O’Reilly Tools of Change for Publishing Online Conference Fall 2009:
An Emphasis on E-books

Welcome and Introduction

Kathryn Barrett: OK. It’s 9:00 Pacific Time and time for us to get started. Welcome, everyone to TOC’s Online Fall Conference. I’m Kathryn Barrett with O’Reilly Media, and today Allen Noren, the VP of Online Initiatives with O’Reilly Media and the Conference Chair, is going to be giving us an introduction and starting the conference off. Before he does, we still have a few people logging in – so before he does that, I want to go over a couple of things to help you get the most out of this conference today. And first of all, we’re streaming audio for this conference. You should be hearing things right now. If you aren’t hearing anything, then it doesn’t matter what I say. But I’ll put some instructions in the chat room briefly. If you are having problems with the audio broadcast, if it turns choppy or cuts out on you, usually it helps just to stop it and restart it, and that will do the trick for you today. If you choose to dial in, the information is in the Communicate menu. We also have a slide for that, and Marsee will post that information in the chat room momentarily.

There’s the information for the audio. Next, we encourage you to ask questions and share comments with the entire group throughout the conference. That’s one of the important things, being able to interact with other people. And to do that, we’re using the chat room in the lower right-hand corner of your screen, as you’ve all been doing. So please post to all participants and that way everyone can see it and join the conversation. It makes it much more interesting. If you have any technical issues, please send those directly to me. I’m listed as online conferences or the host, and I can help you. And that way we’ll keep the chat room on topic. And that’s really important, so send your technical issues to me. Now for Twitter users, we do have a hashtag for this meeting. We’re going to use the hashtag TOC. And if you have room in your tweet, feel free to add the hashtag E-book too. So that way it’ll be picked up on both of those. And finally, you should know that we are recording the event. And if you have to leave or you get interrupted, it’s hard to cut out three-and-a-half hours in the middle of the day, but we will have the event recorded and you can come back and view it afterwards. And we’ll send you that information shortly.

And I think that’s all of the housekeeping that I needed to cover so now I’m going to turn it over once again to Allen Noren, VP of Online Initiatives at O’Reilly Media and today’s Conference Chair.

Allen Noren: Good morning from Sebastopol, California, headquarters of O’Reilly Media. And good afternoon and good evening to all of you who are attending the first TOC Online Conference. I’d especially like to welcome attendees logged in from Sweden, Finland, Russia, Spain, Taiwan, the UK, Croatia, Poland, France, Columbia, Venezuela, Italy, Germany, Canada as well as 26 of the 50 US states. The goal of this and subsequent online events it to provide a forum to explore and discuss emerging topics and provide you with actionable intelligence you can implement in your business today. Today’s event is all about E-books. Since the last Tools of Change for Publishing Conference in February 2009, digital issues have continued to challenge our industry and create opportunities for those bold enough to innovate. And as we know, there’s a lot of innovation going on, as well as hopefully an increase in E-book sales during the same period.

In Q4 of ’08, just before the last in-person TOC in New York, reported E-book sales made up just under $17 million and have more than doubled since then to over $37 million in Q2 of ’09. That’s astonishing growth during a time of general business decline, and those numbers are not the whole picture. One of my jobs here at O’Reilly is the management of our web presence, including direct sales, and I can tell you that we are now selling twice the number of E-books that we are off print off O’Reilly.com. And about half of those are going overseas, allowing us to compete globally in a way that wasn’t possible before. There’s also our partnership with Safari Books Online, another kind of E-book offering that comprises 20 percent of our business. Neither of those numbers are included in the E-book numbers published by reporting bodies. But even with those rosy stats, so many questions remain, and we’re tackling three of the biggest today with our distinguished speakers.

The first is E-book pricing. Is the new price of E-books $9.99? Or will even that price seem lofty if iTunes app level pricing of $4.99 or less becomes norm. Hold on to your balance sheet as we dive into this meaty topic. Second up is what do the all important and often ignored readers want? What do readers make of the efforts of publishers, device manufacturers, and retailers thus far? Are readers happy with what are largely digitized print books? What do they think of the present array of readers and how are they responding to pricing schemes? And crowning our conference is the future of electronic reading: E-books, E-readers and beyond. This presentation will cover the current state-of-the-art of E-books and E-readers, discussing the technologies currently at play and those coming in the near future. So settle in and get ready for a great event. Before we begin though, I want to thank the Ingram Content Group, our premier diamond sponsor, for their participation in today’s event and in February’s TOC Conference. Ingram has been at the forefront of the publishing industry for nearly 70 years by delivering innovative services and solutions to help publishers realize the full potential of their content, and their participation helps make this event possible. To learn more, visit Ingramcontent.com. So we’ll pause just for a minute. Are there any questions before we get started? If so, you can please type them into the chat window. It looks like we’re clear. So OK, I’d like to turn it over to Joe Wikert, General Manager and Publisher of O’Reilly Media for the E-book Pricing Panel. Joe?

Session One: E-book Pricing

Joe Wikert: Thanks, Allen. Hi, everybody. I’m really excited to be leading this discussion today. We’ve got a number of very fascinating points of view, I think, with the panel that we’ve assembled. So let me kind of just walk you through who’s on this team. So first up, we have Hugh McGuire and he’s the cofounder of BookOven.com which is a cloud-based book and E-book publishing tool. He’s also the founder of LibriVox.org, a maker of free volunteer-read public domain audio books. Next up, we have Michael Tamblyn. Michael is VP of Content, Sales, and Merchandising for Shortcovers where he works, as he says, at the intersection of culture, trade, and technology. We also have two folks joining us from Scribd, Trip Adler and Tammy Nam. Trip is the CEO of Scribd, the social publishing site where people upload and share creative writing in various documents, regardless of the file format. And Tammy is also with Scribd. She’s VP of Content and Marketing where she observes content and reading behavior trends. Lastly, we have Neelan Choksi who I believe is going to be joining us a bit later here. But Neelan is the CEO of Lexcycle, the company behind Stanza. And as you probably all know, Lexcycle was acquired by Amazon back in April. Prior to joining Lexcycle, Neelan was a COO at SpringSource, the company behind the popular open source spring framework. So welcome to all of our panelists. And as I mentioned, Neelan will be joining us shortly. Before I pop in with the first question here though, I just wanted to step back for a second and kind of explain the purpose of this particular session and also lay some ground rules.

We’re here to give each panelist the opportunity to describe their company’s E-content pricing model and the advantages that they have found using it. And before we get started, we need to go over key legal concerns and ground rules for the sessions. So let me just kind of run through those real quickly here. Agreements to fix prices or fees or to allocate markets, to engage in product boycotts or refuse to deal with third parties are automatically illegal under the antitrust laws. So as a result of that, the scope of this session is limited to informing you about existing publicly disclosed pricing models.

This session is not intended to be a forum for advocating, evaluating, or criticizing any particular model or for suggesting that any model or approach be adopted. To that end, the ground rules for this session are:

Please limit your comments to a description of what your company does. Please do not discuss any specific customer or supplier. It is imperative that you not say anything that could be misinterpreted as an effort to agree on prices, allocation of customers, allocation of specific markets or a joint refusal to do business with particular companies. Also, with respect to pricing decisions, please keep in mind these antitrust considerations: Making agreements with competitors to adopt uniform prices, terms of sale, or contract provisions is prohibited. Do not exchange individual pricing data. Do not discuss your customers with your competitors. Exercise independent judgment and avoid engaging in activities that may give the appearance of collusion with a competitor. Make all pricing decisions independently of competitors or others outside of your company. Contact antitrust counsel whenever there is a question about the legality of an action you are contemplating in connection with the pricing presentations at this conference, or your pricing polices in general.

So I know that’s a lot of legalese to get through, but I just wanted to put that out there to begin with. So now let’s get started. So I wanted to open up with a question. We’ll start with you, Hugh, if that’s OK. In your particular operation, with Book Oven, do you see a correlation between print product pricing and E-content pricing?

Hugh McGuire: So I guess I should say that Book Oven is just getting started, and we’re going to leave the pricing up to the publishers and writers who are using the tool. So we don’t have any correlation data to date. But I think that we’ve seen elsewhere that there’s definitely an interest in having lower prices for E-books and higher prices for print in general. But I’ll turn that question over to the others on the panel with more active data to elaborate.

Joe Wikert: OK, thanks. Michael, how about from the Shortcovers angle, any correlation you’re seeing between print book pricing and E-content pricing?

Michael Tamblyn: Well, yeah, we definitely see that there is. If you look across the spectrum of content, consumers are generally willing to pay less for something that they’re buying in digital form than they are in print form, full stock. And even before we began offering best sellers at $9.99 in the US and in other markets where that price point isn’t as prevalent, we still see that there’s this clear drop-off of consumer demand for E-books that sort of sits higher than $10.00 or $11.00 or so. And it’s not that we don’t have a lot of great titles that are priced significantly. It’s not a question of selection. It is a question of what people appear to be comfortable spending for an E-book. And there are lots of variables around this. And why we think that is the way it is. And what some customers have told us. And we can definitely dig into that, if you’re interested.

Joe Wikert: OK, terrific. So Trip and Tammy, how about the Scribd point-of-view on this? Any correlation you’re seeing?

Trip Adler: Yeah, I think ours is going to be kind of similar to the first one. What we do is we allow authors and publishers to set the price how ever they choose and we give them 80 percent of the revenue. So the prices tend to vary from one dollar for some books up to $5,000 for some research reports. And it turns out that authors and publishers tend to set the prices a bit lower for E-books than for print books. That’s the decision that they make.

Joe Wikert: So we’ll stick with you for a moment on that, Trip, because it kind of leads into the next thing I wanted to talk about. And as you look around today, you see that in most cases the E-content version is priced lower than the print version, just like you said. Do you think that’s always going to be the case in the future?

Trip Adler: You know, I’m really not sure myself. My perspective is that ultimately the consumer will decide. On Scribd, our goal is to have a community that decides these kinds of things and ultimately the community will drive these prices up or down. And by giving as much control as possible to the authors and to readers to buy what they want to buy, I think it will eventually sort itself out.

Joe Wikert: OK. Michael, how about – oh, sorry.

Tammy Nam: Oh, no. I was just going to add that what we’re seeing is that by giving these people the control, what they’re doing themselves is they’re changing the prices, sometimes from day-to-day; sometimes from week-to-week to try to optimize for purchase behavior. And in some cases, they do specials over the weekend or for over a period of a week or two weeks and then they determine whether they want to keep the price at that price point or change it later.

Joe Wikert: OK. Yeah, I’m glad you brought that up, Tammy, because that was something that I wanted to ask a little bit later for all of the panelists. So if you could hold that thought, I’d like to drill down into it a little bit deeper. Michael, how about from Shortcovers’ point-of-view, what do you think about the future as far as E-pricing versus print pricing? Is e always going to be less than print?

Michael Tamblyn: Well, it’s funny. We talk to our customers and we talk to customers who are displaying different kinds of purchasing behavior. And one of the things we’ll ask them is, you’re willing to buy this book in a store for $15 and $16, but the price that you’re willing to pay for an E-book is around $10.00; why is that? And what’s interesting is that people will come back to you, and they’re not industry insiders, and they’re not economists, but they’ll kind of break down what they see as the capability gap between an E-book and a paper book. For the most part, they can’t lend it. They can’t resell it. It’s not a physical object. They don’t get to look at it on the shelf. They have to trust us or the device that they’re using or that the format the book is in is going to be around forever. And they can walk their way back from a $15 print price to a $10 E-book price. That’s not to say that there aren’t also a lot of ancillary benefits to buying a book in digital format, but that’s a customer perception that I think is floating around out there right now. And if you ascribe each of those about a buck worth of value, you kind of end up back at $15.00 again. So in the longer term, I think the question becomes, are there some kinds of content, some kinds of books where the experience of an E-book is better or more enhanced or beyond what can be provided through a print book, and are there some that aren’t? And I think that’s where they’re going to see the branching of pricing over time.

Joe Wikert: Yeah, I tend to agree with you on that, Michael. I also think, as I like to say, we’re very much in the early stages of the technology here. And the analogy I’ve used often times is they always say that the first television programs were nothing more than radio shows recorded in front of a camera. And I think as our content becomes richer, there’s going to be a lot more doors opening up on this front.

Michael Tamblyn: Well, it’s interesting. I think books that are straight text to ePub conversion are always going to be perceived by consumers as something that “should be cheaper.”

Joe Wikert: Yes.

Michael Tamblyn: And there are places where significant value-adds are possible, but probably not everywhere. In some of the messages that the panelists were exchanging before, the idea that textbooks are a place where there’s a lot of opportunity to go beyond just the text, whether it’s maps or audio or video or interactivity in general. And that could command a higher price point. But if you’re in fiction, and you’re reading Brick Lane, do you really want photos of Brick Lane and a soundscape of Brick Lane and a guided walking tour of the Tower of Hamlets by Monica Ali? A few people might, but that’s really a different art form from a novel. And I just want to make sure that publishers aren’t thrashing around trying to figure out what the multi-media version of Alexandra McCall Smith looks like in the hopes of dragging the price-point up from where it currently sits at E-books.

Joe Wikert: Yeah, yeah.

Michael Tamblyn: I think there’ve been some nice looking experiments with that. I know Enhanced Editions came out with Nick Cave’s latest book, Bunny Munro: The – I can’t remember the full title, but Bunny Munro, it had an audio version included, a video of Nick Cave giving the selections from the book. So you can imagine ways that E-books can get enhanced to the point where there’s something much more and you see a value that can be ascribed by consumers that’s much higher. On the other hand, you look at the cost for production there and you’re adding all sorts of stuff. So it’s really going beyond what just a book is. But certainly, I think in the case where the consumers really feel like they’re getting more out of the electronic version, certainly there’s a chance to raise the price there. But for the most part, I think most people see the electronic version as reduced at this stage anyway.

Michael Tamblyn: You end up becoming a multimedia producer as opposed to say a novelist or a promoter of text work. And it’s a different kind of business.

Joe Wikert: I think there were a couple of good points made in the last minute or two, before I lose sight of them. One is the notion of quick ports from print to e; I think that does doom us to a value proposition that’s perceived as less than the print book in many cases to a consumer. And secondly, before I forget, there’s a technology that’s starting to get some interesting traction right now called augmented reality. And if you haven’t checked it out, you ought to look at it. There are some samples, videos out there on YouTube and elsewhere and a couple of tools that are in a beta stage at this point. But the possibilities there – and granted, augmented reality doesn’t really apply for every type of content, but you think about travel guides, for example, I think there’s a great opportunity there. And there are probably plenty of other types of content that it would be applicable for. So I just wanted to make sure I put that out there. Let me switch over to Hugh then, if you could weigh in on the question about e versus print and so forth and pricing.

