We have an ongoing commentary on the budding e-book revolution, and specifically our love affair with the Amazon Kindle.  Any investment writer or analyst worth the ink that his words are written with ought to have an extensive library at his disposal.   The problem is that when you have 200-300 books and more white papers and article clipping than you know what to do with, you have too much of a good thing.  Searching for that one quote you need becomes difficult when you have stacks of books to look through, and you also have limited mobility.  Unless you like to travel in a moving van, your library can’t go with you.

Having an e-book reader solves these problems.   You can put your entire research library in a small briefcase, and you can use its search capabilities to find what you need in a hurry.   This is arguably the best technological innovation since the Internet itself.

Today, Apple jumped into the mix.  Looking to capitalize on the recent success of the iPhone and iPod, Steve Jobs just announced the iPad tablet PC, which can act as a book reader.   On this new concept the AP writes,

“Apple CEO Steve Jobs has unveiled the iPad, a tablet-style computer that resembles the iPhone, but larger…  The CEO says the iPad will also be better for reading books, playing games and watching video than either a laptop or a smart phone.”

Apple’s strategy in recent years has been a variation of “go big, or go home.”  We would expect that the company’s aggressive entry into the e-book market will accelerate the trends already underway, just as its introduction of the iPod made digital music mainstream for the average Joe or Jane.  With Apple, Sony, and Amazon.com leading the way, we believe that this revolution will have legs.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

“People respond to incentives, although not necessarily in ways that are predictable or manifest,” write Levitt and Dubner in their new book Superfreakonomics.  “Therefore, one of the most powerful laws in the universe is the law of unintended consequences.”

Their book, which is a sequel to their surprise bestseller Freakonomics, is a great series of case studies on unintended consequences and, on a higher level, understanding consumer behavior.   It’s surprisingly one of the funniest books I’ve read in years.  I found the book so entertaining, I pretty well put my life on hold this past weekend to finish reading it.  (My rapid reading of the book was, in itself, a beneficial unintended consequence of my recent buying of my Amazon Kindle.  The convenience of owning a Kindle has enabled me to read much faster and cover a lot more material.  Don’t underestimate the benefit of having a portable library in your briefcase.)

Some of the book’s chapters are better not mentioned in this blog (a large section of the book is dedicated to analyzing the economics of prostitution, calculating the marginal costs and benefits added by pimps, among other topics).

Below are some of the tamer subjects covered Read the rest of this entry »

In recent posts, we’ve pretty well beaten to death the topic of e-book readers like the Amazon Kindle, but this is a significant technology trend that stands to make major revolutionary changes to large segments of the economy, so we figure one more post won’t hurt.

The Financial Times reported today on the Kindle’s adoption by some forward-thinking American universities: “Electronic Books Kindle Learning at US Universities.”

As part of a pilot program, Amazon is making its Kindle DX (large screen) readers available to a hand full of universities at a deep discount, and the universities are in turn making them available to students in certain programs for free.  Read the rest of this entry »

“The new way of reading books arrived hesitantly. It exploited a novel technology, reflected changing public habits of consumption and radically altered the distribution and economics of the traditional publishing industry.”

Am I talking about the Amazon Kindle again?   Actually, no.  Read on:

The paperback represented an intimidating revolution to the 1930s book industry. It took high literature to a far wider audience. But established publishers disdained it, fearing it would cheapen the industry and drive down profits. It might not have been – as its ancestor the pamphlet novel was in the 1840s – assailed as a threat to the “eyesight of a rising generation”, yet the reaction had much else in common with how the emergence of the electronic book is now being regarded.

The more things change, the more they stay the same.   I often hear from fellow readers that e-books don’t “feel” the same as real, physical books, that they don’t “smell” the same.  There is some truth to this.  Even among books, stately leather-bound volumes have a different feel and smell than pulp paperbacks, yet there is a market for both.  The most likely outcome with the e-book is that it carves out a rather large chunk of market shares (possibly close to 100% for school text books and certain reference books) but that it doesn’t fully replace the traditional book.  For infrequent or impulsive readers (say, someone at the airport suffering through a layover), a cheap, disposable paperback makes a lot more sense than an expensive electronic reader.

At any rate, the e-book is certainly making its presence felt, shaking the foundations of an industry that hasn’t changed much in 500 years.  The Financial Times article quoted above is one of the best we’ve read so far: “Brought to Book.”

“Book publishing is moving from a slow-moving, localised, opaque, oligopolistic and often highly uncommercial world to an open, global, highly liquid and highly commoditised world,” the FT quotes Benedict Evans of Enders Analysis.  “This is not a shift that we would immediately associate with higher profits for incumbents.”

Lower profits will push more marginal publishers out of the business.  But what will happen to the authors who would then not have a publisher to bring their work to market?  Might there be a new surge in self publishing?  Perhaps.  The whole process promises to be exciting to watch.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

We’ve written about the Amazon Kindle in prior posts, specifically on it power as a disruptive technology to revolutionize the centuries-old industry of book publishing.  (We use the Amazon Kindle by name by personal choice, but competing e-book readers such as Sony’s are certainly part of the revolution too.)

