Thoughts started by Wall Street Journal’s blogger Matt Phillips’ article.

Always interesting to try and predict what the future holds… My opinion: eBooks will be BIG. Now why?(disclosure: I am an iPhone developer. I gave my science-teacher wife a Kindle for her birthday.)

Have we any reason to think that paper prices won’t keep increasing? Aren’t paper prices heavily influenced by energy prices, labor prices and plain old demand? (Retail price of 1 sheet of cheap copy paper is nearing 1 cent in my area.) Just the raw paper material and shipping it around will make it more expensive.

Isn’t much of the book industry basically an impulse-driven market? eBooks are fantastic for such a market. The trivial shipping costs of internet data may it easy to give away free sample chapters and give instant gratification to buyers. People who know the book industry can go on about the cost efficiencies of eBooks. No costs in physical materials or shipping, nothing to send back or destroy, rather like all print-on-demand.

Amazon’s percentage in the future? I don’t know. I do expect it go down, partly due to competition, partly due to heavy increases in market size. In the end, sustained profit will be the real judge.

The real gold is the content as someone noted. But how much does Amazon actually OWN? If they just have distribution deals, then the catalogue may dwindle if the deals expire. If that’s so, then look for Amazon to start buying the publishing companies a-la Ted Turner to get the catalogues. That probably includes audio-book players (bidding war between Amazon and Apple for Audible.com?)

Industry effects?

  • Publishing rights will no longer be sold by geographical boundaries.  eBooks can reach anyone on the planet with access to the internet.
  • Prices of individual books drop in the long-term.  The short-term profit-taking on popular books may keep opening-day prices high, but as the producers find that profits go up due to volume as prices go down, investors will push for the profits.
  • The low-end falls off for the paper publisher. Books barely able to gain publisher attention now will go direct to the internet marketplaces with better percentage deals for the content creators than ever before. (Will that be the end of the odd accounting practices I’ve always heard about?)
  • Niche books gain new life as it becomes easier for their audience to find them and buy them.
  • Huge growth in the eBook market is partly fueled by cash-strapped schools using eTextBooks which get many people accustomed to eBooks. Students adopt them willingly to not only have lighter backpacks, but books that can be searched by query instead of manual use of index. Books can be bought without trips to the campus bookstore or used bookstore. Schools may find more effective books are more affordable and choose accordingly.
  • Entire personal libraries become searchable.  That’s useful for more than the student writing an essay. Its useful for the executive looking for a quote, or a reader looking for a favorite section.
  • Instant gratification fuels direct sales. The buyer trades off the inability to resale or gift the book with the lower prices. The seller keeps more profit. (Perhaps causing lower paper demand and mitigating the price increases.)
  • Out-of-print books and corresponding catalogues gain new life (especially if they are already digital or partially digital).  Watch for mergers and acquisitions. Have you ever discovered a book series in the middle or at the end? And you’re disappointed that you can’t find the earlier books easily?  Such a thing is no problem with eBooks.  Buying the previous books to read in order is a snap.  (Or a click.)   I’ve already gotten parts of my high-schooler’s required reading list onto our Kindle and computers from free eBook sites like Project Gutenberg.
  • A new level of book-sharing may come forth.  While you can’t give away your eBook purchase, you can share your list of favorites. Reading lists, like various published music playlists, will improve sharing among readers. Sharing favorites may become easier in some ways. Valuable paper collectibles won’t need to leave storage and risk damage just for sharing.  (Would a comic collector bring out those rare comics to let his friends or kids read them?)  The cheaper eBook version can be passed around with a replaceable device.  That could mean a rash of re-buying favorite books the way albums were re-bought when people moved from vinyl to tape to CD, etc.  Disney bought Marvel Comics recently.  That gives Steve Jobs an edge on getting them on iPad eBook. (Some Marvel books are already buyable through 3rd-party iPhone apps. You can get a 99-cent copy of Fantastic Four #1 on your iPhone/iTouch/iPad.)

Other thoughts:

Ownership takes new meaning as it is no longer tied to physical objects.  Ownership (or evidence of license) was tied to a paper bundle called a “book” or a CD for music or DVD for a movie, etc. Digital purchases can now stay with the buyer, even if the playback device is lost or stolen. (See the issue of trust below.) In the old days, the CD would be stolen with the CD player.  Now you can get a new device and immediately reload everything you own.

iPad versus Kindle? Not really a big problem for Amazon, but I would not want to be a Kindle department employee right now. Amazon already has a reader app for Amazon eBooks on iPhone and iPod touch now, so it will work on iPad from day one.  The same books can be read on Windows computers and soon on Macs. Buy it once and read it on whichever device you wish.   So, if iPad does well, Amazon may sell a lot of books.  One difference in the two platforms I never hear about:  the Kindle has cellular internet access that is completely free to the Kindle owner.  Now that is an impulse-market infrastructure.

A big hurdle for an eBook industry?  Customer Trust.  If the books are controlled by DRM and people fear that their investment will be made useless by technical, legal or financial problems, or taken-back by corporate edict, they will not be as willing to buy.   Whoever provides the more reliable or confidence-inspiring approach will have an edge.  (Examples: remember Amazon’s mistakes with “1984”?  When iTunes offered DRM-free versions at a higher price,  sales went UP. )

Final Achilles Heel of the industry?   The credit card companies.  Why?  Cost of a transaction. I recall hearing that so-called sweet-spots for song prices are about 5 cents.  Whatever the actual profit sweet-spot is,  it is probably less than the per-transaction fee imposed by the credit companies.  The last time I was quoted a price for a merchant account for a small company, the per-transaction fee was something like 35 cents.    So small and old books can’t be sold online for a really low price without a really cheap transaction cost.

Will we see companies joining forces to create their own low-cost transaction system?  Or more creative ways to get larger sums in one transaction?   Apple already waits to charge your card for a song or app.  If you buy more in a few days, they bundle up the sales into a single transaction.  (A 33 cent cut of a 99 cent app doesn’t make much sense if they give the credit company 35 cents.)