Hugh McGuire: Yeah, well I guess I’ll start with my background. I got into the book business through a funny route, which was LibriVox, which was free public domain audio books that volunteers record. And what’s interesting there is you end up seeing by providing these that all of these texts were available free on Project Gutenberg in a certain format. What LibriVox did was got a bunch of people to make recordings of these books and provide those for the world in a whole different format. And all of the sudden, that opens up new areas and a new group of people who are experiencing those texts. And I think that’s a very important part of what digital enables, allowing people to interact with text in new kinds of ways, whether it’s creators who are making audio recordings or listeners who are listening to books that they might not have read or are going to read subsequently or whatever. And I think it’s really important that as publishers look at the facets that they have, the texts that they have, that they consider the often inexpensive ways to make that text available in new formats – not that audio is a new and radical kind of format. But just by allowing people to interact with text you end up getting a very interesting result. So I think that beyond just people reading the text on their devices, we’re going to see a much bigger range of interaction that people are going to be able to have. And for myself, personally, I’m a huge E-book reader. But I often buy the print copy after I’ve read the E-book version for books that I’ve really enjoyed. So I think we’re going to have to negotiate what ends up happening down the road. But it seems like E-books give a range of opportunity that isn’t there with print.

Joe Wikert: Yeah, I want to go back to something you mentioned, Hugh, which I think was raised earlier on the panel here. And it has to do with the whole authoring and editing and production model. I think those of us that have been doing books for many years are kind of set in our ways of building things one particular way. But when you look forward to technologies like augmented reality, which I mentioned, and others and how they can be used to create a richer product, and when you stop and think about even just a simple video – what’s involved in integrating video with the written world in an E-book, let’s say – it totally turns the offering model on its head. And I’m just not convinced many of us are really ready to make that overhaul to our model. So let me switch over now to Neelan. I understand you’ve been able to join us on the call. Are you there, Neelan?

Kathryn Barrett: Hey, Joe, Neelan hasn’t dialed in yet. He’s on the –

Joe Wikert: Oh, OK. Sorry about that. Well, let’s go on to the next question. The next thing I wanted to ask, and Hugh, let’s keep it with you then, is what are some of the more interesting pricing experiments that you’ve seen or that you’re thinking about with Book Oven, for example?

Hugh McGuire: Well, I think the variable model that Trip was mentioning is really interesting. And I think one of the things that’s happening is that the whole publishing industry was based on, in a lot of cases, shipping books out to retailers. And there were all sorts of pricing structures that were set in the way that happened. Again, looking back at my LibriVox experience, we, in some sense, launched a publishing company that obeyed none of the rules of publishing. We didn’t have quality control. We gave everything away for free, put it up online. We created a brand around something. There are all of these kinds of things that publishers don’t do because historically, that’s not what their business has been. And I think we’re going to see with pricing that, as Trip mentioned, as publishers start to have more control for easily adjusting prices, et cetera, we’re going to see a lot of change. But the big thing that I would like to see is a lot of bundling. So if I buy the print version, I’d like to get the E-book version maybe for a couple of dollars premium on that, but that’s a small thing that I think all publishers should perhaps consider doing from a consumer point-of-view. And I think with Book Oven, we’re going to, again, leave it totally open to the publishers and writers who are using our system to make those decisions themselves about how they want things priced. And I think as data evolves, these kinds of questions about what we ought to do are going to start disappearing as we see actually what’s working. And I suspect that Trip and probably Michael have – well, actually, probably Trip. I think that Scribd is probably going to be the kind of place where you’ll see the best data coming out because it’s so open to the users to make the decisions themselves.

Joe Wikert: So Hugh, there was a great blog post that made the rounds I think a few weeks ago talking about that bundling idea that you’re tossing out there. And the author was saying how this is what would make the perfect E-book experience. And it’s basically the everything edition. So, like you’re saying, you buy it once and you’re going to get it in print and you’re going to get all of the E-versions that you need. And, for what it’s worth, I think that’s one of the reasons why our E-book bundles on O’Reilly.com have been so successful: because for one simple transaction, you get the mobi format and the PDF format and the EPUB format all in one. Now, granted, that’s still not including print, but we have a separate deal where you can buy the print along with all of those. And just having looked at the numbers and seeing the traction on that, that’s clearly resonating with the audience out there.

Michael Tamblyn: It’s Michael. I think the opportunities are even broader than that. I think you should definitely be able to buy a physical book and get access to an E-book. And I honestly don’t think there are many people that are going to buy both separately, so you’re looking at losing a sale by not bundling them together. But you should also be able to tack the audio book onto the side, so I can be reading at home, I can move to my car, and I can basically pick up the same book where I left off and have it read to me. And then be on the road and be able to pick up the same book on my iPhone and read it there. And I’m sure there isn’t that much research to do to figure out that the number of people who are going to buy each of those three versions individually is not so great that people are going to lose revenue if they bundle them all together at once. And yet, that experience is so much better from a reader perspective. This is a book that gets to follow me around when I’m in different modes of reading and when I’m in different places. That’s fun.

Hugh McGuire: I’d add along with that that from a publisher perspective and a book seller perspective, there’s a real advantage there because it means you finish your books more quickly, right? So you should have higher turnover. And I think that the biggest problem we all face is time. That’s really the big question. It’s not so much price and a lot more about time.

Joe Wikert: And convenience is related to that as well. And what you’re talking about, I think we see the very front end of it with the Kindle and the Kindle app on the iPhone. I’ve taken advantage of that when I’m in line at the grocery store; I can pop my iPhone out and it synchronizes where I was in that book on my Kindle. And I love that, but there’s so much more it could do, right?

Neelan Choksi: Yeah, I have to agree with that. I think the bundle part makes a ton of sense. But I think it’s going to have to be looked at by genre and by audience. And I think you’re going to have to really think through segmenting this. For example, audio books and computer books may not make so much sense as part of the bundle. And I do think that’s an incredibly important point – with every genre, you have to look at pricing and bundling and all of these activities and all of these things we’ve been talking about by the genre and almost by the individual book to see what makes the most sense for that item.

Joe Wikert: So Neelan, let me ask you the question that we’re up to right now and that is just what sort of interesting pricing experiments have you seen within Lexcycle that you could share with us?

Neelan Choksi: So just to make one thing clear, Lexcycle does not do any retail on its own. In Stanza, we rely on partners to do all of the retail. So all of the stuff I’ll talk about is what I’ve seen from our partners. But we see a lot of stuff that looks very similar to the physical world. We have some catalogs that are very much promotion-based. They have generally higher prices but then lots of promotions and lots of rewards dollars. Rewards dollars are things when you buy the book, you get X dollars to use on your next purchase. But it’s very, very much promotion-based. It’s almost like your Sunday flier. You get your best buy sales and it’s very similar to that. Other catalogs are much more fixed-price, very little rewards dollars, but generally a lower starting price. And we’re seeing a lot of different models very similar to the physical world. The stuff that I’m really looking forward to is – I think a couple of Harvard professors have talked about this in the past – dynamic pricing. So you can envision a scenario, if you go back in time to the hardback and paperback and how the pricing evolved there. A cheaper way of getting content to a user is paperback compared to a hardback – not significantly cheaper, but a little bit cheaper. And publishers have used that to come up with different price points. You can envision a scenario with E-books where you can get away with this because there’s so little friction for the first week. And let’s say this is before the print book comes out, the book’s priced at $50.00. And the most diehard fans, the ones that absolutely have to read it the day it comes out, probably are willing to pay that. And then every week thereafter, it drops a couple of bucks – and you can take that all the way down to free, potentially. And I think there’s going to be some fascinating pricing models like that, which we’re going to see coming out here in the near future.

Joe Wikert: So you talked about that rewards program. Has that been a real needle-mover?

Neelan Choksi: I know for the particular catalogue, yeah. What it does is it locks a customer in. The customer says, “Oh my gosh –.” Golden handcuffs. “I have $14.00 of rewards dollars in my inventory, and at some point, I need to spend it.” And then the constant reminders of the promotional E-mails kind of perpetuate that. And it’s very effective for a particular segment of the audience that is into finding the best deal and getting the best price point.

Joe Wikert: Yes, definitely. Trip, how about from Scribd? What sort of interesting pricing experiments have you participated in recently?

Tammy Nam: Hi, this is Tammy. I’m sorry. Trip had to step out of his office for a second.

Joe Wikert: No problem.

Tammy Nam: So I’ll go ahead and answer that.

Joe Wikert: OK.

Tammy Nam: Actually about four months ago when we launched the E-commerce capability on Scribd, we launched the option you guys were referring to – dynamic pricing, or what we’re calling automated pricing. It essentially gives Scribd control of setting the price for you based on an algorithm that we determined based on the back-end, depending on a genre or at what price the other books in your category are selling for, et cetera. So people can choose to set their own pricing, and they can choose Scribd’s automated pricing. We actually are having more people set their own pricing, but I think that once they get more comfortable with the automated pricing concepts, they will do that. It’s still a little bit early for us, so we don’t really have a lot of data to present publically on this, but I think that there is definitely a potential. We’re seeing a lot of experiments going on, sort of anecdotally among our community, both authors and publishers. One great recent example is one of the authors that launched with us four months ago. He’s a best-selling author, but he set his second book at $2.00. He wanted to sell the book at $2.00 because he claimed that even at $2.00, he was going to be making more money then he would be getting anywhere else. So what I think is interesting about this is that he launched it as an E-book exclusively at that time, but he got interest from print publishers to print his book through a consortium of independent book sellers using print on demand. So he was selling his book for $2.00 on Scribd and twenty-something dollars on hardcover. It was on the San Francisco Chronicle best seller list the first week it was out, and now he’s getting offers for international deals. So I think that’s a really interesting example of a first online then offline, print on-demand independent book using different pricing at different channels. It’s turning the concept of publishing completely on its ear.

Joe Wikert: Yeah, definitely. And actually, you bring up something I wanted to talk about here with the panel as well. I mean let’s shift gears for a moment and talk about the ultimate low price of free, right? Chris Anderson, author of the Long Tail, his latest book called Free. I guess I’ll share a dirty little secret with you. I own a Kindle. Of course, I own an iPhone. And any time I see free content, I’m interested for either, I wind up hording it. So his book’s a terrific example where the audio version of it was out there as a promotion for free and so was the E-books version on the Kindle. And I grabbed both, but I’m ashamed to say I haven’t started listening to or reading either version of it. So let me start with you, Hugh, what role do you think free plays in E-pricing going forward?

Hugh McGuire: One of the things I notice is it seems like we approach this almost as if it’s a moral question, and I think we’re going to have to see – Corey Doctorow, for instance, certainly talks about the advantage he’s had from giving away free electronic copies of his books. He thinks they sell more. At the beginning of his career, he was told, “Well, it’s because you’re not very famous and so it helps you get notoriety.” And so that doesn’t apply to the rest of the writing world. Later in his career, now that he’s much better known, the response is, “Well, you’re so well-known that you already have a platform, so that’s why it helps you sell more books.” So I think, to me, this question of free, I think is going to work itself out as we get pricing platforms like Scribd has, as Shortcovers is able to play around with these things, as different publishers start to get a bit more comfortable with this idea that maybe giving certain things away is going to end up generating a lot more revenue. I know that’s true for you guys at O’Reilly with Real World Haskell, right?

Joe Wikert: Right.

Hugh McGuire: There’s a number of books which are free online for anyone who wants to read them, and yet, sales are still brisk for the paper copies. So I think that, as people said, it’s going to depend. But I think that free is always going to drive a lot of interest, and the key is figuring out the best ways to sustain that interest over the long run for a particular writer or a particular publishing house.

Joe Wikert: Yeah, I’m glad you brought up the Haskell books there, Hugh, because as I think back over the last few years, I’ve been involved with a handful of titles that have been developed out in the open, typically on a blog or a Web site. And not necessarily like a PDF version floating around for free, but just a site out there you could go to, and it’s not as convenient as reading it all in one place. But as I look back and think about the sales success of each of those, every one of those lived up to the expectations we had in retail. So I would call them a success, but that’s not exactly a scientific result.

Hugh McGuire: Yeah, and I would say that’s really been one of the driving forces behind the idea of Book Oven, that the more you get people engaged in a writing project early on in the process, the more you’re likely to see greater interest. And you end up building in, I think, a sort of built-in sales force or marketing force with people who have a stake in the success of the book. And I think that this idea, certainly for nonfiction books, of getting the engagement of readers early on is probably going to end up being a very interesting way to expand readership and expand engagement. And I think that’s going to be the key for publishing. We’re going to be awash in information and books in the coming years. We already are. And so really, the successful writers and publishers are going to be able to engage the readers with the stuff that they’re producing. And I think that’s going to be the most important thing, and finding new ways to do that is going to be crucial for success.

Joe Wikert: So Neelan, how about within Lexcycle, what role has free played up to now and what do you see it serving going forward?

Neelan Choksi: We could’ve been one of the poster children for Chris Anderson’s free book in a certain regard. We kind of made a name for ourselves with Stanza with free books, starting mostly with public domain, but then working with certain publishers to make kind of backlist titles available. So given the fact that those publishers who started with free books last year are continuing to do so – So basically, the free promotions with the publishers have been things like, let’s get not a huge name author but kind of a decently well-known author, but get one of their backlist titles and make it available for free, preferably the first book or one of the early books in a series. And introduce the audience to the author in that way and then basically hope that drives the sales of future books, in particular in a series. And I saw in the Week article, about a week ago, that in one of the particular series that we’ve had available for free, offering the first book in that series resulted in sales jumping tenfold for subsequent titles in the same series. So don’t always believe everything you see in the press. And I haven’t heard this from the publisher themselves, but at least that’s one case where it does appear that free is having the desired effect of driving sales of future items.

Joe Wikert: The thing I always wonder about that is, you hear about spikes and surges like what you just described, Neelan, and you just wonder how sustainable that is and can you light the fire and keep it going long enough to live beyond, say, a few weeks?

Neelan Choksi: Yeah, I think that’s exactly right. And maybe that was also triggered by the release of the latest book in the series. But as far as a way – and I think Chris Anderson talks a lot about this in his book – as far as a way of introducing the audience to a particular author or a particular series of books – my background’s from open source software, and this is exactly the same model in open source software, which is giving yourself away for free, and only tying your monetization to the audience that’s willing to pay. So in open source, even if 99 percent of your audience is not willing to pay, make sure that you’re able to monetize the one percent that is willing to pay. And obviously the open source industry has been doing very, very well for the last 10 to 12 years. And I think the similar aspect here is to interest folks, to get people to get wide adoption, and then monetize what you can.

Joe Wikert: So bringing up open source – oh, go ahead, Tammy. Sorry.

Tammy Nam: Oh, I was going to do another example of free and how it works really well. We actually had one of our publishers do an experiment with one of their authors for a backlist book that was more than 15 years old. One of our objectives was to get this specific author in front of a much younger audience because her typical readership is women in their fifties, so they put up the book for a month free in its entirely as an E-book on Scribd. There were more than 50,000 reads and she was able to introduce her name and her series of books to a much younger audience. And for them, it was much more valuable to get the 50,000 people reading her books and recognizing her name versus the potential nominal sale that that would have represented.

Joe Wikert: Hey, Tammy, I wonder if I could ask you a favor. The line that you’re on I think is breaking up a bit there. Is there another line you could call back in on?

Tammy Nam: Sure. Let me try that.

