The Surprising Endurance of the eReader

 May 2010, the original Kobo eReader. None of us had ever built an ereader before, which was good because otherwise we would have known how hard it is…

May 2010, the original Kobo eReader. None of us had ever built an ereader before, which was good because otherwise we would have known how hard it is…

eBooks don’t have the seasonality of print books at all. There is no pre-Christmas sales spike, no December frenzy [0]. So as October rolls around, my mind turns to thoughts of device sales. For the hardware business, it’s prime time, kicking off with Black Friday and pushing right through until the end of December. It is the time of advertising, gift guides, store displays, magazine reviews and comparisons.   It's also the time of device launches, like the rollout of the truly splendid Kobo Forma. And any new device means answering the question that we have been asked every year since about 2011 — why are ereaders still a thing? 

When we were raising money in our Series B and C rounds in 2010-2011, we hid the hardware forecast at the back of the back of the pitch deck. At that time, pre-Internet of Things, VCs hated seeing hardware in a business model.  Software means the possibility of growth and profit uncoupled from OPEX, while hardware has messy requirements of working capital, inventory management, supply chains and writedowns if goods don't sell.[1] Almost from the moment our first ereader hit the market in 2010, media and industry watchers assumed that smartphones would crush the ereader. Who could possibly want a device that just did one thing when the phone in your pocket lets you do everything? The arrival of the iPad only intensified that prediction — “Okay, maybe smartphone screens are a little small to read a book on, but tablets are going to take over books and newspapers and magazines too. You are screwed.” eReaders were seen as a transition technology. “Black and white TVs” they got called in a few of our own debates around product planning.

Fast-forward seven or eight years and ereaders continue to matter. Not just a little. A lot. We keep making new ones and they keep getting better. We added touch screens, then front lights, then larger screens, were the first to add waterproofing, then variable colour-temperature lighting. Along the way, they have become lighter and thinner. Most importantly, after the up-and-down of the boom years in 2011-2012, volumes have been remarkably stable. Instead of being a transition technology, ereaders have become an interesting case study in how specialized hardware survives in a multi-function world. Here is what we now know about ereaders that would have surprised us in 2010:

Hardware-only players are pretty much gone. It’s lost in the annals of ebook history that Kobo repriced the ereader market in 2010 when we brought out the original $149 Kobo eReader [Wired: The Real Kindle Killer]. It didn’t have 3G or even Wifi, but it was almost half the price of others on the market. Before that, ereaders from Amazon and Sony were $250 or $300 profit centres. By treating ereaders as a way to introduce customers to an ecosystem that included content sales, we took a lot of the margin out of the device game. Not everyone could follow. At CES in 2011, you couldn’t turn around without running into a company with an eInk ereader to sell. By 2012, they were all gone. [2]

The best customers self-select. A lot of the 2010-2011 ereader boom was gift-driven. That holiday season, everyone bought an ereader as a gift for the reader in their life — a mom, a grandfather, a teen. A lot of those ended up in drawers and closets, unactivated or unused. So while ereader sales spiked dramatically, ereader sales didn’t correlate 1:1 with new ebook customers. If the customer doesn't start with a bit of belief in the benefits of ereading, it’s easy to give up and return to paper and ink. Since then we have discovered that the best ereader customers self-select - they decide for themselves to give ebooks a try, either because they have heard good things from friends, or because they encounter a device in retail. They want portability or cheaper books, larger font sizes or non-partner-disturbing night reading. When they do, they activate devices at a shockingly high percentage and stick around. Gifting is still a significant driver for ereaders, but now the recipient is often someone who has already happily made the jump to ereading and is about to get a device upgrade.

eInk eReaders are the weapons of choice for immersive reading. And not just a little bit. eReader customers buy more than twice as often as app customers and read more than 50% longer in a session. It is a chicken-and-egg question as to whether people who read often and intently choose ereaders or whether ereaders give people the benefit of an undistracted environment, encouraging more reading and purchasing. Probably some of each, but it has now become a clear selling feature that shows up in our customer research when we ask people “why do you buy an ereader?” Anecdotally, n=1, I read on whichever ereader is in the development pipeline and on my iPhone. I have had multi-month stretches of iPhone-only reading, but more and more often, I’m looking for respite from email+messaging+social and ereaders provide a welcome relief. None of our research has shown “I want less time on screens = less ebook reading” being correlated. [3]

