lot of activity and growth there. Major public libraries are using eBooks."

Overall, Prehn stressed that Barnesandnoble.com is but one retailer out of many that sell eBooks in the Adobe Reader platform. "I think it's a robust marketplace," he said.

Prehn noted that Adobe's new Adobe Reader 6.0 not only allows the user to view PDFs, but also includes an eBook icon that a user can click on to read an eBook and provides a link to a Web site offering eBooks. "That will entice readership right there -- click on the link and you can choose from many retailers," he said.

Certainly, enticing new readership may be the key. At an Open eBook Forum conference last December, Clifford Guren, group product manager of eReading, Windows Division for Microsoft, noted that the toughest part of selling eBooks is getting the consumer to try it the first time. Once they do, he contended, they develop an eBook habit. Other professionals at the forum concurred. For that reason, companies such as Microsoft, Adobe, and Palm Digital not only offer their basic eBook reading devices for free, but at times have marketed eBooks at very low prices just to lure a new customer. For instance, in August, Palm offered four eBooks for the Palm OS handheld for $1. "All of the major software companies realize that when people sit down and read an eBook they're really satisfied," Bogaty said. --David Grogan