Joe Wikert: OK. Thanks. So let me go up to you then, Michael, if I could and ask you about free and what role you see it playing in Shortcovers?

Michael Tamblyn: Yeah, we’re both a developer of E-reading applications and a retailer, so free content is a bunch of things for us. It’s a low-risk trial of the E-reading experience. It’s training wheels for when you’re trying to figure out, how do I read on this phone, or am I interested in E-books as a way of consuming print content. It’s an inducement to try out these apps because people love getting free things. And it’s kind of a gateway driver. What I find interesting is that when we have a great new free title that a publisher’s just given us that we’re highlighting for the first time, our aggregate sales go up. A new free title is a way that kind of re-provokes people to come back. And then they tend to go, “OK,” and look at all of this other stuff. But it tends to work better on titles that feel newer. Going deep into the public domain, that tends to happen less so. And one of the things that we’re looking at right now is the mechanics of conversion from free to paid. We can see that there’s this very clearly defined class of user who downloads the app. They read Pride and Prejudice or Dracula or Sherlock Holmes. And more and more often, they also read something more contemporary that’s been provided by Harlequin or Random House or one of the other publishers that are being aggressive in that space. And then there’s this really interesting split. As Neelan’s saying, there are some people who basically see E-books as a platform for consuming free content. And they stay that way. And they remain that way. And then others go, “OK. I get this experience now. I’ve done it without any risk. So what else have you got?” And so now we’re doing a lot of work at looking at what are the activities you undertake to turn one the customers who partakes solely in free content into a paying customer. And there’s a lot of interesting stuff there. The other piece of free though is the sampling side. It’s not just about full free titles; it’s about first free chapters.

Joe Wikert: Yes.

Michael Tamblyn: And that’s incredibly powerful for us. It gives people that experience and knowledge as to being in a physical store. I can try this book out a little bit. I can see if I like it. And so we’re in the process right now of quantifying things like optimal length of the initial preview. Basically, what’s the incremental value of the first 500 words versus 1,000 words versus a first chapter, versus two chapters, or a random chapter in the middle? And that kind of analysis is something that we’re going to share back with publishers in the not too distant future.

Joe Wikert: I’m very much looking forward to that because that’s a conversation we’ve been having within O’Reilly a bit, too, that we’re sort of stuck in the old print book world where everybody gave out sample chapters just because that was the standard. And I like very much what Mark Coker and Smashwords are doing where they allow the author to set the percentage of content that’s accessible by a perspective customer before they even have to pay a penny for it. I think that there’s a lot of upside there, just in goodwill and in showing what you’ve got. That sounds like pretty much what you’re alluding to, right, Michael?

Michael Tamblyn: Yeah. And the biggest challenge that publishers have right now, especially traditional publishers, is they’re constrained by excerpt rights on author agreements. So we see a lot of variability in terms of publishers’ sampling strategies on older books versus the ones that are coming out basically on new paper that’s been cleared since E-books started as a channel. And I think publishers generally are trying to be more open in the rights grant that they get from authors in terms of being able to explore different strategies related to sampling.

Joe Wikert: OK. Terrific.

Hugh McGuire: I just wanted to add one other piece of value of free, I think. Again, looking at our experience at LibriVox, we now have a catalog of probably around 2,700 free audio books now. And we get hundreds of thousands of visitors to our site every month. And we’ve had millions of downloads. And we’ve never spent a cent on anything, certainly not on marketing. And if you look at how the infrastructure of the web works – and I think things are changing as we go more and more to smart phones, et cetera – but if you look at the infrastructure of the web, when you give stuff away for free, people are likely to link to it. And that ends up giving whatever your site is, whether you’re a publisher or whatever, a lot more juice within Google. And I think there’s a very important aspect here, which is making sure that your stuff ends up being visible to the people who will be buying. And that’s one of the values of free, I think.

Neelan Choksi: To keep this a little bit even, I just want to very briefly bring up the opposite view on free which is I think Seth Godin talked about this a couple years back around digital movie downloads. His belief is that it’s absolutely critical to charge something because the act of paying fundamentally changes the relationship between the end user and the person who is producing the content. So he talks a lot about $0.50 a rental for digital movie downloads. He talks about how the desire for piracy goes out the window because now, all of the sudden, you’ve got convenience, ease of use and you know you can buy this thing with a clear conscience. Since all of us were talking about the positives of free, I did want to bring up there are a lot of folks who believe that free isn’t necessarily a great thing.

Joe Wikert: Yeah, that brings up my experience with the iPhone and the 75,000 plus apps out there. It seems like if you’re willing to pay $.99 for an app, you’re probably willing to pay $1.99 for it. But the gap between the willingness to pay anything versus free seems enormous. And that’s why, again, I’ve got a lot of free apps on my iPhone. And many of them just go unused. So I think that’s a great point, Neelan, because if there’s a price associated with it, no matter how low it is, it just feels like there’s more of an engagement factor from the customer’s point-of-view, right?

Neelan Choksi: Yeah, I think that’s exactly it. And the other part, which I think is also very interesting, of what Seth was talking about has to do with the movie studios going direct to customers. And this may be an opportunity, at least in movies, to thwart the movie studios to establish a direct relationship with the customers. So that brings up a whole host of interesting thoughts in the publishing industry.

Joe Wikert: So even though, of course, this session and the conference are all about E-books, I didn’t want to lose sight of the print side of the world, which is still the vast majority of where the income is. And we talked a bit about the “everything” edition where you can go ahead and in one transaction get print in all formats. What I’m curious to find out from each of you though is what kind of experimentation you’ve done in your own organizations, or what have you seen that has been really interesting that ties print content with E-content? And do you feel like there’s an opportunity for more of that down the road? So Hugh, if I could start with you?

Hugh McGuire: Right. Well, again, I’d just go back to my own personal experience which is perhaps not the best thing to build a big publishing business on, but I’m definitely someone who, if I felt a book was important, I’d want to have it in print as well. So I’m one of that small few that Michael was mentioning earlier who is likely to buy both in certain circumstances. Again, I think that bundling is something that consumers are going to want increasingly, and I think the value of that for publishers, again, is that it gives you access to my time in different kinds of ways. If I’m just reading print or just reading electronic, then I’m going to read that book probably more slowly than I would if I have access to both. And if I read the book twice as quickly, it means that I’m ready to buy another book sooner. And I think really, the biggest problem of the publishing business right now is getting access to people’s time, and finding ways to maximize the time people spend with your content is going to be very important. So again, I think that bundling is something that everyone should be considering doing.

Joe Wikert: Tammy, it looks like you’re back on with us here. How about from Scribd’s point-of-view as far as opportunities to tie E-content with print content?

Tammy Nam: You know, I gave an example earlier of one of our authors who went from E-book to hardcover, print on-demand, et cetera. I think you’re going to see a lot more of those types of unexpected experiments going on. I’m already talking to another best-selling author who wants to serialize his book on Scribd; basically develop an audience of readers on Scribd through the social aspect of the site and then give his book away essentially chapter by chapter and at the very last chapter, package it up as an E-book; sell it on Scribd, but then also at the same time, sell it through a traditional book publisher. So I think you’re going to see a lot more of the flipping around: first getting the audience, then getting the E-book – maybe potentially getting the E-book and the print book at the same time. But because of the power of social media and especially of the people and individual publishers that are going to be able to really understand how to market through these new channels, it’s going to be a huge opportunity to completely level the playing field. So what we’re seeing on Scribd is that people who are not necessarily well-known are able to generate those amazing audiences based on maybe niche interests. For example, there’s a young woman who has a really great following of people who love vampire fiction. So she has like 15,000 readers who just gobble up everything that she gives them. And so I know that she’s also in negotiations for a print deal as well.

Joe Wikert: Oh, OK. That’s interesting. Michael, how about from Shortcovers’ point-of-view?

Michael Tamblyn: Where I find bundling has a lot of opportunity is especially related to time-sensitive content. I think about poor Michael Lewis trying to write his book about the economic crash as the economic crash is going on, knowing that as soon as that thing hits the shelves half of the story is still going on. The idea is that you can write a book, you can have it out in print, it can get you up to a certain point and then the E-book version tied to it can continue to evolve over time or can extend as knowledge of that subject extends. It gives you more than you get in the physical format. It’s certainly not a strategy for every book in that perspective, but when you cross over to something like fiction, I think you get much more into some of the scenarios we were talking about earlier, where I get to continue my enjoyment of this work in a bunch of different modes, depending on what the right vehicle and the right format is for me at that time. And that’s where I love tying print and e together.

Joe Wikert: Right. Right. Neelan, how about with Lexcycle?

Neelan Choksi: Yeah. We tried one experiment and, to be honest, it was fairly ill-conceived. But what we discovered was around the Obama book, we tried to promote the heck out of it around the inauguration and things of that nature; we started a Celebrate the Inauguration catalog. And sales were – we were shocked that sales were really bad. And we got anecdotal feedback from users basically saying that they felt that Obama was such a part of history that they actually wanted to have a physical thing, the physical book on their bookshelf, and that was really important to them. So after that, we introduced the idea of buying the print version from the very same catalog that you’d be potentially buying the E-book version. And just from affiliated programs, we can see that the numbers on that were just awful. Maybe we read too much into the anecdotal evidence, but for the most part, users who are looking for something on Stanza seem to want to read it on Stanza.

Joe Wikert: So is that going to cause you to stay away from that kind of experimentation or are you ready to take a different shot at it?

Neelan Choksi: Oh, not at all. I think every failed experiment is a lesson learned. And I still believe very firmly that with certain genres, the bundle would make a ton of sense. And, again, I think computer books, because that’s kind of where my background comes from, are a great example. And anything that’s work-related. Take legal, for example; the convenience of having something on your phone that you can look up at any given moment in time or on your laptop or on your netbook, as well as the convenience of having the physical book that might be a little bit easier to read or just a little more comfortable for that particular person. I definitely think there’s an opportunity if we can get the pricing right on bundles.

Joe Wikert: So let me go back to something that we touched on earlier and I promised we’d get to again before the end of the session here, and that’s dynamic prices. And by dynamic pricing, I mean where prices can be changed from day-to-day or week-to-week. It’s tricky in the print world online, and it’s virtually impossible to do in the brick and mortar space. But with E-content, it’s much easier to make changes on the fly. So the question I want to ask each of you is, are prices fairly stable on your services? Do you envision them being that way in the future, or are you seeing a lot of up and down movement? And if you are seeing a lot of up and down movement, are there lessons that you’ve learned that you could share with us? So Tammy, if we could start with you on that one?

Tammy Nam: Yeah, I talked a little bit about our automated pricing before. And like I said, the majority of the prices are still set by the individuals. It’s their option. I think until people really get comfortable with the whole idea of leaving the control up to someone else, other than themselves, I think that’s probably going to be the case for a little while. We don’t have the data to share at this time, but we’re definitely looking at that. But just looking at the algorithm and what the price is being recommended through the Scribd automated model, it is definitely fluctuating. And it changes completely based on what’s selling at that time; what’s most popular, et cetera. What we’re seeing is that for the people who are very actively engaged in the community, the kinds of things that they’re taking advantage of are, for example, a holiday or a three-day weekend or some particular event that triggers maybe a three-day promotion. So if it’s a Valentine-related book or if it’s a Christmas-related book or a cookbook, they will lower the price for that particular time. And what they’re relying on partially, I think, is the viral nature of the community itself. Because on Scribd, people can easily attach that book or whatever content is associated with that book and recommend it to all of their subscribers as well. So things are starting to become very viral, not only on Scribd, but on FacE-book and Twitter and blogs, because they can embed code for that particular book and they can share it with people on and off of Scribd. So I think that, like I said, the more the publishers and the authors learn how to take advantage of the community, the more frequently they will adopt automated pricing going forward.

Joe Wikert: So Tammy, you mentioned this automated pricing model. Can you give us a sense for how significant a price change can be applied to that algorithm? Or does the algorithm in some cases cut the price by half or more based on the opportunity? Or is it that significant?

Tammy Nam: Yes, in some cases it can be really significant. This can be unexpected, especially to people who don’t understand pricing models. I mean, there are certain prices in the publishing industry. A hardcover is worth X. A paperback is worth X. An E-book is worth $9.99 or whatever the mean is at that time. On Scribd, because our algorithm is unique to this particular community, in some cases, what we might recommend might be completely different. So if they would have normally put it up for $25.00, maybe we would recommend $5.00 based on how many units are selling of that particular genre at that particular time. So over time, it will get much, much smarter. The more people use it, the more content gets added to the database. So yes, in some cases it could vary quite widely. And I think the people who use the automated pricing option are relying on the fact that the system would recommend a price at which they would move more units and maximize the pricing for them.

Joe Wikert: OK. Got it. So we’ve got about 15 minutes left here. And I’ve tried to fold in a couple of questions from the crowd here, but I wanted to dedicate the last part of this to Q and A, focused exclusively on questions from attendees. One of the ones that I just saw float by was talking about scarcity of time and how it seems crucial, and notes that people buy a lot of books they don’t ever read, so how do you monetize that in the E-book world? Anybody have any thoughts on that one?

Michael Tamblyn: I guess what we’re finding at Shortcovers is that the mobile reading experience means that people are finding more and smaller pockets of time in which to do their reading. So when we look at reading behavior over the course of the day, and this tends to be people reading full length books, but there’s this spike at lunchtime, and there’s another one during the commute, and then there’s this third really interesting one between 10:00 and midnight where people are finishing a book and buying a new one while they’re in bed with the phone. So we have to do everything we can as a retailer to basically help someone go, “OK. I’m either tired of this book or this isn’t the book for right now, or I’ve finished this and I want to start something else,” and allow them to discover that as easily as possible. It allows them to maximize the time that they’re willing to dedicate towards reading. And that is, I think, one of the things that mobile has opened up for us in the reading experience, is that active reading really can follow you around to more places.

Hugh McGuire: One question I’ve had is what is the amount of the publishing business which is made up by purchases of books that people don’t read? And I wonder whether as digital becomes a more effective way to decide whether I’m going to read something or not, whether that number goes down. And I suspect that that’s a huge portion of the publishing industry, so I sort of throw that idea out there for consideration.

Neelan Choksi: From a user’s perspective, referring to myself in this case, I seem to buy as many E-books that I don’t read, over the last year, as I used to buy physical books that I don’t read. And part of it is just the convenience, whether it’s one-click purchasing or just the ability to purchase so easily, thinking, “Oh, let me grab this in the airport,” exactly like I used to do when I was going on a flight, except I’d walk into the little store. “Let me purchase this right before I take off,” and then I sleep through the whole flight and never get around to reading the book. So at least from one user’s perspective, I see myself buying as many E-books that I don’t read as I used to physical books that I don’t read.