High-value customers invest into the category. The early ereader market was a race to the bottom — how cheaply could a device be priced for mass adoption? [4] But in 2012-2013 we took a flyer and started the premium ereader segment with Kobo Aura HD (a 6.8”, 282dpi screen) and then followed that up with Aura H2O, Aura ONE, and H2O v2. During that first launch, we thought a premium segment might represent 5-10% of unit sales. Surely only a few people would pay more than $150 for an ereader. I’d love to say it was a piercing strategic insight, but in truth we felt our way into it, keeping risk low, trying in a few markets first and then increasing volume. We knew we wanted one. We just weren’t sure if anyone else did. Now, premium ereaders represent 50% of unit sales. In retrospect, it makes perfect sense. People who love music ditch the free earbuds that come with their phone and buy a $250 pair of Beats headphones. People who love sports upgrade to 70” 4K TVs. People who read two books a week, who spend 5 or 10 hours a week with an ereader in their hands, want the best reading experience possible and are willing to invest in it.  

eReaders earn us a place in bricks-and-mortar retail. It’s hard to sell an app in a store. (Trust me, we’ve tried.) I talked about this in the last edition of MT:Omnivore —having a device gives us something tangible to put on a shelf in a bricks-and-mortar retailer. They allow people to discover ebooks and digital reading in an environment in which they already buy books. People get to pick them up and try them out. For us, it means a lot of people who wouldn’t otherwise have thought about ebooks decide for themselves (see above) that it could be a fit. And the better the in-store experience, staff training, and display quality, the more often that happens. 

They last a long long time. When we started, we thought that ereaders might have a replacement cycle like mobile phones — 18 months, maybe two years. Nope. Try four years. Sometimes longer. They last forever. When I do my informal customer research walking down the aisles of airplanes, I regularly see devices we made in 2011 and 2012. That’s great news in terms of our goal of manufacturing and designing for quality. It does mean we have many customers — as well as people who chose not to become customers during the early adopter years — who don’t know how much better eInk and eReaders have become in the past five or six years — faster, brighter, clearer, thinner, lighter. Imagine if a big piece of the iPhone base was still on iPhone 2s? Welcome to life in the world of ereaders. Fortunately, we aren’t trying to do face recognition or video compression on the fly, just display text as well as we possibly can.

That’s why, for us anyway, ereaders are a key part of the mix. We keep pushing on everything from form factors to screen technology to industrial design. We learn as we go. And we stay hyper-focused on that person who loves reading more than anything else, and is looking for the best possible way to do more of it. There is, I hear, one company out there who sells more ereaders than we do, but as Steve Jobs said of Apple in 2004, “[our] market share is bigger than BMW's or Mercedes's or Porsche's in the automotive market… What’s wrong with being BMW or Mercedes?” We do even better than that. I’ll take it.

ENDNOTES

[0] eBook seasonality is what the print world would look like in a world without gifting where people only bought books for themselves. (No judging. It’s fine. It’s just a different thing.) It was the first thing I had to get used to at Kobo — there is no pre-Christmas sales rush for ebooks. The first time we went through December, we thought the business was broken. eBook sales surges are tightly correlated to when people have time to read — holidays and vacation seasons. 

[1] VCs still don’t love hardware, but IoT means that many funds had to find someone who could evaluate OEM selection, system-on-a-chip options, supply chain efficiency, BOM costs and retail distribution strategies. Still not easy for all of the reasons above, but funding is possible, as Kobo alumni at companies like InnerSpace - https://innerspace.io -  are happily discovering.

[2] There are still a few around, especially in China, where low-cost ereaders sit on top of a mix of pirated and ultra-low-cost legit content. It’s also fascinating to see Sony still in the game with their new writable eInk tablet/reader (readlet? writer? There’s a niche begging for some branding.)

[3] That said, the app side of the business is getting bigger all the time too. Just more and more phones and tablets (but especially phones) in the market, with bigger and better screens. And the whole audiobooks business drives to apps as well. You want to see long reading sessions? Audiobooks rule.

[4] We still push on price for our entry level devices, but haven’t found a lot of value in corner-cutting on features or quality to hit an ultra-low price-point. Even our intro devices have front-lights and touch screens - table stakes, we think.  And devices sold at cut rates often end up being purchased as gifts for reluctant ebook readers. See above on the importance of self-selection. 

 October 2018 - Kobo Forma. “Holding it honestly feels like I’m holding something out of a science-fiction movie–a nearly weightless display panel capable of displaying a hardcover page’s worth of print.” -  Teleread

October 2018 - Kobo Forma. “Holding it honestly feels like I’m holding something out of a science-fiction movie–a nearly weightless display panel capable of displaying a hardcover page’s worth of print.” - Teleread

Michael Tamblyn