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Summary:

Digital music is now mainstream, thanks in part to the MP3. Will the e-book market be next to produce a one-size-fits-all format-a format th…

Bill Rosenblatt

Digital music is now mainstream, thanks in part to the MP3. Will the e-book market be next to produce a one-size-fits-all format-a format that is universally readable, freely sharable, and with a reasonably good reproduction quality?

The answer to this question, for at least in the foreseeable future, is: not bloody likely.

Let’s start with the fact that MP3 itself is not all that it’s cracked up to be. It’s the lingua franca of ripped CDs and copyright infringement, but not of legitimate commercial music distribution. Apple (NSDQ: AAPL) supports MP3 with iTunes/iPod/iPhone, but not as its actual distribution format: Apple uses MPEG-4 AAC as its primary codec. AAC has better sound quality than MP3 at a given bit rate but doesn’t play seamlessly on some portables. Streaming services like Spotify and Rhapsody use different codecs altogether. The biggest MP3 retailer in the U.S. is Amazon (NSDQ: AMZN), with only 10 percent of the downloaded music market as of April 2011. It’s fair to say that none of the current growth in commercial digital music distribution is MP3-based, and it’s likely to stay that way. If you’re talking about paid content in music, you aren’t really talking about MP3s.

With that out of the way, let’s look at digital book content. It’s readable in plain ASCII text format, which is decades old and completely interoperable across devices. Yet there is no market for ASCII book content (in spite of attempts since the mid-90s), for various reasons but mainly because of its poor reproduction quality. And Adobe’s ubiquitous PDF is not well suited for today’s wide variety of digital devices because of its orientation towards printed pages and facsimiles thereof.

Right now, two e-book content formats vie for supremacy: Amazon’s proprietary markup format and EPUB, an open standard created by the International Digital Publishing Forum (IDPF), formerly known as the Open e-Book Forum. Both of these are straightforward markup languages with tags for paragraph, chapter heading, bold, italics, etc. It’s possible to translate from one to the other with minimal loss of fidelity, but they are different formats. And in most cases, they are both encrypted using different DRM schemes: Amazon uses its own, while most other e-books are marked up in EPUB and encrypted using Adobe’s DRM.

From the consumer’s perspective, the ideal would be a format that: preserves the look and feel of print typography; is readable (“reflowable”) on all types of devices; imposes no restrictions on copying or sharing; and is available from a variety of retailers. Well, it’s even more unlikely to exist (legally) for e-books than it does for music. EPUB was designed to be for e-books what MP3 is for music. But first of all, the MP3 codec pre-existed the digital music market by several years, while EPUB came out in 2007, the same year that Amazon launched the Kindle and several years after the first wave of e-readers hit the market. Secondly, EPUB does not have any serious technological advantages over other contemporaneous formats such as Amazon’s MOBI format, whereas MP3 had the advantage of compressing music files so that they could be sent to and from Internet sites over the then-prevalent dialup connections. In other words, there was no standard on which the e-book industry could build. Finally, recall that there isn’t really a significant commercial market for MP3s anyway.

Thus the legitimate e-book market will develop as any other technology market does: through competition. Competition results in one of two things: a dominant vendor with great customer acceptance, or vibrant competition with sub-optimal interoperability. Techies who have been around for a while know this to be true.

Many tech markets settle down to a long-term state of two or three players. In operating systems, there’s Windows and Mac OS (desktops and laptops); Android, iOS and BlackBerry OS (portables); and Linux and Windows (servers). The web browser market has the triumvirate of Microsoft (NSDQ: MSFT) (Internet Explorer), Google (NSDQ: GOOG) (Chrome), and Mozilla (Firefox). Other markets settle down to a single player whose dominance is tempered by a combination of legal constraints and consumer annoyance: currently Microsoft in office applications; Facebook in social networking; Intuit in personal finance software; and Apple in digital music.

Right now, the e-book industry is nearing a tipping point. Amazon has a marketshare of 58 percent (as of February 2011), while the Adobe/EPUB axis (Barnes & Noble (NYSE: BKS), Sony (NYSE: SNE), and others) claim a total of about 33 percent. (Apple’s iBooks is a distant third at 9 percent.) That’s not bad for Amazon, but it’s not like Apple’s digital music market share. Two things could happen: Amazon could pick up steam and move into Apple/music territory, or Barnes & Noble – or someone else – could gather momentum and reduce Amazon to perpetual-competitor status.

To evaluate what’s likely to happen in each of these scenarios, it’s important to look at how these services try to lock in consumers. The obvious feature that gets blamed for lock-in is DRM, but it’s not the only way. One of the reasons why Apple dropped DRM for music (though not the only one) is because it no longer needed DRM for lock-in; it could resort to more subtle means, such as the hassle of taking iTunes tracks and moving them to, say, your Android phone; or certain tricks Apple plays with its codecs to make them not play well with others.