Tammy Nam: I think it’s a really interesting opportunity for companies. I know we at Scribd are working on those to give the content producers a lot more data on what people read, what pages are particularly lingering on, how much of it do they skip around, et cetera. So we’re working on providing a lot more of that data. I think that what we’ll find is that, like you said, a lot of people are actually not reading or they’re only spending about ten minutes. For example, Chris Anderson gave to Scribd – I think it was one or two weeks in advance of the print publication of his book, Free – he gave it to Scribd, and there were 250,000 reads of that book. So people went on to look at that book 250,000 times. So people started to read it, but our data showed that the average amount of time per person was less than ten minutes. So obviously, people are not reading that book in ten minutes. But there were about 60 comments in the section and a lot of the comments were, “Thanks for giving me free access to this book. I’m going to go out and buy it.” So maybe there is an opportunity for people to experiment with a book, even though it is given away for free. But then because it’s easy access to the experiment, they’re more likely to purchase the physical book.

Hugh McGuire: I think to pick up on Neelan’s thread for a second, I’m the same way in that I’ve probably bought, gotten part way through and stopped reading as many books in digital as I have in print, but the thing that’s different is I think I’m more likely to go back and pick up a book that I stopped reading because my full library’s kind of following me around wherever I go. Whereas a book that I’ve bought in physical – that’s kind of hit the nightstand table and then graduated from the nightstand table to the bookshelf, that thing could be years before it resurfaces again. Whereas I’m much more likely to go flipping back through the stuff that I’ve bought in the past and go, “Yeah, OK. I’ll pick that up again.” We don’t have enough data yet to know for sure, but I think abandonment is probably less permanent in E-books, at least in those models where you basically have your whole library with you always.

Joe Wikert: So here’s another question from the audience, and this is something that I had on my list that we didn’t get to. It sort of ties in with the iTunes model where instead of paying for an entire book, customers just purchase the pieces of the chapters they need. And I’ve seen it tried a bit, but I haven’t seen any evidence of huge success. Is that a model that any of you feel like has potential for the future? Or is that just something that’s going to work in the music world and not really in the written world?

Michael Tamblyn: It’s Michael. When Shortcovers was first launched, it placed the spread back on full E-books as well as chapters, shorter content and fragments. And what consumers were pretty clear about – and they tend to give direction to us in terms of what they buy – is that when it comes to books, they generally want to buy the whole thing, especially if it’s at a price point where it doesn’t feel like a massive leap of faith. Chapters aren’t songs, for the most part, especially for fiction but even for a lot of popular nonfiction. Whereas you look at the music side, everything about the music business is optimized for the promotion of individual songs. Radio doesn’t play albums; it plays individual tracks. But the whole marketing machine of publishing is focused on the title. Where chapterisation and segments do work are in places where units of content exist that stand alone. Travel books are a perfect example of this. I can and in many cases should be able to buy a travel book about the whole US or about California or about San Francisco or just the Marina District in San Francisco and have incremental pricing for all of those. And that’s where I think the value tends to exist. But it doesn’t tend to be people going into a book and going, “OK. I want to buy Chapter 6.”

Hugh McGuire: There’s one area where that is the case, I think. And there’s another Canadian company, Symtext, which is doing this, and they’re allowing professors to assemble textbooks for university courses using discrete chapters from various publishers. And they assemble that into an electronic version of a book which can then be consumed electronically or printed up as well.

Neelan Choksi: Oh, totally.

Hugh McGuire: In the academic market, that’s a perfect model for what’s wanted there.

Michael Tamblyn: You look at the course pack side of the business, the custom instructional asset side of publishing, and it’s all about mixing and putting chapters together. And it tends to be kind of curated by a publisher. And it’s true of a lot of instructional material as well. If I’m fixing my car, chances are pretty good that I’m not fixing the whole car at once; I’m just working on the brakes, so I should be able to buy the part of a repair guide that’s just about brakes. And publishers are starting to get there, but it’s slow.

Tammy Nam: You know, I completely agree that there are certain books that obviously make much more sense to sell piecemeal than it does for the entire book, like travel, for example. We have Lonely Planet that launched in our E-commerce store about four months ago, and it was the first time that they started making books available chapter-by-chapter. Instead of buying the whole European guide, you would buy Italy, for example. And they priced it relatively higher compared to the purchase price of the entire book. It was $3.99, $4.99, or whatever the price point was. But they were really excited about the opportunity to take advantage of people who are interested in that portion of it and who otherwise would not have purchased the entire book. Academics is another great example that you brought up. But I also think that even in fiction, for example, there are certain genres that lend themselves more for chapter-by-chapter selling or serialization. In thrillers, for example, I think chapters could potentially stand alone. They typically have cliffhangers at the end, and it incentivizes people to read the next chapter and purchase chapter-by-chapter. So that’s something that we’re looking into as well.

Joe Wikert: There have been a number of comments from attendees about the notion of second-hand or used E-books, if you will. And, of course, that’s one of my frustrations as a Kindle owner is with the DRM involved, I can’t pass it along to somebody else and recoup some of what I paid for it. And obviously, this would apply really to a DRM model, but I think the question ultimately is do you see a future where the secondhand or the used E-book market can exist if that’s still in place?

Neelan Choksi: Yeah, I’ll jump on this one. I’ve been paying attention to a couple of start-ups on the music side that are attempting to do what amounts to secondhand MP3s. And I’ve been paying a bit of attention to those to see where those come out, so we can try to learn from other industries rather than doing it all ourselves. But I do think there’s going to be an opportunity. I think one of the E-book readers has talked about being able to, at least at a minimum, share your book with maybe one or two other people, and has talked about pricing something that is shareable at a higher price point than something that isn’t shareable. So I think that ,just like we just talked about with the chapter-by-chapter pricing, we’re going to see a lot of experimentation here. There’s been a huge discussion around whether you license an E-book or you own an E-book. And obviously, that has very important implications as to the ability to potentially sell it as a used book. But I think I of view E-books as being in their teenage years, and as we keep progressing over time, I think we’re going to see more and more of these types of models. And potentially if that’s important to users – and it seems to be, because almost every single time the pricing discussion comes up, the fact that you can’t sell an E-book comes up – I think there’s going to be some very, very interesting price points that are going to be generated. Say, “All right. You can buy this E-book for $9.99, but you can’t sell it on or share it with anyone. You can buy this for $20.00 and you can.” And I think this is going to be a very interesting area that we’re going to see probably in the coming year.

Michael Tamblyn: I agree, and I think one of the things that gets interesting about resale is whether there are models where it can work, where it can also basically benefit the publisher a second time. So I think one of the things that holds back resale in the used E-book market are publishers feeling that it’s a sale lost. Is there a way that that model can be torqued or twisted so that essentially there’s a customer out there who’s selling a book along to somebody else, and that some of that maybe could come back to the publisher? And maybe that’s a way that you’d get past this fear of cannibalizing sales.

Joe Wikert: That’s something that I’ve wondered about for a long time, particularly in the textbook market. I’ve got a couple kids in college right now. And I realize this model isn’t perfect, but I’ve often wondered if down the road, you’ll see a scenario where a student takes really great notes in the class and they integrate them with their version of the E-textbook and they’re able to sell that bundle of the E-textbook with their notes, maybe for a price that’s even higher than the textbook was originally for them. And if you can tie the publisher back into that like you’re saying, keep them in that revenue flow as well as the author – does that make sense?

Michael Tamblyn: Yeah, I think it does.

Joe Wikert: There are clearly students that you wouldn’t want to buy notes from, but for some of them it might be a perfect way for them to be able to resell and, again, keep that stream going.

Michael Tamblyn: And there you end up intersecting with the social aspect as well. You get into questions of reputation and how that value’s ascribed. And that’s something that’s done by that community of students as opposed to by the publisher.

Joe Wikert: Right. OK. So we are at the end of our timeslot here. I wanted to thank all of the panelists: Hugh, Neelan, Michael, Tammy and if Trip’s still on. Thanks so much for your thoughtful responses. And I’ve learned a lot along the way. I hope all of the attendees have as well. Thanks very much.

Tammy Nam: Thank you.

Hugh McGuire: Thanks, Joe.

Neelan Choksi: Thank you.

Joe Wikert: So, Allen, are you going to take it from here?

Allen Noren: Yes. Thank you so much, everybody. And great chatter in the chat window. Some excellent points made and lots of stuff that we’re going to address later. We’re going to do a full transcript of this event, so we’ll be making that available to all attendees. OK. So we’re going to take a ten-minute break. And we have some slides running from Ingram, our much valued sponsor. And we’re going to be showing some survey results from a poll that we did at O’Reilly to all of our E-book customers and some fascinating results that we received back from them. We did that last month, so the information is very current. So we’ll be putting those results up as soon as the Ingram slides run. OK. We’ll see you in ten minutes.

Session Two: What Do Readers Want?

Allen Noren: OK, everybody, welcome back. And I’d like to turn it over to Kassia Krozer for our What Readers Want panel. This is one I’m really looking forward to because with all of the machinations of the E-book publishers, the people who are creating the devices, with these pricing discussions that we have all the time, so often we’re not taking into consideration what the ultimate end users of these products want. So I’ll turn it over to you, Kassia.

Kassia Krozser: Great. Hello. I’m Kassia Krozer from Booksquare.com. Good morning. Good evening. Good afternoon wherever you are. Today we’re going to talk about –

Allen Noren: Kassia?

Kassia Krozser: Yeah.

Allen Noren: Kassia, you’re starting to break up, too. Your voice is sounding really bubbly. Can you call back in? Do you have a better line?

Kassia Krozser: Yeah, let me call back in. Jane, do you want to go ahead while I do that and then move on to Sarah?

Kathryn Barrett: OK. So Jane will introduce herself.

Jane Litte: OK. I’m Jane Litte from DearAuthor.com, and Dear Author is a genre review blog devoted to romances. Our readers at Dear Author are avid E-book readers and we get a lot of interest about the technology. We’re, I think, what would be called digital evangelists, and we field a lot of questions from readers about the type of devices they should buy as well as format questions. We’re kind of a clearinghouse for the sharing of concerns about E-book reading, so I’m really pleased to be here. And I know that readers often feel disempowered and that they don’t have a voice in the industry that they love so much, so we’re grateful that we can come and be representatives of at least the romance readers that are online and reading E-books.

Allen Noren: Sarah, you want to introduce yourself, please?

Sarah Wendell: Hi, there. I’m Sarah Wendell. I’m known colloquially online as Smart Bitch Sarah, and I’ll promise to keep the cursing to a minimum in case everyone’s on a speaker phone in their office. Like Jane, I run a web blog devoted towards romance and genre fiction reading, largely populated by women, all of whom are very digitally curious. Each of us has a different perspective, and what’s interesting is that whenever we get together, we all talk about this issue because it’s something that we’re interested in and we’re passionate about. But we’re readers; we’re not programming anything. I’m not building a device in my basement. I couldn’t program or format an E-book if you had a gun to my head, but this is something that we’re each passionate about. And because we’re not only consumers, but we’re representative of a larger curious audience, we have a lot of input that tends to, like you said in the original statement, become overlooked when you consider where the market is going.

Malle Vallik: And I’m Malle Vallik. I’m the director of digital content and social media at Harlequin Enterprises, Limited. In my previous life, I’ve been an editor. I am a published author of seven romance novels. I’m a blogger. And I love social media. Harlequin has been active, incredibly active in the E-book field since 2005, and we went to 100 percent front list of all of our titles in September of 2007. Like the other women on this panel, my technology consists of “connect the doohickey to the whatchamacallit.” I don’t care. I just want it to work, and I’m constantly excited by the opportunity that digital offers us to connect with even more readers in more ways.

Sarah Wendell: This is Sarah. I just wanted everyone to know that I call Malle the Oracle of the E-books.

Angela James: I’m Angela James. I’m a former executive editor from Samhain Publishing. I have worked in the field for about six years, on both the editorial and the marketing side of things, travelling to conferences, meeting with readers and authors, and talking to them about digital technology. Currently I work as a consultant for a publisher looking to get into the digital side of things, the digital-only side of things. And I also do some freelance editing. Digital publishing has really been a passion for me ever since I first started in the field. And like Jane and Sarah and Malle, I have a good grasp on what the readers want, although I myself can’t ever presume to do the technology or the devices.

Kassia Krozser: Can you hear me?

Allen Noren: No, we can’t hear you.

Kassia Krozser: Oh.

Malle Vallik: I put this slide into the presentation. This is Malle speaking, briefly. And it actually comes from a particular publishing research group, Codex. And I thought it was just totally fascinating if you actually look at Favorite Format for New Purchased Books in August 2009. And this is a survey group that they regularly survey that is somewhere between 7,000 to 8,000 people, so it’s really a great representation. And if you look at the E-book total, it’s only 4.6 percent, which is not a bad number. But do look at where people are reading; there’s a significant number of people still reading on laptops, as we actually saw on the survey that was ahead of us. And they are moving to mobile and to dedicated readers. But they’re really split. I think when we talk about our readers as well, we actually talk a lot about the computer and laptop people.

Kassia Krozser: So –

Sarah Wendell: We still can’t hear Kassia, so I’ll just go ahead and start Kassia’s question for me to start the presentation. We first wanted to say that although all of us come from more of a genre fiction or a trade fiction background, we wanted to acknowledge that we understand that there are other industries, non-fiction, textbooks, cookbooks, that type of thing that also have these concerns. So while our knowledge is more for the genre fiction reader, we will also try to target those areas as well. But we don’t have as much experience, especially with textbooks or medical books, so we can’t speak to that area. And so the first question that Kassia had for me was what kind of books do readers want? And, of course, the answer to this is going to partly depend on what kind of book our reader is buying, so I’m going to ignore content. At the end of the day, regardless of the type of content the reader is purchasing, whether it’s fiction, non-fiction, textbooks or cookbooks, readers want to know that they’re getting a fair return for the money that they have invested in the product. So there are two things on that that I hear from readers repeatedly. One is that readers really do want someone to filter or curate for them. They want someone to tell them that this is the product we think you should buy. So that’s part of the reason that many readers have no interest in buying self-published books because they do want some sort of built-in filter. But if they’re going to let a publisher be a filter for them, they want to be able to trust both the publisher and the author brands are going to deliver, that they’re going to deliver a fair-quality product in return for the money the readers have invested, fair-quality products in regard to both the quality of content and the amount of information they’re getting. A reader doesn’t want to feel that they’ve been cheated or shorted by either the sparsity of content, sparsity of writing skills or sparsity of editorial presence. They want a quality product. They’re looking for a book that contains a well-written story that keeps them turning pages, that also contains information they can trust and information that they can use. The second thing that I often hear from readers is that they want to believe they’re buying a book that they have the right to access – the right to access when they want to, how they want to, and when they need to. They don’t want to buy a book that’s going to make them jump through hoops in order to access what they’ve paid for. So in a nutshell, what kind of books are readers looking for regardless of the genre? They’re looking for a quality book that’s easy to use.

Kassia Krozser: OK, Malle. Malle, can you hear me?

Malle Vallik: Yes, I can.

Kassia Krozser: OK. All of us have one or E-reading devices, and without giving away big secrets, can you talk about what readers are asking for when it comes to enhanced and multimedia books? Or do they just want books?