Now, we read in the New York Times that the revolution is coming to the public library (see “Off the Shelf, Onto the Laptop, Libraries Turn to Digital Books“).

Thus far, libraries have barely gotten their feet wet.  But the changing economics of the industry make us believe that e-books will quickly become a large percentage of new purchases.  In explaining the model, the Times writes,

Most digital books in libraries are treated like printed ones: only one borrower can check out an e-book at a time, and for popular titles, patrons must wait in line just as they do for physical books. After two to three weeks, the e-book automatically expires from a reader’s account.Some librarians suggest that because digital books never wear out, take up no shelf space and could, in theory, be read by multiple people at the same time, the purchasing model for e-books should be different than it is for print…

But some publishers worry that the convenience of borrowing books electronically could ultimately cut into sales of print editions.

Publishers are right to worry.  They saw what happened to the music recording industry, and they shudder to think that it can happen to them too.  But like it or not, it will happen, in some form or another.

The competitive forces of capitalism — made all the sharper by the deepest and longest recession since the Great Depression — will continually lower prices for consumers when not restricted.   The delivery of intellectual property via electronic means — be it software, music, or a book — is virtually free, as is reproduction of the material.  It’s also “greener” and better for the environment, requiring less physical plant, storage space, and fuel.  The price savings here represent “good deflation,” the innovation-driven kind that makes our society as a whole richer.  (This is not to be confused with “bad deflation,” which is due to falling final demand.)

Piracy is a problem, but not an insurmountable one.  Microsoft manages to remain profitable despite widespread piracy of its software, and it mitigates this with product keys.  Apple experimented with digital rights management to avoid MP3 piracy, though this has been less successful.

Authors, like musicians, may have to find a new business model.  Perhaps they could generate revenues through consulting services the same way that musicians do concert tours?  It’s hard to say exactly how this will all play out.  Authors (alas, ourselves included) may find book publishing less lucrative in the future, though we believe most of the pain will be felt not by the authors but by the middlemen that are increasingly becoming obsolete.

It’s hard to know what direction the industry will go and who will be left standing once the dust settles.  But that is the beauty of a revolution — it will be fun to watch!

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

The pages of this blog have been filled with comments about the Amazon Kindle, specifically its potential role as a disruptive technology that stands to revolutionize the centuries-old industry of book publishing (see most recent post).

Yesterday, a friend forwarded a interesting news story.  It appears that Amazon sold more copies of Da Vinci Code author Dan Brown’s new book in Kindle e-book format than in hardback in the first day of release. Read the rest of this entry »

Continuing our ongoing commentary on the revolutionary transformation of the school text book industry (see prior post, and August 2009 issue of the HS Dent Forecast), we saw a headline in today’s Wall Street Journal that is worth mentioning: “Textbooks Offered for iPod, iPhones“

The Journal writes, “A provider of subscription e-textbooks for college students is making its 7,000-plus titles accessible on Apple Inc.’s iPhone and iPod Touch as interest heats up in the digital-textbook arena….  The move comes as Amazon.com Inc. is shipping its $489 large-screen Kindle DX e-reader, which is aimed in part at college students. Amazon is overseeing a DX pilot program at seven colleges this fall involving hundreds of students who will experiment with reading textbooks digitally.” Read the rest of this entry »

In the prior post, we wrote “With products like the Amazon Kindle now commercially viable, it’s questionable whether students will be using ‘hard copy’ textbooks at all five years from now. Given the expense of printing, the short time horizon of use, and, frankly, the sheer weight of most textbooks that college kids have to lug around, moving all college texts to digital editions makes a lot more sense over the long run.”

Today in the Wall Street Journal, we see that the long-term may be coming even sooner than we thought: “Amazon’s Kindle to Sell Law Books.”

This is only the beginning, of course.  But consider the potential: practicing lawyers and law students alike can now potentially kiss the late nights at the law library goodbye.  They could instead carry the entire thing with them in their briefcase.  The ease of indexing, bookmarking, and flipping back and forth between text and footnotes make it all the more compelling.And why stop at law books?  Surely doctors and CPAs could benefit from having their medical reference books and tax volumes  on the Kindle.

At any rate, change is coming, and it’s coming even faster than we thought!

Charles Sizemore, CFA

Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

One benefit of living through a deep recession is that the hard times have a way of spurring innovation.  A rising tide lifts all boats, but the opposite can be said of a falling tide.   During recessions, inefficient businesses and business models either evolve or die.The few exceptions tend to be in “recession-proof” industries like higher education.  But, as we’ve discussed in prior posts, this recession has had a way of rattling industries that have never before been rattled.  

One of these is the sleepy market for college textbooks. Read the rest of this entry »