If Amazon ends up with a more dominant market share, look for it to do similar things. Amazon is already experimenting with DRM-free distribution: Amazon’s Cloud Reader doesn’t use DRM, yet it also doesn’t offer copy-to-clipboard or print. Amazon will jettison DRM in most book market segments if and when it is sure that it no longer needs the technology to keep consumers on the farm. (Textbooks are likely to keep DRM indefinitely, at publishers’ insistence, given that students are not exactly willing buyers of textbooks.)

Yet even without DRM, an Amazon with 70 percent+ market share will be called a closed, proprietary monopolist. It may face antitrust inquiries in certain geographies, perhaps in Europe. Amazon will think of many ways to continue to lock consumers in, including continuing to use its proprietary markup language. Consumers and members of the techblogorati will complain about Amazon’s monopolistic behavior even as they praise its products’ design and gobble them up by the millions. Other e-book platform vendors will make their technologies as free, open, and interoperable as they can, but it will be too late – at least until the next major technological shift. In other words, this scenario will resemble Apple and the digital music market.

Now consider an Amazon with, say, 50 percent market share. The other e-book platform vendors will already have an infrastructure in place to interoperate among themselves while leaving Amazon out of the loop: EPUB plus Adobe’s DRM. They’ll keep DRM to help ensure that users stay on their collective farm and don’t wander over to Amazon-land, and they’ll offer interoperability among all Adobe-based reading devices (Nooks, Sony Readers, Kobo Readers, etc.) – not to mention apps for every major general-purpose platform. Amazon will also be likely to hang on to DRM so that it loses fewer customers to its competitors.

In that case, there will be no complaints about monopolistic behavior and no antitrust inquiries, but there will be more DRM. Some pundits will praise the vibrancy of a competitive market in which vendors constantly try to outdo each other with features and low prices, especially since the entire market must (like music) compete with free and illegal e-books. But the punditry will also complain about consumer confusion and lack of interoperability. In other words, this scenario will resemble Apple and Google in the current smartphone market (where a recent study shows Google’s Android leading with 53 percent share).

But wait: what happens if Amazon loses the plot and ceases to own even a plurality of the market? One way this could happen is if Amazon flubs its expansion into the tablet market – which, judging by the initial mixed reactions to the Kindle Fire, is not out of the question. There is some question as to whether e-readers as a device class will survive the inevitable onslaught of cheap tablets from vendors looking to cut into the iPad’s market share. It could be that e-reader devices shrink into irrelevance as a device class and consumers will do their e-reading on tablets, phones, and other devices.
In that scenario, Amazon will continue to succeed as an e-book retailer, if for no other reason than its enormous overall online retail presence. But then just take whichever company becomes the new market leader and apply one of the two scenarios above to it. (For example, if Apple’s dominance in tablets continues, then Apple’s iBooks may dominate e-reading after all; and they know how to play that hand very well.)

The point is that in none of these scenarios do we get all three attributes: ease of use, interoperability, and choice – the way we do with print books. Technology markets like this do not exist. They are mirages. Just like the commercial market for MP3s.

Bill Rosenblatt (@copyrightandtec) is president of GiantSteps Media Technology Strategies, a consulting firm, author of the Copyright and Technology blog, and chair of the Copyright and Technology conferences. Email him at billr@giantstepsmts.com.

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This article originally appeared in GiantSteps Media Technology Strategies.

  1. You neglected to mention the slumbering gorilla Google in the ebook space which backs the EPUB format but has only been lightly resting its thumb on the e-book format scales (anti-trust anxieties?).

    1. There’s also the Google Library Settlement court case that they got burned on. They could always try to leap into the E-Book Market as a direct competitor to Amazon, but Amazon’s got a formidable advantage in experience and infrastructure for selling and distributing e-books. Google would have to offer some serious advantage to consumers for buying Google ePub books as opposed to simply running a Kindle reader application on their smartphones/tablets. I don’t think they’ve got that advantage (they certainly can’t compete on price, since the publishers will force them into an Agency Model of Sales).

    2. If Google has any “anxieties” about the e-book space it’s because of the pending publisher litigation, not antitrust.

      But anyway, Google will never be a serious competitor in commercial media distribution as long as the company has no idea how to market it. It’s great at providing platforms for others to do their marketing, but that’s not good enough when it tries distributing commercial content itself.  Not everything on earth can be marketed through search result links.

  2. Mindbendingpuzzles Thursday, December 22, 2011

    Amazon’s kindle format seems to have a commanding lead but the fact that it is restricted to one retailer is an Achille’s heel. Could you imagine the EU And US governments sitting back and letting a single retailer own the entire retail book market? Previous format wars (VHS/Betamax) were driven by manufacturers so that even though one dominant format emerged there was still competition at the retail end.