Malle Vallik: The short answer is they just want books. I think enhanced and multimedia is something that technology and publishers love in many ways because it’s bright and shiny and new and usually complicated. That is not what our audience is looking for and not why they’re actually looking for E-books. They’re looking for the benefit of an E-book which is that it’s on-demand: when I want it, I can get it. Also, the portability: I can carry hundreds of titles with me and that I don’t have to worry about storage. So while I think multimedia and enhanced are really interesting options for our future, I really, really think that as publishers, retailers and everyone involved in this side of the business, we need to figure out how to walk before we run. And this part is part of running. Not that I haven’t done some things here as well; I have, and I think it’s totally cool. And I always like to give the example of life before TiVo: there was such a time, back in the ancient days, when there was something called a VCR. The original ones were both incredibly expensive and big, but also incredibly complicated to use. You actually had to program in the box. There was nothing even on screen. Can you imagine? And they did not become popular and we didn’t move to DVDs with enhanced features until everything became both incredibly affordable and incredibly easy. So if you asked me tomorrow as a publisher in your next E-book you have two choices: one, you could have a fantastic E-book with an incredibly interactive author video where she asks awesome questions, or, two, you can actually get back cover copy associated with every single title you publish, I would select back cover copy.

Jane Litte: Kassia had asked me to talk about what I would like to see as a reader for the future. Right now, all of our E-book readers or most of our E-book readers today are in black and white. But there are many models of web tablets coming on the market. The supersized iTouches are slimmed down touch-screen notE-books. And color is going to be vitally important. Right now, the E-books that we have are stripped of any photographs or images. I bought a Richard Burton illustrated Fairytale Guide on the Kindle to read to my daughter. And when I opened it up, despite the fact the Kindle tells itself it has these number of grayscale tones and has the ability to render beautiful black and white, there were no images in this illustrated version. A little truth in advertising would’ve been nice for me and my daughter there. So it’s important for the E-book manufacturers, retailers, and publishers to realize that the books that we buy today we’re going to expect to be able to read on devices in the future. And so even though devices today might not be adequate to render the visuals that the books should have, that doesn’t mean that they should be excluded because tomorrow’s E-book device will have that capability. And generally speaking, you don’t want to make the reader have to re-buy the same book. That sort of requirement really engenders bad will. And readers will start to think that you’re trying to rip them off or they’ll think that you’re trying to take advantage of them. It just is not the kind of reader response or customer response you want to have because what happens is that those readers will be less likely to buy books now in the E-book format. Now some publishers might be happy with that because they don’t want the E-book market to grow. But if you see the E-book market as one that’s viable and is possibly the future of the publishing industry, then you want to foster trust and relationship with the customer. And making them repurchase it because you didn’t do a good job of creating a future-proof E-book now is not the way to go about doing that. Sony announced that it would replace all of the DBED files with EPUB files when the conversion of the Sony EBook Store took place. That engendered a huge amount of goodwill and people continued to shop at the Sony EBook Store with that guarantee that whatever they buy is going to be available in the future. One of the things that I’ve heard readers ask is, why we aren’t getting color covers, let alone the back color cover copy or what in romance is called the step back, which is like a second color cover. The E-book reader is not getting those things and they’re not even getting the color cover. And some people have said, “Well, the reason that you’re not getting the color cover is because we don’t have the digital rights for the color cover.” But readers don’t care. Readers don’t care that you don’t have the rights; they just want it to look nice. And so what readers want is the book that can be read today or book that can be purchased today and read five years from now in as great of a format as it is in print.

Kassia Krozser: OK. Jane, let’s also talk about the retail experience. There are a lot of issues, and everyone has something to say. So why don’t you start?

Jane Litte: All right. Buying an E-book right now, outside of the Kindle, is time-consuming and difficult. I’ve been buying E-books since the early 2000s when they were only in Adobe format and they were sold on Amazon, so even though I dislike the Kindle and I think that the device and software is inferior to other products on the market, I always recommend it to new readers interested in the E-book experience because I know that if I recommend them some other device, they will only become frustrated with the experience. And that E-book reader will become a paperweight. So I always recommend it because it’s so easy. And E-retailers need to replicate that ease of use. Many people have iTunes. And we all know how easy it is to use. Apple licensed the one-click patent from Amazon so that you only have to press buy now, enter your password and it’s done. For my iPhone friends, I do recommend Stanza or E-Reader. But again, it is not as simple as the Kindle; everybody needs to strive toward the Kindle example. One of my other big frustrations about the E-retail experience is that I cannot gift a specific book. That’s really important for readers because we like to give specific titles; we want to share our love for a particular title with someone else to foster their love for that author or that series. Only Fictionwise offers that opportunity and no other E-tailer does. A lot of E-tailers don’t even offer gift certificates, let alone the opportunity to purchase a specific title. The last thing I would say about the retail experience is that it is super confusing. Every E-book store has a different set of formats that they sell. And it’s difficult to ascertain, even for an experienced purchaser like myself, which format is going to be compatible with which device. And even within the same publishing house, sometimes you only get the mobi pocket version. And so if you want to get the EPUB version, you have to go to another book store. And if you want to get the E-Reader version, you have to go to still another book store. And some books only come in mobi pocket, some books only come in MS lit and some books only come in E-Reader. It is just so confusing and frustrating for the reader. When I think of how difficult it is for us readers, it’s a miracle that we have even four percent of us willing to go through this process to buy E-books.

Kassia Krozser: Angela, can you talk about some of the challenges readers face when it comes to dealing with E-book formats. How are they solving the problems they face?

Angela James: Sure. This is Angela. I know some of you are having trouble following who’s speaking if you’re not watching the screen. Also, somebody’s got background noise so they’re asking if we can please mute when we’re not speaking because somebody’s background noise is coming through. So Kassia asked me what the challenges are for readers as far as the E-book formats. Jane spoke to this a little bit and I’m going to speak to it a little bit more. It’s knowing what format to buy for what device you’re going to use, whether it’s your iPhone, the Sony, the Kindle, the Bookeen. There are a lot of devices out there now as the book market shakes up and there are just as many formats. And when you add DRM into the mix, the reader has to make sure that they get the format exactly right. Jane and I have been talking and she and I are both almost exclusively digital readers, which means we don’t read a lot of print; we read only on our digital devices, whichever that may be. And in the past month, Jane and I have both bought the wrong format for our devices, despite the fact that we would consider ourselves high-end users. We have somehow in our shopping experience mistakenly bought something that we can’t use for our device. Generally, it involves Adobe digital editions. But it’s very difficult for readers across the board with formats. So when we’re talking about formats, what readers are asking for is the simplicity of iTunes, the simplicity of the MP3. Can we please have one format? Even we would be willing to trade and keep the DRM format if we knew that we would only have to worry about buying one format for the device, all of the devices across the board. What we’ve been hearing from readers and I’ve seen on Twitter, blogs, FacE-book, forums and have heard from them in person is that the difficulty of choosing the format actually prevents them from making the purchase if they can’t figure it out. Readers want to be able to just like a bookstore, walk in and know they’re going to be able to read it. If they can’t do that, they give up and decide not to make the purchase. And for many readers, that means not walking away from just a purchase of one book, but that means walking away from a purchase of all digital books or the digital books that they had in their carts that day. So for format, the industry really needs to come together and agree on a format that can be used across all devices to facilitate the reader’s use and purchasing. Did we lose Kassia?

Allen Noren: I think we did lose her.

Angela James: OK.

Allen Noren: I’ve got a couple questions I can jump in with if we have lost her.

Jane Litte: Well, we have a sequence of questions. We can move ahead if that’s acceptable.

Allen Noren: Yes, absolutely.

Angela James: So moving on, does anybody else here want to say that they have accidentally purchased the wrong E-book format besides Jane and I?

Sarah Wendell: This is Sarah from Smart Bitches speaking. I actually have a process that I use to buy an E-book because I have no memory whatsoever for anything. I have a terrible, terrible memory. I have a window where I open up the books onboard comparison chart that tells me what file is for my reader. And then next to that window, I have whatever bookstore I’m trying to find it in. And then I look for the best price in the format. And I literally will not buy a book unless I know I have an hour to devote solely to the process because on an average, that’s how long it takes me to find the book, find the format, find the best price; then buy it. Then make sure that I’ve bought the right format because just like Jane and Angie, I buy the wrong format all the time. And then make sure that it’s on the reader successfully. This takes me an hour. It doesn’t take me that long to drive to the bookstore, buy the book and drive home. But like them, I’m an exclusively digital reader.

Malle Vallik: This is Malle. Because I’m Canadian, I have actually never bought a wrong E-book, but that’s because I only buy one format from one place, which you can pretty easily figure out. If, however, the book is not there, then I actually am forced to go to the print store which does annoy me. And then I generally send a nasty E-mail to the retailer asking why this particular book is not available on the date it’s supposed to be available when it’s available for sale in print. And I’ve also convinced a number of my friends to join the digital revolution. They see what I’m doing, and they love it. And then I try to explain some of the choices they’re going to make about the formats, about the devices, and I just see their eyes glaze over. And I’ve still sold a number of devices. But I could sell a heck of a lot more if it was a lot easier and a lot more interoperable.

Angela James: Sarah, do you want to talk about what happens and about Make Her Pay?

Sarah Wendell: This was basically the experience of devoting an hour. I bought a book called Make Her Pay, and I ended up paying for the book twice because I couldn’t find the correct format and because Adobe lists multiple formats, only some of which are compatible with some devices, I end up invariably buying the wrong one. If one company is going to offer more than one format, it’s basically asking for disaster because, like I said, it’s very difficult to tell the difference, especially when they’re so similarly named.

Kassia Krozser: OK. I think I have a phone that is finally working properly, as I’m on my third or fourth phone now. Let’s move into E-book pricing. We’ll start with Jane. Did I just lose everybody here?

Angela James: No, you’re very quiet, Kassia.

Jane Litte: No, I’m here. So you want me to talk about E-book prices?

Kassia Krozser: Yeah.

Jane Litte: Well, based upon the discussions that we have on Dear Author, E-book pricing is a very big issue with both E-book readers and the potential E-book readers. First off, I wrote an article a while back called the E-book Tax. And I referred to that as the super premium pricing that some publishing houses assign to E-books. We in the romance readership, and I think a lot of genre fiction, are very price-sensitive because we read a lot of books in a period of a month. Most romance readers are reading ten to twenty books a month, and in order to feed that habit, they buy a certain number of books new and a certain number used. In the E-book market, there is no used market, so we’re buying all of our books new, which is great for publishers. The problem is when you have super premium pricing, when you’re charging 50 to 100 percent more than the lowest paper version on the market, that only serves to engender a lot of bad will towards the publisher. And we know who the publisher is on all of our reviews, and we know who the worst offenders are. The worst offenders in the industry for romance readers are McMillan, St. Martin’s Press and Simon and Schuster. It is the practice of McMillan, and I have been told by the St. Martin publicist, that their industry standard is to price E-books at the hardcover price no matter what the comparable paper product is. And the readers at Dear Author will refuse to buy the book at that price. They will either not buy the book at all or they’ll buy it at the used bookstore because they want to stick it to the publisher. They don’t want any of their money going to the publisher; it incenses them that much. So it’s very frustrating for readers to see a $14.99 retail price for a book they know is in the mass market and is selling at the local Kroger’s for $5.99. And publishers are losing sales. These readers are not going out and buying the paper book; they’re just not buying the book. So they’re going to find a way to not pay for that book, whether it’s going to the library, getting it from their friends, getting it from the used bookstore or maybe even pirating it. So E-book pricing is so important, especially in the genre fiction market. Readers are not going to stand for it; they just won’t buy at those prices.

Malle Vallik: This is Malle again. And we sort of said this up front, but I just wanted to repeat this one point as well: we’re talking mostly about female consumers, romance readers in particular and other genres. They’re also the people who are driving this digital adoption rate because they’re avid readers. And they’re not going because of the technology or because there’s a cool factor to it; they’re actually going because they love to read good stories, and this really, really works for them. So when you do think about pricing, you really have to think of what the consumer wants. And in general, she expects the digital edition to cost less than the print version. You don’t always have to have a huge, huge difference. We don’t do a huge pricing difference at Harlequin. And we actually do have levels of hardcover trade and mass market and E-book prices that sort of match, or go a little bit less. And we’re also lucky in this industry because a lot of it is women; they actually understand the economics, and that authors need to get paid, so they’re not the type that wants to go embrace piracy and go get free books. They will do it if they can’t get it any other way, but they’re actually happy to pay as long as you’re not gouging them. Someone at the previous talk about E-book pricing mentioned that when you broke things up into chapters you charged slightly more, and that’s great because you’re actually giving the consumer a benefit for $3.99; they get only the part of the travel book that they wanted as opposed to paying the whole $12.99. But here, you need the complete story. So you really need to think very carefully about how you’re going to price and what your customer is going to think about you, and they continue to think it for a long time.

Angela James: This is Angela. During the previous panel, I think it was Neelan who had brought up a possible pricing scheme kind of like a pyramid where it starts out higher and then decreases. Jane mentioned this before, but that doesn’t often happen in E-book pricing. Sometimes, for instance, the trade size book will start out at the trade price, but it never goes to mass market, so the paper price doesn’t decrease, so the digital price doesn’t decrease. But interestingly, there is actually a publisher who has done this type of pricing scheme for years, and that’s Baen. Some of you may be familiar with them. They’re a fantasy and science fiction publisher. They’ve been in the market since about 2002, and they do offer premium advanced sales to their customers for a higher price. So essentially, the customer can access the content before it’s even ready for publication for a higher price. And then it starts to slowly go down. So those are ways that publishers can experiment with pricing, but readers want to know that eventually they’re not going to be paying more for the digital book than they are for the hardcopy.

Kassia Krozser: Sarah?

Sarah Wendell: Yes?

Kassia Krozser: You recently did what we call the Sony Reader test drive. What can you tell us about the experience your test drivers had; was it positive?