    On the other hand Amazon could wipe out epub and competing formats in a heartbeat if they were to license kindle format (including drm of course) to other retailers. Would they make more or less money doing this? I don’t know but I doubt they will do it until they are forced to.

    1. Could you imagine the EU And US governments sitting back and letting a single retailer own the entire retail book market?

      Amazon would probably get hit with an anti-trust lawsuit, but that happens to every major company that temporarily establishes a dominant position within part of the tech sector. Seriously, pick a major computer tech company (Intel, Facebook, Google, Microsoft, IBM, etc) that established a dominant position in some part of the market, and at some point they’ve been hit with anti-trust allegations in court.

      It would last about as long as it took for Amazon to get hammered by the next-generation tech giants. At that point, the lawsuit would be quietly dropped.

  3. I think as ebooks are well suited for Internet’s nirvana of “disintermediation”, an open standard like EPUB might be the favored one.

    Why bother with agency model, wholesale model etc. when all that is needed is someone to host the content, manage DRM, process payment and advertise/promote etc.. the kind of stuff which fits Google’s biz model of an advertising portal and also dovetails with Facebook’s monetization efforts.

    This would be especially attractive to well-known franchise authors like Stephen King, JK Rowling (who has already embraced this idea with Harry Porter ebooks exclusively from her own site!)  

    For all the pioneering efforts of Kindle and attempt at building a moat with its proprietary format, Amazon cannot hold back the tide of publishers & readers embracing an open format like ePub with e-readers simply as commodity gadgets or an application in a multipurpose portable device.

    This topic was actually the subject of a column here at paidcontent.com in July:
    http://paidcontent.org/article/419-study-finds-over-50-of-e-book-shoppers-buy-directly-from-authorpublishe/

    1. Ray,

      The problem with your argument is that what you suggest already exists — Adobe + EPUB across multiple retailers — and is losing to Amazon.  Been there, done that.  

      Why this is true is something I admittedly did not discuss in the article.  The reasons is that Amazon started the market in earnest with a vertically integrated stack a la iTunes/iPod.  But rather than hang onto that vertical stack, Amazon was smart enough to expand Kindle reading to other platforms: iPhones, Android devices, etc. — i.e. pretty much anything except a directly competing e-reader.  In contrast, Adobe was slow to sign up e-reader makers.  B&N Nook was the breakthrough partnership for Adobe, but it didn’t happen until more than two years after the Kindle launched.  

      Adobe + EPUB could have been leading the market if it had launched across multiple devices in 2007 or earlier, but it didn’t, so it doesn’t.

      1. Bill, Adobe wasn’t necessarily slow to sign up eReader makers–the mistake they made is that they moved from a flat sale price for their Content Server to a per-transaction model just as eBook sales started to take off. Adobe typically charges $0.25/eBook sold and $0.08 per eBook lent. That adds up under high volume–instead of a flat fee of a few thousand dollars per server, eBook resellers could wind up paying $250,000/year on sales of one million eBooks. B&N is supposed to have a “special” deal with Adobe, so they could be paying less, but Adobe has lost customers because of its pricing policies.

        1. Len,

          Sorry, but I disagree with almost everything you say:
          .  
          – Adobe was indeed slow to sign up e-reader makers. To be specific, more than two years went by between the release of EPUB in 2007 and the launch of the first Adobe-based e-reader maker that actually had any market impact, the Nook, in late 2009.  There were many others but they collectively didn’t add up to a hill of beans. By that time, the Kindle was firmly established as the market leader, and in early 2009 I had wondered (see my blog, http://copyrightandtechnology.com/2009/02/04/76/) whether Adobe would have any traction at all. Adobe has been playing catch-up ever since.  It has done as well as it has (i.e., pretty well, all things considered) because the idea of the non-leaders banding together under a single platform to compete with the gorilla is standard tech market behavior; Adobe’s platform was right there waiting to be used in just that way.

          – I’ve worked with various service providers and publishers, and I have never heard a complaint about Adobe’s pricing in the retail market. Adobe switched to that pricing model because they were losing their shirts on the $few k per server model – the tech support costs were killing them.  The only market segment where Adobe’s pricing has been a problem is the library market, where IMHO the $0.08 per loan is a virtual nonstarter and (again IMHO) evidence that Adobe isn’t interested in that market.  

          – bill. 

          1. Bill, I was working for companies negotiating with Adobe for licenses at the time, so I’m well aware of what Adobe was doing and when they were doing it. If you define the eBook market as EPUB only, you’re correct, but Adobe was widely pursuing PDF eReader licenses well before 2009. Was there a viable hardware eReader market for EPUB before 2009? No.