Sarah Wendell: This is Sarah. If you didn’t hear Kassia, she’s asking me about something that I conducted on our Web site called the Smart Bitches Sony Reader Test Drive. When you’re trying to sell digital reading to a woman reader, it is an entirely seductive possibility. You’re never going to run out of something to read; it’s portable; you’re going to be able to take literally hundreds of books with you. And if you’re not in the mood for this, you can read something else. It’s very easy to introduce the concept of digital reading, but when you look at the process of physically adopting the reader and then figuring out how to put the books on it, it is one hurdle after another. And the initial hurdle that I found with my readers was that digital reading devices were expensive. And I set up the Smart Bitches test drive because at the time, prior to Sony releasing a $199 and $299 price point reader, the price point for a digital device for anyone who was just curious about digital reading was so high that unless they were absolutely committed to that process, it wasn’t going to happen. Three-hundred-dollars is a lot of money to pay outright for what is essentially changing your entire reading experience and your entire shopping experience, especially if you’re not really sure how to do it. I actually got the idea because I was running through an airport and saw a vending machine full of Sony Readers and I thought, “I wonder what they do with the old ones when they switch out the ones from the vending machines?” So Sony provided 30 refurbished Sony Readers and Harlequin’s digital team donated $25.00 gift certificates for every participant. And every test driver would, therefore, have the opportunity to basically test drive a digital reader for 90 days. They would be buying their books through the Sony store though and taking that reading experience on the road. The interesting thing is that conference calls were held on my behalf for this program because you couldn’t use the books from the Harlequin Digital Bookstore on a Sony Reader. Harlequin had to work with Sony to offer the gift certificates for the Sony Bookstore because of that compatibility issue. And I have a very small, but tasteful, shrine built to both companies in my living room. Now over 200 people applied for 30 spots. And the demographic that we collected is an amazing sample of readers. We have men and women. We have librarians in affluent communities and in rural ones, all of whom begged for the chance to show not only their other librarians, but all of their patrons the possibilities because they as libraries had digital collections, but didn’t have the ability to demonstrate how to use them. We have readers in big cities. We have readers that live two hours from the nearest bookstore. All of them were desperate to try the experience without having to make that $300 plus investment. And if I had to use one image to sum up the test driver experience, it would be this image, slide no. 10 of hurdles, because I set up an interior loop – an E-mail loop for the test drivers to talk to each other. And without fail, they had to help each other through different experiences and talk each other through how to put books from different bookstores on their readers. And no one had the same experience, but they all had the same problems, whether it was the format or registering the device or registering the computer on which you use it. And many of these women have home computers and work computers, and they were using both. Whether it was the DRM, the price of the file at one store versus another store, or the incompatibility between files, devices and computers, or setting up the reader initially, it was one obstacle after another that they had to overcome. And for readers who are used to going to the store and going to the library, picking up the book and taking it home, this was a very large change. And those of us who are willing to do so, especially those of us on this panel, are already frustrated. And we’re pretty tech savvy. If you’re talking about someone who’s not tech familiar, who hesitates at the price of a reader and then gets a look at the process, they’re going to keep backing away. And as Jane said, only the Kindle has successfully made this process simple. And by making it simple, they’re basically taking away my ability to bargain shop. But with the ease of loading, it’s a much more appealing and simple process. So if I can say any one thing to digital publishers, digital device manufacturers, anyone who cuddles their DRM at night, on behalf of every test driver and myself, get out of the way. Seriously, do not get between a fiction reader and her book if you want the industry and the technology to succeed.

Kassia Krozser: And that leads really nicely into the next issue. Jane, when the Kindle text to speech issue exploded, you had a few thoughts about the actions taken by the Author’s Guild, as did most of us. Can you talk a bit about the possibilities E-books provide for the disabled community, such as vision, mobility or even tech-impaired readers?

Jane Litte: Yes, I think that the disabled community really looks forward to the rise of the E-book reader. And I know before E-books came along with any kind of regularity or popularity, there was a program where books could be digitized for the blind, and you had to submit I medical evidence that you were blind to participate in this group. But obviously, the access for those readers was limited by what could’ve been scanned and digitized for their benefit. And now with the E-book and most companies releasing all of their front list titles in E-book versions, that really opened up the potential for them to have a whole panoply of books available to them that were not available in the past. And I have a disabled reader who blogs with us from time to time and she’s very sensitive to the issue of disabled readers. One of the things that she said on my blog in reference to the Author’s Guild was this: “Equal, you want to talk about equal? It’s an unequal world for people with disabilities. It always has been and still is now. The rights of people with disabilities are part of the civil rights. And yet, people with disabilities are still second class citizens. The quality of their life is absolutely crap. And what makes it more insulting, they sometimes have to pay access to whatever is easily available and free to everyone else. I don’t know where this person gets the idea that all things are free for blind people. I suspect this person and I have different ideas of what defines free.” So the E-books have the opportunity to open up a whole world of literature for those who are vision- or hearing-impaired. The problem is that because of the restrictions that publishers are putting on the books, the readers are not able to avail themselves of what the technology would allow those E-books to do. I firmly believe that text-to-speech is not a replacement for an audio book performance. And I think it’s insulting to those who are audio book performers to suggest that they are so easily replaced in the consuming public by a mechanical voice, no matter how advanced our software is today. And if we can unlock E-books, then readers who have disabilities will have the ability to have access to a world of literature that they did not have before and that will be just one fewer area where they’ll feel like second class citizens. And this is really, I think, an opportunity, and we should look at it as an opportunity and not a loss to the publishers.

Kassia Krozser: I agree strongly with what Jane said. Malle often tells the story about the reader at 3:00 a.m. who’s nursing a baby, and that’s an accessibility issue as well, because when you read with one hand, holding a book is a lot more complex. And so accessibility for me extends beyond the disabled community. It extends into the broader community. And there are a lot of lessons we can learn from making devices and our communities accessible that extend to the reading community. That’s really something important to me. But I want to talk about something that’s more important to everybody else. Readers should not know what metadata is, how it works or why it’s important. But Malle, could you just give us a quick overview so that we can understand what metadata is?

Malle Vallik: Sure. As a publisher, metadata is what we deliver, all the information about a book so that the conversion house – we use a conversion house to create digital content – can properly convert it and identify it. It’s also information that’s incredibly important for the E-retailers so that they can merchandize – they can categorize and promote a novel well. And Jane’s going to talk about how it’s important for the consumer, which is something I hadn’t thought of until Jane had actually begun speaking about this. The sad reality of the world right now is that we create metadata, and we do this monthly and deliver it as an Excel to everybody, so this is very manual and a little annoying; we fill out 36 different columns or fields, which includes things like the ISBN, the title, author bios, up to five of them, if it’s part of the miniseries, the title, the imprint, buyback codes, all kind of stuff. We spend a lot of work here. What we see in the process, however, is that as people get this information, they make their own decisions about what’s important to keep and not to keep. So we see a lot of oddness that moves forward. And I think I’ll hand that over to Jane where she can show you the reader perspective.

Jane Litte: Well, you may not realize this, but readers like to categorize, catalogue, sort their books and re-catalog and re-sort their books. I’ve done it a million times when I had paper books. And I do it now that I have E-books. I know that the cataloging of books is important, because that’s what drives Good Reads, Library Thing and Safari. It’s not just the social media aspect; it’s the cataloging of their library and the thoughts that people have about their books. So I have to confess that I really didn’t realize how bad the metadata was until I started using the program Calibre with my Sony Reader and with my iPhone. Metadata for a reader is, like a friend of mine said, the spine of a book. It should contain all of the necessary information at a glance so that a reader can easily categorize and sort this information. But also it’s important for a publisher to recognize that metadata is useful, because metadata can be used to really up sell for a reader. For example, this is A Lady of Persuasion by Tessa Dare. As you can see, it’s published by Valentine Books. And it has almost no information here. It does not tell you that A Lady of Persuasion is book three in a trilogy that was written by Tessa Dare. It doesn’t tell you who the hero or heroine is. It doesn’t tell you that they’re related to a particular family member that might be in another book. And all of this matters because readers, if they like this book, could immediately go and say, “Hey, there are two other books in this series. I’m going to go buy those other two books.” Or if there are related books, they could say, “Oh, well, I want to go and buy more books that are in the historical romance period featuring pirates.” And these are ways that publishers can provide information that will encourage readers to buy other books. And I fill all of this information out myself through Calibre, of course, but we shouldn’t have to do that. Publishers should be knocking themselves over like Malle is to provide this information for us so that we can go out and buy more books associated with this book that we like so much. Now, because I don’t know much about technology, I went to Joshua Tallent, who I see is here in the conference. He’s the Kindle guy. I asked him what the difference between metadata is, because thes metadata that I get from the MS lit from Harlequin is very different than the metadata that I see in an EPUB. And Joshua told me that it is because EPUB has the best internal metadata support. It uses the Dublin Core Metadata System. Mobipocket is the next best. It includes the title, author, copyright, publisher, description, price, publication date, and so forth. The E-Reader and lit only include the bare minimum: the title, author, copyright, and publisher. So the formats themselves limit the publishers in how they can use this to up-sell the reader. And readers really want this information; the more information you can provide about how this book is related to ten other books, the more books you’re going to sell.

Kassia Krozser: Thank you, Jane. That was really good because I think it’s important to all of us. And we’re going to rush through the last couple of question. Malle, you’ve talked a lot about experimenting in the E-book world and you touched on it initially. Do you have anything you want to add?

Malle Vallik: Just a couple of quick things. I mentioned we have done some enhanced. They’ve been lovely, but have had no affect on sales. We do do some original publishing programs, which have frequently been spinoffs of some of our existing content and have often been short in order to catch short attention spans. Those have been quite successful and they also show, for me, what digital publishing can be about, which isgetting quickly to market, experimenting and learning. And the last thing I wanted to mention was sampling, which, again, came up in the session beforehand. We’ve done this a couple of different ways. Sometimes we buy the content from our authors’ prequels or companion pieces. If an author has a six-book miniseries coming out, is there some setup she didn’t write about that we could either sell or give away for free? We often sell. A consumer can then come in and sample an author they’ve never tried before at a low cost, at a low time commitment. It works incredibly well for us. We also do a fair bit with free. We had the entire year of our 16th Anniversary giving away 16 books, one for each of our series. Pulled in a lot of people. And I wanted to give the example of Jason Pinter; he is one of our mystery-thriller writers, writes about an investigative reporter. He has book four out now. Book five is coming out next month. When book four came out a couple of weeks ago, we gave away at Amazon book one for free. It was during the week one when Dan Brown’s book came out. And on Thursday, for a number of hours, Jason Pinter was number one while Dan Brown was number two. Of course, Jason was free. And it’s too early to tell all of the results, but we’ve certainly seen from some other authors we’ve also done this that it’s actually really worked on their books and their sales continue to climb. And when we think about experimenting and listening to what readers want, that’s actually something you should pay attention to. So one of the things I’m really excited about next year is we are creating something called Blogger Bundles. And I have gone to some of the lovely ladies on this panel and some other very influential bloggers and said, “OK. I have all of my back list. If you could put four or five books together at a good price, I will convert, and I will make it. Give me scenes.” And that’s what they’ve actually done and we have a number coming out each month. So that’s an example of doing something really quickly and, again, listening to what people actually want and seeing what happens from that.

Kassia Krozser: I appreciate that you’re listening to what we want; I think I speak for everybody here when I say that. Let’s end on our favorite topic: multifunctional dedicated device. But really let’s talk about the key thing for women, design.

Angela James: Actually, well you know what? We’ve been talking about how we’re going to get people to adopt more E-books. Is it going to be a multifunctional device? Is it going to be a dedicated device? What do people want? And it’s going to come down to – when we talk about women, it’s going to come down to price. And it’s not just women, but it’s men, too. People, especially in these economic times, are very financially conscious. And so if we want people to adopt E-books and use them on a device, the device is going to have to be inexpensive. Even if it’s a dedicated device, people will still buy it if it’s inexpensive. I’m going to use a non-reading example from last night, actually. Those of you who are chefs may be familiar with Alton Brown. And Alton Brown, one of his key things that he always says is don’t buy anything that you can only use for one specific thing in your kitchen. And last night on Twitter, I had happened to mention that I had pulled out my hot cocoa maker. And I had no idea that the response to my statement was going to be so huge. And a number of people went, “What? A hot cocoa maker? Is there such a thing?” And I said, “Yes. And it makes the best hot cocoa ever.” And I was able to provide a link to the hot cocoa maker that only cost $20.00. And people said, “For that price, I will buy the hot cocoa maker, even though that’s all it does, especially if it makes the hot cocoa as well as you say.” So people will buy a dedicated device if it does books very well and it does all of the functions that they want it to do.

Malle Vallik: And “pink” is strictly our codeword for is “it female-friendly?”, and “is it appealing?” I think several people were asking beforehand does it fit into our life? Is it at a price point which, quite frankly, is probably under $100? Does it fit into our purse? And is it attractive enough that we actually like to pull it out and feel good about using it?

Kassia Krozser: And on that note, I think we have to let all of the participants and attendees take a break. Thank you all for listening to what we had to say; I appreciate it. And if you have any questions, you know how to reach us.

Allen Noren: Yeah. Thank you so much. This was a fantastic panel. I have pages of notes and a lot of information for any publishers who are wanting to get into this space as well as the device manufacturers. The device manufacturers could’ve gotten a lot out of this as well. So a ten-minute break. We’ll see you at 11:30 for our wrap-up panel or session. And we’ll see you then.

Session Three: The Future of Electronic Reading: E-books, E-readers, and Beyond

Allen Noren: Welcome back, everybody. And capping off this event is Matthew Bernius from the Open Publishing Lab at the Rochester Institute of Technology with a session on the Future of Electronic Reading: E-books, E-readers, and Beyond. And this is our view into the future of what is to come as well as where we are right now. So Matthew, thank you so much and looking forward to what you have to share.

Matthew Bernius: Well, it’s a pleasure to be here. And I’m really excited to talk about this. In fact, I have to, first of all, apologize the subtitle of the slide is wrong. And part of the reason is that there’s been so much going on with ereading that I was literally furiously changing this presentation just even a few moments ago based on the wonderful panel that preceded me. So what I’d like to do is begin for a moment with a little bit about me, and then we’ll move directly into this discussion. So just to give you a little bit of an idea about where I’m coming from, not only am I a researcher with the Open Publishing Lab at RIT – and I’ll explain the Open Publishing Lab for those of you who aren’t familiar with it in a moment – I’m also a cultural anthropologist doing work at Cornell. And my work is specifically focused on the publishing revolution and, in particular, how technology changes the way people do things and people, in turn, change technology. Now before I did all of that, I was also a web developer community implementer at Kodak and worked specifically both with the primary Web site, Kodak.com, and also the Kodak Digital Camera Group. And that’s going to factor into the second half of this presentation as we look at what’s coming next with all of this technology. So just very quickly, a little bit about the Open Publishing Lab and the perspective that we bring to this. The OPL is a cross-disciplinary research center that was founded out of the School of Print Media at the Rochester Institute of Technology. And our job, what we seek to do, is to look at the future of publishing, especially this very unique moment in history where there are all of these transforming forces at play. So this work on E-books grows both out of my work with the OPL looking at the future of reading and the future of publishing and also my work at Cornell. So in the next half-an-hour – my goal is to do this in just half-an-hour to leave a lot of time for questioning – I’m going to talk very briefly about format and move into the history of E-readers and where we are today and talk about some features and terms that everyone should be keeping in mind as we’re moving forward, and then discuss very briefly some metaphors that we can look at to think about what’s going on today and also try to predict not only what’s in the near future, but when we can start to think about beyond the immediate or the foreseeable future, and then finally conclude with a look at some factors and some products that we are extremely excited about that are not necessarily going to be hitting immediately but will be or could easily be within the next six to twelve months having a great influence on reading.

So really, as far as formats go, we are, as the previous panels suggested, sort of in a format war. And essentially what we’re facing right now is – and there’s been a lot of discussion in the press about this – is a battle between proprietary and open formats. And lining up on the proprietary side, obviously we have Amazon and the Kindle, and we also have Barnes and Noble. And whenever we’re thinking proprietary, really what that’s also a gloss for is DRM or digital rights management. And so whereas Barnes and Noble, the reader that they are bringing out with support from Verizon and Best Buy and also Philips, even though that actually does use the EPUB format, the texts that are purchased in Barnes and Noble are going to be DRM. In fact, we’ve been seeing some kind of wonky stuff going on with Barnes and Noble actually DRM’ing public text for use on their system. So on the one side, we have the two propriety formats, and on the other side, we have the EPUB format. And for those of you who aren’t familiar with EPUB, I know it was mentioned a few times in the previous discussion. This is an open format that has been created by a consortium called the International Digital Publishing Forum which has members both on the technology side, like Adobe, Microsoft and Sony and on the content side, Associated Press, and also on a wide number of groups like the Open Publishing Lab and academic institutions. And I don’t want to go into a real description of the nuts and bolts of EPUB, other than to note that it has emerged as really the primary open format that’s positioned against both Amazon and Barnes and Nobles products or formats.

So I would like to spend a little bit of time while I’m thinking about current readers or actually the history of ereading, too, so we can all kind of appreciate this really unique moment that we’re at right now. I always like to start out in the beginning, and we can say that arguably the first major, major step in ereading beyond the establishment of the computer and the internet was in 1971, Michael S. Hart launching the Gutenberg Project or Project Gutenberg. And again any of those you who aren’t familiar, Hart’s project was to collect open works, works that had slipped from the public domain and first host them on FTP servers and now on a Web site. So as you can see, there are over a million books currently on Project Gutenberg. The number is growing – actually I should have count off the top of my head, and I can’t think of it. As you can see, in 1996, they reached a thousand. Then the next major step was Bob Stein’s work before he moved to his current research, was starting the Voyage Company and expanding books and books on CDROM. The next major step was the introduction of the Adobe PDF format. In fact, Adobe is in the background of a large amount of this. And in 1995, Amazon started to sell physical books on the internet. But our first E-book reader or the first software reader was launched in 1998. In 1998, is also the year that the Cybook reader, which you can see on the right-hand side of your screen, was launched. And Cybook was one of two main LCD readers. And it’s going to get us to our first term, which is important to understand, which is “liquid crystal display readers.” And in 1998 and 1999, the Cybook and Franklin Bookman hit. And for those of you who are familiar with the Palm operating system, you can see the similarities between the Franklin Bookman and the Palm platform and the fact that both utilized the black and white LCD screen. I believe Franklin was using a build on the Palm software, but I need to confirm that. And as far the Cybook, that was running on Windows. The first difference that you can see between the two is the move away from a color LCD screen to a black and white LCD screen, although in the case of Franklin, it’s a touch-sensitive screen. And this gets us to one of the numerous reasons why the E-book market we could argue or the E-reader market stagnated for a little while is the difference between the predominant display technology at the end of the 90s LCD and the introduction of E-Ink. And the important pieces here are three. One is the advantage to LCD was that it was very easy to do color. And as you heard in the previous discussion, seeing color is difficult because of the technology which we’re describing here and just very slick primer. E-Ink cells are filled with essentially physical ink of two different colors, differently charged. And so as the charge changes on cells, the ink rises or lowers. And the particle ink within the cells will remain stable until the next time it’s charged. So the advantage to E-Ink over LCD and one of the key ones is that the energy consumption is relatively low. Whereas LCD would burn through batteries extremely quickly which caused a bunch of problems, including in the case of the Franklin. If your battery ran out on the Franklin, you actually lost all of the books that you had loaded into it. As I’m sure everyone has heard, the average E-reader, like the Kindle, not only doesn’t need to be reimaged and can sit there with text on a page, but the batteries, literally – we’re not talk about hours or even days; it’s measured in weeks. The other aspect of this which is important to note is this notion of projecting display which is reflective. And when I’m talking about a projective display, I’m going to just move back one slide. Like the Cybook, it is literally constantly pushing out light, colored light to your eye to assist you in reading. And based on usability tests done in the ’90s and the early 2000s, this is still something that the human eye is not used to. In fact, arguably one of the best color schemes for a Web site from the purely usability standpoint, and you need to separate usability from design, it’s actually yellow text on a black background. That stresses your eye the least in terms of legibility and actual long-term readability, minimizing the projection that sits on an LCD screen. Whereas the advantage of E-Ink is that it’s reflective display so just like reading off of a paper, what we’re really doing is we’re seeing the reflection of light back into our eye rather than the projection, which, if I were an evolutionary biologist, I would argue that the human eye has been set up for millennia to do. So this is one of those interesting questions to see if this will be a generational shift towards reading on screen or if it is actually going to take a little bit longer to kind of reconfigure our bodies to this.

In any case, with E-Ink’s introduction from 2005 to 2008, you can see a slow integration of E-Ink readers into the marketplace. So Sony was one of the first with their LIBRIe reader. Actually, I believe that’s the one in the middle here. And in 2006 to 2008, we see a slight growth in it. So in 2006, we saw three models coming out: a second Sony model, iRex, which I’ll talk about in a few moments is actually a spinoff of Philips. And in addition, we had in 2007 arguably the most important of the E-book readers, the Amazon Kindle. And as we look at 2008, four main E-book readers came out. Now one thing I should note is that actually, this is a look at E-book readers in the west. And one of the things that has really just come to my attention is looking at E-books within the near east and the far east, including China where there are an entirely different proliferation of E-book readers and a number of ones that have not yet reached either the US or Europe as well as some interesting stuff going on in areas like Russia, and I’ll touch on that a little bit later. So that brings us to 2008 and essentially four main new E-book readers coming out in 2008. In 2009, though, we reached what Malcolm Gladwell would refer to as the tipping point. And to date, more than 15 E-readers have been released. And another eight E-readers have been officially announced and will be premiering either later in Q3 or in Q4 or in the case of the Plastic Logic reader, in early Q1 of ’09. And they range from – and I’ve attempted to keep these relatively in their actual size – from Amazon’s multiple Kindle models to this one up here, which is very neat, the OPIS Reader. And it is actually a seven-inch screen. So it’s designed to be a pocket reader. The one here is the iRex – my brain is slipping out at the moment. This is actually the model that Barnes and Noble has partnered with Best Buy and Verizon to market. And I’ll get back to that one. And the one here in the corner is the Plastic Logic E-reader that is hopefully going to be out in the next few months.

So in addition to this, there are not only the physical E-readers, but there’s also the software E-readers. And so in addition to some wonderful third party and independent software, like the two types that you heard about in the first discussion, we also have Amazon not only offering its Kindle software on the Kindle itself but also on its iPhone or Barnes and Noble and their iPhone app. And one thing to note right now in terms of adoption of the E-reader software is really that the iPhone is currently arguably the preferred E-reader format. And there are a number of reasons that that is the case, not the least of which is the iPhone’s App Store. And I’ll touch a little bit more on where mobile reading seems to be going and a number of developments that are happening there a little bit later on in the presentation.

To move on though, I’d actually like to talk a little bit about some features and terms of E-readers that are going to become increasingly important in the next few months and already are having some affect on the direction that the marketplace is going. So one that you just heard in the last presentation, I think arguably the most important feature for a successful E-reader at this point is one-click buying. And the discussion of one-click buying in listening to our last panel is that it is critical for the success of the platform. And really that is what has, beyond anything else right now, differentiated the Amazon platform from any of the other ones up until what we’re seeing now with Barnes and Noble: the fact that you could literally, from the device, buy the book with a single click. Now interestingly, we also have seen some of the dark side of the potential dark side of one click buying and some of the interesting snafus that Amazon has encountered with that, including the fact that if you buy and return too many books, too quickly, you can actually have your account shutdown. There was a minor controversy about this over the past summer, a little bit before the 1984 controversy where Amazon actually erased copies of a version of 1984 that had been as they found out illegally released and downloaded onto a number of Kindles. An important piece that goes along with one-click buying – and please let’s not pay attention to my terrible spelling here – is the issue of connectivity. And this has been a very interesting one for E-book readers to try and flush out. One of the book revolutions with the Kindle was the fact that it was not only an E-book reader, but it was a network device. And actually, if we’re going to get technical here, a telephony device in that it had a chip in it that allowed it to access Sprint’s backbone. And this has been an extremely powerful feature of the Kindle in the respect that it allows you to – as one joke put it – turns it into a Hitchhiker’s Guide to the Galaxy. Anywhere in the US you can possibly have a Sprint connection, you can easily access the internet and download books for it. Now the downside with it is that it relies upon a model of a national telephone or telephony service provider. And for those of you who have followed this, where this begins to break down is in Europe where you can have not only an entirely different transmission standard, the 3G or GSM network versus CMDA networks here in the United States, but essentially, each country has its own telecommunications infrastructure, including its own telecom provider and other pieces like that. Whereas the beautiful thing about being in the United States is that Sprint is Sprint is Sprint regardless of what state you’re in. The moment you travel to Europe and move from let’s say Rotterdam in the Netherlands to Homburg in Germany, you are dealing – even though they may have the same service provider name – with entirely different services. And so up until a few days ago in Amazon’s announcement, this is why Amazon was not able to release the Kindle in Europe – or in Canada for that matter. Canadians are still actually waiting for that. Now a different option for this would be to think about making a reader that could operate on wireless networks. And there has been some work on that. Of course, the problem with negotiating with wireless networks is exactly that. And for all of those of us who travel from one place to another to give a presentation, getting on to the network and sharing the reader, will the reader works on the network and ensuring downloads will work, as well as potentially some questions about the monitoring of network security makes it a much more complex piece. And this is going to be my first reference back to the photo industry. At Kodak, we would always talk about this, especially in the early days of digital cameras, when I was involved with that approximately ’96 to about 2004. I was lucky to be there for the formative days. One of the first things that people would go back to, especially the research people, would always be the famous George Eastman notion of “you push the button and we do the rest.” And, in fact, that’s definitely been the success of the one-click buying piece, that you touch the button; we do the rest.

Now the next piece – and this is definitely something that has changed due to things like the iPod and the iPhone – is the need for touch screens. So if I backtrack to the vast majority of these devices, I believe almost all of the devices that came out between 2005 and 2008, with one or two exceptions, and definitely here the Kindle is not an exception, were not touch screen devices. So if you wanted to work with the Kindle, for those of you who’ve had some experience, you have a variety of controls on the side of the device or the keyboard at the bottom, which you are able to control it. But you’re not, for example, able to do the through the moving your finger on the screen to scan with your work. And one thing in watching users who – and especially users who have touch screen phones and in particular, the iPhone or the iPod Touch, pick up and interact with the Kindle or the Sony Reader for the first time is watching them attempting to manipulate the screen and not being able to. And especially with kids, that becomes a huge issue. So most of the devices that we see coming onto the market are all touch screens, but one of the things – and this goes to what the consumer doesn’t know but the manufacturers need to think about – are the difference from one touch screen to another. And so there are two main types of touch screens: the traditional type of touch screens, for those of you who had a Newton or had a Palm or, who, like me, have a Windows Mobile Device, are resistant touch screens. And what that means is that they are pressure sensitive, so you actually physically have to press against the touch screen in order to make it function. And that’s different from capacitive displays like the iPhone Touch. And for those of you who have ever had a chance to play with a Touch versus, let’s say, Windows Mobile Phone, you’ll very quickly find a difference in its responsiveness and ability to read what’s going on with your fingers, in addition to its ability to do multitouch, or have multiple fingers working at once on a screen. There is a third type of touch screen, which is a digitizer touch screen. They’re used on a number of tablet PCs. I’m leaving them out of this discussion for the moment, only because, to my knowledge, there are no digitizer-based touch screens coming out in the near future. And the final and most important term that is going to become increasingly important based on all of our research – and this is also based on what we heard in the previous panel as a feature term, and I’m really categorizing this as a feature – is notion of try before you buy. And that is one of the things that is especially unique about the Best Buy model right here is that this device – and it’s the Barnes and Noble competitive product to the Kindle – beyond the fact that it is a touch screen, as you can tell by our little pen stylus down here that comes with the unit, it is meant and designed to be bought in a retail experience. These are going to be sold exclusively through Best Buy. They are using the Verizon backbone as a network, and they will have one-touch download and telephony built into them as well. But the critical thing is that Barnes and Noble, working with Best Buy, has decided that a differentiation point to the selling of those is going to be the fact that people will be able to walk into Best Buy and have a trained salesperson take them through an actual interaction with the device, which immediately differentiates it from let’s say the Kindle, which at this can only be bought via Amazon. And I think the power of the Sony study that was discussed in the last panel was exactly the ability to get the technology into users’ hands and allow them to feel it. Now the other thing that’s still occurring within all of this is the question of price point. We all know that the Kindle has dropped its price, with the most recent price drop in the $220 range. The latest that I have heard is that the Barnes and Noble may be going through a repricing. It’s going to be a little bit more expensive than the Kindle. Something that we don’t quite know where the price is going to be, for example, is the Plastic Logic. And the Plastic Logic is being marketed at a slightly different audience; it’s going after a professional audience. And it is a touch screen device. Again, for those of you who were at last year’s Tools of Change Conference, Plastic Logic was there demoing it. But we’re still interested in seeing what is going on with that. There are some other models that are particularly interesting like the Readius model, which I unfortunately don’t have a picture of in this slide show, but for our question and answer session after this I may try and upload a photo so everyone can take a look at that one, which has an interesting fold-up screen.

But what I also want to try and get at though this is, in this incredibly tumultuous phase where we are right now, what are some metaphors that we can think about on both the product side and, importantly, on the publishing side as well to get us through the next year or two? I think one of the most valuable ones to go back to – and this is well-known within the technology phase – is Geoffrey Moore’s Crossing the Chasm model. This notion of how etechnologies are adopted – the lifecycle is one that was established a while before Moore – this bell curve where we move from innovators to early adopters, to the early majority, to the late majority, and then finally to the class of laggards. As you can see we begin with the innovators, and this is a very small category. And we begin to really enter into the bell curve in the early adopters phase. And the interesting piece that Moore added to this was the idea that the bell curve, when we get to the early adopters phase, isn’t smooth, and then, in fact, we have sort of a chasm where we can subdivide the early adopters into early, early adopters, for lack of a better term, and later early adopters. Much of Moore’s work, including the book, Inside the Tornado, focuses on how we negotiate this phase and how the technology is going to negotiate this phase. This is something that I’ve been spending a lot of time thinking about. And there are no single social factors that can come into play in these sections. Although, things like the amount of media attention – and obviously, the last few months have been especially good for the mostly positive attention to E-books and E-readers, with the exception of some of the things that have gone on with the Sony Kindle, and in particular, the news about Dan Brown and the Lost Symbol. Pretty amazing initial share at release.

Now for those of us who are watching these things a little bit more closely, we can argue that while there was that amazing initial E-book surge on the Lost Symbols, after a short amount of time the sales normalized, and I think the last number that I saw was approximately five percent of the Lost Symbols’ sales now being accounted to E-readers or E-book sales. Now that’s also the close watcher; for people in the general public who aren’t following this as closely, the great piece there is that the splash of the initial success of the E-books is what’s going to stick with them much more than the more complex reality. Additionally, this is why I think things like the “try it before you buy it” model that Barnes and Noble and Best Buy are using is incredibly critical for moving to early adopters. One of the other experiments that is currently going on is E-books moving onto college campuses. And just as a quick side-note on that, in my work at RIT, we have definitely been looking at models for that. The area for traditional textbook publishers where this is most interesting to think about is the effect on used book sales from having these readers. And, as we’ve mentioned in the last panel, we’ve lost the physical artifact, and depending on the DRM that’s on the textbook, you aren’t able to pass this around. And, though you may not be making the same premium price, the possibility of eliminating or greatly reducing the used book market becomes a very interesting and very enticing reason to look at college campuses for that.