            If you haven’t heard a word of complaint about Adobe’s pricing, you’ve been talking to the wrong people. Amazon and Follett, among others, dropped Adobe’s Content Server because of Adobe’s pricing model (or more specifically, Adobe’s unwillingness to reveal details of its pricing model for Content Server 4.) Perhaps Adobe isn’t interested in the library market, but OverDrive, the largest vendor of eBooks to public libraries, uses Adobe ADEPT. Perhaps you didn’t know that.

            1. Len,

              It is news to me (to put it mildly) that Amazon ever used ACS for anything, other than perhaps a small number of non-e-book PDFs.  The Kindle technology stack is based on the Mobipocket technology that Amazon acquired back in 2005.  I have talked to Follett and I do believe that they *considered* ACS before deciding to roll their own e-book system for el-hi but do not believe that they ever actually *used* ACS for anything.

              Yes, I’m aware that Overdrive uses the Adobe technology.  My understanding is that they get a special pricing deal that Adobe reserves for large service providers.  

              – bill.

            2. Bill,

              Follett used ACS for close to five years before dropping it in favor of an in-house developed DRM for its Flash-based eReaders. Their reason for dropping it was precisely what I stated previously. In addition, if Adobe is offering “special pricing deals” for high-volume customers, that’s news to me, but given the context, if they are doing so, they’re violating the Robinson Patman act. (I’m not speaking as a lawyer, however.)

            3. Bill,

              One more thing–Amazon most certainly used ACS. PDFs were a standard eBook format for Amazon for some time, primarily for use on PCs and Macintoshes, and ACS provided the DRM for those titles. Amazon used (and uses) the Mobipocket/Topaz DRM technology for the Kindle eReaders, and the company dropped support of PDFs and usage of ACS in 2008.

  4. Personally, I just really want to see books offer an INCLUDED digital version, similar to the DVD+Digital Copy we get with movies.  I would be happy to pay a premium (but nowhere near double!) for this.  I prefer to read the actual paper book when I’m at home, but for vacations, stacks of books are too heavy to travel with, and the electronic versions win out.  It would cost the content providers next to nothing to include a code with the book, allowing free download of the electronic version (DRM-laden or not, I don’t care), but give a HUGE bump in usability.

    1. Totally agree.  I’m sure both Amazon and B&N would love to offer this: in addition to all the reasons you state, it would give them something to offer that Apple and Google can’t.  (Not that either one offers them much competition right now.)  I suspect the bottleneck is in getting publishers to go along.  Publisher agreements would have to be renegotiated.  I don’t think that even a wholesaler agreement, such as Amazon has with smaller publishers, would allow this as is.  Publishers would like users to pay twice.  But as you point out, the movie studios are starting to embrace this — even moreso with the new UltraViolet standard — and so I suspect publishers will eventually come around too.

  5. I will not be buying eBooks with DRM.  Unless the DRM can be easily stripped out.  Which it can.

  6. Bill Rosenblatt Friday, December 30, 2011

    OK, I see that you worked with Follett so you would certainly know more about that.  But just because Amazon served up PDFs (which I do not dispute) does not necessarily mean that it used ACS.  There have been at least a dozen DRMs for PDF, not counting the possibility that they rolled their own. In fact ACS was one of the later entrants into that market; several DRMs for PDF were established before Adobe created its own and then acquired Glassbook’s.

    I am not a lawyer myself, so please explain to me how volume discount pricing is an antitrust violation?  My understanding is that Adobe offered volume discount pricing for service providers for a while, then stopped doing so.  I would therefore guess that Overdrive’s deal was grandfathered under the old terms.  Regardless, 8 cents per loan would be unsupportable by the hundreds of public libraries that use the Overdrive system (not to mention by Overdrive itself).  

    – bill.

  7. The publishing community is asking for a digital publishing format that
    they can use to deliver to all of their outlets. EPUB 3 has the decided
    advantage of being open and royalty free.

    The incorporation of the DAISY accessibility requirements into the
    non-proprietary EPUB 3 standard holds significant promise for the
    increased availability of commercial products that are useable, out of
    the box, by a wide range of consumers – those with disabilities and
    those without. EPUB supports reflowable content and it efficiently
    supports in-house publisher workflows as well as commercial product
    distribution.

    Support for W3C ARIA markup has been integrated into EPUB 3 to improve
    the accessibility of dynamic content. Further, EPUB 3 adds native
    support for new types of content such as MathML and SVG, and it also
    adds support for correct representation of many new scripts (such as
    Arabic, Chinese and Japanese) by integrating for example W3C Ruby
    Annotations and vertical writing support.

    When an EPUB 3 book is created, it can be accessible from the start –
    content available to mainstream users should be available and accessible
    for everyone, everywhere.

  8. It is DRM that cripples ebooks.  Remove DRM and the format issues become moot.

  9. Like mp3?  You mean so completely encumbered by patents so as to be useable by only the most well-lawyered and cross-licensed mega corps?  Jeez, I think we could do without.

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