Now all of that said, the tests that are going on right now with the Kindle in places like Princeton, Reed and a number of other colleges are turning in mixed results. By the middle of next year, we should have a pretty good idea of what’s happening with that, but in terms of trying to figure out what’s going to go on in that chasm, I’d actually like to look at a different technology, one that I know and I have some personal experience watching with early adopters. We can look at some of the metaphors that went on there. What I’d like to actually do is spend a moment and think about E-book readers in terms of digital cameras. Ironically, the first consumer digital camera or, I should say, CCD digital camera, the Apple Quick Take/Kodak DC 40 was released in 1995. So it didn’t precede the first LCD E-book by very much. We can think of three types of debates that went on there: content or, more importantly, format wars, form wars, and price wars. Let’s begin with the content/format wars. Even though now we’ve pretty much settled onto JPEG as the primary format for digital photos, it actually took a number of years for that to happen. In fact, it wasn’t until ’98 or ’99 that most companies gave up their proprietary formats. Initially, almost every digital camera maker had their own proprietary imaging format for a variety of reasons, including, believe it or not, in some cases, DRM or earlier ideas of DRM.

So for example, Fuji had the FJX format and Nikon had the NIK format. But one of the understandings was, and you heard this in the past panel, that it was necessary to push in order to aid the acceptance of the industry, and the acceptance of digital cameras in general, for the industry to settle on a single format. The next piece I’m going to jump down to is the price wars and back to the form wars because the form wars actually kind of lead us into the disruptive category. And where I think we need to do most of our thinking about what’s next with E-books is with the price wars. It’s still kind of amazing for me to say this, but the Kodak DC 50, which was not even a one megapixel camera, when it premiered, retailed initially in the US for I believe – I’m not sure if it even was able to get below $1,000 initially. So in 1995, if you were purchasing a digital camera, you would easily be spending in the area of $999 to $1,100 for something that could not even deliver a full megapixel. And if we look to the early 2000s, at the moment when film when into secular decline, one of the key features was getting the price point of the average digital camera to not just $150, but in many cases, the $99 to $120 range. This is obviously going to be critical for us. The other piece that needs to be thought of – and this moves into form and function – is the issue of disruption. Just to give you an idea of a particular strategy at Kodak – and I’m going to tie this right back to E-books – is that Kodak made a move in the late 1990s to “open up China.” And the rationale for opening up China was that not only was it going to be a developing digital camera market, but just based on population it would be the largest film consumption market in the world.

And unfortunately, while that theory was correct and a lot of work went into that, what it didn’t see was the disruptive technology. And the disruptive technology, in this case, was the cell phone. And not just simply cell phones, but a chip set in the cell phone that enabled photography. So what happened was a number of countries, in part because they were jumpstarting their telecommunications infrastructure and it was easier to go directly to cell phone than it was to wire a developing country, went to cell phones. And those cell phones, in turn, had CCD camera built into them within a few years, and what we began to see was an attempt to open up a market only to see it close because of the disruptive technology. So what I’d like to do in the last few minutes and then turn this to questions is to discuss a few of the disruptive technologies that we see in the near future.

And the first ones – and this has been talked about for a while – are in fact cell phones and the cell phone reader. And granted, while cell phones are still LCD technology with higher power consumption and smaller screens, the fact is that they’re a device to be carried around with you, are more portable and thanks to the iPhone App Store and, in fact, the release of the Windows 65 platform that just came out – one of the major things that Microsoft added in there and is going to release patches for all of its Smartphones is the Microsoft Marketplace – the idea of a centralized location where you can download software from. Suddenly, both of these become platforms, and platforms that are already built onto a network where the user already has agreements with the service provider that allows them to get content much more easily than on most E-book readers.

And granted, while power consumption is still an issue for the ereading, the fact is that we’ve all built it into our daily routines to charge the phones. So at that point, the power issues fall off. And additionally, you get not only the touch screen capability on most phones, but also the full color aspect. So cell phones in the short term and potentially the long term are going to become increasingly disruptive of E-book readers. The other rationale for this is that Smartphones are actually being subsidized, at least in the US, by the telecommunications companies. So you are actually able to buy more technology for less. And interestingly enough – and this is actually a term that I should’ve included on there – is the term of the SDK, the software development kit. Right now, while the Kindle is a reading platform, it isn’t necessarily a software development platform, which potentially limits its multiple uses. So it’s a dedicated device, a dedicated E-reader with some other crossover capabilities for things like web-browsing, like checking E-mail. But it doesn’t necessarily do that well, whereas we could argue that the cell phone is actually much more of a truly multifunction device. Now while we’re on multifunction devices, the next one that we need to think about is the tablet PC. In fact, I’m giving a presentation on an HP tablet right now which I was able to get amazingly for a little bit under $900, and that’s compared to my last tablet PC that I paid over $1,200 for a few years ago. And in fact, the model that’s displayed here is one of Asus’ Eee line of netbook tablet PCs, and this one retails for under $400. So again, this is getting dangerously close to the same price as your E-reader range. And its ability to rotate, to fold down into a tablet mode, the fact that, as you can see, it is touch-sensitive, and even though this is a resistant display as opposed to a capacitive display, it still provides for a better experience while you’re purchasing other pieces. So here’s where we could very easily see it pass into software. And if this wasn’t enough to get us thinking about this, here is one of the rendered mock-ups of the proposed Apple Tablet. And this is reading the tea leaves; we always have to do that with Apple because they hold all information very close to themselves. This is shooting for Q1 release of next year. As you can see, it’s sort of like, “Hey, honey, they blew up my iPhone.” But it’s a form factor that works. It’s accepted. And it has a lot of potential to revolutionize the market. Additionally, one thing I want to point out here that’s particularly interesting is the notion of modular, larger equipment where, for example, it does have a keyboard, but it’s completely detachable. And that’s another trend that we’re seeing in cell phones; it’s actually moving to larger and larger cell phones that will rely on headsets for the talking, and you can easily buy them with a keyboard as well so that the cell phone never actually leaves your bag or your purse when you’re making calls.

And by the way, this is planned to be about – I believe the current guess is a 10.6 inch diagonal display. This is still going for something that’s pocket-sized, and this is one that has me very, very excited. This is conceptual renderings of Microsoft’s Courier platform. And let me interject that if you haven’t gone and taken a look at this, you can just do a quick search on Gizmodo or anywhere for the Microsoft Courier. And what this actually is is a folding – again, I believe, 10.6 diagonal – dual screen display. And supposedly, the two screens work off of each other. And this is designed as a multifunction device, so it’s geared to fold open like a book. It can have schedules on one side; information on the other, and a touch-sensitive screen. But it’s that you can begin to not only read a book in potentially book form – so as some person had suggested, this is really a codex as opposed to a tablet – but additionally, I think this is an interesting piece for growth in E-books and potentially where you could see the open E-book market going is – looking at some of the experiments that Bob Stein has done on the future of reading, you could have a primary text here and then a reading community text immediately alongside of it, and you’re actually negotiating between those two displays and in sort of a shared reading experience. Let me just go back to that for a second. I’ll discuss those last two models in a moment.

An interesting potential for this – and we’ve seen experiments coming out in the New York Times where they’re putting additional supplemental content online – is that you could be reading the book that you purchased through an Amazon or a Borders and much more interestingly, through a publisher. And because you bought that officially, not only do you have the text here, but you have access to a community on the other pane which has supplemental material, chats could be going on here, cloud-sourced annotation of the book, as well as the fact that unlike the Kindle or other E-reader displays, this could also support video. So there is a possibility of some interesting multimedia book projects stemming off of devices like this. And also, it has a camera, as well as being designed to be what you’re carrying with you.

Really quickly, I want to just show one last device and then we’re going to move to the question phase. These is coming out, I believe, in Q1 or Q2 of next year: two models of larger Toshiba cell phones. Again, these are integrated telephony units, and you can see here that they have a built-in keyboard. This is sort of like a Smartphone on steroids. But like the Microsoft Courier, we’re not sure when it’s hitting. The double screen design that we’ve seen on other things like the DSi handheld gaming platform is definitely coming soon in clamshell design to cell phones. And we’re expecting that that’s going to have a pretty interesting effect on all of this. The general feeling that we have is unless E-readers can get their price point significantly lower – and that means in the under $100 range, and for some users like academics, probably in the under $60 range – other than in certain vertical markets, we actually don’t see them having a particularly long lifespan.

Our take is that they are going to be an important conversion project. They’re going to get a certain way, but the other devices that are coming online and will come online increasingly over the next few months may very well disrupt the E-reader crossing the chasm in some very interesting ways. So that concludes the lecturing part of this. I’d really like to open this up, if possible, and answer some questions or get into a bit of a discussion about E-readers. And if any of the previous panelists who are still on would like to join me, I would love that, because I know everybody’s got very interesting and different experiences.

Allen Noren: Thank you, Matthew, very much. Here’s a couple questions. This one came in: If you’re expecting to do anything more than simply read, maybe a book in print is more helpful. What are the most important things people do with E-books? Of course, there’s portability, search ability, linking, annotations, but what else? What are some of the other things that you think are both possible and important that are going to make these distinguishing devices?

Matthew Bernius: Well, that gets to really interesting question. If we’re thinking about E-books in terms of E-readers right now, unless we see major technology jumps and the possibility of doing some collaborative or crowd source reading, I’m not sure what else we’ll be seeing built into E-book readers. But, granted, that is a lot; that’s why I spend so much time about it. I’ve been excited about these double screen devices because in many respects, the existing tablets are just reproducing the E-reader experience and the internet experience, whereas I think this addition of the second screen – and granted, we could imagine a large tablet dividing screens into two sections – will open up some new possibilities and actually take some of the work that’s been done with groups like the Future of the Book and make them seem much more natural. And ironically, the book form or the Kodak form with dual screens, I think is really going to open up a ton of possibilities in much the same way that some of the things that Nintendo has done, particularly with the DS, have actually changed gaming quite a bit.

Allen Noren: There was another question that really relates to this: I would love to see these E-readers interact with the online social media, i.e., open a book and it makes a record of it on Good Reads; finish a book and the date finished is noticed. You can rate and sync your ratings from Good Reads to the device. And that, of course, is true. There’s so much interactivity that can happen with the rest of the world. Have you seen any interesting examples of how that’s being implemented?

Matthew Bernius: Not yet. Not on anything that’s immediately out there. And I want to be careful about this. I’m going to say this for the actual E-reader platform as opposed to some of the software platforms, because I haven’t done as much work there. One of the issues that we’re facing is that the majority of E-book readers right now don’t have software development chips. I see that as a huge shortcoming because Amazon, and I’m just going to use them as kind of a straw man here, in their rigidly controlling their platform, they don’t allow users and especially technically savvy users to modify the platforms. So essentially, the user experience of a lot of the E-book readers to this point have been very much controlled by the E-book readers themselves. One of the things that was really interesting about that Philips model that I showed early on was that it actually has, and it still continues to have, a development community that’s doing work for it. I think these really cool mashups are only going to come when software providers or, excuse me, the people who are overseeing the hardware – and this may not be the hardware creators themselves – actually open up and start releasing software development kits for these platforms.

And that’s one of the reasons or one of the advantages that I see to the move towards mobile; as we all know, you can get an iPhone SDK. Or actually, it’s interesting, one of the most robust development communities, though unfortunately not right now on E-books, is on the Windows Mobile Environment. So seeing how actual users start to transform the technology is really the next step.

Allen Noren: I really love Malle’s comment in the last panel discussion about is it pink, and is it something that I want to pull out of my purse? And it just really broke down what is going to make something appeal to a mass market as opposed to lots of gadgets and stuff. But I’m wondering about the next generation of readers, as in people who read books. I think about my children; how much of what you’ve seen thus far has been modeled after their usage as opposed to us older folks?

Matthew Bernius: It’s been real mixed right now, in part because we’re still shaking out what those reading and interaction styles are going to be. As an example, I’m working on my PHD, I’m also teaching students this year at Cornell. The vast majority of work and my best way of ensuring that my students will read something is actually to send out an electronic document, a PDF, rather than getting a textbook. Although we are working from some textbooks and some trade books in the different classes. And at the same time, a problem we face is that a lot of the technology that we’re using – and I can speak from my own personal experience doing research and working with marking up PDFs – is actually based in a metaphor different than academics. So where Adobe’s software is extremely powerful, it’s really geared for editing mark-ups, not necessarily for academic mark-up. So part of this is the chicken and the egg type issue. What’s going to come first, new types of applications and new types of media forms like the phone, like the Courier, or is it going to be people’s drives changing? I think it’s going to be a little bit of one, a little bit of the other. I can say anecdotally for me, moving from a laptop to a tablet, and especially to the current generation of tablets, I don’t see myself ever going back to a laptop. I’m finding myself much more comfortable reading on-screen, especially when like a lot of tablets I can use fingerpoint in addition to using the stylus to interact with books. Beyond that, I think synchronization across devices is going to be a really important thing in the future – including paper, by the way – it’s very feasible and we’re fooling around with some ideas in the lab as to how we might be able to, for example, build a physical book that will let your E-book reader know the page that you left off on and cue it up to there. So, seeing how these devises can begin to talk to each other or drawing supplemental information is going to be, I think, another –

Matthew Bernius: Did I lose you? Hello?

Allen Noren: Sorry about that. I had a conversation with a publisher recently who was absolutely horrified with the iPad. And the reason why, they said, was “that means my books are going to be competing one button away from a game, a movie, some kind of a social activity that someone can take part in.” Have you heard similar concerns?

Kathryn Barrett: We may have lost him.

Allen Noren: OK, it looks like we lost Matthew; sorry about that. It looks like we’re at the end of our event. Thank you so much, all of you, for attending this first online conference that O’Reilly has done and we hope to see a lot of you at TOC. I want to again thank the Ingram Content Group, our premier diamond sponsor, for their participation in today’s event and in February’s TOC conference. Ingram has been at the forefront of the publishing industry for nearly 70 years by delivering innovative services and solutions to help publishers realize the full potential of their content. And their participation helps make this event possible. Thank you so much again. Bye bye.

Kathryn Barrett: And one last note. Yes, we will have a transcript of the entire event and we’ll make sure that everyone who attended and registered will get a copy of it. We’ll have the recording available so you can watch it at your leisure and share it with others later on. And if you want to grab your own copy of the chat right now you have to copy and paste that into a file, and you should do it right now because I’m about to close out the meeting, so don’t hesitate. But if you don’t get that for some reason, go ahead and send an E-mail to webcast@oreilly.com and we’ll send you a copy of it. Thanks Marsee. Thanks everyone. Thank you, Allen, for the great job moderating.